Subsidy Control Bill
Wednesday 22nd September 2021
(3 years, 2 months ago)
Commons ChamberRead Full debate Subsidy Control Act 2022 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
18:02 - The House divided: - Ayes: 287 / Noes: 50 - Question accordingly agreed to.
The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)
I beg to move, That the Bill be now read a Second time.
The Government are determined to seize the opportunities arising from Brexit. Now that the UK has left the European Union and we are no longer bound by the EU’s regime, we have the freedom to develop a new, bespoke system of subsidy control for the UK that delivers on our national priorities. Before the UK joined the European economic community, as it was then called, there was no framework at all. That absence contributed, I think, to Governments pursuing a failed economic approach with Whitehall trying to run the economy. They distorted competition, often by bailing out unsustainable industries and attempting to pick winners. The regime that the Government have set out in the Bill will help public authorities to deliver subsidies where they are needed, without facing excessive bureaucracy or lengthy pre-approval processes.
Miriam Cates (Penistone and Stocksbridge) (Con)
One of the industries that I hope will benefit from the Bill is the steel industry. As my right hon. Friend will know from frequent and very welcome engagements with me on the issue, Liberty Speciality Steels in Stocksbridge is a key employer in my constituency. While we were in the EU, the industry had access to the EU’s research fund for coal and steel. Now that we have left, £182 million is due to be returned to the UK. Will my right hon. Friend look into the possibility of ringfencing that money, given that it has been raised from levies on the steel industry rather than through general taxation, so that we can have a UK fund for innovation in UK steel?
Kwasi Kwarteng
In her brief time in the House, my hon. Friend has been an impressive and focused campaigner on behalf of her constituents and the wider industry. As she knows, I am a particular fan of the steel industry, and want to seek a sustainable future for it here in the UK. I cannot give any budgetary guarantees, as she will appreciate, but this system does give us much more flexibility than was the case previously.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
Will the Secretary of State give way?
Kwasi Kwarteng
May I make a little more progress? Many other colleagues want to speak.
This is a Bill that promotes autonomy, transparency and accountability. It will empower hundreds of local authorities, as well as the devolved Administrations and other public authorities, to take control, allowing them to design subsidies to meet local needs while also meeting national policy objectives.
Liz Saville Roberts
I am grateful to the Secretary of State for giving way to me now. I wanted to pursue his earlier comment. The Conservatives appear to be perpetuating a gift for blaming the EU for everything, to all intents and purposes, and it is no surprise that we have heard a little more of that today. We must bear it in mind that the UK was known for underutilising EU state rules—we were ranked 22nd out of 28 member states in 2018—and it could be suggested that that was due to Conservative ideology rather than to any intrinsic problem.
This Bill will steamroll devolved competence. Does the Secretary of State agree that it reflects a new Conservative ideology, which is deliberately dismantling the powers of devolved Governments and their accountability as elected Governments per se?
Kwasi Kwarteng
That was a rather lengthy intervention, if I may say so, although I do not want to entrench on the Chair’s prerogative. As the right hon. Lady will appreciate, the Bill is a function of our leaving the EU. We are not trying to rehearse the arguments of Brexit; we were doing that long before she was elected to the House. I was certainly involved in those debates.
The Bill sets out a regime founded on seven clear and transparent principles. According to those principles, the subsidy must be designed to remedy a market failure. It must be designed to bring about a change in behaviour. It cannot normally cover costs that would have been funded in any case. It must be appropriate, proportionate, and designed to minimise any distortions to competition and investment in the United Kingdom. Finally, the public authority giving a subsidy must carry out a balancing test, and proceed only if the benefits of the subsidy outweigh any distortions to UK competition and investment, and to international trade.
Those principles will be supported by guidance for all to see. That will ensure that public authorities fully understand their legal obligations, and will make clear which subsidies are permitted and prohibited and under what circumstances.
Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)
As I understand it, the Bill also gets rid of assisted area status, which in the Welsh context includes my county of Carmarthenshire. Can the Secretary of State explain why the British Government are making it more difficult for the Welsh Government to help businesses in Carmarthenshire?
Kwasi Kwarteng
I do not agree with the hon. Gentleman’s description of what the Bill does. If he listens to the rest of my remarks, he may well hear further clarification. Of course, as is always the case, many of these issues will be discussed in Committee if the Bill’s Second Reading receives the assent of the House.
Public authorities will be empowered to make their own assessment of whether a new subsidy meets the requirements of the regime and, in the vast majority of cases, to proceed directly to granting that subsidy. For the first time, the decision on whether to grant a subsidy will always fall to the granting authority itself. For the largest subsidies, or those that present the highest risk of distorting competition, it is worth recalling that the default process under the EU state aid regime could last between nine and 12 months, and that that often determined whether a project could happen or not. Under the new regime, a new body, the UK subsidy advice unit, must publish its report within 30 working days. That is in huge contrast to the nine-to-12 month period under the EU.
Kevin Hollinrake (Thirsk and Malton) (Con)
The right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) mentioned ideology. One ideology that I hope will always hold firm on this side of the House is that of not wasting taxpayers’ cash. Is the Minister comfortable with the situation in which local authorities and devolved Administrations could grant subsidies of hundreds of thousands of pounds without having to publicly declare them? Would we not be better with a much lower threshold, so that public scrutiny could always be in place?
Kwasi Kwarteng
Local authorities have to declare spending at much lower levels than the figure that my hon. Friend has just put forward. Clearly, transparency is at the centre of what we are trying to achieve. Instead of a year, the whole process will take only a few weeks. It will be a much quicker process and it will allow public authorities to act with far greater agility than before. However, I do not believe that the transparency will be in any way compromised. This is an area that will give more flexibility while not diminishing accountability. In fact, it will enhance accountability because, under the EU state aid regime, there was no way we could change the rules in any way.
At the same time, this is a regime that will provide certainty and confidence to businesses within the UK, and also to those among the foreign investment community who are keen to invest in the UK, by protecting against subsidies that risk distorting competition or causing harmful economic impacts. And of course, the regime will operate alongside our usual, traditional stringent spending controls to ensure the best use of public money.
Sammy Wilson (East Antrim) (DUP)
Does the Minister not see the inherent flaw in his argument about levelling up and treating the whole of the United Kingdom as one, in so far as Northern Ireland will be subject to a dual subsidy regime: the state aid rules imposed by article 10 of the protocol and the Bill that is going through today? So any subsidy that a public authority Northern Ireland wishes to give will be subject to the very one-year scrutiny that he is talking about, whereas a public authority in the rest of the United Kingdom will have it cleared within 20 days, thereby placing any attempt to attract business to Northern Ireland at a disadvantage.
Kwasi Kwarteng
That is precisely why I am addressing this precise point in my speech, if the right hon. Gentleman will allow me. We are setting out the detail of a UK regime that is far from simply adhering to the EU, and it will clearly no longer be necessary for Northern Ireland to be subject to the EU state aid regime. That is precisely why we have proposed the change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime.
The Bill, as hon. and right hon. Members should know, has been informed by a public consultation, which showed broad support for the Government’s proposals. The Government also held a second consultation with the devolved Administrations as we reached the end of the policy work and the considerable time that we spent trying to get the Bill shipshape. That second consultation showed clearly that the UK Government and the devolved Administrations agreed on the fundamentals of the regime, including the seven principles, the objectives for the regime, and the need to respect the devolution settlements and support levelling up.
Liz Saville Roberts
If the devolved Governments are as content as the Secretary of State is saying, why are the Welsh Government making a legal challenge to this Bill?
Kwasi Kwarteng
As I said, there is agreement on the fundamentals of the regime. The seven principles are not contested; they are agreed across the devolved Administrations and the UK Government. I am not privy to the exact motivation of the devolved Administration in this case but, as far as the general principles are concerned, there is a wide measure of consensus.
It is worth reminding the House that the devolved Governments will have more control over subsidies than they have ever had before. Previously, it was Brussels that made the decisions about which subsidies could be granted to support viable businesses. Now, with this Bill, it will be for the elected Governments in Edinburgh, Cardiff and Belfast to make those decisions.
During the trade and co-operation agreement negotiations and the creation of this new regime, ministerial colleagues, officials and I have worked closely with the devolved Administrations, and I thank those Administrations and the officials and Ministers here in Westminster for their considered and constructive input to the development of this policy.
Daniel Kawczynski (Shrewsbury and Atcham) (Con)
As somebody who has represented a border constituency for the past 16 years, I have become increasingly concerned about the additional levels of subsidy that the Welsh Government can give to businesses on the border, putting our Shropshire businesses at a disadvantage. Will the Secretary of State address that point, please?
Kwasi Kwarteng
As I have stressed, this regime has been discussed extensively with the devolved Administrations. Clearly we have conflicting views, but I believe the Government have worked constructively with the devolved Administrations and we feel that, along with our localism agenda, this is a step in the right direction. Compared with where we were for nearly 50 years in the EU state aid regime, this Bill is a significant improvement and enhancement that represents much greater devolution in this area than we have ever seen before.
Dame Andrea Leadsom (South Northamptonshire) (Con)
Is my right hon. Friend as afraid as I am that the nationalists in Scotland will use any opportunity to be different and will impose big, generous subsidies to artificially support their own businesses simply to try to ensure that the English feel hard done by because it suits their agenda of separatism? That is not, in any sense, in the interest of the taxpayer.
Kwasi Kwarteng
My right hon. Friend makes a legitimate and correct observation about the general obstructionism we sometimes see. There are seven principles outlined in the Bill, however, and one of them is not to distort the UK internal market, so what she says would clearly raise issues.
Our emphasis in this regime is on transparency, accountability and, of course, agility. This all means that we will not simply be replicating the European Commission’s role in the process, requiring a central body in Brussels to sign off on specific subsidies. In other words, the UK Government did not go to great lengths to secure autonomy from the European Union on subsidy control only to reimpose the same old EU rules months later. That is not what this is about. I hope hon. Members will agree that outside the EU we will have the opportunity to do things differently. We did not leave the EU simply to settle back into the old ways of thinking and into the way things were done before. Those days are over.
I strongly believe that making the most of this new regime will need a culture change, not just in public bodies, devolved Administrations and local authorities but in central Government. It will be a culture change to take more responsibility for our own decisions, not simply outsourcing difficult decisions to the European Commission as we did for nearly 50 years. It will mean that we can be more accountable to the electorate for when and how taxpayers’ money is spent, and that we will be more agile in distributing public resources.
The Bill will ensure that our new subsidy system will maintain a competitive, free-market economy that has been central to the UK’s economic prosperity and success for decades. In that spirit, I commend the Bill to the House.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Let me start by saying that it is good to see the Secretary of State still in his place after last week’s reshuffle. I also wish to congratulate the new Ministers in his team on their appointments. However, I am sure I am not the only Member of this House who has noticed that there are now no female BEIS Ministers. While businesses across the country recognise the importance of balanced leadership at the top of their organisations, it is remarkable that BEIS seems to be moving in the opposite direction, and overlooking the important contribution that women Ministers make to ministerial teams and indeed to our economic debate.
To turn to the Bill, let me start by thanking the Secretary of State for his opening remarks, in which he laid out the subsidy control principles and talked about the need for autonomy, transparency and accountability in the new regime. Labour recognises the need for subsidy control legislation which establishes the framework for the UK’s post-Brexit regime. As of 1 January this year, EU state aid rules largely no longer apply in the UK. The EU-UK trade and co-operation agreement requires that the EU and the UK maintain their own independent systems of subsidy control. The UK also has to continue to comply with the World Trade Organisation’s subsidies and countervailing measures agreement. The Bill is therefore necessary for us to comply with our international obligations. More than that, however, it is necessary to protect the UK’s internal market and to ensure that public funds are being made available to businesses with the appropriate safeguards in place. That is why we will not be opposing the Bill tonight, but we are seeking to address significant gaps of concern during the passage of the Bill.
Jonathan Edwards
As my right hon. Friend the Member for Dwyfor Meirionnydd (Liz Saville Roberts) alluded to and as the hon. Lady will be aware, the Labour Government in Wales are taking the British Government to court on this issue. Will she explain why the Labour party here in Westminster is not showing solidarity with its colleagues back in Cardiff?
Seema Malhotra
I thank the hon. Member for his comments. I will be making a considerable contribution on the issues associated with devolution and our grave concerns about this Bill, which we would want to see corrected. They need to be addressed because we want legislative consent to be given and the concerns being raised by devolved Administrations to be addressed.
Much in this proposed regime reflects EU state aid rules, including the definition of a subsidy, the prohibition of unlimited state guarantees and the condition that subsidies should be justified on public interest grounds. Where the Bill significantly differs from the EU’s rules is in its departure from a pre-notification system, where subsidies had to be approved before they were granted. The Bill offers the potential of a quicker system where subsidies are not required to be approved in advance of being implemented, but are subject to a review and appeal system. We want this regime to be robust and to stand the test of time, but the new system will work only if it provides transparency, oversight and scrutiny, and there are key areas of the Bill where those are missing.
First, there are huge gaps in the Bill and crucial aspects are yet to be defined. The Bill may establish a regulatory framework of subsidy control, but it fails to provide any clear indication as to how and where the Government plan to see those subsidies being spent and at what scale. Labour is in favour of a subsidy system that backs British businesses and our economy, but it must operate in the context of a strong UK-wide industrial strategy, which for all intents and purposes is not nearly where it needs to be. Furthermore, there is no clear plan for how the new subsidy control regime will be used to support national priorities such as net zero. Much more needs to be joined up and coherent in the new regime.
Secondly, the Bill in its current form does not provide a fair role for devolved Administrations—we have heard that in hon. Members’ interventions—in developing and implementing the new regime. We believe that changes must be made.
Thirdly, we are concerned that the Bill does not strike the right balance between efficiency and oversight, particularly regarding the role of the Competition and Markets Authority. Transparency is also severely lacking in the case of some subsidies, putting the country at risk of allowing damaging subsidies on the scale of hundreds of thousands of pounds, and allowing the use of public money to continue unknown and therefore unchallenged.
Although the Bill may propose a quicker subsidy regime, we want to understand further how the Government plan for those subsidies to be used, what will be brought forward from the contributions to the Government’s consultation and the response to it, and how that will manifest in the guidance to come.
We have heard the concerns about support for assisted areas or key British sectors and foundation industries, such as steel. As the Minister for Finance and Local Government in the Senedd asked in her letter to the Government:
“If areas that have suffered historical economic disadvantage will no longer have the right to greater flexibility of subsidy over other regions… what alternative approach does the Government propose to ensure that disadvantaged areas can compete on a level playing field?”
Is the equivalent to an assisted areas policy implied under the seven principles, for example, equity rationale or specific policy objectives? In that case, will the Government make that clear in the guidance? Public authorities that will transition to the new regime in our devolved Administrations need that clarity.
Parliament is right to be concerned that the Conservatives are more interested in levelling-up rhetoric than in actually levelling up. In March last year, the regional deprivation fund highlighted that clearly, which led to considerable debate in the House. The Government appeared to direct money not to areas that needed it most, but to areas that seemed to serve their interests. If the Government are truly committed to their levelling-up agenda and their plan for growth, they need to show it. The Secretary of State should publish their plans and detailed guidance on how the subsidy control regime will direct public funds to the communities and businesses that need it most, in the interests of genuinely levelling up in deprived areas and our wider economy.
We also know that the UK has historically spent far less on subsidies than its international counterparts. For example, in 2019 the UK spent just 0.38% of GDP on state aid, far lower than Germany, which spent more than three times that or Hungary and Denmark. Indeed, we were seventh lowest in the EU.
The Secretary of State does not have the strongest record on industrial strategy, given that he scrapped his predecessor’s plan and wound up the Industrial Strategy Council in March.
Dame Andrea Leadsom
Why does the hon. Lady equate the fact that the UK has an excellent track record of allowing businesses to stand on their own two feet rather than being bailed out with state aid with not having an industrial strategy? Surely we are backing capitalism as the way for everybody to become richer and be in work.
Seema Malhotra
I will just leave the right hon. Lady with the Institute for Government’s feedback on the Government’s plan for growth, which was that it seemed more like a shopping a list than a prospectus. If those who independently look at what the Government are producing in terms of a plan and our industrial strategy make such comments, the Government would be wise to heed some of that feedback, in the interests of our country. I would like to be having a different debate. I would prefer to have a debate that was much more about content than on whether there is a clear plan.
Let me come back to my speech. We recognise the debate about whether the Government have a strong record on industrial strategy. Last week, the Confederation of British Industry urged the Government to
“build an economy of the future through catalytic public investments”
and to re-find its “role as market maker”. On research and development, innovation, regional growth and hydrogen—on which, perhaps, a strategy has since come forward—the CBI said that further action was needed for the UK
“to remain internationally competitive against peer nations where business investment levels–and public spending…far outstrips our own.”
Sufficiency of strategy is important here; it is not just about the publication of a document. There has been feedback on that, too.
We want to see well-designed, proportionate subsidies as part of the wider industrial strategy that we need to grow the businesses and industries of the future and to invest in our transition to net zero. Labour has also said that we must buy, make and sell more in Britain, as called for by our shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves). That is part of how we can ensure resilience in our economy—the need for which has been highlighted only too starkly by the gas-price challenge and the CO2 challenge of the past week.
The Bill lacks in not only vision but key details and scrutiny. The Institute for Government has expressed concerns about the ability of this House and the other place properly to scrutinise the new subsidy control regime, given the important issues that are being left to secondary legislation or guidance. The Institute for Government claims that the gaps left in the Bill by the Government
“could deny Parliament a proper chance to scrutinise how the new system will work”.
The Government’s own impact assessment says:
“There are considerable unknowns—because key features of the regime will be defined later in secondary legislation or statutory guidance. The analysis of the regime’s impact is also based on historical data when UK public authorities had to comply with the EU State aid regime.”
The impact assessment also says:
“We should expect the behaviour of public authorities”—
perhaps the Secretary of State was alluding to this when he talked about culture change— “and the resulting distribution of subsidies to change under the new regime—although it is not possible to forecast how this will change.”
We are yet to hear how the Government plan to define categories such as subsidies “of interest” and “of particular interest”—categories that will determine which subsidies are voluntarily or mandatorily referred to the Competition and Markets Authority. Such definitions are to be determined not now, but through secondary legislation, in respect of which Parliament is given less opportunity to scrutinise the Government’s decisions. To aid scrutiny, which I believe the Secretary of State will want to be to the standards we would want in this House for a regime that will stand the test of time, he should set out the timeline for consultation on and the publication of secondary legislation that covers critical aspects of the new system.
Simon Baynes (Clwyd South) (Con)
Will the hon. Lady say why no Labour Back Benchers are present in the Chamber? If this issue means so much to the Labour party, why is it not properly represented in the debate?
Seema Malhotra
I have been involved in extensive discussion with my colleagues, and they will want to make significant contributions in Committee to address the gaps in the Bill. We continue to work on that.
As I was saying, the Secretary of State should set out the timeline for consultation on and the publication of secondary legislation that covers critical aspects of the new system. I know the House will want to see that in good time.
Public bodies have faced significant difficulties since the start of this year precisely because of the lack of guidance on how to interpret the subsidy control principles agreed in the trade and co-operation agreement, so clarity on how public authorities should demonstrate that their subsidies comply with those principles will be an important part of the subsidy regime. I am sure the Secretary of State will agree that we will want to see some decisions being made in the interests of how we recover and how we are to grow our economy for the future.
On the important issue of devolution, most importantly of all we are concerned that the Bill has not taken the four-nations approach that is essential for an effective UK-wide subsidy control regime. For example, the balance of the power to challenge between the Secretary of State and the devolved Administrations is asymmetric. I am sure that the Secretary of State has heard those representations made to him directly. Twelve months ago, the shadow Secretary of State stood at this Dispatch Box and warned the Prime Minister of the risks of undermining with policy decisions the devolution settlement that has been part of our constitution for two decades and is vital to our Union. However, on the evidence of the legislation before us, it appears that a shift in mindset and thinking has not been a part of how the Government have brought forward this legislation, and we hope that they are going to listen to the concerns that we and other Members are raising.
Stephen Flynn (Aberdeen South) (SNP)
Let me make a point that almost follows on from the intervention of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). If Labour Members are so concerned about the devolution settlement, why do they not vote against the Bill?
Seema Malhotra
The hon. Member will have heard my earlier remarks; although we have considerable concerns, we believe that the Bill is vital to us meeting our international obligations and we want it to pass. However, there are significant gaps and issues that must be addressed in Committee. I hope that he will work with Labour on those matters, so that the regime that comes out of this process is one that reflects the four-nations approach that I just articulated.
Stephen Flynn
I appreciate the hon. Member’s remarks and I admire her confidence in being able to get the Government to address Labour’s concerns, but let me just be clear: is it the Labour party’s position that this Bill—irrespective of the damage it does to devolution—should pass?
Seema Malhotra
Perhaps the hon. Member will allow me to continue with my remarks, because he has not quite represented our position. It is important that we continue the debate and detailed scrutiny of the Bill. The remarks that I am about to make may provide him with some reassurance on this issue.
Sammy Wilson
Does the hon. Member accept that a regime of control is important for all the devolved areas of the United Kingdom: first, because it is a safeguard against richer regions being able to subsidise more heavily than poorer regions; and secondly, because it is a safeguard against central Government issuing subsidies that could affect the devolved regions? We need a strong regulatory regime.
Seema Malhotra
The right hon. Member makes an important point. I will make some points in that regard later in my remarks.
As I was saying, on the evidence of the legislation it appears that the Government have not reflected in the Bill a true four-nations approach in order that we have a UK-wide subsidy regime that commands the confidence and support of all parts of the UK. We do not contest that subsidy control is a reserved matter, but we recognise and support the requirement on public authorities to consider the impact of a subsidy on competition or investment within the UK. It is important for the Secretary of State to make it clear to the House why there is such a limited role for the devolved Administrations in the development of this new regime. They are not even required to be consulted beforehand on advice given by the Secretary of State on the implementation of subsidies.
Under the legislation, the Competition and Markets Authority’s new subsidy advice unit will play an important role in protecting the UK’s internal market, yet the Bill provides no formal role for the devolved Administrations in appointing members to the new unit. Remarkably, the Bill is even less generous than the United Kingdom Internal Market Act 2020, which at least requires the Secretary of State to seek the consent of the devolved Administrations before making an appointment to the Office for the Internal Market. Can the Government not see how this flies in the face of a four-nations approach?
It is imperative that the devolved Administrations be involved in the development of secondary legislation and in the amendments to the Bill. Even more worryingly, the powers given to the Secretary of State and First Ministers are significantly asymmetric. Although the Secretary of State is explicitly able to challenge Scottish, Welsh and Northern Irish subsidies that may damage English interests, no complementary power is given to First Ministers. Unlike the Secretary of State, the devolved Administrations seem unlikely to be able to challenge English subsidies that may be perceived to be causing harm to Scottish, Welsh and Northern Irish interests. Will the Secretary of State clarify whether this is correct, or is it his intention that First Ministers would be considered as interested parties for the purposes—
Seema Malhotra
I have given way to the right hon. Lady already and I hope she will not mind if I continue my remarks.
Will the Secretary of State clarify whether it is the Government’s intention that First Ministers, or public interest groups, be considered interested parties for the purposes of being able to bring forward a challenge to a subsidy decision—if so, why will the Government not put that in the Bill?—or will a challenge have to be made via the Secretary of State?
This is not where the devolution challenges end. Perhaps the Secretary of State could clarify his remarks on Northern Ireland, because, as I understand it, under article 10 of the Northern Ireland protocol, EU state aid rules must apply to subsidies that affect trade between Northern Ireland and the EU. This affects not only subsidies granted in Northern Ireland but subsidies granted throughout the UK. There is a risk—unless the Secretary of State wants to correct me—that article 10, taken alongside the new subsidy regime, could cause legal or practical difficulties, particularly if the UK and EU disagree on what affects EU-Northern Ireland trade.
Kwasi Kwarteng
I thought that I could not have been clearer on this precise point in my opening speech. I repeat: it is clearly no longer necessary for Northern Ireland to be subject to the EU state aid regime, and that is precisely why we proposed a change to the Northern Ireland protocol in order to bring all subsidies within scope of the domestic regime.
Seema Malhotra
I thank the Secretary of State. Indeed, I did hear those comments in his opening remarks. I was seeking to clarify the issue because I do not think it is clear across the House, and it is important that it is tested and made clear in the course of the passage of the Bill.
Crucially, what is the Government’s intention if the Bill does not receive legislative consent from Scotland, Wales and Northern Ireland, as has been requested?
Deidre Brock (Edinburgh North and Leith) (SNP)
Is the hon. Lady suggesting a four-nation approach whereby any one of the nations has a veto over decisions taken by those four nations that they feel are not in their interest?
Seema Malhotra
I am not clear why the hon. Lady refers to a veto. I think we are talking about the symmetry of powers in terms of being able to bring forward a challenge. I hope that makes the point clear.
Seema Malhotra
If it is okay, I want to move on because I am conscious of time, but the hon. Lady may want to make her point in her own remarks.
Finally, on the issues of oversight and enforcement, while well-designed subsidies can support Government objectives and foster growth and opportunity, there are risks too. Subsidies can distort markets, undermine competition and unfairly discriminate between businesses. Effective oversight and enforcement are critical to the success of our subsidy control regime, yet they are lacking in certain areas of the new regime. The Bill does not provide enough certainty as to the definition of “interested parties” that are able to challenge a subsidy. Does that definition extend to local authorities and devolved Administrations?
There are also concerns about the limited powers of the CMA’s new subsidy advice unit under the Bill. We are pleased that a trusted independent regulator is being given key responsibilities. However, as the Bill stands, the CMA lacks any power to instigate an investigation on its own initiative or to take enforcement action. This requires careful consideration, particularly when transparency issues around the Bill are taken into account.
Seema Malhotra
I am sorry but I will move on. I have taken an intervention from the hon. Member, so perhaps he can make his own contribution.
The Government have stipulated that subsidies under £315,000 over three years will not have to be reported on the subsidy database. However, there is an issue, also raised by the hon. Member for Thirsk and Malton (Kevin Hollinrake), about the threshold and reporting. In the consultation on the Bill, the Government asked whether there should be a minimum threshold of £50,000 below which no subsidies would need to be reported, and 64% of those who responded agreed on that threshold of £50,000. On that general point, what are the Government’s plans for reporting, oversight and accountability arrangements for subsidies below that threshold? I am sure they will want to ensure transparency in how public money is being spent and to whom it is going.
On the decision made for a six-month time limit to upload subsidies to the subsidy database, there was a discussion in the consultation on whether that period should be shorter, or three months. What was the reason for deciding on six months? That seems rather a long time for a decision to be uploaded and therefore in the public domain. If interested parties and the Secretary of State are not made aware of smaller subsidies or those that are uploaded—they have a month to bring a challenge—there will be no opportunity to prevent them going forward, even if they are harmful. The CMA may be able to produce reports on such subsidies, but it will not be able to enforce any of its recommendations. Does that not expose a significant transparency gap in the Bill? The Government could choose to have further reporting requirements. I urge them to review the CMA’s role alongside the necessary transparency requirements for subsidies.
Labour recognises the need to develop a post-Brexit subsidy control regime in line with the UK’s international commitments. There are benefits from a more flexible and speedy subsidy regime, but we have serious concerns about gaps in the Bill that we will look to address during its passage. Those include unanswered questions on the operation of the new regime, its enforcement and oversight, and the role of the devolved Administrations. We want to see legislation that establishes an effective UK-wide subsidy regime that commands confidence across the country. The Bill gives the Government and other public authorities greater powers to provide subsidies. It is an important Bill, but the gaps in it must be addressed.
John Penrose (Weston-super-Mare) (Con)
I am seriously pleased to see the Bill coming forward. It is much needed, not just because, as the hon. Member for Feltham and Heston (Seema Malhotra) pointed out, it is a fulfilment of our international obligations, but because, as the Secretary of State rightly said, before we went into the EU and had any kind of proper subsidy control regime, it was pretty much a free-for-all and I am afraid that, no matter who was in government, broadly speaking, the lack of rules was terrible.
Politicians on all sides and of all stripes over an extended period have a dreadful track record in yielding to temptation, particularly when they are being lobbied hard by someone pleading desperately for this or that piece of help—it’s just one more wafer-thin subsidy, sir. We give way. We all do—it is only human—and it is a long proven fact that politicians are terrible at picking winners, but losers are really good at picking politicians. It is therefore essential that, as we come out of the EU, we have our UK-only version of a rules-based system in place. The Secretary of State is right to move towards that, even if we did not have those international obligations to deliver it.
I am also pleased to see the seven principles that are the core of the approach, backed up by various other environmental principles as well. They start with the notion that there must be a market failure before any form of taxpayers’ cash can start to be dished out. We can all think of businesses in the past—perhaps even today—that would have liked nothing better than to reach their sticky fingers into the taxpayers’ pockets and extract some cash to make their lives better, their shareholders’ lives simpler and their management’s lives easier. It is therefore absolutely right that the Secretary of State has limited his own freedom—and, more particularly, that of his successors—so that we can have, we hope, a consistent approach and we will not have open season for Government failure. We always talk about market failure in this place, but that principle is crucial for avoiding Government failure in future.
That is a point I made in the Government-commissioned report I was asked to write by the Secretary of State’s predecessor on competition policy. Self-denial is absolutely essential to make sure that we do not start splashing around taxpayers’ cash in an unproductive way and subsidising commercially hopeless cases because they have good lobbyists. The trouble is that the more hopeless they are but the deeper pockets they have and the better lobbyists they have, the harder it is to avoid that kind of temptation.
This is a welcome and necessary Bill, and it is vitally important. As my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) said earlier, I do not think we should have any truck with the notion that we were not one of the most prolific users of subsidies when we were still part of the EU. We ranked relatively low in the league table against other countries in the EU in our use of subsidies, and as a free marketeer I think that should be a badge of honour. It shows that we are in general allowing capitalism to run and allowing capitalist animal spirits to move resources, investment and productive assets around our economy in the most efficient way to drive our economic growth. Ultimately, it is that economic growth that pays for the public services we all care about, and that we all need and rely on as well. So yes to capitalism and yes to avoiding distortions, discriminations and, dare I say it, potentially the risks of political favouritism if we do not have these rules in place and a rules-based system. I am delighted that this Bill is here, and it establishes some really important principles for all of us.
There is one small fly in the ointment, which I will mention now. I do not want to try your patience, Madam Deputy Speaker, by going into things that will I am sure be properly covered both in Committee and on Report. I will mention the principle at this stage—it has already been mentioned by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and by others—and it is the point about transparency. The Secretary of State has made that a central point, and he is absolutely right to say that he wants to establish the UK as one of the leading examples of subsidy transparency in, I think, the world. I may be misquoting him slightly, but I am sure the principle is one he would sign up to.
That is an absolutely core piece because if we do not have such transparency—if we cannot see what these subsidies are or we cannot see what they are until it is too late—how on earth are we to know that this excellent new set of rules-based principles are being followed properly or not? Sunlight is the best disinfectant, as we all know, and exposing this to public scrutiny cannot be bad. Because we are setting up this rules-based system, we should have nothing to hide. If we are worried about transparency, that is always a bad sign in the first place. Therefore, the central principle, which the Secretary of State and his fellow Ministers have already enunciated, is entirely the right one.
My concern is therefore not with the principle that the Secretary of State has enunciated; it is whether or not this Bill will actually deliver the principle in the way he hopes. This is a technical concern, not one of principle at all, but the technical concern is real. We have left the EU, but the EU’s basic rules for disclosure required us to disclose subsidies of above €500,000. The new Bill, as we have heard, has a variety of different exemptions, but broadly speaking it requires us to disclose subsidies of above £500,000. That means we will be disclosing fewer subsidies in future than we were under the EU because the threshold is higher. It is not the only threshold; there are other thresholds. One of them is even higher still, at £725,000, for public interest subsidies of one kind or another, which I think is for subsidising things such as buses and social housing. All those things may very well need subsidies, but why are we being secretive about it? Why should we not make this public?
Robin Millar (Aberconwy) (Con)
There are very specific exclusions for inclusion on the central database. Would my hon. Friend extend his argument to consideration of those excluded items as well?
John Penrose
There are a couple of exclusions that I think make an awful lot of sense. For example, there is an exclusion about national security, which I hope everybody on all sides of this House would sign up to. However, in principle, to follow and frank the principle that the Secretary of State has rightly put across about how we want to be the most transparent about our use of subsidies—because it will show that we are following those rules, and that we are letting capitalism rip and therefore that productive assets are being used in the most effective way without distortion—in general there should be fewer exclusions, with only the minimal number of exclusions that is safe, although I completely accept that there will need to be some. There is no reason why we should worry about disclosing pretty much any subsidy, particularly because local councils, for example, already have to report anything they spend above £500. They already take records, keep notes, and publish those details, and it would be peculiar to say that although they have to declare spending above £500, they do not have to declare subsidies above £500,000. I am not sure that is terribly consistent.
The Secretary of State has rightly pointed out that when subsidies are notified they have to be turned round and approved or disapproved by the CMA within 30 days. That is entirely right. We need a prompt, nimble, and agile response in order for our economy to work in a prompt, nimble and agile way. It therefore seems odd, if I may put it politely, that we are allowing subsidies not to be registered for up to six months after they have been made. We will therefore have fewer subsidies declared, in a way that does not match what local councils already have to declare. Councils already have to keep such information and data; it is not something they will have to start doing from scratch, and all they will need to do is paste it on to a central database. They also do not have to put it out for six months. These are small technical tweaks, but they are central to delivering on the principle, which the Secretary of State rightly enunciated.
Sammy Wilson
Is the hon. Gentleman concerned that a subsidy could be well in place for six months but then there would be a challenge period of 30 days? If there was a reasonable challenge and another body had lost out, would it not be a bit late?
John Penrose
The right hon. Gentleman is right, particularly because in the modern digitising economy, everything is moving faster and faster every year. Even if that issue was not a problem before—and I think it probably would have been—it certainly would become one in future. There is scope for tightening that part of the Bill technically, so as to deliver on the principles that the Secretary of State has rightly enunciated regarding timing, the degree of transparency and the level of disclosure. As we will have nothing to hide, we should not hide it; we should get it all out there and ensure that it is available.
Kevin Hollinrake
My hon. Friend makes some strong points, and I absolutely agree with those about transparency. One objection to lowering the threshold to a few hundred pounds rather than £0.5 million might be the burden of red tape attached, but, as I understand it, the costs for having a database that includes pretty much every subsidy—about £20,000 per annum—are minimal.
John Penrose
My hon. Friend makes an important point. Indeed, he has led me to the final point in my speech. He is right to say—I know Ministers in the Department have this instinctively in the marrow of their bones—that we must not turn this into some bureaucratic red tape burden. Indeed, one chapter in the report that I was asked to write about competition policy refers to reducing red tape burdens. We all understand that too much of that will slow down even the best company and reduce its competitiveness compared with companies in other countries, so he is right to be concerned.
In this case, however, doing what I suggest should reduce the red tape burden rather than add to it. That is because one of the other exemptions, which I think is £325,000, is for a cumulative set of subsidies. If I have three or four subsidies granted by three or four different local councils, or perhaps by a devolved Government and some local councils, and they cumulatively add up to £325,000 over a three-year period, that has to be declared and everyone has to keep track of that. Under the existing Bill, individual councils making those grants will not be keeping that record. They will not be able to, because they will not know what the other councils have done. The companies that are getting those grants will have to keep their own records for three years. That is a business burden that we will create if we do not change the Bill right now.
If we just said instead, “There’s one central public database and everything gets put on it; no company has to keep any records whatsoever because it’s all out there and it’s visible, searchable, clear and transparent,” there would be no extra business burden at all and, as my hon. Friend the Member for Thirsk and Malton just pointed out, there would be minimal extra public burden, because the local councils, devolved Administrations and Government Departments keep these records anyway. All they would have to do is extend the print range on their spreadsheets slightly further down the page, or organise their automatic file uploads a little more simply, so the burden would be minimal. If we did it that way round rather than what is currently in the Bill, we would avoid creating a new red tape burden.
With that, I will do something unusual for a politician and shut up. This is a good Bill, it is an essential Bill, and it does some really important things. I am really pleased to see it come forward. My right hon. Friend the Secretary of State is doing precisely the right thing, in the right way. We have one concern about detail; with any luck, I am sure that can be ironed out.
Stephen Flynn (Aberdeen South) (SNP)
It is a pleasure to follow the hon. Member for Weston-super-Mare (John Penrose), who gave a fair tour de force of the Bill. I admired his concern about transparency, which was perhaps ironic, given that he sits on the Conservative Benches. The Tories have quite happily dished out billions of pounds worth of contracts to their donors and friends for wasted personal protective equipment throughout the pandemic, but I guess that in real terms, transparency comes and goes depending on—
Kevin Hollinrake
Has the hon. Gentleman bothered to read the National Audit Office report, which specifically says that Ministers had no involvement in any procurement decision? Will he put that properly on the record? All he is doing by making those points is trashing the name of the whole of politics, not just that of the Conservatives. It is a complete nonsense, and he should admit it.
Stephen Flynn
I welcome the hon. Gentleman’s intervention. It does not put a stain on all of politics; it puts a stain on the Conservative party, where it firmly belongs, because Conservative party donors and friends have gained the most from this pandemic when it has come to contracts. [Interruption.] Conservative Members can argue all they want, but the facts are as clear as that.
Now, to the Bill before us; we got a little side-tracked there. It is important to look at the wider context of the Bill: the present situation, the past regime, and what is to come, which of course is what the Bill sets out. Let us look first at what is in place at this moment in time. As I see it, and as I think all of us in the Chamber will see it, we left the European Union, but we left to a system of nothing. We do not actually have an effective system at the moment. Indeed, I think it was the Institute for Government that deemed the current system to be completely ineffective.
That is understandable. Of course, a public body looking at what it is going to be doing does not want to break any rules, so if it does not have a full understanding of what the rules are, it will obviously err on the side of caution. In many ways, that might be an argument for the Bill. I can certainly understand why that may be the case, and that was what the shadow Minister, the hon. Member for Feltham and Heston (Seema Malhotra), intimated in terms of meeting international obligations and the like. I do not think anyone would necessarily disagree with that.
Let us reflect slightly on where we have come from in relation to state aid. Some of this has been touched on already by Members on both sides of the House, but there is one specific aspect of it that I think needs to be aired properly. It was mentioned by the former Foreign Secretary, the right hon. Member for Esher and Walton (Dominic Raab), at the Dispatch Box during Prime Minister’s questions earlier, and again by the Secretary of State—perhaps not directly, but he certainly inferred it—that state aid was a problem of unelected bureaucrats in Brussels. Yet if we look at the facts before us, 95% of all state aid measures did not even go near the European Commission’s desk, so we are almost fixing a problem that did not exist in the terms that the Government think it did, irrespective of how much they want to make Brussels seem like the bad guys.
I appreciate, though I disagree with, the stance of some Conservative Members—the hon. Member for Weston-super-Mare made this point, as I think did the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) when she was in her place—that we did not, when we were in the European Union, make the most of what we could do under state aid regulations. However, the facts are that, under those terrible state aid regulations, we invested but a third of what the Germans invested, and a fraction of what others invested, so the big bad guys in Brussels were not so bad after all. Yet we left that arrangement for a system that, at this moment in time, is completely ineffective.
That brings us to the next stage, as represented by this Bill. As I see it, the Bill’s objectives are to enable strategic interventions to support economic recovery, levelling up and net zero. That is not wholly different from the EU state aid rules, which were, of course, to support the environment and innovation. The one slight difference, however, is that the EU state aid rules had a specific remit for the EU regional aid system, whereby people advocated money to be directed to less developed regions.
I have to say that I am a little surprised that there are not a few more red wall Tories present, whose regions could be described as—[Interruption.] The hon. Member for Stoke-on-Trent North (Jonathan Gullis) is waving at me; I am sure he will seek to intervene on me in due course. If I were a Conservative Back Bencher representing a constituency in the north of England, I would be deeply concerned about this aspect of the Bill. Although the Government say that the objective of the Bill is to level up, it contains no detail at all. It says that the Secretary of State will come back, subsequent to the Bill, to provide the detail on how levelling up will work. More importantly, we have walked away from a system that put money directly into less developed regions.
Simon Baynes
I am a Conservative Back Bencher representing a red wall seat in north Wales. The previous EU system was very biased against regional and localised issues of deprivation. It went for large areas, but there are plenty of areas in north-east Wales that require the same amount of help as was gifted under the European system. I would argue that the new system is much more direct, much more localised and much more effective.
Stephen Flynn
I admire the hon. Member’s optimism, but I am not quite sure where he has read that, because, of course, the Bill does not have that detail. He is hoping that the Secretary of State will subsequently provide that detail, but the Bill does not make that clear.
Another extremely important point that the Bill does not make clear is in relation to relocation subsidies. Essentially, the Government are saying that they will not relocate subsidies to areas with a more significant problem. They might want to level up—to use their term—but that is not going to happen under the terms of the Bill.
Kirsty Blackman (Aberdeen North) (SNP)
Does my hon. Friend agree that, in fact, the Bill does the opposite of levelling up, in that it refuses to allow anything to happen in disadvantaged areas that will disadvantage rich areas? That is how the Bill is written—it is in schedule 1F.
Stephen Flynn
My hon. Friend could not have put it better. It is a pity that there are not more Tory Back Benchers present to hear her and understand the damage that they are going to do to their own communities.
The Bill’s key objectives also include net zero. Again, there is no detail on net zero or how the Government intend to subsidise its delivery. We are being told to just believe—to hope on a whim and a prayer—that the Government will do this, that they will deliver. Let us look at that from a Scottish perspective. Let us look at the Government’s record. As the Minister and, indeed, others in this Chamber know only too well, Scottish renewables projects, which are key and fundamental to reaching net zero, pay the highest grid charges in the entirety of Europe. In the UK—on these islands—renewables projects in the south-east of England get paid to access the national grid, whereas renewables projects in Scotland have to pay to do so.
Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
That is a vital point that will come forward in the next couple of months, when the Scottish islands could be providing as much as is coming across from some of the European interconnectors at present. On subsidies, the right hon. Member for East Antrim (Sammy Wilson) made a good point on enforcement. In part 5, an “interested party” is defined in clause 70(7) as “the Secretary of State” while others are just people who “may be affected”. Should not Scottish Ministers, Welsh Ministers and Northern Ireland Ministers be specifically outlined? Or is this something seen as being granted by London and London only, leaving London to make arbitrary decisions on subsidies? My hon. Friend makes the point very powerfully that producing renewable energy in certain parts elicits a subsidy, while in other parts it is penalised.
Stephen Flynn
Absolutely. My hon. Friend makes that point incredibly well and I will come on to that clear power grab from the UK Government.
To finalise the point in relation to net zero, the UK Government are telling us that we should trust them. Well, we don’t and we won’t.
The second objective of the Bill I want to touch on briefly relates to empowering devolved Governments—I mean, come on! Empowering devolved Governments. We are going to have a subsidy advice unit set up, a new independent body that will sit within the remit of the Competition and Markets Authority, yet the devolved nations have no say, no input at all whatever, in the role of that organisation or, indeed, who sits on the board. So of course that is not the devolved nations being involved as they should be. [Interruption.] The hon. Member for Stoke-on-Trent North (Jonathan Gullis) says it is independent, but of course that is not the case. Was it not the former Prime Minister who had a role in appointments to the board of the CMA, or have I got that incorrect? I think what he is referring to in terms of an independent body is the subsidy advice unit. Of course that is, but it sits within the remit of the CMA—that is the point I am making. The devolved nations have no role in that body. Those are two very separate but important points that am sure he will come to reflect on.
The biggest and most concerning aspect relating to the devolved nations is the fact that when a public body in Scotland or Wales decides that it wants to invest in a project, the UK Secretary of State, irrespective of whether the project relates to devolved areas, can choose to call them in under the remit of the CMA. That is a clear step into devolution.
Angus Brendan MacNeil
We could have a situation where somebody in England decides to set up something on the Welsh border or Scottish border without, seemingly, the powers of Scottish or Welsh Ministers, or even the Scottish Government, to try to remove the attention of Westminster. That is like the Scottish Government setting something up across the North channel almost in direct competition with Northern Ireland, with perhaps Northern Ireland not having the power of equivalence that it appears to be giving to the supremacy at Westminster, which I think is very wrong.
Robin Millar
From the Opposition Benches this afternoon, we are hearing a lot about asymmetry. In particular, we are hearing about a lack of involvement and so on. I will not make any points about sovereignty—I do not wish to go down that road—but I will make a simple observation and perhaps the hon. Gentleman can comment on it. Was that not the case when we were a part of the EU? We were directed into things. We did not have the same control he seems to think that they should have now.
Stephen Flynn
The hon. Member makes his point in his own way, but let me be clear. How can I put this? We do not think that the system that operated within the EU was one that we should have turned our back on. What did we turn our back on it for? Let me answer that briefly, as a slight anecdote: it was for Brexit—the chaos of Brexit. Food shortages, staff shortages, trade barriers, the chaos that we see—
Stephen Flynn
The hon. Member has had his say, and I am sure that he will make further contributions later.
Conservative Members come to this Chamber and tell us that Brexit will solve everything, but of course it has not; it has only made things worse for working people in our society. What we have before us, in no uncertain terms, is a Bill that undermines devolution, following on from the United Kingdom Internal Market Act 2020 and the shared prosperity fund. If they want to protect their Union, they are doing a damned good job of destroying it. Do some more!
Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak in this debate and to follow the hon. Member for Aberdeen South (Stephen Flynn). I echo my hon. Friend the Member for Weston-super-Mare (John Penrose) in broadly welcoming the Bill’s direction, and indeed its existence; I think that we need a robust subsidy control regime and I am glad that we are putting one in place.
I largely welcome the Government’s central decision to put parameters and rules in place and then trust public authorities to follow them, rather than having a very strict consent regime that would then become slow and cumbersome. I think that that is the right way to go, but it is intriguing to read the Bill and find a control regime that applies only if there is a
“subsidy…of interest or particular interest”,
neither of which terms is defined. At some point, a future Secretary of State could end up with quite a controlling regime by defining “particular interest” as any subsidy of more than half a million pounds, and then we would be back where we were.
It would be interesting to hear what the Minister thinks a “particular interest” might be and what the criteria might be for going into it, so that we know roughly where the line will be drawn, where the discretion for authorities is, and where we will start to expect mandatory or voluntary referral for advance clearance. I do not object to that process, because one of the key things for any subsidy regime is getting certainty so that when a business receives a subsidy, it knows that the rules have been followed, that it is entitled to it, and that there will not be a claim in six months’ or a year’s time that ends up with its having to repay the subsidy and being in worse distress than at the start. Having a regime with clearly drawn lines, so that everyone knows where they are and knows that once something is given it will stick, is hugely welcome. When we consider the Bill in more detail, it would be helpful to know where the line of discretion will be drawn.
The quid pro quo of a regime without intrusive up-front clearance is that we must have transparency on what is being paid, so that everyone knows that it is consistent with the rules and that some public authorities around the country are not misinterpreting them or, heaven forbid, deliberately doing things that they should not be doing. Clearly a risk in any subsidy regime is money being paid out in unlawful ways, so we want to be able to identify that situation pretty quickly.
Angus Brendan MacNeil
The hon. Gentleman is making some excellent points. I think that a Bill’s Second Reading is the time to test the arguments. He mentioned transparency, and a colleague of his debated a similar point with the SNP Front-Bench spokesperson, my hon. Friend the Member for Aberdeen South (Stephen Flynn). The crux of it comes back to the state aid point. In the European Union, there were 27 or 28 states and a very defined gamekeeper among all those poachers, namely the European Commission. The concern that I think SNP Members share is who the gamekeeper is and who the poachers are. Are the UK Government playing both gamekeeper and poacher in regards to subsidy? I am testing the arguments in this debate, but over time the Government will need to address the point and be very clear that they are not taking both sides, as poacher and gamekeeper.
Nigel Mills
I think that I understand the hon. Gentleman’s point. One attraction that I think the EU system had for the Treasury and occasionally for some politicians was that they could say, “We’d love to give you a grant to save your business, but tragically we’re not allowed to under EU rules,” when actually they did not want to because they knew it was not the right thing to do, so it was handy to have somebody else to blame. I think the Bill sets out that the CMA is the body that will or will not give clearance. It will not be Ministers doing that, so if the hon. Member wants a gamekeeper in this situation, I think it is the CMA.
Angus Brendan MacNeil
But is the CMA not a body of Westminster construction, as opposed to being a body of the Union?
Angus Brendan MacNeil
Well, there are many Parliaments in this United Kingdom at the moment, and we know that each and every one should have the same voice. If this is the poacher and gamekeeper Parliament, surely that is a problem for Northern Ireland, Scotland and Wales—that is the argument that I would postulate.
Nigel Mills
I think it is fair enough for a UK single market to have a single regulator that decides a subsidy regime to ensure that the application of the rules is consistent across the whole of that single market. The hon. Gentleman wants to go back into the EU single market, which has a single regulator which decides things across the whole of that its single market. He does not seem to accept that the EU single market should have the same arrangement.
John Penrose
May I strengthen my hon. Friend’s point by saying that whatever people’s views of the CMA may be, it is pretty well respected as being a robustly politically independent organisation, no matter who is in government?
Nigel Mills
I am grateful to my hon. Friend, but I think we should move on from this point before we lengthen the debate into something that we do not want.
As I was saying, a transparency regime enabling us to see promptly what is being paid to whom and for what reason, and what the expected outcomes are, is of key importance. I agree with what my hon. Friend was saying earlier: a regime in which we have to wait six months for a disclosure, and then only of amounts over half a million pounds, has the wrong balance. I think that is where we end up with concern over subsidies, and scandals brewing, and then a lurch back towards more of a clearance regime. I urge the Government to rethink those points.
We are not expecting public authorities to be handing out huge numbers of subsidies after half an hour’s consideration. The rules that we are introducing are fairly strict. There will have to be some careful consideration of any proposed subsidies to ensure that those rules have been met, and there are processes for checking that the person who is being paid has not already exceeded a certain threshold. It is not a half-hour, quick and dirty process; there is plenty of time to gather the information that is needed to declare the subsidy, which can then, pretty promptly, be put on to what I suspect will be a simple database form that the CMA, or whoever, will put in place. I do not think it is an intrusive burden to have to say, “Here is what we gave to whom and why.”
I should add that I would like it to be possible to see the identity of the beneficial owner of the entity that has received the subsidy on the database, so that we can see who is really benefiting, rather than seeing some obscure, lower-down subsidiary name, which would make it not very easy to trace by going through the whole system who has been getting what from different public authorities.
Let me suggest as a comparison the furlough scheme, which is essentially a subsidy being given to businesses to pay their employees’ wages. We have published the names, in a range of bands starting with £1 to £10,000, of employers who have received that subsidy during the pandemic. I think that if we can publicise the details of employers who have received up to £10,000, we can justify publishing the name of anyone who has received a subsidy that has gone through a due process, down to a much lower level than £500,000, without its being unduly damaging to their commercial confidential interests. I think that someone involved in the process of asking for money from the taxpayer should accept and welcome that transparency. There should be nothing to be ashamed of, nothing to hide: if that money is needed for a good purpose, there is no reason why we should not know about it. I urge the Government to make some changes in that regard.
I was intrigued by the remarks about the way in which taxation policy can elide with the subsidy regime. There are quite a few cut-outs for taxation situations which I guess make sense, but I think there could be a role here. If we are giving individual taxpayers very generous tax deals, letting them off liabilities that they may owe for reasons that may not necessarily be entirely technically robust—as people have feared before—I see no reason why those should not count as subsidies and therefore be published through this regime, in order to get around that horrible situation in which we know that deals are being done but we do not know who the beneficiaries are. I think that it would be an interesting legal challenge to establish whether they are caught by these rules.
My final remark—I think—concerns the exclusion of subsidies for purposes of national security. I have absolutely no objection in principle to our being unable to publish everything that is spent in relation to national security, but those words—
“for the purpose of safeguarding national security”—
constitute a very broad definition. We have hit a problem with the freedom of information rules in this regard. Some authorities have an incredibly broad interpretation of what that means. I think it was the West Yorkshire fire and rescue service that would not publish a response to an FOI request about the vehicles it had bought in case someone could somehow clone them and thus get into its premises. I hope that the Government are not expecting to have such a ridiculously broad definition of national security that we cannot in any circumstances see the subsidy given to any defence company, or police authority, or fire and rescue authority. Given that energy security is probably a national security issue, presumably no energy subsidy could be published. I suspect that some creative people around the country could find all manner of ways of making the broad definition “for the purposes of national security” exempt almost anything from these rules. I hope that we can be clear in Committee about the sort of things we think we should not publish, and about where the line should be drawn as to what we can see. If we have too many exemptions from these rules, we will end up weakening confidence in the system. We could end up with scandals that could lurch us away from the fast-moving, flexible system that the Government want in order to get aid where it is needed fast. We could end up back in a cumbersome, slow and bureaucratic system to try to avoid the scandals that we could see from a lack of transparency.
Kirsty Blackman (Aberdeen North) (SNP)
It is great to hear the thoughtful contributions from that Tory Bench, although not from the Treasury Bench, I hasten to add. The hon. Member for Amber Valley (Nigel Mills) and I have spoken in many debates together, and I always appreciate his forensic assessments of the details in the Bills before us. I hope that he will be on the Committee, and I hope that I will be too.
First off, I want to ask a couple of questions about what the Secretary of State said, because I am immensely confused by a couple of the things that he said. First, he said that the devolved Administrations were broadly happy with the Bill. If they are broadly happy, why have the Welsh Government said that they object to five of the six parts of the Bill? One out of six does not equate to “broadly happy”. In fact, I get the impression that they really do not like it and are not happy about it.
We have not seen what the Scottish Government are saying about the legislative consent motion, but I cannot imagine that they will be terribly happy with the power grab that is occurring as a result of the Bill. So I am quite confused by what the Secretary of State said. Does he mean that the devolved Administrations are broadly happy with having a state aid regime? Does he mean that they are broadly happy with the detail of the Subsidy Control Bill? I do not know. I do not understand what he is saying, because it does not seem to be coherent with what the Welsh Government have said in public about this.
The other thing that I am really confused about is what the Secretary of State said about the EU state aid provisions no longer applying to Northern Ireland. I thought he said something about article 21 of the Northern Ireland protocol, but maybe he meant article 16. I am not sure what he meant. In terms of the planned changes to state aid application in Northern Ireland, he seemed to be saying that the new subsidy control regime would apply there and that the UK Government were seeking some sort of change to an article in order to ensure that that happened. I am not aware of any publicity around the UK Government asking the EU for a change, but if that has happened, why have we not heard about it?
Could we please have a bit more information on this? We have the trade and co-operation agreement and we have the Northern Ireland protocol, but how do the UK Government expect these measures to apply in Northern Ireland without us breaking either the agreement or the protocol? That does not make sense. If the Secretary of State was making that important an announcement, you would think he would do it in a ministerial statement rather than as an aside during the Second Reading of this Bill. I would be really keen to hear a bit more information about what this actually means.
Seema Malhotra
The hon. Lady is absolutely right about the confusion that has been raised. Does she agree that it is important that the Government clarify what they are suggesting has changed in relation to article 10 of the Northern Ireland protocol and whether it has been dropped on the basis of this Bill? Should they not also tell us whether their proposal has been negotiated with the EU, and what the status of those discussions and any agreement might be?
Kirsty Blackman
Absolutely. If we as a country can suddenly renege on our international obligations and agreements, why cannot Scotland hold an independence referendum next week? The UK has agreed to these agreements and it would be great, when the Minister speaks at the end of the debate, if he could explain exactly what is going on. This is serious enough for a Minister to be making a separate statement to the House, because it is such an important matter for the people of the UK and particularly for the people of Northern Ireland.
My hon. Friend the Member for Aberdeen South (Stephen Flynn) spoke eloquently about the levelling-up agenda, and I agree that the red wall Tories elected in the north of England should be jumping up and down about this—we are jumping up and down about it, as the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) suggested—because it explicitly excludes us from doing anything that may disadvantage any other area of the UK. In schedule 1, principle F says:
“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.”
And principle G says:
“Subsidies’ beneficial effects…should outweigh any negative effects, including in particular negative effects on competition or investment within the United Kingdom; international trade or investment.”
That reference to international trade or investment confuses me.
The principles try to level the playing field across the UK, so there can be a subsidy in Manchester only if a person in the south of England would not move their company as a result.
Sammy Wilson
For balance, does the hon. Lady accept that principle A says:
“Subsidies should pursue a specific policy objective in order to remedy an identified market failure”?
If there is market failure and certain regions of the United Kingdom are disadvantaged because of their distance, history, lack of skills, lack of resources or whatever it happens to be, principle A allows subsidies to be used for levelling up.
Kirsty Blackman
Principle F rejects that, so which one has primacy? Which one is the most important? If they directly disagree with each other, is it more important that we can do what is said in principle A or is it more important that we can do what is said in principle F?
I think the subsidy regime should be used in the same way as the EU state aid regime, which focuses on regions that need additional support. Whatever this Conservative Government say—we will not believe them anyway, given the amount of lies we have been told—it is not the case that this regime assists levelling up; it does the opposite. If they want to assist levelling up, they should design a regime that ensures different areas can have different subsidy regimes that benefit their local area even though they may disadvantage other areas.
Kevin Hollinrake
The hon. Lady may have identified this herself already, but freeports, for example, allow businesses to relocate and benefit from different taxation regimes. Such businesses are treated more beneficially in how they operate and in their cost of operation. Does she accept that freeports do exactly what she is setting out?
Kirsty Blackman
Freeports are not covered by the subsidy regime we are talking about today. They are a separate thing. I can say from the Back Benches that I am not particularly keen on freeports, but the idea is that there is a wall around the port—the guidance specifically says that there has to be a physical barrier around the area—and there is a different taxation regime within that wall. I am yet to be convinced of the economic benefits that will come as a result.
We hope to have green ports in Scotland, and the failure of the UK Government to agree that we can pay the real living wage and focus on net zero within those green ports means that the freeport system, as it stands, is not nearly as advantageous as it could or should be. Even though the freeport system is set up to encourage such things, I have not seen evidence that it will actually do so, particularly given the rejection of the key principles we want to put in place.
Angus Brendan MacNeil
It is unclear that the UK Government have a strategy to replace the EU’s successful regional structural funding for Wales, Northern Ireland and many parts of the highlands in Scotland. Such funding and state aid go hand in hand, and they are seen as different things. Indeed, the freeports are seen as a different thing. There needs to be something else to go with this for areas of the UK that are disadvantaged by policy set in the south-east of England for the south-east of England.
Kirsty Blackman
Absolutely. We need to replicate the good things we had in the EU, the things that supported different areas. A system has been put in place to ensure that different parliamentary constituencies can get money from the UK Government, but it is super-interesting that the constituencies the Government have chosen to put at the top of the list are those constituencies represented by Conservative MPs, rather than the constituencies with the highest levels of deprivation. The difference is dramatic.
It is hugely concerning that, if the UK Government are left to do so much in this Bill by guidance, as set out in clause 79, we are going to have a situation where the Secretary of State will have significant control and flexibility without even having to come through door of this House. The Bill says that the Secretary of State is going to issue guidance about
“the practical application of—
(a) the subsidy control principles;
(b) the energy and environment principles;
(c) the subsidy control requirements in Chapters 2 and 3”.
I am clear that there needs to be detailed guidance, but we should be at the stage where we are scrutinising it. When we come to the evidence sessions in Committee, the people before us should be able to talk about the guidance. I get that some of the regulations are going to be made by the affirmative resolution and some by the negative resolution, but my major concern is not those that are going to be made by resolutions in this House; it is those that are going to be made by guidance.
Let us we look in detail at some of the stuff in this Bill. Schedule 2 says:
“Subsidies in relation to energy and environment shall be aimed at and incentivise the beneficiary in—
(a) delivering a secure, affordable and sustainable energy system and a well-functioning and competitive energy market, or
(b) increasing the level of environmental protection compared to the level that would be achieved in the absence of the subsidy.”
I am keen to know what “environmental protection” means. What does it mean? It is not in there. We do not know what it means because we have not seen the guidance that the Secretary of State is going to be allowed to produce on their own without running it past this House.
The same applies in respect of
“a secure, affordable and sustainable energy system and a well-functioning and competitive energy market”.
Does that mean a well-functioning and competitive energy market for those people who buy and sell energy, or for the consumer? Does it mean for the person who is being hit by those higher fuel bills or for the people trading gas on a daily basis? I do not know what it means because we do not have that information. If the Government were willing to provide us with the guidance, and we had access to it and seen it, we would be able to ask questions and comment on the specificity of the guidance. When we have experts come before the Committee, we would be able to hear their expert opinion on it, but we cannot, because we do not have the guidance. It is really unfortunate that, on Second Reading, when we are deciding whether or not the Bill should go forward, we have not got the information we need in order to do that.
I want to make a couple more points about energy. One of my colleagues mentioned the transition charges. The subsidy regime that is being set up says, “We can’t have one part of the UK advantaged over another part of it.” However, it also says, “No subsidy can negatively affect interconnectors.” So we will still have a situation where energy from the EU is allowed to come into the UK—the companies are not paying any charges for using our network—yet people who have wind farms in Scotland are paying £5.50 per unit of energy. And those in Wales are being paid £2.80 per unit of energy. That system was created when fuel was driven around in vans and had to be driven to places that then used the power. One of my colleagues said that there is an incredible level of disinterest among those on the Government Benches about dealing with transmission charges. I appreciate that some of them have considered it, but a Minister has not stood up to say, “You are right. This is a travesty and we need to fix it.” We would really like a commitment on that, particularly if this Bill is going to give protection to interconnectors but no protection to those wind farms in the north of Scotland that are being charged an absolute fortune.
I want to talk about the Labour party’s position on the Bill, as I am really disappointed that it is not willing to vote against it. It is important for it to do that. We are going to vote against it. I am on the left. I appreciate all the things that the Labour party has done in the past, but I have spent six years getting increasingly frustrated by the failure of the Labour party to oppose this Tory Government and to stand up even for the Welsh Government at this point. This is really unfortunate. I do not understand at all why the Labour party is not voting against this tonight. We are voting against it. I am not going to support this Bill, as I do not think it should get its Second Reading. I say that for reasons of the power grab, the massive inadequacies in the Bill and the fact it is going to do the opposite of levelling up—it is going to entrench the inequality we already have.
Simon Baynes (Clwyd South) (Con)
I welcome the Bill, particularly as a Welsh Member of Parliament, because it will provide the framework for a new, UK-wide subsidy control regime. This will, for the first time, enable authorities, including the devolved Administrations and local authorities, to deliver bespoke subsidies that are tailored to local needs. I want to reinforce that point because it has been a key part of the discussion, in reference to the EU subsidy areas. In my opinion, those regions were not targeted enough. Large parts of Wales were not included in them, despite having areas of deprivation. The Bill will apply to the parts of Wales where need is greatest.
The Bill is also essential—the UK internal market is essential to our prosperity. Trade with the rest of the UK is worth more than trade with the rest of the world combined to Scotland, Wales and Northern Ireland. That is especially the case in Wales, where Welsh businesses purchase more from the rest of the UK than from Welsh businesses plus the rest of the world.
The Bill promotes accountability through a standardised, UK-wide database. Transparency and simple comparison will provide accountability across the UK. It must be stressed that reporting by the devolved Administrations is often absent or uses different criteria, which prevent like-for-like comparisons. For example, the Welsh Government do not publish waiting list times for all NHS procedures, unlike other parts of the UK.
The Bill promotes the Government’s levelling-up objectives. The UK is built on local communities, not just Belfast, Edinburgh, Cardiff and London. Building up and streamlining local authorities’ partnership with the UK Government are key to strengthening the Union. Speaking as a Welsh Member of Parliament, I have to say that the Welsh Government are not the easiest organisation to deal with for those living in north Wales and looking for Government help. Their focus is very much on south Wales. The message from the debate that giving money and subsidy control to the Welsh Government will mean that money is spread across the Principality is incorrect. I was interested by the remarks of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). He should be fair and recognise that Plaid Cymru is riding two horses in negotiating an agreement with the Welsh Government in Cardiff, yet criticising the Welsh Labour party while here. Plaid Cymru Members need to recognise that they cannot have it both ways.
The Bill benefits the devolved Administrations, too. That message has not come across strongly enough in the debate. It lowers costs and streamlines decision making, including for the devolved Administrations. Streamlined subsidy administration ensures that the devolved Administrations can roll out their own regimes at lower cost and greater speed. The UK internal market competition distortion principle will protect the devolved Administrations and the English regions from being pushed into competition spirals with neighbouring authorities.
I am pleased to back the Government on the Bill, which takes back control from the EU, allows us to deliver on the British people’s priorities, strengthens the Union and gives confidence and certainty to businesses and investors. It will enable local authorities across the UK to play an equal role, rather than everything always being put in the centre, in London and in the devolved Administrations. We need to enable the whole country, at a local level, to become involved and provide the dynamic to create a better life for all our citizens.
Sarah Olney (Richmond Park) (LD)
It is a pleasure to participate in this debate. I thank the Minister for his engagement on the Bill; it was useful to discuss the seven principles in detail beforehand. We welcome the fact that the Bill has been introduced, that there is a proposal to replace the EU subsidy regime and that the Government are making provision for it, but I put it to the Government that what is in the Bill is really only half of what we need if we are to have an effective and adequate UK subsidy regime.
The first thing missing relates not so much to what is in the Bill but what should stand alongside it: an effective industrial strategy. The Bill makes it clear that the purpose of the regime is to guide the awarding of grants for strategic purposes, but we do not know what the strategy looks like because we do not have an industrial strategy that identifies our key sectors and industries. As the hon. Member for Aberdeen North (Kirsty Blackman) put it so succinctly, we are not even entirely sure which regions of the UK we most want to support. Any subsidy regime that is not accompanied by a clear industrial strategy is really only half the picture, because we just do not know where the public support might best be directed.
As a number of Members have already said—I defer in particular to the hon. Member for Weston-super-Mare (John Penrose) and the points he made—the key thing missing from the Bill is transparency. What subsidies will be paid to whom? Without that level of transparency, we will have no real scrutiny of the decisions made. Quite apart from all the other related points that have been made, the key thing for me is how we can measure the value or impact of subsidies if we do not have a clear idea of exactly what subsidies are being paid to whom and for what purpose. How can we be certain that those subsidies reach the right people, organisations, regions and sectors, and that they provide the kind of targeted support that we want? Without clarity and transparency, we cannot properly evaluate what the taxpayer subsidises.
The point about the scrutiny of individual subsidy decisions has been made a number of times. There has been much discussion about the CMA’s role, but it strikes me that although the CMA will have a role to play in scrutiny, it will have no enforcement role. It is probably right that the CMA will be consulted not on every particular subsidy but just on those that are of interest, but for it to be asked to look at subsidies of interest but have no enforcement role seems to me to be a bit of a waste of time. It also highlights the fact that no overall independent body will assess the subsidy regime and whether subsidies have been awarded according to the principles outlined in the Bill. Who will hold the various local authorities to account for ensuring that the principles have been adhered to? There does not seem to be a role for any independent body.
Without an industrial strategy, clear data on which bids are successful and an independent body to provide guidance, how much faith can individual businesses, or their lenders or investors, have in their likelihood of success? How can confidence be built among investors who bid for a subsidy? How can they assess their likelihood of success? The Bill will lead to inefficiency in the system, because it will discourage businesses that might have had a good chance of getting a subsidy if only they had had all the information available when making their bid, and the available subsidies will perhaps then be given to businesses that do not have such a good case.
I refer again to the hon. Member for Weston-super-Mare, who used the term “unproductive”. As a member of the Public Accounts Committee, I care as deeply as any other Member in this place that we get good value for taxpayers’ money. It seems to me that without clarity, guidance or an overarching industrial strategy, there is a real danger that subsidies will be awarded behind closed doors, without clarity. That would make for the inefficient allocation of resources, which we all want to avoid.
The only restraint on subsidies that this legislation allows for is the threat of legal action by competitors who might have missed out. Without that clear information about who is getting a subsidy and what for, it seems the information simply is not going to be available for those legal challenges to be mounted. How will affected businesses know that they have been disadvantaged and how will they be able to gather sufficient information to mount an effective legal challenge? None the less, that legal challenge appears to be the only effective restraint on how subsidies are handed out.
Through this Bill, the Government seem to have constructed a regime that will enable secret payments without scrutiny or challenge. It does not provide enough of a route to challenge or anyone to hold to account in order to ensure that the principles are being observed. To be honest, it surprises me that this Government, who already have a reputation for cronyism, would not take greater care to ensure that those perceptions were not perpetuated.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to speak in this debate and to listen to the various arguments on both sides of the House.
I am a committed free marketeer and have been in business for most of my life, and I do not think that I have ever accepted a Government subsidy—other than perhaps last year under the coronavirus business interruption loan scheme. I would be interested if the Minister could reflect on whether that would qualify under this legislation. I do not really believe in subsidies, but a world without subsidies requires a perfect free market and we do not have a perfect free market. We do not have the perfect consumer, the perfect market competition or the perfect provision of small and medium-sized enterprise finance. At times, a Government absolutely need to step in and provide subsidies where there is market failure, so I welcome this legislation and the vast majority of its provisions.
Stephen Flynn
Does the hon. Member think that the Government, under these new terms, will provide more subsidies than they did under EU state aid, or the opposite?
Kevin Hollinrake
I know that is the hon. Member’s question, but I think it is the wrong question. For me, the key question is whether the subsidy is going to spend taxpayers’ money well. We can claim success not just by giving more money away than was wasted, but when the taxpayers’ money that is used proves fruitful. We should not be disappointed that we have had one of the lower subsidy levels of the countries compared today. We should be proud of believing that our businesses should stand on their own two feet. Nevertheless, I do support on occasion the Government and other public authorities providing subsidies in certain areas and for certain things.
I welcome the Bill. I know that the Minister will ensure that it receives good scrutiny and passes through its different stages. I echo the comments of my hon. Friend the Member for Weston-super-Mare (John Penrose), in that my key point is about having a greater level of scrutiny and transparency. The No. 1 reason for transparency is that, as my hon. Friend said, Governments of all shades are pretty poor at picking winners, so it is important that Governments and public authorities are held to account for their decisions to grant subsidies, which are taxpayers’ money and must therefore be spent well.
The hon. Member for Richmond Park (Sarah Olney) made an important point about cronyism. Some of the claims of cronyism in procurement that we have heard today are unsubstantiated and have been shown to be inaccurate in the National Audit Office report. People who claim otherwise bring shame on every single Member of this House; it is a flawed method of political point scoring that is deeply unhelpful. The National Audit Office clearly said that Ministers were not involved in procurement decisions.
Nevertheless, I believe in scrutiny and complete transparency, particularly when significant amounts of money—up to half a million pounds in some schemes, as we can see from the legislation—can be handed out by a local authority or devolved region, without scrutiny. Some local authorities have better reputations than others when it comes to spending money, so it is really important that we can see exactly what local authorities and devolved Administrations are doing. My right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) brought up this point. If we do not see a level of scrutiny, different parts of the country could try to use different means of creating some advantage, or indeed try to raise grievances, which is something that we hear not too infrequently in this place.
I absolutely support the proposal to reduce the threshold for scrutiny and transparency from the current level of £500,000, or £315,000 for cumulative subsidies outside a scheme, to a much lower level of £500. As a businessperson myself—I declare an interest—I would have no objection to declaring any taxpayers’ money we had received in our business. I think the only time we have ever received it was through the furlough scheme and the coronavirus business interruption loan scheme, which we returned without drawing on it. If we are taking taxpayers’ money, we should be accountable for it, whatever level it is at. I think the only objection that could be raised to a much lower limit would be creating red tape, but according to the research I have seen, there is a minimal amount of red tape and a minimal amount of cost—about £20,000. This simplifies matters in many areas.
In all the different cases where things have gone wrong—I deal with lots of cases of fraud and malpractice in all kinds of different financial markets—the key element of scrutiny and transparency in identifying wrongdoing has usually come from members of the public, who are perhaps closer to the ground than our regulators. If the database is made fully public, we are more likely to pick up on wrongdoing. Members of the public, and members of the press, do a fantastic job in tracking down this kind of wrongdoing.
I urge the Government to look at the threshold and bring it down to a much lower level. Aside from that, I welcome the Bill and look forward to the comments of my hon. Friend the Minister.
Sammy Wilson (East Antrim) (DUP)
In principle, we welcome this Bill. First, it represents an opportunity for us to introduce subsidy control regimes that are specific to the United Kingdom and are not influenced by Brussels and the wider European interest, hence sometimes actually detrimental to our own country. It is an important part of the whole Brexit process that we have this independence.
Secondly, it is important that we have a nationally controlled regime. As one who speaks from a region of the United Kingdom, of course I want an even playing field when it comes to the application of subsidies. Some regions are richer than others and will therefore have more money to be put into subsidies than others. Some areas may have more political influence. That is partly why I find some of the objections raised by Opposition Members very odd. For example, a Minister in central Government could introduce subsidies for constituencies in a way that is beneficial to the electoral interests of his own party—the governing party—and we need a control regime that enables that kind of decision to be challenged.
My only concern about the Bill—perhaps the Minister will clarify this later; it has been raised by Members already—is that the challenge function seems to be limited to either the Secretary of State or to interested persons. As far as I can see in any definitions that have been given in the Bill, interested persons would not include Ministers from any of the devolved Parliaments or Assemblies in the United Kingdom. In fact, the only such definition is in clause 8, which refers to businesses and enterprises. The Minister needs to clarify this. If he wants to argue that this is a robust control regime, then the ability to make referrals must not just rest with the Secretary of State. It must also rest with devolved Administrations, who have interests in how subsidies may be used, particularly by central Government Departments or Ministers. Others may want the challenge function so that they can make mischief. If the Minister is serious about saying that we want to have an effective UK-wide regime, it must be clear that the function is available to all interested parties across the UK.
I come specifically to the Northern Ireland issue. Of course, in Northern Ireland the control of subsidies will not be totally under the Competition and Markets Authority or the tribunals. We will operate a dual regime under the withdrawal agreement and the Northern Ireland protocol. On state aid and its controls, it is quite clear:
“The provisions of Union law listed in Annex 5”—
a whole list of EU rules is there—
“shall apply to the United Kingdom, including with regard to measures supporting the production of and trade in agricultural products…in respect of measures which affect that trade between Northern Ireland and the Union which is subject to this Protocol.”
The Secretary of State said in answer to the Opposition spokesperson and, I think, the Scottish National party representative that, as far as the Government are concerned, it is clear that Northern Ireland is covered by the Bill, but the only way in which Northern Ireland can be totally within its provisions is through the removal of article 10.
I know it is a lengthy Bill, but I have read through it and I do not find any reference to article 10 being altered, removed or changed. Perhaps the Minister can point that out to us later on. I would welcome that, by the way; in fact, I would be overjoyed, and people in Northern Ireland would be overjoyed if that is hidden somewhere in the Bill in words that I do not understand, have not spotted or whatever. If it is there, please point it out. There will be great rejoicing in Northern Ireland as a result.
Kirsty Blackman
Even if that were in the Bill, I am concerned that it is not in the competence of this place to change that unilaterally without having a discussion with the European Union.
Sammy Wilson
The hon. Member made that point, and I was not sure whether she was supportive of the withdrawal of article 10 or appalled at the prospect because the EU opposes it. The one thing I did notice, however, was that she was appalled that there should be any interference in the role of the Government in Scotland to make subsidy decisions. If that is the case, she should be equally appalled for policy makers in Northern Ireland and welcome any unilateral decision by the Government here at Westminster to give them the same freedom.
Kirsty Blackman
I honestly do not have a view on whether it is a good or bad thing. I am just utterly confused, because I do not think that the Government have the power to do it. I want to know what they mean so that I can work out whether I oppose it or not. I do not know what they are saying.
Sammy Wilson
Of course, the Government have the power to do it under article 16 where it is deemed that provisions in the withdrawal agreement are damaging economically to Northern Ireland. I cannot think of anything more damaging to Northern Ireland than a subsidy regime that applies in the rest of the United Kingdom but which can be stopped from applying in Northern Ireland.
Let me give some examples of how conflict between the dual systems could operate. One of the principles outlined in schedule 1 is that subsidies should be proportionate—there is no fixed percentage; it is simply that they be proportionate—but under the EEA-EU state aid regime, subsidies cannot be more than 50%. For example, if a subsidy is made available to a firm in Scotland that could equally be looking at Northern Ireland, Scotland would have the advantage of saying that it is so important to Scotland and fits in with its objectives that it will give it a subsidy equal to 70%—that may even be accepted under the control regime in the rest of the United Kingdom. However, Northern Ireland would be excluded from seeking to attract that firm on the basis that the EU state aid rules say it cannot go over 50%. That is one way in which the dual system is going to be a disadvantage.
Another example is that the EU refuses to allow state aid to be given where it is simply for expansion, but under the principles outlined in schedule 1, a subsidy of that nature could be given in the rest of the United Kingdom. We could find that a subsidy complies with the control regime in GB, but does not comply with EU state aid rules in Northern Ireland, so placing Northern Ireland at a disadvantage.
On the EU state rules—and the Secretary of State said it—one of the reasons for bringing forward our own control system is that it can be more flexible and quicker. In fact, I think he said that a decision could be made within 30 days, but under EU state aid rules, there has to be a standstill period that can last up to a year. The Secretary of State said that in the House today. Again, when it comes to attracting businesses by using subsidies in Northern Ireland—even if we could match the subsidy available in England, Scotland and Wales, or wherever else somebody is trying to attract the firm—the slowness of the process, imposed by the fact that we are subject not only to the control regime in the rest of the United Kingdom, but to EU state aid rules, could mean that we find that a firm simply says, “Well, we can get a decision quicker in England, Scotland or Wales, and that is where we are going”, and Northern Ireland would be disadvantaged.
That is one of the reasons why no fiddling about with regulations is going to make a difference here. If Northern Ireland still remains firmly under article 10 of the withdrawal agreement, state aid rules apply there and the dual system has to apply there, then this is not a case, as someone has said, of trying to control the subsidy race, because Northern Ireland cannot even enter the race. We will be spectators of the race, stopped from entering it by the provisions of article 10 and the requirement for Northern Ireland to remain under the state aid rules.
Lest people think that this is just an issue for Northern Ireland—they may say, “Well, tough! That was what happened with Brexit.”—let me say that this is the elephant in the room and the issue has not been addressed in this Bill. Those state aid rules apply to trade between Northern Ireland and the Union, but any subsidies to a firm that operates through Northern Ireland into the EU, even though it is based in England, Scotland or Wales—or might even trade into the EU through Northern Ireland—will also be caught up in this.
The issue of the reach of the state aid rules has not been addressed in this Bill, and it is not just an academic argument. It is not even just for subsidies that may be given to firms in England, Scotland or Wales; this can also affect the international trade deals that the Government do with the rest of the world.
For example, British Sugar has challenged the deal made by the Secretary of State that allows 250,000 tonnes of sugar cane into the United Kingdom tariff free. That has been challenged by British Sugar on the basis that it represents unfair competition in the European market. British Sugar sells on the European market. It uses sugar beet, and tariff-free sugar cane would give Tate & Lyle an advantage. That is being challenged in the courts, and article 10 has been cited. If we are to ensure that a subsidy control regime does not disadvantage one part of the United Kingdom, or catch some of the subsidies that may be made available to firms located in other parts of the United Kingdom, rather than in Northern Ireland, article 10 is all-important. It is important for the Minister to provide clarification on that.
I have spoken to officials in the Department for the Economy in Northern Ireland. They have said—it is quite clear why—that they are finding it difficult to get information about how this scheme will work. So much of the Bill depends on new regulations being made. The general headlines are there, but the regulations need to be made. For example, what is an interested party, and will the Minister regulate to widen the scope of that? What about guidance for the subsidy and the person of interest, or about subsidies of particular interest? We do not know which subsidies are likely to be of particular interest, but that will be made by regulation. The Bill is peppered throughout with indications that such things will be clarified by regulations from the Minister, and that is important when it comes to the operation of subsidy control. We are dealing with the Bill, yet we are blind to some of the issues that need to be addressed.
Another issue is the time allowed for appeal or challenge, which is 30 days. I do not want the same long drawn-out process that the EU has, but 30 days in which the subsidy is registered or placed on a database is particularly short. Why has that period been selected, especially since getting information together for such a challenge might be that much more difficult? Lastly, the tribunal has significant powers, but it is how those powers will be used that is important. When the Bill comes to Committee, it is important that many of these issues are addressed.
From a Northern Ireland perspective, I hope that the promise made from the Dispatch Box is correct. If it is, I would love to see where that is being delivered in the Bill. If not, I would say that the Bill does not deal with some of the factors that have caused the greatest distortion of trade when it comes to the application of subsidies, namely a dual regime in Northern Ireland—a regime that allows the European Court of Justice to make those decisions. The promise made by the Minister in his opening speech that the Bill represents the freedoms we have thanks to Brexit is not quite true. The Bill still leaves a significant foothold in the United Kingdom for Brussels and the European Court of Justice when making final decisions about subsidies that apply in Northern Ireland, or about subsidies that are given to firms in England, Scotland or Wales, but that may fall under the EU state aid regime because, through their trading in Northern Ireland, they impact on the European market.
Several hon. Members rose—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. Before I call the next speaker, let me say that it would appear that the Division bell is not operating properly in Speaker’s Court, and that those in the offices in that part of the Palace might not hear the bell properly. I hope hon. Members will not rely entirely on hearing the Division bell to know that there is a Division taking place. It is not unusual for there to be a Division. There may or may not be one when we conclude this debate, but it is not unusual that there should be a Division when we have Second Reading of a Bill.
For new Members who have not quite got it yet, if a Division takes place, it will take place immediately after the concluding speech by the Minister. In this case, the Minister is the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully), so if anyone is in any doubt as to when a Division might take place, if there is one, it will be after they see the hon. Gentleman’s name on the Annunciator. If they watch out for that, it will not matter that they cannot hear the Division bell, because they will know that a Division is likely, and on their monitor it will say “Division”.
I hope that that will help to prompt people to know that a Division might take place. I have no idea when that might be. I can only tell hon. Members that it will be at 7 o’clock at the latest; it depends on how long the hon. Member for Sutton and Cheam speaks at the Dispatch Box. But first, we have Robin Millar.
Robin Millar (Aberconwy) (Con)
Thank you, Madam Deputy Speaker. I sense a restlessness among colleagues, so my comments will be brief, and the moment we are all waiting for, when the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully), gets to his feet, will be upon us shortly.
It is a pleasure to follow the right hon. Member for East Antrim (Sammy Wilson). Northern Ireland is a part of the United Kingdom, and it is only right and proper that UK law and a UK subsidy regime must prevail in that part of the United Kingdom. I hope, indeed, that they will be rejoicing on the streets. My understanding is that the Government have, in effect, made it clear that article 10 of the protocol is redundant, given that the subsequent trade and co-operation agreement establishes a framework of mutual recognition of state aid rules, with which the Bill complies. Perhaps the Minister will clarify that in his remarks.
I want to make a point about how the Bill supports devolution. We have heard Opposition Members refer—not universally, but on a couple of occasions—to how the Bill damages devolution. There is much that could be said about the gaps between the way the world is viewed by Opposition Members and the way it is viewed by Government Members, but one such gap has come through during this debate in the constant references to things that are missing. I suggest that that gap indicates different ways of looking at things: while Government Members are happy to set down principles within which business can flourish and prosper, it seems to me from the comments made today that Opposition Members are looking for a high degree of prescription about what can and cannot be done. Those are different ways of looking at the world.
Let me make it clear that I am a supporter of the principles behind devolution. I want to draw out three principles in particular: local leadership, broader accountability and shared prosperity. Sadly, the first, local leadership, has never really been fully realised in north Wales. To us, devolution has led to decision-making powers flowing south to Cardiff bay. In Scotland, too, we have seen a centralisation of powers, with decision-making powers drawn from the regions to Holyrood and reserved to the Government there.
As just one example—I could give many—we saw that in the disbursal of EU funds. Only 9% of EU funds spent in Wales made it as far as local authorities for decision making; the majority were decided on and spent from Cardiff bay. England has its own problems and challenges in this area, but, by contrast, the figure in England was 36%: four times as much money and decision making flowed out into the local authorities and the regions from Westminster. That is a telling tale, because the sense in north Wales is still that Cardiff is distant and remote—accusations that are typically laid against this place. The Bill will help to address that and give local authorities and even the devolved Administrations freedom to set up targeted, effective and practical schemes in their area.
I must say, though, that something has changed in the air in north Wales since the arrival of this Government in Westminster. The sense of alienation is starting to evaporate. Those who know the area of the world I am talking about will know that in the Conwy valley and Aberconwy, the morning mists start to roll down the valley at this time of year, and they are starting to evaporate now thanks to the Government’s involvement.
There is much that I could say about how the United Kingdom Internal Market Act 2020 has changed things, but I will not, for reasons of time. I will say, though, that the prospect of inbound UK Government funds has rapidly mobilised my own council, Conwy County Borough Council. It is engaging with communities and leaders on their thoughts and plans for delivering change, and I am grateful for the support and engagement of its leader, Councillor Charlie McCoubrey, and the economy portfolio holder, Councillor Louise Emery. For my part, I have been meeting local councils, organisations, residents and business leaders in the community to seek their thoughts and advice, and there is no shortage of them.
The second principle that I would like to draw attention to is accountability. I welcome the universal reporting database being introduced through clause 33. My hon. Friend the Member for Weston-super-Mare (John Penrose) gave a tour de force on the benefits of the transparency that it will bring and even prescribed fresh air and sunshine to bring benefits to businesses.
The different reporting systems that exist in different parts of the UK have often clouded transparency and obscured comparisons. Wales and Scotland have different reporting regimes in many different areas—we have heard reference to patient waiting lists—and during the pandemic we have seen different local responses only causing further confusion. Key universal systems avoid such inconsistency, and the database provided for in the Bill will be one of those. They allow for public transparency and comparable information about how money is being spent in the UK.
Stephen Flynn
I thank the hon. Member. He said at the start of his speech that he respected devolution and believed in the principles of devolution, yet throughout his speech all he has done is criticise it, to the point where he is now criticising local authorities in Scotland. Far be it from me to defend a Tory-led local authority in Aberdeen, but why is he criticising local authorities, and how does that marry with his support for devolution?
Robin Millar
I thank the hon. Gentleman for his intervention, but I am not sure what he was listening to. Not one word of criticism of local authorities has passed my lips. I was explicit in starting my speech by addressing the principles of devolution. I suspect that he may be confusing the principles of it with the practice of it that he sees in Scotland. Accountability is important, and it has been allowed to slip, but I believe that the Bill addresses that by supporting and encouraging it.
The third and final principle that I want to mention is shared prosperity, which the Bill will support. Aberconwy has seen an impressive recovery from the pandemic, and according to some reports Llandudno has experienced the fastest recovery of any town in the UK. I pay tribute to those who are working so hard in their businesses, from Glenn Evans and his team at the Royal Oak in Betws-y-Coed to Clinton and his team at the Blend coffee shop on Clonmel Street in Llandudno. Right across Aberconwy, it is people like them who make that economic recovery a reality. We owe them a debt of thanks and gratitude for their hard work—it is not we in this place but they who make the difference, and I am grateful to them for it. The prospect of additional funds and subsidies coming their way—coming our way, into Aberconwy, directed by local leaders and businesses—provides the potential to capitalise on that endeavour, help economic recovery and bring forward the promise of a locally delivered prosperous future.
Of course, there is much to do. Other principles set out in part 2 of the Bill ensure that our internal market operates freely and without hindrance, avoiding the subsidy race that has already been referenced between different parts of the UK. Other parts of the Bill reduce bureaucracy and—again, I make this point—enable decision making by devolved Administrations in a targeted and effective way, faster and in a way that they could never do before.
Finally, I support the Government’s hopes for the Bill that it will enable a thriving competitive economy and, in north Wales, lead to the kind of investment that we want to see in renewable energy, road, rail and broadband connectivity, and, I hope, even a freeport. It is because I believe the Bill delivers on the principles of devolution and makes possible a prosperous future in Aberconwy that I will be voting in support of its Second Reading.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
It is a pleasure to respond to the debate, which in general has been a very considered and well-informed debate with some excellent contributions. We heard from the SNP spokesperson, the hon. Member for Aberdeen South (Stephen Flynn), the hon. Member for Aberdeen North (Kirsty Blackman) and the hon. Member for Richmond Park (Sarah Olney) about the many gaps in the Bill, while the right hon. Member for East Antrim (Sammy Wilson) highlighted concerns over the Northern Ireland protocol, which I will also mention in my contribution. Even the contributions from the Government Benches highlighted some of the issues and challenges with the Bill.
I start by echoing the concerns raised by my hon. Friend the Member for Feltham and Heston (Seema Malhotra) in her excellent contribution at the start of the debate regarding the lack of female representation on the Business, Energy and Industrial Strategy ministerial team. It is disappointing not to see balanced leadership, particularly in a Department working on such critical issues as increasing diversity in science, technology, engineering and maths and increasing start-up businesses among female entrepreneurs.
We recognise the need for legislation in the area of subsidy control to meet our commitments under the trade and co-operation agreement, and to ensure subsidies are provided to businesses with appropriate safeguards in place. It is clear that the current temporary arrangements are insufficient and have not provided the clarity that businesses and public bodies need. We also recognise that a new regime will allow local authorities and others to make some subsidy decisions more quickly under a simplified process than under the EU regime, and it is welcome that we are moving away from a system of advanced notifications towards one of self-assessment against a set of common principles. However, there are substantial issues with the Bill that have been raised in this debate.
Alex Sobel (Leeds North West) (Lab/Co-op)
Considering some of the procurement practices during covid, particularly for personal protective equipment, is my hon. Friend not concerned about the lack of definition around subsidies of “interest or particular interest”, which might create the appearance or the actuality of cronyism, considering the Government’s record?
Chi Onwurah
As always, my hon. Friend raises an excellent point. Indeed, he anticipates a couple of points I will be making. It is certainly the case that we should not leave this Government to define their own procurement principles. The Bill as it stands leaves a significant amount to secondary legislation. The balance between the efficiency of the system and the need for effective oversight, and, most importantly, the role for the devolved Administrations in developing and implementing the new system, are all important gaps.
First, as with previous Bills, including the National Security and Investment Act 2021, important aspects are left to secondary legislation. Public bodies need guidance on how to interpret the subsidy control principles, as we heard from Members during the debate. There is also little clarity on how the Bill will support the UK’s most deprived regions, which is something that was built into the EU state aid regime through the assisted areas system. The Bill was a key opportunity to spell out what levelling up actually means, but the Government have not risen to that challenge.
Secondly, there needs to be a balance between oversight and efficiency. An expedient system is vital, but we must be clear that any subsidy regime comes with the risk of market distortion and unfair discrimination, which is why the ambiguity regarding interested parties is a concern. It is also important to consider the role of the CMA’s subsidy advice unit and particularly to ask whether its lack of investigative and enforcement powers is appropriate. We will work with the Government to ensure that the right balance is struck. I hope that the Minister will provide more clarity when he winds up.
Finally, our most serious concern about the Bill relates to the role for the devolved Administrations in the new system. We have heard from Members across the House, as we did during the passage of the United Kingdom Internal Market Bill, that yet again the Government have given the matter little consideration. The Secretary of State’s intervention on that point did not provide the clarity that he seemed to think.
We recognise that subsidy control is a reserved matter, but the wider context cannot be ignored. Devolved Administrations have important powers in the area of economic development, so the Government need to tread carefully. Leaving so many areas to secondary legislation only means that there will be no requirement on the Secretary of State to consult the devolved Administrations when developing the system. The same point applies to the Secretary of State’s ability to call in subsidies. We are clear that the devolved Administrations must have an explicit role in developing and implementing the UK’s subsidy regime as part of a four nations approach.
Chi Onwurah
I am afraid not. I have to make progress and I have very little time. [Interruption.] The hon. Member has intervened on a number of occasions, and I am afraid that I need to make progress.
We recognise the need for the Bill to replace the insufficient current arrangements, but although it significantly increases the speed and ease with which public bodies can grant subsidies, the key question, as we have heard again and again, is what the Bill is for. We have still not had an answer. As my hon. Friend the Member for Feltham and Heston said, we lag behind our G7 neighbours in granting subsidies to our businesses. Speeding up the system will benefit businesses only if there is a proper plan in place. That is where an industrial strategy could step in, providing the framework for the Government to set priorities, target deprived areas and boost business investment.
Labour has set out a plan to make, sell and buy more in Britain. From green jobs in manufacturing electric vehicles and offshore wind turbines to FinTech, digital media and film, we must grow businesses and industries that are fit for the future. The use of well-designated, proportionate subsidies would be critical to that plan. Instead, thanks to the Secretary of State’s ideological aversion to industrial strategy, we have no clarity on how or where public money will be spent. I urge the Minister to give close consideration to the points that we have raised.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
It is a pleasure to respond to the hon. Member for Feltham and Heston (Seema Malhotra) and to follow the hon. Member for Newcastle upon Tyne Central (Chi Onwurah). I thank all hon. Members who have spoken in this important debate. I aim to respond to as many of their points as possible in the time available—I know that we have further business—but I would like to begin by quickly reminding the House of what the Bill signifies and what it will achieve.
The Bill is the very first subsidy control framework designed by the UK for the UK. It will be flexible and agile, allowing all public authorities to design subsidies that deliver strong benefits across the whole UK. For the first time, in all instances, public authorities will decide whether to grant a subsidy. The Bill will provide certainty and confidence to businesses investing in the UK. It will enable public authorities to deliver strategic interventions that will support our economic recovery and deliver on the priorities of the British people, such as levelling up.
We have talked a little about scrutiny; the hon. Member for Newcastle upon Tyne Central spoke about scrutiny of secondary legislation and guidance. I am glad that my hon. Friend the Member for Clwyd South (Simon Baynes) raised the issue of the lack of scrutiny in this debate. It is nice that the Opposition have found a couple of Back Benchers to come and join the debate, but it is outrageous that we have had so little input from Opposition Members.
This Bill will strengthen our Union by protecting our internal market through a single coherent framework that fully complies with our international obligations. On that note, I thank the hon. Members for Feltham and Heston, for Aberdeen South (Stephen Flynn) and for Aberdeen North (Kirsty Blackman) for their points. To ensure that the new regime works for all parts of the UK, we look forward to continuing to work closely with the devolved Administrations, as we have throughout its development, as the Bill passes through Parliament. We hope that the devolved Administrations can understand and support the approach that we have taken, and will give their legislative consent. I can say to the SNP Members who spoke earlier that to date we have had 30 meetings with the devolved Administrations on an official-to-official basis to discuss the Bill, and 10 at ministerial level.
We also heard a bit about the devolved Administrations’ input into guidance. Obviously an agreed framework is needed before there is something to give guidance for, and we have made that clear in discussions with our devolved Administration colleagues. We will continue to work with them as we work through that guidance.
Deidre Brock (Edinburgh North and Leith) (SNP)
The Minister will have noted the concern of the Welsh Government about the fact that the agriculture and fisheries subsidies will be within the scope of the UK subsidy regime as a result of the Bill. We have already heard today a member of the Minister’s party express concern about his local farmers being undercut by devolved Governments’ support for their farmers. Can the Minister assure us that this Bill and the United Kingdom Internal Market Act 2020 will not be used to interfere with decisions by the devolved Governments on devolved matters such as agriculture?
Paul Scully
We have consulted on agriculture, fisheries, and sanitary and phytosanitary measures. There was no particular agreement among the devolved Administrations, but some people raised those issues.
The Bill introduces a permissive framework. It is totally different from the EU state aid regime, which is the only regime of its kind in the world. No other country, no other trading bloc, has such a restrictive regime, whereby authorities must ask permission and then wait for months to receive it. The Bill flips that on its head. A public authority can give support where it feels the need for it, and only the most distortive levels of support will then be challenged and go through the courts.
Let me turn to some of the issues raised by the hon. Members for Feltham and Heston and for Aberdeen North, and by the right hon. Member for East Antrim (Sammy Wilson) in relation to how this interacts with the Northern Ireland protocol. I reiterate that the UK will continue to be a responsible trade partner that respects our international obligations. However, as the Secretary of State for Business, Energy and Industrial Strategy said in his opening speech, the robust subsidy regime that the Government propose makes it clear that there is no need for EU state aid rules to continue to apply in Northern Ireland, and that all subsidies will be within the scope of the domestic regime. This framework has to work with whatever is involved in our international obligations. However, as the right hon. Member for East Antrim will know, the Command Paper gives the details of that, and I should love nothing more than to hear of rejoicing in his constituency.
Sammy Wilson
The Minister argues that the robust regime should mean that there is no need for EU state aid to apply because there is already sufficient scrutiny of any subsidy regime. Does he not accept that the fact remains, as far as the EU is concerned and as far as the law states at present, that the EU state aid rules still have to apply in Northern Ireland?
Paul Scully
I refer the right hon. Gentleman to the Command Paper, and assure him that those negotiations will continue.
The hon. Members for Feltham and Heston and for Aberdeen South raised the important question of how the Bill helps deliver on our priorities to level up opportunity in this country, ensuring that every region and nation benefits from growth. I can reassure Members throughout the House that our new regime will give authorities the flexibility to deliver subsidies where and when they are needed to support economic growth, without facing excessive bureaucracy or the same lengthy pre-approval processes that they faced while we were members of the EU. In response to points raised by the hon. Members for Feltham and Heston and for Aberdeen South, I would highlight that assisted area maps are not the only way of addressing inequalities. A map can be a blunt instrument, making it difficult to address inequality and disadvantage within regions.
I also want to respond to concerns raised by my hon. Friend the Member for Weston-super-Mare (John Penrose) on whether the domestic regime would allow Ministers to resist the siren call of ever greater intervention in the market, and whether it would be sufficiently rigorous compared with the EU’s prescriptive and prohibitive rules. I want to reassure the House that the regime in this Bill is indeed robust. It operates alongside the UK’s existing spending controls—the Treasury controls—which are subject to significant parliamentary control. The Government have no intention of propping up unsustainable or failing businesses, nor will future Governments be able to do so.
The hon. Member for Feltham and Heston was right to say that it is vital that there is independent oversight of the UK’s domestic subsidy control regime. The subsidy advice unit will provide advice that is genuinely useful to public authorities in designing their subsidies and assessing them against the regime’s requirements.
My hon. Friend the Member for Amber Valley (Nigel Mills) talked about advance approval. As I say, this is a permissive regime, so this is not about advance approval; it is about advice that public authorities will be able to take. On the Secretary of State’s referral powers in relation to the subsidy advice unit, he will not be able to overturn decisions unless they relate to security issues or international obligations. The regulation of harmful and distortive subsidies is reserved to the UK Parliament. The Secretary of State therefore has a responsibility to ensure that the new regime is enforced consistently across the UK.
The hon. Member for Feltham and Heston and my hon. Friends the Members for Weston-super-Mare and for Thirsk and Malton (Kevin Hollinrake) raised points on the importance of transparency in the regime. Our regime strikes a proportionate balance between minimising the administrative burden for public authorities and gathering more data. I think this is more about an issue with the interoperability of databases themselves, rather than about legislation. The guidance that we will work on will help public authorities and recipients to understand the practical application of the regime and what they will need to do to comply with it.
To conclude, I want to thank right hon. and hon. Members for their contributions to an excellent and informative debate today. I strongly believe that the new UK subsidy control regime that the Bill sets out will help us to deliver key Government objectives, protect jobs and make the UK the best possible place to start and grow a business. I look forward to discussing the Bill further in Committee, but for now I commend it to the House.
Question put, That the Bill be now read a Second time.
Subsidy Control Bill
Tuesday 14th December 2021
(2 years, 11 months ago)
Lords ChamberRead Full debate Subsidy Control Act 2022 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 13 December 2021 - large print - (13 Dec 2021)
Subsidy Control Bill
Monday 31st January 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 84-II Second marshalled list for Grand Committee - (31 Jan 2022)
Lord Wigley
Lord Wigley (PC)
My Lords, I am delighted to have the opportunity to open Committee on this important Bill by moving Amendment 1, which stands in my name, and for which I am grateful for the support of the noble and learned Lord, Lord Hope, and the noble Baroness, Lady Humphreys. I apologise that I was unable to participate at Second Reading: at that point I was self-isolating after testing positive for Covid. I wrote to the Minister to explain my absence. I was able to follow the whole Second Reading debate on the parliamentary live feed and from that I am aware that the dimension I raise in this amendment was touched upon by several speakers—and of course, I am conscious of the sentiment expressed in Senedd Cymru on the matter.
The point of the amendment is to ensure that Senedd Cymru and the Scottish Parliament are fully involved in the procedures triggered by Clause 1, and thereby the application of the Act for which Clause 1, of course, provides. This goes to the heart of the issues addressed by the Bill. That relates to the essential and totally valid role of Senedd Cymru and the Scottish Parliament in matters relating to subsidy control. I make it clear that I accept that there needs to be a framework in any common market or customs union in which subsidies can be permitted or prohibited. Therefore, there has to be a clear and transparent mechanism for defining the context within which subsidies can be paid, and therefore also the mechanisms of subsidy control that are necessary.
Let us be clear: subsidies have been a tool of government for both Conservative and Labour Governments down the years. One has to think only of the agricultural subsidies applied in UK long before our accession to the Common Market to see that such interventions have been regarded as legitimate. Before the UK entered the European Union, both the Wilson and Heath Governments operated substantial capital and revenue interventions, such as the selective employment tax and the regional employment premium. At one time, such schemes on a revenue basis and capital investment schemes could provide as much as 45% support for manufacturing industry investment. Indeed, when I was head of finance at Hoover, we negotiated an investment package in which £11 million out of a £16 million expansion scheme—substantial money in the early 1970s—came from public funds.
However, in acknowledging the validity of such interventions, as I believe the Minister does, it would be quite unacceptable for the power to decide whether subsidy controls are necessary to rest in one legislature alone. It must be on the basis of parity of esteem for all relevant legislatures—and Senedd Cymru and the Scottish Parliament are most certainly relevant legislatures. It would be totally unacceptable if one Parliament could legislate to protect its own interests while other Parliaments, with responsibility for economic development within their nations, were denied that power. If such powers are to be at the disposal of one partner within the union, they must be equally available to other nations.
It could be that the intention of the Government in proposing the wording of Clause 1(7) is to use the term “an Act of Parliament” in a generic manner, but the definition in Clause 89, the interpretation clause, rules that out, as indeed does the normal usage of that term at Westminster. It may well be that the Government do indeed regard Westminster as the senior partner in these matters and are deliberately choosing to legislate in a preferential manner that enables Westminster, by the use of Acts of Parliament, to seize control of this entire agenda. If that is so, it can be little surprise that the devolved Governments are extremely unhappy about the implications.
This matter, in various guises, is likely to arise again at various junctures in our deliberations. Indeed, other amendments on the Marshalled List raise these considerations. I shall listen to other speakers when they address those other amendments in due course, and there may well be better ways of dealing with this fundamental dimension than the wording that I propose in Amendment 2. However, let the Committee be in no doubt that an equal, even-handed approach must be built into the Bill for it to be acceptable in both Wales and Scotland. On that basis, I beg to move Amendment 1.
Lord Hope of Craighead (CB)
My Lords, I have added my name to the amendment of the noble Lord, Lord Wigley, and I agree with what he has just said in support of it. As he mentioned, it will be apparent from the many amendments on the Marshalled List that mention the devolved Administrations that there are real concerns that the provisions of the Bill as they stand will have an adverse effect on the relationship between those Administrations and the UK Government.
I recognise that subsidy control was made a reserved matter by Part 7 of the United Kingdom Internal Market Act, but that does not mean that the UK Government should shut their eyes and ears to the views of competent authorities throughout the UK, and of the devolved Administrations themselves, as to the way that subsidies are distributed and controlled. After all, while we were in the EU the Commission had a very robust evidence-based consultation procedure which ensured that other voices were heard, and that should continue to be the position.
“Respect” and “co-operation” were the key words in the recent report by the Constitution Committee, of which I am a member, about building a stronger union in the 21st century, but I am afraid that those virtues were absent when the internal market Bill was being designed and debated in this House and the other place. As a result, relations with the devolved Administrations became very strained. We do not want to go back to that, but the way in which the Bill has been drafted appears to pay very little attention to the concerns and needs of the devolved Administrations.
I am sure that the Minister will remember, very well, the conversations we had with regard to the amendments I tabled to the internal market Bill to enable exemptions from market access principles to be given to agreed common frameworks. They did not seem to get us very far, until, at the very last moment, there was a change of mind in the Government and an appropriate amendment was put through. Of course, I understand that the Minister’s hands were tied, but I hope there may be a little more flexibility this time.
I respectfully ask the Minister to say something about the legislative consent procedure in relation to the Bill. The Constitution Committee said:
“For the Sewel convention to operate well, constructive relationships and good faith is required between the UK Government and the devolved administrations.”
I hope that that is how things are being handled this time and that the Minister will keep the Committee updated as discussions continue, with a view to settling the devolved Administrations’ concerns, which I believe are still there; as I understand it, a consent Motion has not been achieved in either case.
Baroness Humphreys (LD)
My Lords, I have added my name to Amendment 1 in the name of the noble Lord, Lord Wigley, and support Amendments 13, 16 and 17 in the name of the noble Lord, Lord McNicol of West Kilbride, to which I have also added my name. Clause 1 provides an overview to the contents of the Bill. Amendment 1, in a few words, points out exactly what is wrong with the clause and the Bill itself, which is that, by their very omission from the Bill, there is no role to be played by the devolved Ministers or the devolved Administrations in the subsidy control scheme, even in areas where they have devolved competence.
All noble Lords agree and accept that the regulation of subsidies is a reserved matter, as do I and my colleagues from the devolved nations, but no consideration is given in the Bill to the sensitive issue of the UK Government acting in the areas of economic development, agriculture and fisheries—areas which, until now, have been overseen by the devolved Administration under powers given to them under the Government of Wales Act 2006. I understand the Minister’s desire to create a UK-wide scheme for the regulation of subsidies, and I know that he sees it as a way to strengthen the union, but I must respectfully disagree with him. Strengthening the union is a political concept and should have no place in underpinning a practical scheme such as this.
I refer the Minister to this document: the supplementary legislative consent memorandum agreed by the Senedd to the Building Safety Bill, which will have its Second Reading in this House tomorrow. I must admit that it gladdened my heart to read it. In that Bill, the Government place a requirement on developers across the UK to belong to a single, independent new homes ombudsman scheme. Paragraph 4 of the Welsh Government LCM reads:
“As housing is a devolved matter, the UK Government has worked with devolved governments to seek agreement for the new arrangements under the NHO to be UK-wide for home owners and developers.”
Amendments were tabled by the UK Government at both Commons Committee and Report stages, one of which provided for consultation with Welsh Ministers before the Secretary of State makes arrangements for an NHO scheme. The list includes amendments made at the request of the Welsh Government that recognise their devolved competence.
So we have another Bill seeking to create a UK-wide scheme, just as the Subsidy Control Bill does, but what a difference in approach between the two government departments. The Department for Levelling Up, Housing and Communities has been constructive, co-operative and willing to recognise the powers of the devolved Governments. Because the housing department has chosen to collaborate with the devolved Governments, one must ask the Business Minister: does he believe that this has really resulted in a weakening of the union? I would argue that the union is at its strongest when each component part is strong and using its powers, experience and knowledge to contribute positively to the proper functioning of the whole. The acceptance of Amendment 1 would begin to achieve that.
The amendments to Clause 10 to which I have added my name follow a similar theme and would clarify the role of devolved Ministers in making a streamlined subsidy scheme. They clarify that those schemes must be laid before the relevant devolved legislature and, if modified, the modified terms must be laid before the relevant devolved legislature too. I fully support those amendments. If both noble Lords wish to table their amendments again on Report, they will have my full support.
Finally, I am aware that the Under-Secretary of State, Paul Scully, was scheduled to meet the Welsh Finance Minister on Thursday last week. Can the Minister confirm that the meeting took place and when, and tell us what was discussed and the outcome?
Baroness Bryan of Partick (Lab)
My Lords, I too support this group of amendments.
I recognise that some aspects of the Bill should be welcomed. It has the potential to produce a more flexible and responsive system. The ability to streamline could make a crucial difference to local economies. What is concerning about the Bill is that the devolved Administrations are treated as having the same role in their economies as that of local authorities. It fails to recognise that each has a strategic responsibility for their national economy. Despite the Minister’s assurance that
“the Government have worked closely with the devolved Administrations, including sharing the consultation response document ahead of publication and carefully considering their representations”—[Official Report, 19/1/22; col. 1711.]
the devolved Administrations disagree and feel that they have been told rather than consulted.
The Scottish Government argue that the Bill should give Scottish Ministers the same powers as the Secretary of State has over matters such as referring subsidies to the Competition and Markets Authority, making streamlined subsidy schemes, and providing subsidies in response to natural disasters and other emergencies. The Welsh Government are concerned by the powers being given to the Secretary of State to shape the regime in future, with little scrutiny by the UK Parliament and none by Welsh Ministers or the Senedd. Both Governments agree that this legislation undermines powers which are fundamental to their ability to shape their own economies and industrial development.
People in Scotland and Wales view their devolved Governments and Parliaments as being responsible for the economy of their country. When they voted in last May’s elections, they chose to vote for policies that were different from those of the UK Government. My worry is that this Government want to turn back the clock to pre-devolution times.
Having looked closely at the Minister’s response at Second Reading, and the concerns raised about the exclusion of the devolved Administrations from some of the powers given to UK Ministers, I could find no explanation for why this should be the case. I hope the Minister will give a clear reason why these Parliaments and elected Governments should not have similar powers to those that the Bill awards to UK Ministers.
Baroness Jones of Moulsecoomb (GP)
My Lords, these amendments, which I fully support, allow the Senedd Cymru and the Scottish Parliament actually to decide issues for themselves. The legislation itself is deeply annoying because this should be standard in every Bill. I do not understand why the Government keep leaving it out.
In the Scottish independence referendum, the people of Scotland were promised devo-max. They received no such thing and then Brexit came along and gave this Government an excuse to steadily unpick devolution and centralise power in the UK Government. This is evidenced by Clause 1(7), which allows the UK Parliament to legislate contrary to the Bill but does not allow the devolved Parliaments any similar power. I simply do not understand that.
I will support these amendments if they come back on Report. I hope by then the Minister will understand that this should be in every single Bill. It should not be fought over every time. We do not want constant battles in Parliament to enact the devo-max that Scotland was promised. So please let us get some movement on this and actually make it fit for purpose.
Baroness Randerson (LD)
My Lords, I will speak specifically to Amendment 20, in the name of the noble Lord, Lord McNicol, to which I have added my name. Before I do, I want to place on record my concern that our debates on the Bill are being held only in Grand Committee. This Bill is of equal significance to the internal market Bill, and it has both economic and constitutional significance way above the status it is apparently being given by being located here.
Amendment 20 closely reflects the concerns of the Welsh Government, and there are of course similar concerns among the Scottish Government. In comparison with the other amendments in this group, Amendment 20 is a modest request for the Secretary of State to seek consent from the devolved Governments. However, if consent is not given the Secretary of State can go ahead anyway. This reflects a formula accepted by the Government in other pieces of legislation, which I assume is why it was written in this way—because it is the least controversial option of those put forward. It implicitly allows for a situation in which a devolved Government might seek simply to frustrate the UK Government’s efforts without full discussion and, therefore, does not reflect that in the vast majority of situations devolved Governments seek to negotiate in good faith with the UK Government. That is what the Welsh Government have certainly done this time, but they are not prepared to issue an LCM.
I signed the amendment despite my reservations that a Secretary of State’s Statement is to go to the House of Commons and that this place is not referred to. Given our attention to detail, I would hope that both Houses would be kept informed.
The amendments in this group all seek to restore an appropriate counterbalance to the sweeping powers the Bill allocates to the Secretary of State. Despite the Government’s chastening experience during debates on the internal market Bill, they seem heedlessly determined to continue their smash and grab on the powers of the devolved Parliaments. I am pleased to hear that at least one department of the UK Government has seen the light on this, but that does not alter the fact that the Bill is unreconstructed in its approach.
The Government talk about strengthening the union but are seizing every opportunity to undermine devolution. Powers over economic development and its funding have been devolved, in effect, since the Welsh Development Agency was established in 1975. Long prior to devolution, it was an example of excellence in pursuing successful economic development opportunities, mostly using funding.
The Minister will undoubtedly protest that nothing here removes powers over economic development or agriculture, for example, but power without funding power is a meaningless shell. This system allows the Secretary of State to halt schemes devised by devolved Governments because they are deemed unfair, but it does not in turn allow the devolved Governments to complain about the Secretary of State’s schemes devised for England.
It is not surprising that this is a sensitive issue in Wales. Under the EU system, two-thirds of Wales benefited from regional funding. In the Brexit debate prior to the referendum, people in Wales were promised specifically that they would not lose a single pound or euro, and voted accordingly. That promise proved very wide of the mark, and people in Wales feel betrayed.
It is worth noting that devolution in Wales is much less controversial than in Scotland. It enjoys very broad support across the political spectrum, and chipping away at the Welsh Government’s power to deliver on economic development or agriculture, for instance, is a dangerous path for the UK Government to take. I hope Ministers will see the light.
Lord McNicol of West Kilbride (Lab)
My Lords, I thank the noble Baronesses, Lady Humphreys and Lady Randerson, for putting their names to a number of my amendments in this group. I thank the noble Lord, Lord Wigley, as well. His opening remarks summed up the thrust of group one, which is to ensure that the devolved Administrations are fully involved and engaged, and that there is parity of esteem for all the relevant legislatures. It set up the framework for this group of amendments rather well.
As we have heard, this is the first of several important debates on devolution, one of the major concerns about the Bill. As has been noted, at Second Reading the Minister outlined the number of meetings he had had with devolved officials—45, I think, 13 of them to talk about the regime itself. It is concerning that those meetings have taken place but we still find ourselves in a situation where there are unresolved issues with the Scottish Government and the Senedd.
My take on this is that it will not take a lot to move this on. In fact, as the noble Baroness, Lady Randerson, said, Amendment 20 is a very modest amendment, which would give the Secretary of State the power still to press ahead after a month if an agreement has not been reached. These are not tough amendments, especially following some of the debates in the Commons.
On that subject, I thank the department for releasing the guidance, but it is a bit bizarre that the Bill passed through the Commons stages without any of the guidance being published or being able to be read. There are still a lot of square brackets in the guidance and bits that needs to be filled in. As we will touch on later, the concerns that the DPRRC raised will, I hope, lead to some positive changes to the Bill.
A number of noble Lords spoke at Second Reading of their concerns and those of the devolved Administrations, many of which we shared and echoed. Amendments 13, 16 and 17 are intended to make it clear that the devolved authorities can make and modify streamlined subsidy schemes. As we are aware, at present the Bill reserves that power for the Secretary of State, although comments were made in the debates in the other place by the Commons Minister that this could be broadened out. It would be good to hear from the noble Baroness, when she responds on behalf of the noble Lord, Lord Callanan, whether we have seen any movement or development in broadening it out.
We also saw, throughout the Brexit process, which was touched on by a number of noble Lords, that when we got down to the detail in your Lordships’ House we were able to make changes and amendments. The noble and learned Lord, Lord Hope, talked about some of those regarding the internal market Bill. It would be good if we did not have to take this as far or go through the same pain and difficulties that we did on that Bill, especially when the amendments we are looking to make fit into and sit alongside the same changes made there. With that, I will conclude. I look forward to the noble Baroness’s response.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank the noble Lords, Lord Wigley and Lord McNicol of West Kilbride, for tabling Amendments 1, 13, 16, 17 and 20, and all other noble Lords who participated in this debate. I say at the outset, in answer to the noble Baroness, Lady Randerson, that the use of the Moses Room is not intended to minimise the importance of this Committee stage. We agreed through the usual channels that this would be the best use of time.
Before I discuss each amendment in turn, I start by saying that the proposed UK subsidy control regime empowers public authorities, including the devolved Administrations, to award subsidies flexibly and quickly to meet their policy objectives. As noble Lords have said, the United Kingdom Internal Market Act 2020 amended the relevant devolution Acts to make the regulation of subsidies a reserved, or in Northern Ireland an accepted, matter. The devolved Administrations are, and will remain, responsible for spending decisions on devolved subsidies within any subsidy control system.
As the Minister in the other place clarified, the devolved Administrations have standing to challenge UK Government or any other subsidies in the Competition Appeal Tribunal in instances where the interests of people in the areas in which they exercise their responsibility are affected. Some provisions of the Bill engage the legislative consent Motion process, as they alter executive competence; for example, they confer new functions on DA Ministers. We hope that the devolved Administrations will agree with us on the importance of the Bill and be able to give us their legislative consent for the relevant provisions. Those discussions are continuing and I will keep the Committee updated.
We have engaged closely with the devolved Administrations throughout this process at ministerial and official level, not only on the LCM process but on our policy development ahead of the Bill’s introduction, in advance of our publication last week of the illustrative documents, and as we continue through the parliamentary process in the run-up to implementation. In response to the noble Baroness, Lady Humphreys, I confirm that the Minister for Small Business met the Welsh Minister for Finance and Local Government, Rebecca Evans, last Thursday—27 January. The meeting discussed the Bill as part of ongoing engagement to understand concerns on it and to provide reassurance.
I will begin with Amendment 1. Clause 1 provides an overview of what each part of the Bill will cover and establishes its application to other legislation. Clause 1(7) and (8) specify that if a subsidy is granted, or a scheme is created, using powers contained in either primary or secondary legislation, the subsidy control requirements will apply, unless an Act of Parliament specifies otherwise. The specific reference to an Act of Parliament here is solely to clarify that nothing in the Bill should be interpreted as conflicting with the fundamental principle that no Act of Parliament may bind a future Parliament; in other words, it reflects the constitutional reality and does not create any further exemption or special treatment.
Amendment 1, proposed by the noble Lord, Lord Wigley, extends this clarificatory statement to cover the Senedd and the Scottish Parliament. In doing so, it fundamentally changes the character of this statement from a clarification to an exemption from the subsidy control requirements. The amendment would allow the Senedd and the Scottish Parliament to set aside the subsidy control requirements set out in the Bill, not only for the purpose of subsidies given directly in primary legislation, for which specific provision is made in Schedule 3, but for subsidies given by means of a power in that legislation; in other words, for all devolved spending powers in Scotland and Wales.
The discrepancy highlighted here between the Parliament of the United Kingdom and the legislatures in Northern Ireland, Scotland and Wales is not a matter of government policy but a reflection of constitutional reality. The subsidy control regime differentiates between devolved legislatures and Parliament in a way that respects the devolved legislatures and reflects this Parliament’s status as the supreme legislative body of the United Kingdom. The devolved legislatures have a unique constitutional status and we have ensured that the requirements placed on subsidies given directly in devolved primary legislation are proportionate and respectful of their status and processes. Schedule 3 sets out the specific arrangements that take account of this. None the less, it is important that the subsidy control requirements apply comprehensively and that we do not create exemptions.
As for subsidies given through powers conferred by Parliament or the devolved legislatures in secondary legislation or otherwise, it is essential that these are compliant with the subsidy control rules without exception. As it stands, the clause simply clarifies that express or implied repeal by a future Act of Parliament remains a possibility. It does not suggest that the Government will, on a whim, propose legislation that exempts a particular project or power from the subsidy control requirements.
It is absolutely right that subsidy control is a reserved matter: by its very nature, it affects how all public authorities in the UK, including devolved authorities, may exercise their spending powers. That is because its purpose is to establish common rules for different authorities with different interests and policy objectives to protect UK competition and investment. The Bill will also facilitate our compliance with our international obligations, including those set out in the EU-UK Trade and Cooperation Agreement, which reflect exactly this constitutional reality.
I turn to Amendments 13, 16 and 17. Clause 10 concerns the making of subsidy schemes and streamlined subsidy schemes. Public authorities using a streamlined subsidy scheme will not have to access any subsidies they award under the terms of the scheme against the subsidy control principles. Streamlined subsidy schemes will have parameters for use that must be complied with by the public authorities using them, and can be made by a Minister of the Crown. Two illustrative streamlined subsidy schemes were published by the Government last week; I trust that they provide practical examples for noble Lords of the possible terms of these parameters for use.
Together, Amendments 13, 16 and 17 would have the effect that a Scottish Minister, a Welsh Minister or the Northern Ireland department would have the power to make streamlined subsidy schemes and lay them before their relevant devolved legislature. I will therefore take them together. The first amendment would allow streamlined subsidy schemes to be made by Ministers in Scotland or Wales or the Northern Ireland department. The second and third amendments would require such streamlined subsidy schemes to be laid before the relevant devolved legislature when made or amended.
Related amendments on this matter, regarding the role of the devolved Administrations, were made in the other place. The position of the Government remains that we will create streamlined subsidy schemes for public authorities across the UK to use to award subsidies that help UK-wide priorities. Streamlined subsidy schemes will therefore function best when they apply across the length and breadth of the United Kingdom. The Government will design these streamlined subsidy schemes such that they are fit to be used by public authorities in all parts of the United Kingdom.
Given that these streamlined subsidy schemes will be part of the UK-wide subsidy control regime, the appropriate place for them to be laid is in this Parliament. We have published two illustrative streamlined subsidy schemes and an accompanying policy statement that sets out for Parliament how the Government intend to use these schemes. We have worked with the devolved Administrations while developing this policy at both official and ministerial level. Officials will continue their close engagement with the devolved Administrations as the regime continues to develop. Finally, it is important to note that Scottish Ministers, Welsh Ministers or a Northern Ireland department, as primary public authorities, can also make schemes for use by other public authorities where that is within their existing functional powers; for example, the Scottish Government may choose to make a scheme for use by local authorities in Scotland.
On Amendment 20, Clause 11 sets out the terms for making regulations to define subsidies and schemes of interest or schemes of particular interest. The amendment would require the Secretary of State to seek the consent of each of the devolved Administrations before making regulations on subsidies, schemes of interest or schemes of particular interest under the clause. If this consent was not forthcoming, the Secretary of State would be required to make a statement to the other place explaining why they had chosen to proceed with the regulations without DA consent.
This amendment was also raised in the other place; the Government’s position on it remains the same. Regulations made under Clause 11 will define subsidies, schemes of interest and schemes of particular interest to ensure that the work of the subsidy advice unit is focused on subsidies and schemes that are most likely to cause negative effects on competition and investment in the United Kingdom, or which may do the same to our trade with other countries.
These regulations are key to the functioning of a reserved policy area. It is right, therefore, for the regulations to be debated and voted on here in the UK Parliament. I simply do not believe that it is appropriate to require the Secretary of State to seek consent even when the Secretary of State may ultimately proceed without that consent from the devolved Administrations on a reserved matter. A requirement to seek the consent of the devolved Administrations each time regulations are made under Clause 11 also risks introducing significant delays into the process, particularly if regulations need to be amended quickly in the future, such as in the event that economic conditions change rapidly. In such cases, the Government may need to legislate rapidly without consent, so the amendment would not achieve its aim.
The Government have had numerous discussions with Ministers and officials in the Scottish Government, the Welsh Government and the Northern Ireland Executive and we are committed to continuing to engage regularly with them. We have published illustrative regulations on subsidies and schemes of interest and of particular interest, in addition to the accompanying policy statement outlining the Government’s approach to this important question. Ahead of publication, officials have discussed the approach to these regulations with each of the DAs, taking on board their comments and suggestions as the policy has developed. We have also provided early sight of the draft regulations for comment ahead of publication. I assure noble Lords that this engagement will continue as we prepare for implementation of the regime. I also welcome any comments or questions that my noble friend may have regarding the illustrative products. Indeed, I welcome any further comments or questions from the devolved Administrations. I therefore humbly request that the noble Lord withdraws his amendment.
Lord Wigley (PC)
My Lords, I am grateful to the Minister for her response, which I will come back to in a moment. First, I thank all noble Lords who have participated in this short debate. The noble and learned Lord, Lord Hope, spoke of respect and co-operation between Westminster and the devolved Administrations. That goes to the heart of what we are talking about. We need a regime, as far as these aspects of business are concerned, that has mutual respect and co-operation between all parties; otherwise, we are bound to find ourselves in a position where one body is trying to outdo the other and perhaps to gain political kudos for doing so. That is not what this should be about.
The noble Baroness, Lady Humphreys, whose support I was grateful to receive, spoke about the Bill giving no consideration to the issues that arose in respect of earlier Westminster Bills taking powers from the devolved Administrations. That is the feeling that exists, certainly in Cardiff Bay and the Senedd and, as I understand it, in Edinburgh as well.
I was grateful to the noble Baroness, Lady Bryan of Partick, for her comments. She highlighted the failure of Westminster to adequately consult in good time. That, again, is an element of this lack of respect. By properly consulting in time, there is an opportunity to be able to amend proposals taking such consultation on board. But it is done at the last moment. I understand that one consultation took place last Saturday—not from this department, I think—on something that is happening today. That is no good. There has to be an active engagement between the Governments of our three nations, or four nations if we include Northern Ireland—I have not included Northern Ireland in this because of the complex situation there, but of course the principles apply equally.
The noble Baroness, Lady Jones, spoke of the need to have proper respect for devolved Administrations. That should run through every Bill. I noted the strong feelings that the noble Baroness, Lady Randerson, who spoke mainly to Amendment 20, had concerning the consent of the devolved Administrations. The parity of esteem that the noble Lord, Lord McNicol, talked about goes to the heart of this issue.
The other amendments in this group will no doubt be taken at later stages in different guises, because they touch on subjects that arise in different parts of the Bill, but the noble Baroness, Lady Bloomfield, said that the question of the relationship between the Governments in Cardiff, Edinburgh and here at Westminster “reflects the constitutional reality”—those are the words that she used. Those words will create a reaction in Edinburgh and Cardiff that will cause even greater problems.
We need to seek a new partnership approach. If the unity of purpose within these islands is to mean anything, it must be on the basis of respect between all three or four partners and not the idea that because Westminster was the original one and the all-powerful one, it can overrule or ignore what is felt in Edinburgh, Cardiff or Belfast. I believe that it is possible in the general context to get a formula that can reflect that need for recognition and respect, but it is not going to be achieved in the way that the Bill is drafted. The reaction in Cardiff and Edinburgh was totally foreseeable and it could have been avoided—and it needs to be avoided.
Lord Wigley
“(1A) No payment may be regarded as a subsidy if it is equally and freely available to all enterprises whose economic activity, to which the payment relates, is undertaken wholly or largely within the territory of the body making the payment.”
Lord Wigley (PC)
My Lords, I apologise for appearing to hog the Committee at this early stage. I will have a self-denying ordinance as things go forward, I promise. Amendments 2 and 3 are in my name and go to the heart of the use of subsidies as a legitimate tool for securing economic objectives. From the Minister’s remarks at Second Reading, it is clear that the Government accept that in some circumstances the payment of subsidies may be legitimate. Surely that must be right.
Let us take as an example the Covid crisis. If the payment of subsidies was necessary to enable a company to bring forward a vaccine more quickly, say, or to enable an adequate supply of face masks to be available for hospital and home care workers, if that is the only way of securing such socially necessary provision, no one in their right mind would oppose such payments being made. Equally, if subsidies were made to one company to give it an unfair advantage over another, that would clearly not be an acceptable use of public funds, unless it was to enable economic or social benefits to become available in a manner that would not have been possible by paying similar subsidies to other potential providers.
This brings us to the fundamental question of the circumstances in which the payment of subsidies is legitimate and who decides that that is the case. I do not pretend for one moment that we can define in legislation all the circumstances and eventualities in which a credible argument can be made for the use of subsidies, although there clearly needs to be transparency and the circumstances need to be defined in terms that can be appreciated by those who might want to supply goods or services for which subsidy payments may arise. This might be difficult to define in words that are both comprehensible and able to withstand scrutiny in the courts.
To make that process easier, I believe that it would be helpful if some of the principles on which a determination of the efficacy and appropriateness of subsidies could be defined in the Bill. If such a detailed approach is difficult—or, indeed, impossible in some circumstances—at the very least there should be some principles spelled out in legislation for the benefit of the Governments of the four nations of these islands and for the guidance of those involved in the provision of goods and services, who have the right to know the ground rules within which they operate.
Amendment 2 seeks to deal with a set of considerations that may well arise for Governments trying to operate within the framework of the Bill. For colleagues to appreciate the background against which I bring it forward, I draw the Committee’s attention to the way in which successive Governments in Wales have tried to tackle the endemic unemployment levels that have blighted Wales for most of the last century, consistently running at twice the level experienced in England. To tackle this, the Welsh Government have—absolutely rightly, to my mind—tried to ensure that public sector contracts for the provision of goods and services in Wales go, as far as possible, to contractors based in Wales or those that will make it their policy to employ people living in Wales to undertake the work.
Clearly, there has to be value for money and tender prices are a factor that cannot be ignored, but that is only one of several relevant factors. The best deal for the community as a whole is not necessarily ensured by insisting that tender prices are the only factor that determines where widgets must be purchased. Quality of product, security of supply, and aftersales service are absolutely legitimate considerations which may trump a pure price consideration.
There is also the effect on the local economy. It is worth noting that in pursuing a local sourcing policy, which clearly can also have significant environmental benefits by cutting unnecessary transport costs, the Welsh Government have succeeded in raising the level of local sourcing from under 35% to some 55% over the past 20 years. The target is to push that figure to 70%. To my mind, that is an absolutely valid approach. If sandwiches for Welsh hospitals can be made locally rather than brought in from Birmingham or London, they most certainly should be sourced locally, as should service provision contracts. There was a nonsense a few years ago when a contract for grass cutting in schools in Anglesey was apparently placed with a company in the east Midlands.
The net effect of this approach has been to reduce Welsh unemployment figures so that they now stand below the level in England for the first time in my lifetime. Activity rates have also increased.
I readily concede that this approach does not solve all our problems. The level of GDP per head of population remains stubbornly low, and I understand that this argument has to be confronted. The quality of work and the added value must also come into the equation. Our Governments, in Wales and Scotland as well as Westminster, must take these considerations on board when developing public policy.
In this amendment I seek to write into the Bill a provision that states that it is absolutely acceptable for Governments to seek to secure economic activity within the communities for which they have responsibility and that it is legitimate in some circumstances to pay subsidies to businesses that employ people within those communities and pay taxes to local government in those areas, and whose profits may circulate in those local economies.
I make it clear that this is not a block on tendering for contracts to provide goods and services for an area. Those who are primarily based away from that area should not be debarred, but surely it is necessary that when such decisions are made, consideration is given to whether companies are willing to locate an office in the areas offering subsidies, to purchase supplies from within those economies and to have a transparent policy of recruiting people in those areas, preferably to work within their communities.
My amendment states that no payment should
“be regarded as a subsidy”
for the purpose of this Bill
“if it is equally … available to all enterprises”
that undertake “economic activity” to which the subsidy relates “within the territory” of the governmental body making any such payment.
In his wind-up speech at Second Reading, the Minister stated that it would continue to be in order for a public authority to give subsidies if in doing so it is “addressing regional inequality”, so I hope that he will either accept the amendment or undertake to bring forward his own, either at the end of Committee or preferably on Report when it can be voted on. It may be that the wording of this amendment needs to be tightened and more focused. What I now seek is an indication as to whether the UK Government appreciate that other Governments must have their hands free to improve the economic well-being of their communities and that the judicious use of subsidies is a perfectly legitimate tool in trying to stimulate economic activity.
Briefly, Amendment 3 is different in nature but relates also to ensuring that Governments are not precluded by this Bill from making payments for the provision of local services by public bodies in their territory. There are many aspects of local services that may be provided by both public authorities and private contractors. One has to think only of care homes, refuse collection, recycling or highway maintenance to see areas where there could be arguments as to whether public authorities are subsidising activities in competition with the private sector.
My amendment is tabled to give the Minister an opportunity to state categorically that the Bill, when enacted, will not constrain public authorities from making such payments and to point out in the Bill where such safeguards are provided, if indeed they are. If they are not, we will need to return to these matters on Report. I believe I may be knocking on an open door with this amendment but I will listen to what the Minister has to say. I beg to move.
Viscount Chandos (Lab)
My Lords, I support Amendments 2 and 3 in the name of the noble Lord, Lord Wigley. With the agreement of the Committee, I shall speak to my Amendment 2A. My amendment would add just one word to Clause 2(2) and I will try to be commensurately brief.
Clause 2(2) lists examples by which financial assistance may be given, starting with
“a direct transfer of funds (such as grants or loans)”.
It does not purport to be exclusive or comprehensive, so why do I think it is important to add equity to the examples given of grants and loans? The guidance published last week, following Second Reading, includes the following:
“Subsidies can be provided in many different forms, including grants, soft-loans, loan guarantees, and tax breaks. Other forms, such as taking an equity stake in firms … may also constitute subsidies [to be inserted—link to future section on determining whether an intervention is a subsidy].”
That prospective insertion of a link to a future section—further evidence of the Government’s ill-preparedness for a Bill that they have known for months, if not years, was needed—gives a clue as to why it is important to add equity to the examples given in the Bill.
A grant from central or local government is self-evidently a subsidy. It is relatively easy—not totally simple, but not rocket science either—to gauge whether a loan is, for the borrower, more favourable than market terms and hence has a subsidy embedded within it. A loan will ordinarily carry the requirement to pay regular interest and, by final maturity, to have repaid all the principal amount. The arithmetic is pretty simple. Equity is much more difficult to analyse as the future returns are unpredictable. The risk of loss is total and the potential returns unlimited. Professional venture capital and other investors can take strongly divergent views about the prospects for any one company, which explains the huge dispersion of returns between different funds.
I acknowledge that it can be difficult to say whether an equity investment is made on market, and hence unsubsidised, terms. A judgment has to be made about the share of the company concerned received for the investment made; the speed with which a decision to invest is made; the proportion of the funding contributed; any liquidation preference attached to different classes of shares; and a whole range of other conditions, whether imposed or waived. Even if private sector investment is made pari passu with the public sector’s commitment, that may not be prima facie evidence that the public sector’s investment is on market terms, since the commitment, particularly if as a significant cornerstone investment, may in itself attract private sector investment in a way that could disadvantage competitor companies.
Lord German (LD)
My Lords, I want to speak to these amendments because we have reached the point in the Bill when we are looking at the architecture for the future. Clause 2 sets out very clearly the fundamentals that we need to understand. I seek to ask the Government whether the subsidy regime proposed here is more or less permissive, and whether it is more or less bureaucratic, than what we have had before.
I am grateful to the Minister for letting us have more information and some draft regulations and draft guidance, but the problem that the devolved Administrations have is summed up in the statement in paragraph 5 of Streamlined Routes: Objectives, Operation and Next Steps:
“The Devolved Administrations have also had the opportunity to share their views on Streamlined Routes to support their development.”
I am often asked to share my views and very often I am told that the Government do not agree with them. I am sure that that is very common. Perhaps the Minister could tell us whether there has been any accommodation of these views when they have been shared and whether any changes have been made. It would be interesting to see that happen.
My fundamental point is whether the scheme’s architecture is more or less permissive than what we had before. The situation is very different for Wales, of course, because we received the largest amount of European money of anywhere in the United Kingdom over a sustained period. Only two things mattered in terms of the regime itself, as opposed to how it was dealt with: there were subsidies—money and cash—and there were rules on which the subsidies operated. The Government’s own words to us in the Chamber, if they are to believed, were that Wales would not suffer, pound for pound, any less in the money it received than from the European schemes. Clearly, that is not true yet.
My first question to the Minister is: when will the money be received? It clearly has not been yet. Can he repeat the commitment that, pound for pound, Wales will not suffer? We could get that side of the subsidy regime out of the way. However, I suspect that some of us might have been misled in our thinking over the promise that money would be available. I hope that the Minister, on a day when we have been told that we may have been misled about promises put to us, can set the record straight for us right now.
Leaving aside the subsidies themselves—we have heard a little bit but we do not yet know whether there will be cash on the table—we now turn to the rules for them. I had the opportunity to be deeply involved in setting up one six-year period of the European funding for Wales. The way in which it was brought about was interesting. We had to secure an operational programme with the European Union; that programme was broad but very detailed and extensive. When that happened, it gave us, for six years, the rules by which we could operate and understand how to deal with the problems in our country.
The direct comparison now is between the operational programmes, where the EU determined after extensive negotiation, and the other, streamlined schemes, several of which we have in front of us. That comparison includes how these might work and which is more permissive. The former was for six years. It was very broad. You knew where you were. The latter is a tighter constraint around a specific topic. One of the obvious criticisms from the documentation we have received is that there is going to be a whole lot of narrow, siloed regimes. It will be extremely difficult for public authorities and anybody else to find their way not only through those regimes but to the interconnecting places.
An obvious example of that concerns the general conditions in the innovation scheme. I do not think anybody would disagree that a UK subsidy regime should not compensate for costs that the beneficiary would have funded in the absence of any subsidy—that is a fundamental. So why is it in this document? It may also be slightly different in another one; we do not know because we do not have the extent of it before us. Essentially, what we needed was an overarching set of rules that were clear enough to be in the Bill or, alternatively, in any regulation that we see in advance. Perhaps the Minister could tell us, in saying what a regime should look like, where we can get the specifics of these overarching things and the subsidy regimes that will take place.
The amendments tabled by the noble Lord, Lord Wigley, would return the decision-making clearly to the Welsh Government; it is quite clear that, under these powers, they will lose that. One of the suggestions that has been made—it will come up later in our debate, of course—is that we should have an agreed framework of activity within which there would be an ability to do things in a much more free-flowing way. It is absolutely essential that authorities intervene in areas of deprivation. If you do not do that, you certainly do not use the words that begin with an L and a U, which the Government are so keen on. We certainly cannot bring lifestyles to a better place if we do not target where public money should go.
Overlaid with the broad set of rules that I have just talked about, including on such things as displacement and the fact that people cannot be compensated where they would have done it for themselves, we need to understand whether these rules will provide a level playing field. The understanding I get from my reading of them is that we will continue to have an uneven playing field and one on which politics will play a far bigger role than the clear set of understandings that there were in the past between, for example, the Welsh Government and the European Commission, about what one could do. Can the Minister explain why this scheme is an improvement and why it is proportionate between the Governments of this country? The suspicion is that one Government are using their powers to disadvantage another.
Lord Lamont of Lerwick (Con)
My Lords, I will speak even more briefly than did the noble Viscount, Lord Chandos, in expressing a modicum of support for him. It is up to the Minister to explain why equity is not included rather than for the noble Viscount to prove the case for including equity; it seems a bit of an omission. We read today about the failure of the British Business Bank to do well on some of its investments. We have also had the publicity about the Covid loans that have not been recovered. Why do I mention the British Business Bank? Because we have seen a whole series of equity injections by this Government that have not always had an overall rationale.
The noble Viscount, Lord Chandos, referred to the spread of returns from equity investment and how different investors would take a different view of the future, but the reason often advanced by government for direct investment is what is termed “market failure”, and I see that the phrase “market failure” is referred to in the Bill. Unfortunately, market failure is a convenient get-out for Governments wishing to subsidise a particular entity. The very fact that Governments provide direct investment, which I know the noble Viscount favours in a way that I would not, often disguises the fact that there is a subsidy. They say that it is because of market failure and they want it to be on market terms, but, too often, it turns out just to be an implicit subsidy. I agree with the noble Viscount that equity, particularly from a public sector grant-making organisation, can often conceal a degree of subsidy. I hope that careful consideration will be given to the point that he has rightly raised.
Lord Fox (LD)
My Lords, I shall speak to Amendments 2 and 3 and then Amendment 2A, as they seem to associate with each other.
In the speeches of the noble Lord, Lord Wigley, and my noble friend Lord German, the nub of the question is: what is a subsidy and what is it not? I see Amendment 2 from the noble Lord, Lord Wigley, as trying to unearth that definition. Later, we will discuss Clause 11, which allows certain definitions to be defined by affirmative regulation rather than appearing in the Bill. These definitions are:
“subsidy, or subsidy scheme, of interest”,
and
“subsidy, or subsidy scheme, of particular interest”.
This is the Subsidy Control Bill and it would be enormously helpful if the Government would put in the Bill what they seek to control because, at this stage, they have not revealed their hand. In this amendment, the noble Lord, Lord Wigley, seeks to delineate where a subsidy starts and finishes: the territory, as he puts it. This is a moot point and a key issue that we will talk about later. The noble Lord, Lord Lamont, talked about market failure. We need to understand what the Government understand as “the market” in the first place to delineate where a failure may or may not have occurred. Hereby lies the issue.
In a letter to my noble friend Lord Purvis, the Minister sought to help and, perhaps, to clarify. He replied:
“The geographic scope of a market depends on the goods, services and activity in question—which means geographic scope can vary.”
I think that that flies in the face of some of the words that we heard just now from the noble Lord, Lord Wigley. The letter continues:
“A key factor is the distance over which these goods or services can be supplied”—
the sandwiches of the noble Lord, Lord Wigley, perhaps—or
“the preference of customers”.
I understand the issue about distance—I can get that—but to include the preference of customers is potentially specious.
To take an international example rather than a Welsh one—although, of course, Welsh is international, if I am speaking from England—there was no market for Spanish-grown strawberries until such time as Spanish-grown strawberries were imported to this country. Then there was a market, because customers showed a market preference. So at the outset of a subsidy there may be no customer preference because there is no product for the customers to prefer. Some time after the six months have expired and the subsidy is open to challenge, the product appears on the market. How is customer preference to be applied retrospectively to subsidies as the market goes forward? I do not think that the issue of customer preference is easy to define, understand or control. If the Minister stands by the words in the letter to my noble friend, we need a much clearer understanding of how that customer preference role will play out. Not only do we need to understand geography, but we need to understand the customers.
Lord McNicol of West Kilbride (Lab)
My Lords, I have very little to add to what other noble Lords have said. I am grateful to the noble Lord, Lord Wigley, and my noble friend Lord Chandos for Amendments 2, 2A and 3. As has been said, they go to the heart of the Bill. Clause 2 is titled “Subsidy” and lays out the effect and explanation of what a subsidy is or can be. The noble Lord, Lord Wigley, has come up with an interesting means of looking at protecting the devolved authorities’ interests by making it clear, as we have heard, that certain forms of payments would not be classified as subsidies and would therefore fall outside the control and requirements of the Bill.
The amendment from my noble friend Lord Chandos raises an interesting point in relation to the illustrative documents that have just been released. As the noble Lord, Lord Fox, said, my noble friend’s amendment was tabled late but that was because the guidance papers were released so late. If some of the guidance and regulations had been shared and published earlier, some of our colleagues in the elected Chamber may well have been able to pick up and dig into some of these issues.
The noble Lord, Lord Wigley, touched on the use of subsidies as a legitimate tool for securing economic benefit when done correctly, but also when done transparently. This is one of the fundamental issues we will come on to in later amendments. The big difference from European state aid is obviously that an agreement had to be reached before state aid was brought in. With this system, and this is one of the benefits of it, the subsidy can be brought in very quickly beforehand. But that creates a huge dilemma if the information on the subsidy is not transparent, and if there is no proper opportunity to analyse and challenge it. That is why we will be going into far more detail on this.
Tidying up some of these issues and getting them into the Bill, rather than in secondary legislation and regulations, would help to move it into a far better position. With that, I look forward to the noble Baroness’s response to the issues, especially the one raised by my noble friend Lord Chandos on why equity cannot be added straightforwardly. The Minister, the noble Lord, Lord Callanan, has tabled a number of government amendments. It would be great if we could do some of the tidying up as we move through Committee.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, again, I am grateful to the noble Lord, Lord Wigley, for tabling his amendments, and to all noble Lords for participating in the debate.
Clause 2, as the noble Lord, Lord Fox, said, is the cornerstone of the new subsidy control regime as it sets out the definition of a subsidy for the purposes of the Bill. The definition consists of a four-limb test, and all four limbs must be satisfied for a financial measure to be considered a subsidy. I also draw the Committee’s attention to Clauses 3 to 8, all of which are necessary to understand the definition of “subsidy”. I believe that those provisions collectively provide sufficient clarity and legal certainty to ensure that all public authorities can give subsidies with confidence. We will provide guidance on this matter as the Bill comes into force.
In response to my noble friend Lord Lamont, I believe the Bill sets out a series of overarching principles that provide a level playing field for all public authorities in the UK. The Bill is not a framework for funding; therefore, in response to my noble friend, spending decisions are of course for the Chancellor. It is a set of rules that all public authorities must follow in their decision-making when they give a subsidy or make a scheme. I do not recognise the criticism that it is too streamlined or too narrow, or that it will not be accessible to the devolved Administrations and to other public authorities outside Westminster. The streamlined subsidy schemes that we create will be beneficial but also entirely voluntary for public authorities to use. I note too that we have adopted helpful suggestions from the devolved Administrations for the illustrative Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations on the treatment of rescue and restructuring subsidies to ailing businesses, as well as in relation to the identification and selection of sectors of interest.
Amendment 2, proposed by the noble Lord, Lord Wigley, would exclude from the definition of a subsidy financial assistance offered by a public authority to all enterprises operating wholly or largely within its territory. I entirely agree with the noble Lord that it is of the utmost importance that public authorities are responsible for the financial assistance that they provide within the areas for which they are accountable, and that when a devolved Administration—or, for that matter, a local authority—design a scheme that is general to enterprises in their territory, subsidies should not be specific. Of course, those subsidies should be designed in support of the economy and community for which the public authority is responsible in order to address market failures or issues of disadvantage. I am pleased to inform the noble Lord that that is what Clause 2 provides, with particular reference to the notion of what constitutes a specific subsidy in Clause 2(1)(b) and Clause 4. I am grateful to him for raising this important point.
The requirement that is relevant to the noble Lord’s amendment is that a subsidy must be specific. In order to be specific, Clause 2(1)(c) provides that it must benefit one or more enterprises over one or more other enterprises with regard to the production of goods or the provision of services. When determining whether a subsidy benefits one or more enterprises over others, it is necessary to consider what constitutes the reference framework for that subsidy by reference to the legal basis for that subsidy, the authority giving the subsidy and how it is financed, in order to determine who is in the same legal and factual position.
Where a UK-wide power is conferred on a UK Minister, the reference framework is the whole of the UK, while a subsidy that will benefit only enterprises in a specific part of the UK—such as Wales or, indeed, London—will meet the definition of a specific subsidy. However, when an Administration covering a discrete area, such as a devolved Administration, make a subsidy under the powers conferred on them, the reference framework will be the territory of that Administration.
Therefore, in the case of Wales, for example, a disadvantaged workers’ subsidy scheme that is available equally to all enterprises in Wales will in most cases not be specific because the subsidy will not favour any enterprise in Wales over another enterprise in Wales in the absence of factors limiting the availability of the subsidy. However, a disadvantaged workers’ subsidy by the Welsh Government limited to enterprises in Newport, or which was otherwise limited in availability, would be a specific subsidy because it favoured enterprises in Newport over other enterprises in Wales. It can also be said, with reference to Clause 4(2), that the notion of the reference framework is inherent in the design of subsidies by the devolved Administrations because they can act only in pursuance of their devolved competences.
Similar provisions are made in relation to taxation in Clause 4 to ensure that, where a devolved Administration are acting autonomously in relation to a devolved tax or a variation of a national tax, there will not be a subsidy if the scheme of taxation does not contain elements that are specific to their areas of responsibility. Acting autonomously includes having the competence to set the tax and being responsible for the fiscal consequences of setting the tax at the chosen level.
I hope to persuade the noble Lord, therefore, that the discretions he wishes to maintain for subsidies that are general to enterprise in Wales—and not confined to certain enterprises in Wales—are inherent in the general principles in the Bill, which are derived from the TCA, without need for a specific amendment.
Lord McNicol of West Kilbride (Lab)
I do not think their lateness was perceived—it was real—but that is not why I rise. I go back to a point the Minister made on my noble friend Lord Chandos’s amendment. Under Clause 2 on “Subsidy”, she said that subsection (2) is not an exhaustive list. That is the subsection where my noble friend was looking to add “equity” after “grants”. It may not be an exhaustive list, but lines 23 and 24 say:
“For the purposes of this Act, the means by which financial assistance may be given include”.
If Her Majesty’s Government are not going to add anything in, can they at least clarify that the list in paragraphs (a) to (e) is not exhaustive? Am I just being a bit too pernickety?
Lord McNicol of West Kilbride (Lab)
Thank you. If the Minister wishes to write to us, that is fine. I am sure we will come back to this.
Baroness Bloomfield of Hinton Waldrist (Con)
I think I said that an equity investment is still considered a direct transfer of funds from one entity to another. The whole point of not putting in an exhaustive list is to avoid worry about what you leave out of a list, rather than what you have in it. I believe this is already covered by the Bill.
Lord Wigley (PC)
My Lords, I am grateful to everybody who has participated in this short debate. I am not sure whether the noble Viscount, Lord Chandos, is happy with the response he got, but no doubt there will be opportunities to pursue that further. I also noted the comments of the noble Lord, Lord Lamont. There is clearly an issue here that needs some further consideration.
I was grateful to the noble Lord, Lord German, for his contribution. He was Minister for Economic Development in the Welsh Government. Was it 20 years ago?
Lord Wigley (PC)
It was a long time ago but clearly the noble Lord learned many lessons, not least the one he repeated: to stress that we in Wales received considerable benefit from the European Union and that there is a need for a guarantee that, pound for pound, we will not miss out from the changes taking place. That is a bit on a tangent from the issues we are debating; none the less, it is a well-made point and needs to be well received. Hopefully that will be the case. I agree very much with the noble Lord, Lord German, on his point about the Government spelling out in greater detail the rules coming through that will provide a level playing field. Those are very much needed.
I was grateful to the noble Lord, Lord Fox, for his interesting contribution, as always. He asked what a subsidy is. That really goes to the heart of the Bill, does it not? It is clear from the detailed response we had from the Minister that it will require quite a lot of exercising.
The noble Lord, Lord McNicol, again emphasised the need for greater clarity and transparency. That is what is coming out of this. I thought that the Minister’s responses recognised in many ways that the issues exist, but she believes that they are already covered in the Bill. We are going to need to press those aspects further as we go through the Bill. It is essential that the Bill is understood not only by those of us who work in the world of politics but, even more so, by those at the sharp end of business and industry who have to live with the consequences of it. They need transparency, and they need to be sure that they are not being enticed down a road where there may not be any hope of a satisfactory outcome. As the Bill progresses and we probe more aspects of it, I hope that that light will start shining through and that, if necessary, there will be appropriate briefings outside Committee on any further thinking or clarity that the Government can give to these issues.
I believe that the matters raised in my two amendments are relevant. The Minister confirmed that, to all intents and purposes, what is covered in Amendment 3 is covered by the Bill. That is fine; I said that I might be knocking on an open door. I am grateful for that, but I have no doubt that we will need to return to some aspects of the more general debate we have had. On that basis, I beg leave to withdraw the amendment.
Baroness Blake of Leeds
“The subsidy strategy
(1) The subsidy strategy is a strategy made by regulations made by the Secretary of State which outlines how, in the opinion of the Secretary of State—(a) subsidies should be used by public authorities to support the delivery of an industrial strategy,(b) subsidies should contribute to progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050), and(c) the subsidy control scheme established under this Act should interact with, or be otherwise influenced by, other public schemes including (but not limited to)—(i) a UK Shared Prosperity Fund, and(ii) the Levelling Up Fund.(2) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This amendment seeks the creation of a clear subsidy strategy, to be laid before and approved by Parliament. Such a strategy would set out how Her Majesty’s Government expects subsidies to be used to support a wider industrial strategy and progress towards the 2050 net zero target. It would also outline how the new subsidy control scheme works alongside other initiatives including the Shared Prosperity Fund and Levelling Up Fund.
Baroness Blake of Leeds (Lab)
My Lords, I rise to move Amendment 4 in the name of my noble friend Lord McNicol. As the explanatory statement says, it
“seeks the creation of a clear subsidy strategy, to be laid before and approved by Parliament. Such a strategy would set out how Her Majesty’s Government expects subsidies to be used to support a wider industrial strategy and progress towards the 2050 net zero target. It would also outline how the new subsidy control scheme works alongside … the Shared Prosperity Fund and Levelling Up Fund.”
I am pleased also to speak in support of Amendments 5 and 25 in my noble friend’s name, and Amendments 4A and 5A in the name of the noble Lord, Lord Ravensdale.
I will preface my comments by setting some context. The real desire to seek to improve the provisions in the Bill comes from a place of ambition for the economy of the whole United Kingdom, unlocking potential while recognising regional inequalities. As we have heard in the debate thus far, we are approaching this issue, as always, in a spirit of transparency, fairness and purpose. As we know, at Second Reading a number of noble Lords voiced their concerns that this new subsidy control system does not appear to be linked to a wider strategy, whether that is delivering strands of an industrial strategy—does one still exist?—or supporting the Prime Minister’s levelling-up agenda and the net-zero strategy, which I mentioned and which we will come on to in debates on later amendments.
These are interesting and potentially stressful times for authorities across the country, as new funding mechanisms and policy initiatives are implemented and the realities of Brexit become more apparent. I confess that I believe Her Majesty’s Government have somewhat dragged their feet on implementing their long-promised UK shared prosperity fund. The early indications are that many of the biggest recipients of the European Regional Development Fund are not only losing out but are likely to lose out to the tune of tens of millions of pounds a year.
Lord Ravensdale (CB)
My Lords, I shall speak to Amendments 4A and 5A in my name and first apologise to noble Lords for their late tabling. I thank Jonathan Branton, a subsidy control expert at DWF Law, for his assistance with my remarks today.
As I said at Second Reading, for me the key aspect that is missing from the Bill is how it will assist disadvantaged areas and how it fits with the levelling-up agenda. I see the Bill as being a central part of how levelling up can be delivered through targeted subsidies into disadvantaged areas. What business across the UK really needs is clear visibility and legal certainty about which areas will benefit from financial assistance, through an evidence-based mechanism. Then the market can get on and do its job of driving investment into those left-behind areas of the UK and deliver on levelling up.
I listened carefully to what the Minister said at Second Reading: that the Bill gives public authorities the flexibility to grant subsidies where they are best served to support economic growth in local places. At present, however, it does not give businesses clear visibility of which areas in the UK will benefit from increased help. There is nothing to differentiate between a wealthy area and a disadvantaged one.
Having a commitment in the Bill on levelling up could not be more timely, with the levelling-up White Paper being due for publication imminently. We have had continued debate over the last two years about what levelling up actually means, as the noble Baroness, Lady Blake, said. If the Government could point to a clear strategy within the Bill to deliver on it and prioritise business investment into disadvantaged communities, that would send a powerful signal about their intent to those communities across the UK and indeed to the business community.
My Amendment 4A is in similar vein to Amendment 4, tabled by the noble Lord, Lord McNicol, and spoken to by the noble Baroness, Lady Blake, which I also support. It proposes an areas of disadvantage subsidy strategy, which would need to be laid before Parliament within six months of this Act being passed. Critically, that would need to involve defining what a disadvantaged area was. Under the previous subsidy regime, we had a map defining assisted areas. That mechanism was not perfect; there are a number of issues with attempting to draw on a map which areas would receive preferential treatment. Previous maps were developed by Eurostat, but we now have the opportunity to develop a map that is right for the UK and uses the wealth of economic data available at a local level. For example, I am co-chair of the Midlands Engine APPG. The midlands engine encompasses many of the most deprived areas in the UK and is home to around 11 million people. Our regional observatory produces a wealth of economic data that could be used in the development of such a map.
As I highlight in my amendment, a map is not necessarily required here. A list of agreed economic indicators could do the same job and perhaps provide a more flexible route to defining a disadvantaged area in the context of subsidy control. Again, it would give business the clarity needed on where subsidies would be available to drive inward investment.
My Amendment 5A would simply serve to make Amendment 4A operable, as Part 1 of the Bill deals only with definitions, by making reference to the strategy in Schedule 1.
In conclusion, the way the Bill is drafted, if a manufacturer were deciding whether to locate in Scunthorpe or Surrey, or deciding between Bilston and Buckinghamshire, there is nothing to advantage the former locations. The legal certainty that would come from implementation of an areas of disadvantage subsidy strategy would be attractive for many organisations and businesses considering offers from different areas, and would therefore make a key contribution to levelling up across the UK. I hope the Minister will agree with the logic here and I look forward to her response. In particular, I would like to get her views on how the Bill will support levelling up from a national perspective. When a business is deciding where to locate, what clear visibility of subsidy support in disadvantaged areas will there be to inform its investment decisions?
Lord Thomas of Cwmgiedd (CB)
My Lords, I shall speak to Amendment 6. I am extremely grateful to the noble Baroness, Lady Randerson, and to my noble and learned friend Lord Hope of Craighead for their support of the amendment. It tries to grapple with the areas that have been raised so far, but it must be remembered that the Bill applies to agriculture as well, and that makes the task much more complicated. It seems to me that the Bill provides in Schedule 1, that it is possible to have a subsidy that addresses an equity rationale, such as social difficulties or distribution concerns.
It is unfortunate that the word “equity” was used, because we used it in a completely different sense in our earlier debate. That must be one really good reason, if I may say so with respect, for not adopting the amendment of the noble Viscount, Lord Chandos—but I did not mean that as a throwaway line for the Minister. We will need to know what it means, and it is very important, it seems to me, to grapple now with the question of how we take into account the need for levelling up, or providing subsidies, where regional help is necessary in agriculture and fish. I think this is ultimately a political question—I will return to that in a moment—and the worst possible thing to do would be to allow independent bodies, particularly judicial bodies such as the CAT, to be embroiled in political decision-making.
It seems clear to me that we must have some form of agreement or definition of what are the criteria, or a map if need be, by which we can apply levelling up. As I understand it, we could look at GDP per person, which is the European Union method. We could look at GDP per employee. We could look at household income, and could then dream up—I do not mean that disrespectfully because it was no doubt carefully considered when it was done—a broad economic index that takes into account productivity, skills, unemployment rates, population density, employment, et cetera. We must be very clear how a business, or Ministers giving agricultural subsidies, can direct those subsidies according to some metrics that have a UK-wide basis. Is that something that can be done?
My concern here arises out of the criticism that has been made—I do not want to go into the merits of the criticism—of the way the social prosperity fund has had its index looked at. It must, it seems to me, ultimately be a political decision to decide what are the factors that go into making disadvantages which need to be addressed for a levelling up. This is not something a court should do; it is a political question and, for the sake of the courts, we should not be shunting political decisions to a judicial body, or an independent body such as the CMA.
That is the first proposition: this is a political question and it should be resolved politically. There are two ways of doing that. The first way and, I argue, by far the best way is to do it is by agreement in a common framework.
Baroness Sheehan (LD)
My Lords, I will speak to Amendment 4 in the name of the noble Lord, Lord McNicol of West Kilbride, and I thank the noble Baroness, Lady Blake of Leeds, for her comprehensive introduction. I shall add just a couple of points. I particularly enjoyed the contribution of the noble Lord, Lord Ravensdale, in his introduction to his amendment, and that of the noble and learned Lord, Lord Thomas. They illustrate clearly why the Bill is lacking in detail and clarity, and why Amendment 4, to which I put my name, is totally necessary.
The letter from the Minister last week gave us some hope that, even six months on from when the Bill started its parliamentary progress in the other place, we would have greater clarity and detail on what is meant by the terms used in the Bill—to go back to basics. However, other than broad sums of money around which a subsidy, a subsidy of interest or a subsidy of particular interest may be defined, we have very little—apart from a promise of more detail to come. Even the sums attached to those definitions are liable to change, we are told, so we really are none the wiser.
The referral criteria for the subsidy advice unit—the SAU—relating to a subsidy of interest or a subsidy of particular interest tell us very little. In any case, we are told that the SAU’s report will be non-binding on public authorities, regardless of whether the referral is voluntary or mandatory. This leaves public authorities with very little guidance, and a next-step referral to the CAT is really more draconian than it need be had they been given sufficient criteria before making their applications.
The draft statutory instrument, which the Government published last week, was supposed to shed light on their thinking. It is helpful in some respects but we all know how a statutory instrument can be structured. It leaves too much to the imagination; there are too many gaps which will be filled later. Instead of clarifying what we already have, in fact it introduces a new term of a “sensitive sector”, which we are told will be defined later by an SI. I would be grateful if the Minister could shed some light on that today.
I found the statements on the streamlined routes very helpful. They seem to provide some clue as to the sort of framework that might be applied but, yet again, there are too many gaps. Too much is left to be filled in in the future, when those details are required in the present. As the noble Baroness, Lady Blake, said, the Government want us to take much on trust but trust in the Government is in very short supply at the moment. Those streamlined routes for clean heat and for research, development and innovation are helpful. It seems that some of the fundamentals of those illustrations can be put into the Bill. At least, it would be useful to know the timeframe within which we can expect to see further illustrations. It would be really useful to see a streamlined route, for example—the Minister is coughing; I hope he is okay—for fulfilling their policy of better energy efficiency in the domestic sector.
I agree with the noble Lord, Lord McNicol of West Kilbride, that a clear subsidy strategy needs to be laid out within the Bill, setting out how the Government expect subsidies to be used to provide a wider industrial strategy and progress towards the 2050 net-zero target. Importantly, it would also outline how the new subsidy control schemes work alongside other initiatives, including the shared prosperity fund and the levelling-up fund, details of which would be appreciated sooner rather than later.
The abolition of the industrial strategy last year and the disbanding of the Industrial Strategy Council was, according to the BEIS Commons Committee, a retrograde step. I therefore hope that the Government will give serious consideration to Amendment 4 and the other amendments in this group, and recognise the merits of having greater clarity in the Bill, given the boost it will give business to have long-term consistency and clarity.
Baroness Jones of Moulsecoomb (GP)
My Lords, I support these amendments, which are very welcome because they make up for what the Bill lacks. It is a very technocratic Bill, with lots of rules and principles, but it completely misses the opportunity to develop a grand strategy for what we want subsidies to achieve. The economic power of government finance is obviously huge; it can sway the economy for good or bad. Simply constraining subsidy-making powers, rather than planning what we want to achieve for those subsidies, indicates a huge lack of ambition on the part of the Government.
Part of that reflects an insurmountable tension within this Government, from those who are so free-marketing that they verge on being anarcho-capitalists to those who want to use the power of state finance as a way of sucking in voters and making a political legacy for themselves. Both those groups miss the point: that the Government should lead the economy into the future that we want to see and live in—one that would be comfortable for the majority of people. We need strategies for how we are going to deal with achieving net-zero carbon emissions and eliminate poverty. That would be a fantastic thing to want to achieve but, somehow, this Government actually increase poverty. Of course, this is not just about wealth; it is also about well-being. The Bill could be a chance to achieve all those things. However, the Government have to get back to the job they should be doing, which is improving the well-being of the population.
Before I sit down, I want to mention the noble and learned Lord, Lord Thomas of Cwmgiedd. He stood and spoke for five minutes without notes, apart from two scribbled sentences on a scrap of paper that I do not think he even looked at. We should all speak without notes. I am one of the biggest culprits; I cannot.
Lord Lamont of Lerwick (Con)
My Lords, I had not intended to intervene in this debate; I hope that the Minister will forgive me. I know that the role of the Government Back Benches is to sit there and keep quiet. I apologise for giving way to temptation, but I do so in a genuine spirit of inquiry.
I was very interested in what the noble and learned Lord, Lord Thomas, said about the question of a map. I have a personal reason for being interested because, dare I confess it, very many years ago—I try never to talk about the past—when I was a Minister in the Commons, for what was then the Department of Industry, I was responsible for radically altering the map that existed for assisted areas in the early 1980s. We decided that this needed doing partly because of the cost but also because the assisted areas map had grown so large that it covered most of the country. There had been pressure to add to it and successive Governments had given way, so the map had got bigger and bigger. Also, rather than being given as the noble and learned Lord implied it should be, the assistance was given automatically. It was thought that there was therefore a lot of deadweight cost in the subsidies system—that is, people got a subsidy if they went to area X simply because they went there. That is what persuaded us that we should radically curtail the map to make it more concentrated.
Over the years, I have reflected on whether that was the right decision because what has happened in this country is that regional inequalities seem to have grown rather worse, while many of the most deprived urban areas have got even worse. I spent many of my teenage years living in Grimsby, a town that has been devastated by industrial change and had huge problems. I do not think that the move away from automaticity and a map, looked at over decades, has perhaps had quite the benefits that we thought it had.
One argument, of course, was for moving to a more selective basis of help because you were more likely to satisfy the criterion of additionality. In the arguments put forward by the noble Viscount, Lord Chandos, about equity we have already had a little discussion about additionality—that is, if the Government or a public body give assistance, is it assistance that would not have been given otherwise? That was an important criterion. However, as I say, when I look at the thing in the round, whatever the logic of a more selective approach, I am a bit sceptical as to whether a wholly discretionary and selective approach can work.
There is something to be said for looking at degrees of automaticity and, as the noble and learned Lord, Lord Thomas, said, having a map. He posed the question of how it would be done and what the criteria would be, which is a difficult question. It used to be done on the basis of unemployment combined with travel-to-work areas. I think you would not be able to do it without giving some such weight to unemployment; obviously, it would have to be in a travel-to-work area.
Baroness Randerson (LD)
My Lords, I will speak specifically to Amendment 6, to which I have added my name. The noble and learned Lord, Lord Thomas of Cwmgiedd, explicitly outlined its importance.
This very important group of amendments seeks to get to the core of what this is all about: why are subsidies required? As it stands, the Bill sets out seven subsidy control principles, which you could actually call rules and which on their own can easily be interpreted in a mutually contradictory way. They are further complicated by additional “energy and environmental principles”, by “subsidy schemes” versus “streamlined subsidy schemes”, and by “schemes of interest” versus schemes of “particular interest”.
This web of rules is combined with a complete lack of context. I take to heart the points just made by the noble Lord, Lord Lamont. As a councillor in south Wales, I was on the receiving end of changing maps. There is great significance in maps as an instrument to encourage investment in certain areas. If you are not going to have a deprived areas map for places to be assisted, you can have a carefully written industrial strategy that sets out terms on which assistance would be given to help the less prosperous areas. There is also a clear potential for overlap with other government schemes. It seems that levelling-up funding could well be seen to be in direct contravention of several of the principles set out in the Bill.
All this is further complicated by the unbalanced power structure at the top. I will not go through it again, but we will undoubtedly do so at different points on our amendments over the next few meetings. Briefly, the crux of the problem is that the Secretary of State is the Minister for England at one moment and the UK’s referee at another. In addition, there is a weak regulator with ill-defined powers and a lack of transparency, with high financial limits at which subsidies have to be registered. All this together strikes me as a chaotic system that is cooking up a bureaucratic nightmare because it does not have the clarity of the map or of the industrial strategy. It is a lawyer’s dream come true and invites litigation.
My noble friend Lord Fox gave us some excellent examples, and we could add to them the overt conflict between the principles of this Bill and those of the ARIA Bill. I was one of the Peers sitting here prior to Christmas discussing the Government’s desire to have the freedom to invest without particular principles that they would have to obey. I cannot see how that does not conflict with this Bill.
The amendment from the noble and learned Lord, Lord Thomas, tries to start to sort this out. So far the Government clearly do not know what they want, or they would have set it out in much greater detail and with much more clarity. Another way of looking at this is that the Government have been given all the cards in terms of power and can brush aside competition. They can hide significant subsidies that fall below the very generous thresholds that they have set out. It leaves the Government free to pick winners on the flimsiest of evidence—almost as was done over PPE at the start of the Covid pandemic, and we know what grief that has caused to both the Government and taxpayers.
Crucially, Amendment 6 sets out a process of agreement between the four Governments on what constitutes “disadvantaged areas” that are hence in need of levelling-up subsidies. As the noble and learned Lord, Lord Thomas, said, this must be a decision taken at a political level. It is not suitable for the CMA or the Competition Appeal Tribunal; their job is to judge individual cases against the rules established as a result of political decision-making.
Amendment 6 would once again establish in legislation the existing concept of common frameworks in relation to this topic. There are of course dozens of common frameworks on everything, from nutritional labelling to rail technical standards, from blood safety to motor insurance. Each has a set of rules on how the four Governments of the UK will co-operate to ensure that individual internal markets work properly. If any mechanism is likely to disrupt relationships within the internal market then subsidies are the one, so a formal common framework with evenly balanced dispute mechanisms is required. That way, the Governments of the four nations can establish their own priorities for subsidies and ultimately subject them to a formal dispute procedure if needed.
Lord Wigley (PC)
My Lords, I had not intended to intervene in this debate, and I am going to do so not from a particularly Welsh angle but from a general one. I identify with Amendment 6 and the comments of the noble and learned Lord, Lord Thomas of Cwmgiedd, with regard to the practicality of any Act like this being interpreted by the courts. We are going to create a monster if we are not careful, and it may well fall down because of its own inertia.
Three areas of experience spring to mind for me in addressing this question. The first is the old—am I allowed to say it?—Chinese saying that if you give a man or woman a fish then you feed them for a day, but if you teach them to fish then you feed them for a lifetime. Therefore, any long-term economic strategy must be geared towards enabling that to fulfil itself, so that we are not just providing subsidies for the day but providing a basis on which to build.
The second experience that comes to mind is writing an economic plan back in 1970 with the late, great Phil Williams, whom some colleagues here will remember from the National Assembly. We did an analysis to find winners in terms of industry and in terms of geographic location. Most of them worked out. In fact, they were fairly common-sense things—electronics, chemistry and so on—and I suspect that they would have fulfilled themselves had there been no grant mechanism, because they were doing what there was a momentum towards.
My third and final point concerns our experience in Wales with regard to European funding; I have no doubt that similar experience will have been obtained in Cornwall, South Yorkshire, Merseyside, parts of Scotland and wherever such funding was available. The funding went not just to narrow projects but to areas of investment with a long-term payback, such as work, even blue-sky projects, in our universities. These would not create immediate jobs but provided a basis on which industry and commerce, and those who were going to invest in them, could look to the future. The scheme of grants that was available then through the European Union was very broad; we should not ignore that dimension. We need mechanisms that enable that to happen. If we can get this right, it could be very valuable. It may well be that this Bill has that potential in it, but there is a lot that needs to be clarified at the moment. Some of these amendments may help tease that out.
Lord Bruce of Bennachie (LD)
My Lords, I wish to intervene briefly because this has been a really interesting debate. The intervention by the noble Lord, Lord Lamont, seemed to ask legitimate questions about whether the intention of the Government’s strategy relates to levelling up or regional development.
In the 1970s, I was involved with the economic development strategy. I remember the map that the noble Lord, Lord Lamont, talked about. It was about unemployment and travel to work but it did not always take account of things such as depopulation. There are certain communities where, if there is no work, people go and look for it, but the communities are then told, “You don’t have high unemployment, so you’re not entitled to any support”. Yet those people can be encouraged to stay there, or alternatives can be brought in.
Secondly, it seems to me that this should have some relationship to the economic realities of the region. We have seen situations in which ideas have effectively been dumped into a region, with massive incentives from government, but simply did not survive. These were big projects that became white elephants and embarrassments. On the other hand, supporting local and growing businesses has proved very effective. It is exactly the kind of thing that local councils and local organisations are better at, because they have that degree of knowledge in a way that central government often does not and they are kind of organic.
I remember, in the 1970s and 1980s, the Highlands and Islands Development Board, which was set up in the 1960s. It described itself as an investment bank with a social conscience. At the time, the Scottish Affairs Select Committee was holding an inquiry that Conservative MPs had asked for, originally with a view to discrediting the board. I must say, they rather changed their view at the end of the evidence. The chairman was asked, “How many of the projects that you have supported failed, and what was the average rate of return on the investment you made?” We got an answer to those. When asked, “How did those compare with the private sector?”, the answer was, “Almost exactly the same.” The question then was, “So why do we need the Highlands and Islands Development Board?”, to which the answer was, “All these projects were turned down by the private sector in the first place but succeeded.”
We have been through a period of highland depopulation, and it is beginning to happen again. In my part of the north-east of Scotland, we lost our development assistance, perfectly understandably, on the arrival of the oil and gas industry. Now that it is leaving, we may well need to support not the fossil fuel industry but new industries, perhaps related to energy, or some of the traditional industries that add value to the food production of the area and that sort of thing.
I suggest that we are entitled to ask the Government for some kind of explanation of strategy as to how this is going to work, whether there should be a map and what kind of sectors can be expected or allowed to be encouraged. At the very least, the objective over 10 years would be to reduce the inequalities between the high-growth, high-population areas and the low-population areas to the benefit of both. I accept the point that stealing from one to give to the other is not the answer, but it is sometimes quite difficult to know what the balance is within that. The questions being asked are legitimate and justified; the Government should give us some idea of what the answers might be.
Lord Fox (LD)
My Lords, as we have heard, this set of amendments seeks to create some foundation for a future subsidy regime, whether that is geographical or socially minded or in terms of activity.
In introducing the Bill, and at other times, the Minister has sought to use phrases such as “flexible” and “light touch” to describe the Government’s plans. We do not have to rely on our own experience: we can read what the noble Lord, Lord Agnew, wrote in the newspapers over the weekend about how he saw a light touch rooted in ad hoc decision-making that created a soft touch for light-fingered individuals. We do not want to enshrine that in an Act of Parliament.
To guide where we are going, it is useful to look at where we have been. That is not nostalgia; it is common sense. As my noble friend Lady Sheehan said, about 10 months ago, the Government abandoned any pretence that they were seeking to deliver a modern industrial strategy and withdrew their promise to set out a long-term plan to boost the UK’s productivity. This interrupted what had been something of a consensus. From Heseltine to Mandelson to Cable to Clark, all of them worked within the same tramlines to a lesser or greater extent. This is characteristic of a Government who constantly seem to want to chip away at things that are multilateral and consensual, and to introduce their own stand-alone version.
As I am sure the Minister remembers, the strategic intensions for the industrial strategy were artificial intelligence and data, clean growth, the future of mobility and supporting an ageing society, alongside the important need to improve the UK’s declining productivity. As we know, the political U-turn was executed by the Business Secretary, the right honourable Kwasi Kwarteng, who at the same time disbanded the Industrial Strategy Council, which was due to oversee this whole process. Meanwhile, I understand that, in BEIS, the associated industrial strategy team was also broken up.
What we got instead was the Build Back Better brochure: a glossy, colour catalogue composed half of launches—usually ones that had already happened—backed up by page after page of colour library photos. The Minister may note that the picture illustrating the infrastructure page is of a Victorian viaduct, which perhaps rather indicates the direction in which the Government might be going. In other words, there is nothing now to guide where we might focus subsidy investment. I understand the Minister’s allergy to central micromanagement but what we have been left with will be chaotic and, I am sure, wasteful and unfair.
On the issue of focusing on regions or areas, there is an example we could look at. It is called the European Regional Development Fund—the ERDF. It aims to strengthen economic, social and territorial cohesion in the European Union by correcting imbalances between its regions. It is what you might call levelling up. It states:
“The ERDF finances programmes in shared responsibility between the European Commission and national and regional authorities in Member States.”
I think that reflects some of the words we have heard already. It goes on:
“The Member States’ administrations choose which projects to finance and take responsibility for day-to-day management … In 2021-2027 it will enable investments in a smarter, greener, more connected and more social Europe that is closer to its citizens.”
The aim is to create businesses that are
“more competitive and smarter … greener … more connected”,
supporting the social life of the areas in which they operate—this very much speaks to the point of the noble Baroness, Lady Jones, about improving the lives of the people who live in the country, which is something we should all be seeking every time we debate an issue—and are
“closer to citizens, supporting locally-led development and sustainable urban development.”
I am not proposing that the Minister leads us bravely back into the European Union. What I am proposing is that the Minister learns from the experience of others and applies that learning in a sensible way. This is an opportunity to do such learning.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
Apologies; I thought that the noble Lord, Lord McNicol, was going to speak there. I thank the noble Lords, Lord Ravensdale and Lord McNicol, the noble Baronesses, Lady Blake and Lady Randerson, and the noble and learned Lord, Lord Thomas, for tabling Amendments 4, 4A, 5, 5A, 6 and 25.
Let me go back to first principles. The Bill establishes a clear, flexible set of rules for granting subsidies for all public authorities in the United Kingdom. Its central function and purpose is to reduce harmful distortions to domestic competition and investment—as well as to trade and investment between the UK and other countries, of course—which can arise from the giving of subsidies. The new domestic regime will not, however, instruct public authorities on which policy objectives they should direct subsidies towards, so long as they remedy a market failure or address the much-discussed equity concerns.
We are not in the business of interfering with the policy decisions of democratically elected public bodies in Scotland, Wales, Northern Ireland or elsewhere in the United Kingdom. In keeping with this, the new subsidy control regime will empower public authorities to design subsidies in a way that is tailored and bespoke for their local needs, without facing excessive bureaucracy in order to do so. That is why we have provided clear guidance that supports public authorities, and which they must consider, to support them in choosing the appropriate indicators because we believe that they are the ones who are best placed to make those final decisions.
Turning first to Amendments 4 and 25, I thank the noble Lord, Lord McNicol, for his amendments; the noble Baroness, Lady Sheehan, put her name to Amendment 4. However, it is my view that Amendments 4 and 25 go against the grain of the Bill. Taken together, they would provide for the Secretary of State to make, by regulations, a strategy that sets out how subsidies should be used by all public authorities to support the delivery of various other strategies. They would then require public authorities to consider the subsidy strategy before awarding a subsidy or making a subsidy scheme. The UK Government have developed various strategies for specific policy issues and will continue to do so. This is where and how the Government will articulate and develop a coherent approach to issues such as net zero and levelling up.
To take an example, in March last year, the Government published a policy paper on how they will build back better, setting out plans to support growth through significant investment in infrastructure, skills and innovation. The Government will also soon publish a levelling-up White Paper—eagerly awaited by the noble Baroness, Lady Blake, no doubt—articulating how bold new policy interventions will improve opportunity and boost livelihoods across the country as we recover from the pandemic. On the points made by the noble Baronesses, Lady Blake and Lady Sheehan, the shared prosperity fund will ramp up to £1.5 billion per year in 2024-25 and total funding will, at a minimum, match the size of EU funds in all nations each year. The Government will publish further details of the fund in due course.
The Committee should bear in mind that subsidies are but one possible tool in the toolbox for supporting strategic public priorities. It is not necessary for the UK as a whole, or even the UK Government, to have an overarching strategy for the provision of subsidies, much in the same way as there is no need for a broad strategy on the use of regulatory levers. Strategies should focus on how to tackle the major issues, rather than the specific tools through which we may address them. A subsidy strategy could well risk steering public authorities towards using subsidies inappropriately or indiscriminately.
It is imperative that public authorities give proper consideration, on a case-by-case basis, to whether the subsidy they propose is the appropriate instrument for achieving any given policy objective. In many cases, there may be more appropriate measures which a public authority can deploy. To take an example dear to the heart of the noble Baroness, Lady Jones, meeting our net-zero targets will involve leveraging a mixture of public interventions, including but not limited to regulation, the emissions trading scheme and public procurement, as well as appropriate and carefully targeted subsidies.
I will now address Amendment 5, tabled by the noble Lord, Lord McNicol. Subsidy control principle A allows public authorities to address inequality and disadvantage through the use of subsidies. It states:
“Subsidies should pursue a … policy objective”
that either remedies a market failure or addresses
“an equity rationale (such as social difficulties or distributional concerns).”
Amendment 5 seeks to include areas of relative economic deprivation as an example of an equity rationale that may be addressed through subsidies. I welcome the noble Lord’s support for levelling up and his interest in ensuring that the subsidy control regime provides for this. I can assure him, however, that the Bill already facilitates the use of subsidies to support areas of relative economic deprivation.
The concept of equity rationale set out in principle A unquestionably covers investment in areas of relative economic deprivation. It is my view that guidance is the best place to provide further examples of legitimate policy objectives for subsidies and, more broadly, to address the practical application of those principles. The Government recently published illustrative guidance on the application of the subsidy control principles. This elaborated on the meaning of an equity objective:
“Equity objectives seek to reduce these disparities between different groups in society or geographic areas.”
It further states that subsidies targeted at
“Levelling up a deprived or disadvantaged area”
would be an example of an equity objective. I would be very happy to discuss this further ahead of Report with the noble Lord, Lord McNicol, and my noble friend Lord Lamont as I am keen to ensure that the intention here—that regional disadvantage is an example of equity rationale—is clear.
The amendments tabled by the noble Lord, Lord Ravensdale, raise a number of similar issues. I am glad of the opportunity to address those as well. A Bill for regulating the granting of subsidies for all purposes, in all policy areas, is not the place to articulate a levelling-up strategy. There will be plenty of time to debate that when the White Paper is published. The purpose of his amendment is to ensure that subsidies to remedy regional disadvantage are permitted under this regime, and on that point I hope I can give him complete reassurance.
As I have mentioned, this is an inherently permissive regime; there is no default prohibition on subsidies. I confirm again that addressing regional disadvantage is an equity rationale for the purposes of principle A, and one that would therefore justify the giving of a subsidy. In contrast to the EU state aid regime, there is no need for central government to set out maps or other metrics of deprivation in the Bill to permit levelling-up subsidies. By empowering public authorities at all levels of government to give subsidies that are designed by them to meet the needs of the places for which they are responsible, the Bill will undoubtedly be an important enabler of the Government’s levelling-up agenda.
However, the subsidy control regime is distinct from it. It is not directly through this Bill or regulations made under it that the Government will pursue their programme to level up the UK. It is perhaps also worth noting that, just like the EU state aid regime, the Bill is concerned with regulation; it is not a source of funding. No doubt there will be lots of debates at other times and in other places about the appropriate level of funding, but I submit that Committee on the Bill is not the place to have those debates. Everything is in its place. This is a flexible and permissive subsidy control regime. Although it facilitates levelling up, it is not the place to define it and it should not be seen as the main vehicle for pursuing it.
Lord Purvis of Tweed (LD)
As I understand it, the guidance states that every authority now needs to define for itself what a social equity is as far as deprivation is concerned, even taking into consideration what relative that would be. It says:
“Public authorities must use supporting evidence which … should include measures or statistical indicators set against appropriate comparators”.
That suggests that every public authority defining its own scheme will have to provide its own statistical basis and definitions. How will the CMA judge those against others? Given that there will be no commonly agreed areas of social deprivation, is it not likely to create even more bureaucracy and confusion if every public authority has to make its own definitions and provide its own necessary material and statistical basis?
Lord Callanan (Con)
It is for the CMA to provide guidance on those matters but for the authorities themselves to determine whether the subsidy in question is justified. Then, but only if it is challenged against the principles in the Act, will the CAT be empowered to make a judgment on whether it is in compliance with the specific provisions in the Act.
Baroness Blake of Leeds (Lab)
My Lords, I express my gratitude for all the contributions to this increasingly important debate. Judging by the response from the Minister, there are still many areas that I am sure we will want to pursue and explore and to which we will come back at later stages of our proceedings. I echo the comment by the noble Lord, Lord Ravensdale, that there is a clear question here: is there a clear strategy? That is something that we can all question as we go forward.
Many of us in the Room today have been involved with the vexed issue of distributing regional funding, which is extraordinarily complex. I come back to the very clear comments by the noble and learned Lord, Lord Thomas, about the nature of the political decision in this. I have enormous concerns about how the whole process will be taken forward if it is allowed to stay in its current form, and real concern about the lack of focus on what it is going to mean in terms of benefit for communities and for people. As the noble Baroness, Lady Sheehan, emphasised, a lack of clarity, very little in the way of guidance and too many gaps have been the theme that has run through this debate.
I have to pick up one of the comments that the noble Baroness, Lady Jones, made concerning tension within the Government. I think that helps to explain where the lack of clarity has come from.
I think we would all welcome improvements. No one is trying to suggest that what we had before was perfect. I myself go back to the time of SRB funding, for example, when local authorities were put by a national directive in the position where communities were split down the middle, with funding going into an area on one side of a street but not the other. We do not want to move away from local determination, and that is very much the spirit in which we are taking this up.
With those comments, and with a clear understanding that we will be coming back to discuss these important matters, I beg leave to withdraw the amendment.
“(c) progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050).”Member’s explanatory statement
This amendment adds consistency with the UK’s net zero commitments as a particular consideration for public authorities before deciding whether to give a subsidy.
Lord McNicol of West Kilbride (Lab)
My Lords, the future of our planet should be of concern to us all. I am sure the noble Baroness, Lady Boycott, will argue that language around the preservation of it should be part of all our legislation as we move forward.
I have tabled Amendments 7 and 11, both of which are quite short. Amendment 7 would insert proposed new sub-paragraph (c), which refers to
“progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050).”
This amendment adds consistency with the UK’s net-zero commitments as a particular consideration for public authorities before deciding whether to give a subsidy.
Amendment 11 is another short amendment, very much along the same lines, to insert proposed new sub-paragraph (c), which refers to
“delivering progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050).”
We also support many of the other amendments in this group. I hope to hear the Minister provide a clear explanation exactly how the Bill as written, if these amendments are not accepted, will move us closer towards the 2050 net-zero target, and how the use of subsidies could and should contribute towards that.
There are a number of legitimate reasons for making subsidies to industries that have traditionally been associated with damage to—or, at least, not the preservation of—the environment. We have campaigned on this over the years. Many public authorities may wish to support jobs in industries such as steel that have environmental issues. Conversely, subsidies can be used to facilitate the green transition by investing in newer, greener technologies and approaches.
Any climate commitment in the Bill will have to be carefully crafted to balance any immediate economic concerns with the long-term environmental ones. As COP 26 highlighted, we are a long way from delivering the scale of change needed to preserve this planet for future generations. All the parts of the UK economy—our devolved authorities, local authorities and central government—will have to contribute towards hitting emissions and other targets.
The Minister will no doubt point to Schedule 2 as an example of Her Majesty’s Government’s commitment to the green agenda but, as we discussed at Second Reading, the application of the environmental principles is somewhat limited. In the further amendments to the Bill, does the department aim to broaden them in any sense?
From what we have heard in response to other amendments, the Minister is likely to resist the amendments in this group and not want to set any precedent, yet we have seen various commitments made in recent times, whether in the Pension Schemes Act, the Financial Services Act or the suite of Defra legislation, in which commitments have been given and gone into in more detail.
We want to support businesses to support the planet, and many will want to do the right thing, but financial incentives are often needed to help drive those key changes. This new subsidy control scheme should wherever possible support the transition to net zero. At Second Reading, the Minister mentioned net zero three times in his opening and closing remarks, but in the Bill as now crafted there is no mention of it. These amendments seek to impress upon the authorities that would be making subsidies the need for alignment with support for net zero. With that, I beg to move.
Baroness Jones of Moulsecoomb (GP)
I am going to ask the Minister four questions. I would like an answer today. If I do not get the answers today, I would like a meeting with him to explain why it is incredibly important that he listens first-hand. One issue I have is that the Government keep bringing us these thin Bills that ought to include things such as the ecological crisis—climate change—but do not. We as an opposition end up tabling all these amendments and then the Government complain because we are taking too long to debate the Bill. My first question is: please will the Government start putting these issues into Bills so that we do not have to keep making the same arguments about the ecological emergency? Why is that not in the Bill?
The subsidy principle should ensure that all our environmental and climate targets are met. Ecologically damaging, polluting industries should be weaned off public money completely and, ultimately, binned. My Amendment 8 would ensure that subsidies contribute towards limiting global temperature rises to 1.5 degrees centigrade of warming. That is what scientists say we must achieve, so our laws should reflect that reality. I hope that the Minister will not insult our intelligence by telling us that the Government are on track to do that; they most definitely are not. I can list an awful lot of legislation that has been passed that is damaging our chances of getting to that lower level of global warming.
My Amendment 33 would prohibit subsidies for fossil fuels and extend the definition of fossil fuel subsidies to include any government policy that makes fossil fuels cheaper than their true cost. This is really important, because fossil fuel subsidies are not just about giving money or tax breaks but include favourable regulatory systems, exemptions from environmental laws and so on. It is essential that we capture all those factors in the calculation of a subsidy.
My second question is a very particular point, and perhaps cannot be answered today. It is about community energy schemes. They are quite important in a lot of local communities. Please can the Minister tell us something about them, perhaps at a later date? I might have to bring back another amendment.
Finally, I am opposing the Question that Clause 51 stand part of the Bill. Nuclear energy is an energy scheme or an environmental scheme. I need an explanation —this is my third question—why nuclear energy is expressly excluded from the energy and environmental principles in the Bill. This seems to allow for favourable subsidy arrangements to be given to the nuclear industry against renewable and zero-carbon energy sources, which will clearly distort the market in favour of nuclear. If nuclear can compete with renewables, let it do so and scrap this exemption. If it cannot compete with renewables in a fair fight, why pursue nuclear at all? This is a probing amendment at the moment, but I will probably bring it back on Report and push a vote on it, because I am so incensed that there is not a fair fight between nuclear, which is potentially extremely polluting, and renewables. My fourth question is: will the Minister meet me so that I can explain all these issues clearly and with much more energy to him?
Baroness Sheehan (LD)
It is always a pleasure to follow the noble Baroness, Lady Jones of Moulsecoomb —we are often on the same page. I shall speak to Amendments 9, 10, 12 and 29 in the name of the noble Baroness, Lady Boycott, who is unfortunately unable to be with us this afternoon. I am grateful to the noble Lord, Lord Whitty, who also, sadly, cannot be here this afternoon, for adding his name to the amendments, along with my own. The main purpose of these amendments is twofold. First, they would embed consideration of climate and environmental targets in the Bill, to ensure that they are factored into the decision-making of public authorities when designing and deciding to award subsidies. Secondly, they would ensure that subsidies align with, or at least are not contrary to, our net-zero and environmental targets.
COP president Alok Sharma in a recent speech said that
“inaction or delayed action on climate will create immense risks and costs.”
He went on to highlight the economic opportunities for businesses of acting now and stated that
“my absolute focus for the UK Presidency year is delivery.”
The Government’s own Net Zero Strategy states:
“Our goal is to go even further to embed net zero across government activity. This will mean that government takes net zero into account when taking decisions.”
It further calls for
“a whole system approach to tackling climate change”,
which includes:
“Embedding net zero in a wider range of decision-making levers.”
I have purposely used the Government’s own words.
The fact is that if we do not ensure that alignment with our climate and environmental goals is embedded into new policy frameworks, such as our new subsidy control regime, we risk missing a key opportunity for delivering climate action. Delivery will not happen effectively and quickly unless both net-zero and nature considerations—because nature is inextricably linked to the climate crisis—are consistently woven into the fabric of all that Governments do at every tier of decision-making; not just centrally but devolved Administrations and regional and local government. The Government said in their response to the consultation on the Bill that
“public authorities will be able to take subsidy decisions that facilitate strategic interventions to support the UK’s economic recovery and deliver government priorities such as levelling up and achieving net zero.”
I welcome the Government’s recognition that subsidies can be a valuable way of supporting the achievement of the UK’s net-zero targets. However, there is nothing in the Bill to ensure that subsidies are directed towards interventions that can help to achieve our net-zero and environmental goals or, even worse, to avoid a situation in which subsidies that are contrary to or do not align with these goals could be introduced. Unfortunately, not all public authorities are as focused on delivering net zero as others—the Cumbrian coal mine comes to mind. Without this strategic direction, opportunities could easily be missed. I hope the Minister will agree that we need to include our net-zero and environmental goals within the Schedule 1 principles as laid out in Amendments 9 and 10 from the noble Baroness, Lady Boycott, which would guide decision-making on subsidies.
The Government did, in fact, consider including a specific net-zero principle but decided against this, which is a real shame because including consideration of net zero would not have precluded the achievement of wider policy objectives. It simply provides that when granting any subsidies, not just those related to energy and environment, public authorities must consider whether they align with our net-zero and environmental goals. This would not compromise the Government’s flexible, proportionate approach to the new regime.
It is important that the broader principles in Schedule 1, which apply to all subsidies, provide clear direction to the hundreds of public bodies that will use these rules and embed the consideration of net-zero and environmental goals. This would show strategic direction and leadership from the Government, and support the COP president’s aims for a clear focus on delivery. With the urgency of the challenge ahead of us—to take action to reduce emissions and restore our depleted nature—we cannot afford to miss opportunities such as this to help to deliver it. I hope that the Minister will consider embedding consideration of climate and environmental goals in the Bill and look sympathetically at Amendments 9 and 10.
Amendments 12 and 29 would provide simple clarifications aimed at ensuring that the law stated that the grant of subsidies did not release a beneficiary from its other legal duties in relation to environmental protection. Amendment 12 would clarify, within the principles, that all subsidies should be subject to that prohibition, while Amendment 29 would provide for a stand-alone clause within the general prohibitions with the same effect. We are saying that, without the amendments, there may be perverse incentives and the “polluter pays” principle could well be lost. I look forward to a response from the Minister on those amendments.
I support the amendments in this group in the name of the noble Lord, Lord McNicol of West Kilbride, and the noble Baroness, Lady Jones of Moulsecoomb, which are very much in the same vein as those of the noble Baroness, Lady Boycott.
I want to mention Amendment 33 in the name of the noble Baroness, Lady Jones, about subsidies for fossil fuels. The Minister and I have frequent disagreements on what defines a subsidy, so I am pleased that this amendment has been tabled. I support it because I hope it will give the Minister an opportunity to clarify, first, whether taxpayers’ money should be used to support exploration for new oil and gas fields, and secondly—there are many subsidies but I will restrict myself to two questions—whether the Government should in fairness continue to allow the decommissioning costs of fossil fuels in the North Sea to be met by the UK taxpayer. Oil companies at the moment are pocketing vast sums of pure profit—eye-watering and fairly obscene profits—and we are giving them money on top of that. The Minister will have his opportunity to answer that—I hope he will.
I also welcome the Motion by the noble Baroness, Lady Jones, that Clause 51 not stand part of the Bill, which is a probing amendment. I, too, want to know why nuclear energy is excluded from the energy and environment principles in the Bill; there seems to be little rationale for doing so.
Baroness Hayman (CB)
My Lords, I declare my interests as set out in the register, particularly as co-chair of Peers for the Planet. I am grateful for the opportunity to speak to this suite of amendments dealing with climate change and environmental issues. I particularly support Amendments 9, 10, 12 and 29, which have just been so ably introduced by the noble Baroness, Lady Sheehan, and are in the name of my noble friend Lady Boycott, who I know is deeply disappointed not to be able to be here. I did not manage to get my name on the amendments but I am here, so perhaps I can say a few words about the general tenor of this group.
Lord Purvis of Tweed (LD)
My Lords, if I speak briefly now, I need not intervene on the Minister. Relating to electricity and energy, having had a second weekend without electricity in the Scottish borders as a result of the storm, I may say that moving towards a more sustainable and reliable network is a key consideration for many people in the north of England and the Scottish borders. The Minister led the Statement on this issue, and I know that it is an important issue for him, but we are still vulnerable in this country.
It is a pleasure to follow the noble Baroness. Before I ask the Minister my question, it is worth putting on record that we are already a number of weeks behind member states of the European Union, which has now integrated within the subsidy scheme state aid for climate, environmental protection and energy. Whatever we secure as a result of any new scheme, we will be playing catch-up. It would be most interesting to know whether companies in Northern Ireland can now utilise the new scheme from the European Union within the areas of goods and electricity provision.
My questions to the Minister relate to Clause 51. The noble Baroness, Lady Jones of Moulsecoomb, referenced nuclear. I am happy if the Minister wants to write to me on these points. First, how will our approach on supporting nuclear power for both our domestic consumption and exporting technologies, which we will soon see in the Nuclear Energy (Financing) Bill that is going through Parliament, interact with this legislation? I understand that the Government’s proposal for funding nuclear is to make its funding model more akin to how we fund our railways and our regulated asset base. How will the regulated asset base for private sector companies, which will be able to use it, interact with the subsidy principles? We could see all the work we are doing here become completely irrelevant if private sector companies can use a regulated asset-based system. Can the Minister explain how they will interact? Does the regulated asset base fall into scope within the Bill?
Secondly, as I understand it, the Government, through small modular reactor funding, have already provided £210 million to Rolls-Royce as part of supporting small modular reactors. However, that is for export. Rolls-Royce is very keen to promote the fact that Qatar is interested in buying these technologies; a Minister who was in Qatar in recent months was saying how good that would be, with joint funding from a French company and an American company. My understanding is that support for export, unless it is WTO-approved or through export finance guarantees, is prohibited within this, so I would be grateful to know where that £210 million of small modular reactor funding fits. Is it a subsidy, or would the scheme supporting it be considered a subsidy? If the Minister could respond to those points, I would be grateful.
Lord Fox (LD)
My Lords, we have had a detailed debate. Before making a few comments—I emphasise “a few”—I return to the idea of having meetings. I recommend that perhaps the noble Baronesses, Lady Jones and Hayman, and others should all have separate meetings with the Minister. Then we can compare notes afterwards.
I find it interesting to read Schedule 2 because it refers to:
“Subsidies in relation to energy and environment”.
I am trying to think of any human activity that, strictly speaking, does not involve energy or the environment. Perhaps the Minister can suggest an activity that goes on which does not consume energy and/or affect the environment in one way or another, because that seems a false distinction. Many speakers have made the point that trying to put energy and the environment in a ghetto within Schedule 2 does not make any sense. Human activity, by its nature, is interacting with the planet at that level. It therefore seems clear that those activities pervade all elements of the legislation that we are talking about here.
Each of this suite of amendments—I have never heard a group of amendments called a “suite” before but it is nicer than “raft”, which I have always wondered about— seeks to address on a small scale, in its own way, the bigger point that speakers have made: these issues need to be at the centre of the Bill. I am not going to compare and contrast any of the amendments but I will pull out a point around Amendment 12 that is worth emphasising: supporting activity that can cause pollution. We have not heard much about that in these speeches, although I think my noble friend Lady Sheehan mentioned it. We have to be clear that if subsidies are there then they are not supporting pollution, which is another aspect of our environmental impact.
I reiterate—but without repeating—that we need a plan. Net zero is not an easy target. Whichever year we set for it, there is an awful lot to do; we need to find ways of developing technology that we do not even have yet. It is clear that subsidies will be a key element in delivering our response to net zero. However, the plans are not there to get us there. That is not my opinion; I take as my text the Climate Change Committee’s statement on its annual report to Parliament last year, showcasing the strategic blind spot that we keep coming back to:
“The Government has made historic climate promises in the past year, for which it deserves credit. However, it has been too slow to follow these with delivery. This defining year for the UK’s climate credentials has been marred by uncertainty and delay to a host of new climate strategies. Those that have emerged have too often missed the mark. With every month of inaction, it is harder for the UK to get on track”—
the point that my noble friend Lord Purvis was making. The committee says:
“An ambitious Heat and Buildings Strategy, that works for consumers, is urgently needed. Delayed plans on surface transport, aviation, hydrogen, biomass and food must be delivered. Plans for the power sector, industrial decarbonisation, the North Sea, peat and energy from waste must be strengthened. The … cross-cutting challenges of public engagement, fair funding and local delivery must be tackled.”
Subsidies are going to be a key way of making many of those issues happen—the Government sometimes use the phrase “pump priming”—but, instead of having a plan, the Government are settling back for what I can only describe as a free-for-all. It is clear that the amendments are trying to set out a structure where that free-for-all can be brought in and focused on something that matters to all of us every day.
Lord Callanan (Con)
I am grateful to all noble Lords who took part in this debate. The noble Baronesses, Lady Sheehan, Lady Hayman and Lady Jones, raising their favourite subject brought me a great sense of déjà vu—the feeling that I have been here before and will no doubt be here on many occasions in future. Nevertheless, it is important to highlight the crucial issues of our net-zero commitments, climate change and environmental protection.
Before I address the individual amendments, I will explain further the approach that we have taken in this Bill towards the vital subject of energy and environmental protections. As noble Lords are aware, the Subsidy Control Bill sets out a new approach that is tailored to the needs of the UK. Broadly, it addresses two objectives: first, to facilitate compliance with our international commitments, including the subsidy control provisions in the EU–UK Trade and Cooperation Agreement; and, secondly and perhaps more importantly, to ensure that markets in the UK function effectively and that we minimise the domestic distortive effects of subsidies.
However, in respect of energy and environmental objectives, it would be fair to say that our approach is slightly different. In this area, the UK’s existing commitments, regulations and practices are extensive and world-leading, from the Environment Act principles to support for Sizewell C and the clean heat grant. Given all this, I believe that we already have the right framework in place.
As a result, our primary objective in respect of the energy and environment principles is to fulfil our international obligations—specifically, to implement the provisions in the TCA. These are good, common-sense principles; it will not be a challenge for UK public authorities to comply with them. I am not trying to suggest that they have been included reluctantly or that they do not have this Government’s full endorsement, but, equally, we have not sought to introduce further requirements or extend the scope more widely than required because we believe that energy and environment rules in general should apply to all kinds of policy-making, regulation and funding, rather than having specific provisions just for one tool in the toolbox. This brings me to the question asked by the noble Baroness, Lady Jones, on why nuclear has been excluded from the principles set out in Schedule 2; I will come on to that in more detail.
I will start with Amendments 7 to 10, all of which would amend Schedule 1. I thank the noble Lords, Lord McNicol and Lord Whitty, and the noble Baronesses, Lady Sheehan, Lady Jones of Moulsecoomb, Lady Bennett of Manor Castle—I see that she is not with us—and Lady Boycott, for tabling and putting their names to the respective amendments.
Schedule 1 sets out the subsidy control principles that public authorities must consider for any subsidies that they award or subsidy schemes that they make. These common-sense principles will ensure that subsidies and schemes offer value for money while addressing important public policy objectives in the United Kingdom. Public authorities will need to consider the effects of subsidies in the round before awarding them. The areas currently listed under principle G are those that subsidies inherently affect: competition, investment and trade. Other negative effects should be considered for the purposes of principle G only in so far as they are relevant.
Net-zero and climate change considerations are not inherent to all subsidies. Placing additional emphasis on climate change in principle G, or adding an additional principle H, could lead to public authorities having to do bespoke, possibly onerous, assessments for every single subsidy awarded or subsidy scheme made, even when it has no meaningful impact on net-zero targets.
I turn now to Amendment 11 to Schedule 2. Schedule 2 sets out that energy and environment subsidies must aim at one of two objectives: first, delivering a secure, affordable and sustainable energy system and a well-functioning and competitive energy market; or, secondly, increasing the level of environmental protection compared with the level that would be achieved in the absence of that subsidy. I would have thought that the noble Baroness, Lady Jones, would support that. This amendment would add a third aim, specifying that subsidies in relation to energy and environment should incentivise the beneficiary to help to deliver the UK’s net-zero target.
As I have said—there is no disagreement among us here—I and the Government entirely agree that net zero is of critical importance. Indeed, the Government published their Net Zero Strategy last year. The Government have already announced new subsidy schemes that promote net-zero objectives, are compliant with the interim subsidy control regime and, of course, ensure good taxpayer value at the same time. These include schemes such as the clean heat grant, which will help consumers to overcome the high up-front costs of low-carbon heat and will build supply chains for low-carbon heat ahead of the introduction of regulations for existing buildings off the gas grid, which we will come to later in the decade.
However, I do not believe that it is necessary to add an additional aim in Schedule 2, principle A. Sustainability and environmental protection are explicitly mentioned in the principle already, and it is clear that progressing our net-zero priorities would fall into these categories. Adding a further requirement on all subsidies and schemes, on top of those existing principles and regardless of whether the subsidy or scheme has a specific net-zero aim or impact, is not necessary given the existing comprehensive set of regulatory requirements on public authorities. I have mentioned several of these already but they include the legally binding environmental targets in the Environment Act, for example. It could even disincentivise other valuable subsidies that improve environmental protections but would not have a direct net-zero component.
Lord Purvis of Tweed (LD)
The Minister and the Government have been consistent in saying that moves are unnecessary, specifically because of principle G, but principle G says that
“beneficial effects (in terms of achieving their specific policy objective) should outweigh any negative effects”.
The “beneficial effects” are the achieving of the “policy objective”, so if the policy objective has nothing whatever to do with sustainability—it could well be market support in one area—then only beneficial effects with regard to that “specific policy objective” will be taken into consideration. There will not necessarily be beneficial impacts on sustainability, net zero or climate because the beneficial effects are very narrowly defined under principle G. So the necessary element still stands because the Government have restricted beneficial effects only to those linked with the original policy objective.
Lord Callanan (Con)
I think we discussed this earlier. I am really not sure of the point the noble Lord is trying to make.
Amendments 12 and 29, tabled by the noble Baronesses, Lady Boycott and Lady Sheehan, and the noble Lord, Lord Whitty, would prevent subsidies that would relieve their beneficiaries from their liabilities as a polluter. Provision already exists in the Bill to protect the “polluter pays” principle for any subsidy in relation to energy and environment. Principle B in Schedule 2 sets this out explicitly:
“Subsidies in relation to energy and environment shall not relieve the beneficiary from liabilities arising from its responsibilities as a polluter under the law of England and Wales, Scotland or Northern Ireland.”
Clause 13(3)(b) ensures that a public authority
“must not make the scheme unless it is of the view that the subsidies provided for by the scheme will be consistent with those principles.”
As I have previously set out, it is right that the provisions in the “polluter pays” principle apply only where they are relevant. That principle has long-standing foundations in UK law—including, most recently, in the provisions of the Environment Act 2021, which I also covered earlier.
Amendment 33 would prohibit subsidies for fossil fuels, including those subsidies that fall within the definition used by the IMF for fossil fuel subsidies. This would include subsidies for fossil fuel development and for the construction of new unmitigated fossil fuel-powered electricity generation, either in the UK or abroad. The principles in Schedule 2 to the Bill will help ensure that energy and environment subsidies contribute to optimal outcomes for UK citizens, recognising the importance of a secure, affordable and sustainable energy system and increasing levels of environmental protection.
I am fully in agreement with the noble Baroness, Lady Sheehan, that inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change. However, I cannot accept this amendment because unabated gas-fired generation currently plays a critical role in keeping Great Britain’s electricity system secure and stable. New-build gas generation capacity will continue to be needed to ensure security of supply until clean alternatives are deployable at scale.
Baroness Sheehan (LD)
I have a question for the Minister. We have a real problem with fuel poverty and the energy cost of living—indeed, the cost of living everywhere. Energy costs are so high, and they are going to get even higher come April. Does it not worry the Minister—and, through him, the Government —that Shell paid $1.8 billion in tax to Norway in 2020 but, over the same period, it received $99.1 million from our Government in the UK? In that year, the UK was the only country where Shell operates in which it did not pay tax, according to the company’s own annual report on payments to Governments. There is something very wrong here.
Lord Callanan (Con)
That is not a subject for today’s debate. I have no idea whether the figures produced by the noble Baroness are accurate, but we have had this debate many times. We are phasing out fossil fuel-required generation. We have one of the fastest deployable rates of renewables in the world. We have the largest offshore wind capacity in the world. I appreciate that the noble Baroness wants to go even faster but, unless she is standing here saying that we should turn the lights out tomorrow, even the Climate Change Committee accepts that we will need gas-fired generation in the years to come. This is a transition, not a revolution, so we will scale down our use of fossil fuels gradually but, in the short term, we will continue to need them.
Baroness Sheehan (LD)
I really must challenge the Minister on this. He knows that this is not a question of switching off the lights overnight. The Climate Change Committee has a well-worked-out plan for scaling down our use of fossil fuels. In that plan, we start to reduce our reliance on oil and gas to a point where the only oil and gas we have is mitigated by some form of abatement, in whatever form that may take, by 2050. The plan is not that we continue to use gas unabated until 2050—that just is not the case. It is very misleading to say that.
Lord Callanan (Con)
Indeed—[Interruption.] I will let the noble Baroness, Lady Jones, come in as well.
Baroness Jones of Moulsecoomb (GP)
We may have had this debate many times but the fact is that the Government do not listen. For example, the Government could have already reduced by a huge margin our reliance on fossil fuels and gas by helping people insulate their homes. They have given little bits here and little bits there, but they have not invested heavily. They could do more but they refuse to do so. I do not understand why. So, we are going to continue having these debates until the Government actually fulfil some of the promises they have made.
Lord Callanan (Con)
We will continue to have these debates: I just point the noble Baroness to the fact that we are spending £3.4 billion over the next few years on precisely the schemes that she mentions. By all means, argue that we should be spending even more, but it is just not true to say that we are not spending anything at all. We will continue to have these debates.
Going back to the points by the noble Baroness, Lady Sheehan, I think we are in danger of violently agreeing here. Of course, there has to be a transition and we have to reduce our reliance over time, but my point is and will remain that in the meantime, we still require unabated gas-fired generation unless she is proposing to turn the lights out, which I know she is not. Therefore, we are effectively agreeing. We could have a long and detailed debate about the scale of the transition and how we should progress the transition, but in essence we are saying the same things.
Lord Purvis of Tweed (LD)
Will the Minister address the points about how the regulated asset base will be considered—I understand his comments about that—and specifically about support for the small reactor scheme for Rolls-Royce?
Lord Callanan (Con)
The noble Lord makes some valid points on the RAB mechanism, which will be debated in full on the upcoming nuclear Bill, but I will write to him on the specific points, particularly about support for the SMR reactors he talked about. I point out that existing subsidy schemes are of course excluded from the Bill. No doubt he will want to ask what happens if we want to award a similar subsidy in the future.
In my view, the energy and environment principles provide helpful support to our energy, environmental and climate change ambitions, but they are not the main engine of those ambitions. Finally, to answer the other questions of the noble Baroness, Lady Jones, on community energy—not really a matter for the Bill—and the Government’s approach to net zero, I am very happy to follow that up and write to her with the details. We are fully in favour of community energy projects, but of course they have to pay their share of the costs towards the network, as all other projects do if they wish to be connected to the national grid. I will write to her with the details and follow up with the noble Lord, Lord Purvis, on SMRs and the basis of nuclear subsidies.
Lord Fox (LD)
There may be something to add to the letter. My noble friend Lord Purvis made a valid point about paragraph G of Schedule 1, to which the Minister feigned non comprendi. The point my noble friend was making is that the Minister had said there was no need to have an explicit environmental or energy benefit in the Bill because that was implicitly within everything. However, paragraph G absolutely says that unless something is a specific policy objective, it is not considered to be a beneficial effect, so that paragraph cancels out what the Minister said to the Committee. Some sense of resolving that tension would be helpful. That is something we can come back to because, if indeed paragraph G overrides other benefits, which it seems to do, it is even more important that environmental and energy issues are placed at the heart of the Bill.
Lord Callanan (Con)
I think if the objective is set then it is an overarching benefit, but I will be happy to confirm that to the noble Lord, Lord Purvis, and will copy the letter to the noble Lord, Lord Fox, as well. Once again, I will be very busy in my letter-writing activities for the next few days. With that, I hope noble Lords are satisfied—or, if not satisfied, content—with the answers that I have given and therefore, in compliance with that, that the noble Lord will feel able to withdraw the amendment at this stage.
Lord McNicol of West Kilbride (Lab)
I thank the Minister for his response, and I thank the noble Baronesses, Lady Jones, Lady Sheehan and Lady Hayman, for their comments. I am not quite sure how many of the four questions asked by the noble Baroness, Lady Jones, we got through; we might be coming back to some of them.
As expected, to be fair, the Minister said that he believes we have the right framework in place and there is no need to extend it. I had a different take on the discussions with the noble Lords, Lord Purvis and Lord Fox, about paragraph G. The Minister said that not all subsidies will be relevant to net zero. As the noble Lord, Lord Fox, pointed out earlier, many subsidies fit around the issue of energy and climate but, if we take the Minister at his word on that and a particular subsidy has no meaningful impact on climate or net zero, his argument was that it could cause an extra administrative burden on the authorities if they have to show that it is not relevant. However, if the subsidy had no relevance to the environment or to climate. it would be relatively straightforward for them to say so. My feeling was that that negated the argument that the Minister was making for not including Amendments 7 or 11 in the Bill.
I am still genuinely struggling to understand why it would be so difficult to include that commitment, because those are guiding principles. If we all agree that we need to move towards net zero, protecting the environment and delivering on the climate emergency, then this is an opportunity to put that language in the Bill—especially a Bill that is so relevant to the fact that historically either state aid or government decisions, which we have argued for many times, have supported industries that harm the environment, albeit for very good reasons.
I am sure we will come back to this issue but, with that I beg leave to withdraw the amendment.
Subsidy Control Bill
Wednesday 2nd February 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 84-II Second marshalled list for Grand Committee - (31 Jan 2022)
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, welcome to the Grand Committee. Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber that we are not expecting, the Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.
Clause 10: Subsidy schemes and streamlined subsidy schemes
Amendment 14
Baroness Blake of Leeds
“(4A) A streamlined subsidy scheme may be made, in particular, to support areas of relative economic deprivation.”Member’s explanatory statement
This amendment would make clear that streamlined subsidy schemes may, among other things, be made for the purposes of supporting areas of deprivation.
Baroness Blake of Leeds (Lab)
My Lords, Amendment 14 was tabled by my noble friend Lord McNicol.
We always know in this environment that timing is everything. We must be extremely mindful when debating these elements of the Bill that today the Government published the levelling-up White Paper. It is critical that we bear that in mind as we discuss these important issues, particularly on economic deprivation. We must go back to the lengthy debate that we had on Monday and focus on the benefit that the work we will do here will bring to our communities across the United Kingdom, and focus on the purpose, on what really matters as a result of the improvements that we can make to the Bill. This is an illustration of the importance of joining up key pieces of legislation. Since coming down to the Palace of Westminster I have noticed that this is a work in process and this legislation is something that we can assist with.
Bearing that in mind and being very much aware that a lot of the work that has gone into the levelling-up White Paper has already been released in the media—many noble Lords, I am sure, have had sight of the proposals—I will concentrate on Amendment 14 and refer to the extended list of amendments that have come into this group since Monday afternoon.
As I said, the third group on Monday facilitated an interesting debate on economic deprivation and a number of related issues. It is worth returning to the topic today as the Minister’s responses were not convincing. There is more work to be done on these areas. Some of the amendments in this group go beyond a laser focus on economic deprivation, allowing us to probe slightly broader issues, such as whether and how the concept of social value, used in relation to procurement, will be applied to the subsidy regime. We are grateful to the GMB union for its input on these texts.
The noble Lord, Lord Lamont, made a very powerful contribution on Monday, making the point that areas of high deprivation need a degree of certainty, and that is one of the focuses that we need to bring to bear. Sadly, I have to say that, at first glance, the announcements on levelling up do not provide that certainty. The confirmation of various missions mentioned in the White Paper provides a marginally clearer idea of what the Government want to achieve, but we are still largely in the dark as to how the various 2030 targets will be met.
We have staggering examples of discrepancy in funding. For example, transport in London and the south-east of England received £882 per head in the year 2019-20, while in the north-east it was only £315 per head. Analysis in the Guardian of funds allocated so far through the future high street fund, the community renewal fund and the towns fund also suggests that the wealthiest parts of England are being allocated, in some cases, up to 10 times more money per capita than poorer and, I have to say, often Labour-controlled councils—that point is perhaps best discussed alongside Amendment 35 later today. IPPR North points out that funds allocated to the north thus far amount to an investment of £32 per head, which compares to a £413 per person fall in annual council service spending between 2009-10 and 2019-20. We also have the comments from the National Audit Office, which suggest that grants from two different funds were not based on evidence. We very much want levelling up to be a reality and would support proposals being brought forward that would achieve this end. We have to make sure that, through the work that we are doing in this Bill, we contribute to that end.
Amendment 14 would make clear that streamlined subsidy schemes can be made to support areas of economic deprivation. This would not be a requirement, but would focus the Secretary of State’s mind once the new regime is up and running. Clarity would support the goals of facilitating quicker and more efficient awards of low-risk subsidies. I am sure the Minister will talk up the inbuilt flexibility of the new system, but here is an opportunity to send a signal to the communities that we want to help. I am sure that the noble Lord, Lord Ravensdale, will make the case for his Clause 18 stand apart amendment, which looks at relocation subsidies through an economic development lens, but I hope that Amendments 27 and 28 will at least give us some clarity on how that prohibition will work. Are we talking about movement within or between local authorities, regions and nations of the UK, or does it depend on context? The current drafting is not clear, and this kind of area should not be left to guidance and therefore to different interpretations.
Amendments 34 and 36 seek to move the discussion on to the social value to be derived from subsidies, which might be an alien concept to some considering this legislation. We must avoid always viewing matters purely in terms of the economic bottom line. We all want to create jobs and fuel economic growth, but there is a need to do that in a fairer manner, ensuring job security, good pay and strong employment rights across all sectors and, of course, as we have already discussed, ensuring that we bring in environmental benefits.
In recent years, the Government have spent billions of pounds subsidising a wind sector that sustains a relatively modest number of jobs and has not always supported UK suppliers, including the steel industry. Wind is an increasingly important part of the energy mix, and key to reducing emissions. It is clearly worthy of subsidies, if that is what it takes to make cleaner forms of energy more attractive, and of course to create new jobs. However, the TCA, and international agreements, give scope for the inclusion of social objectives when giving subsidies. We want to understand whether the Government intend to use that flexibility, and if so exactly how.
Amendment 36 draws on the concept of social value, which authorities are compelled to consider under the Public Services (Social Value) Act 2012 when undertaking procurement exercises. Do the Government plan to include similar provisions in the Bill?
There are a great many questions for the Minister to answer on this group. I hope that he will be able to address most of the points today, but I would be pleased to receive further written answers if that is more appropriate. I do not wish to pre-empt other contributions this afternoon, but it feels as if there is much more work to be done in these areas before Report.
Lord Wigley (PC)
Amendment 23 in my name has been included in this group. That is a slightly odd grouping, and perhaps I should have pressed for my amendment to be de-grouped. I shall speak to it in a moment, but first may I endorse entirely the comments made in opening this debate? It is vital that we ensure a decent standard of living and income per head throughout these islands. It is not enough to compensate people for being deprived of many of the aspects of life that are valuable to them. We need the economy to be able to sustain populations at a level of income that enables them to get benefits of the sort that are enjoyed in, for example, south-east England.
Let us compare the GDP per head of Kensington and Chelsea and that of the valleys of Gwent, or of Anglesey. Chelsea’s figure is eight times higher. We need economic solutions, not just for Anglesey and Gwent but for the north-east of England, Lancashire and other areas—all the old industrial areas. We need to get the economies working, to ensure that the other benefits that the people of those areas have a right to expect can be delivered.
My Amendment 23 seeks to include in the Bill an assurance that nothing in it prevents a public authority from giving financial support aimed at achieving cultural or environmental objectives. I draw attention to my registered interests with regard to cultural dimensions in which my family is heavily involved. I do not think the amendment should be necessary, for it is a long-standing feature of the cultural scene that grants and subsidies are necessary to underpin activities that otherwise might not be viable. Clearly, in making grant payments to one body, organisation or even company, the Government are in effect giving it a competitive edge over others that do not get such support; the marketplace is hardly designed to support and sustain such activities. Yet many aspects of the arts are inevitably dependent on such interventions, and nothing in this legislation should be open to accusations of undermining cultural viability.
Equally, the objectives of environmental policy must also, surely, be exempt from any restrictive limits placed on public bodies from maximising our ability to reach environmental targets. This is a probing amendment, and I trust the Minister can give me the assurance I seek.
Lord Purvis of Tweed (LD)
My Lords, it is a pleasure to follow the noble Lord to pick up, and indeed support, many of the points he made about geographical inequality, and to tease out a bit further from our debate on the first day of Committee the Government’s refusal to link any form of geographical basis to the proposal on deprivation, as with others.
As the noble Baroness, Lady Blake, indicated, we are now going through parts of the White Paper on levelling up, and I am sure that the struggling communities across many parts of England will be relieved to hear that they are going to get more politicians. It brought back some memories. When I was a youngster, there was the proposal for more politicians in the north-east of England but with no extra money—a proposal for what we might call a north-east assembly. There was a very outspoken MEP in that region at the time—one M Callanan, I think he was called. I remember reading him in the Chronicle and seeing him on Tyne Tees telly. He said—I paraphrase—that with more politicians without any budget, the Government were desperately seeking to shore up their flagging regional devolution campaign. How times have changed.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
For that campaign, we used a large inflatable white elephant.
Lord Purvis of Tweed (LD)
That is what I remember seeing on Tyne Tees telly.
Lord Purvis of Tweed (LD)
Well, I think the proposals for the White Paper are cheaper, because there is no money attached to them at all.
The Government’s position is that, to maintain the level of EU structural support, £1.5 billion a year must be distributed. I will not quibble about some of the details, but let us take it as read that £1.5 billion a year must be distributed. The Government promised that there would be no shortfall. There were two references in the manifesto that stated so:
“a UK Shared Prosperity Fund to ensure that the people of the UK do not lose out from the withdrawal of EU funding”.
The Minister stated so when he led on the repeal of the structural fund SI, and he stated so again on Monday in Committee.
We, national devolved Governments and local authorities thought that this was a straightforward commitment to replace the previous funds without there being a loss of funds, but no. On page 74 of the spending review, the weasel words “rise to” were inserted. The Government stated that, to ensure that the people of the UK did not lose out from the withdrawal of EU funding, the investment would need to be £4.5 billion in this spending review period, but, as they stated on page 74 of the spending review, it is £2.6 billion over the next three years—a cut of £1.9 billion, cutting support in areas most in need. The cuts in the coming years are a staggering £1.1 billion.
As the noble Lord, Lord Wigley, said, nor has there been any commitment to replicating per-person investment support. Under the previous schemes, investment was £130 per person in England, £180 per person in Scotland, £280 per person in Northern Ireland and £780 per person in Wales, reflecting the areas identified for particular need. I would like the Minister to write to me about what the proposed per-person investment will be for 2022. That is when we will know whether indeed we are losing out from the withdrawal of EU funding.
I was genuinely interested in what the Minister said on Monday about the geographical delineations referenced in Amendment 14 with regard to areas of need. He said, and he was specific in his language, that there was a differing approach from that used by the levelling-up fund. I then looked at the levelling-up fund methodology, which states that the methodology used is
“to develop an index of priority places for the Levelling Up Fund.”
Furthermore,
“any comparison of need between places in different nations should be made using a consistent set of GB-wide metrics only.”
The levelling-up fund is using an index of priority places based on need. To be consistent, that is GB-wide, and all authorities, when they are putting forward their bids for the levelling-up fund, will be clear as to what status they are in with regard to the index of priority.
So far, that is clear. However, the Government have said that there is no link between the two. The conclusion might be that this Bill is not linked with the levelling-up approach, but that is not what the Minister said at Second Reading. He said:
“Under this regime, public authorities at all levels of government will be empowered to give subsidies to help address regional disadvantages, supporting our levelling-up aims.”—[Official Report, 19/1/22; col. 1712.]
So the aims are the same, but if there is no methodology to support a scheme’s aims of addressing regional disadvantage under this Bill—in other words, inequalities —how will levelling up actually be achieved? The CMA will only have the ability to review a scheme’s legality under this Bill; it will have no scope to help to address and support our levelling-up aims. Who will do that? Which body will consider whether this Bill is “supporting our levelling-up aims”, as the Minister said at Second Reading?
The Minister might say that they are completely distinct and that the fund will operate completely distinctly from the subsidy regime. I looked at the levelling up-fund prospectus, which states categorically at paragraph 6.9 that all applicants to the levelling-up fund
“must also consider how they will deliver in line with subsidy control (or State Aid in Northern Ireland) as per Government guidance … This will be tested as part of the appraisal process and monitored thereafter.”
How, and by whom? If every application to the levelling-up fund is to be considered in the context of this Bill, they are linked. If the Government are making the case for having a regional index for that fund, for which all applications have to satisfy this Bill, but this Bill says that there will be no index or any regional aspect, how on earth will this be monitored with regard to meeting the levelling-up aims?
My final point refers to further amendments to Clause 18 on markets. The Minister has been at pains to say that there will be no definition of “local market”. I question how all the Government’s different considerations will be satisfied if there is to be a review of the impact on local markets without there being an index such as the levelling-up fund. I simply do not know why the Government have made the clear distinction between this Bill and the levelling-up approach, which they say has to be consistent with the Bill. I hope the Minister will be able to clarify those points.
Baroness Jones of Moulsecoomb (GP)
My Lords, I sat here on Monday on the first day of Committee and I wondered how much of the replying Minister’s speech was written already—that is, Ministers were not responding to any of the good sense or good words that they heard from this side of the Room. It struck me that that should be seen as a little more important than it was on Monday.
This is an important group, because it is asking what we want to use the subsidies for, rather than just saying, “How do we want to control subsidies?” Supporting areas of deprivation has to be a core principle in our subsidy schemes and everything the Government do. We are very lucky now; we have a department for levelling up and we have a White Paper. Apparently, the White Paper points out how unequal the UK is. If you measure it on any economic or social metric, it is incredibly unequal. We have to ask: what have the Government been doing for the past 12 years? Of course, they are a Conservative Government, so clearly the levelling-up agenda is to mop up all the damage they have done in the past 12 years. Tackling deprivation and inequality will take a lot more than fine words, and streamlining subsidy schemes that are tailored to overcoming deprivation would be a good start.
Similarly, we should be making it easy for public authorities to support cultural and environmental objectives. I support noble Lords who have spoken so far, and I will be interested to hear the Minister’s response to Amendment 23, tabled by the noble Lord, Lord Wigley, on this point, because it would be a great shame if the Bill were to interfere with achieving cultural and environmental objectives. We should concentrate on calculating social value as articulated in Amendment 36, tabled by the noble Lord, Lord McNicol of West Kilbride, as this is still a fledgling area of procurement practice and was one of the features of David Cameron’s early years as Prime Minister when he was still trying to do some good. The Government seem to have stalled on social value since then. If we can improve the methodology for calculating social value and properly embed it in procurement and subsidy schemes, every pound spent by the public sector will have a much greater benefit for our communities. It will help to tackle deprivation, benefit the environment and create flourishing local authorities. I hope the Minister can explain what the Government are doing to advance the social value agenda.
Lord Berkeley (Lab)
My Lords, I rise to move Amendment 25A in my name. I shall not speak to any other amendments, because to some extent I am here as an amateur among experts. I have one point to make, which I hope I can do quite quickly. However, I support the general trend from my noble friend’s introduction and other noble Lords who have spoken.
I was unable to speak at Second Reading, because if I had I would have missed the sleeper to Cornwall, which I have to take. I am sorry about that. Many questions that come up are about how and what can replace the different bits of the EU competition regime. I got to know it quite well and got either to like or love it but at least to deal with it. My amendment covers everything that I think are subsidies, although when one looks at the definition of subsidies in the Bill it is unclear whether it covers a one-off payment or a series of payments or even what in the transport world is called the public service obligation. Perhaps somebody will refer me to where I have got it wrong in that instance.
In all these things, there seems to be nothing in the Bill about whether any particular subsidy, whatever anybody is talking about, is value for money or whether it has gone through the government procurement rules, which, in simple terms, means that it has gone out for three quotes or something like that. There may be many instances where that is not appropriate. I worry about whether this is just giving a blank cheque to Ministers or any local authority that chooses without any of the checks and balances. It may go to the CMA in the end, but to start with it is not there. This afternoon, we have been debating the PPE issue. I am not suggesting that was about the urgency for procurement. On the other hand, the urgency has long since passed, and that leaves a nasty taste in some people’s mouths.
My other reason for raising this is that I have been involved in a levelling-up plan for a ferry to the Isles of Scilly, which some noble Lords know about. The local authority applied for £48 million from the levelling-up fund to be given to one private company without any tendering. The noble Baroness, Lady Vere, has been very helpful and has tried to put my mind at rest that government procurement rules will be looked at here. However, there are two issues. I think they apply to many procurement issues that come into the category of subsidy control.
The first is: should it be given at all, and has the amount applied for been properly calculated? Has the authority gone out for competitive tenders or can it demonstrate that it is value for money? Secondly—this is often more difficult—is there a better way of doing it? I have given the example of Scilly, where a better way would be to do it with one ferry rather than two, for half the price. That is not part of a levelling-up application. On the other hand, somebody should be looking at things like this to make sure that the Government, or the taxpayer, are getting value for money.
That could apply to many projects which noble Lords have mentioned on levelling up, including no doubt the railway projects in the regions which my noble friend talked about. It would help me to understand whether there is any check in the Bill involving value for money and going out to competitive tendering, or not, to demonstrate that that has been done before a decision is taken to go ahead.
Lord Ravensdale (CB)
My Lords, I oppose the question that Clause 18 stands part of the Bill. We have had an excellent debate so far on how the Bill fits with assisting disadvantaged areas. It feels quite appropriate to have these discussions on the day the levelling-up White Paper is being discussed in another place.
What runs through all these discussions on disadvantaged areas is that the UK is one of the most geographically unequal major economies. As the noble Lord, Lord Lamont, stated in Committee on Monday, that has only worsened over the last three decades. We need to throw everything at this problem, which is why noble Lords are keen to see more definition on how the Bill will help disadvantaged areas, given that subsidies provide a key part of the mechanism to enable levelling up.
Clause 18 relates to the relocation of activities and states:
“A subsidy is prohibited by this section—
I repeat, prohibited—
“if … it is given to an enterprise subject to a condition that the enterprise relocates all or part of its existing economic activities”.
Of course, we need measures to prevent gaming the system and internal competition. However, this clause appears to be rather a blunt instrument to achieve this end and goes against the flexible nature of the Bill. There are many productive relocation projects that could contribute well to levelling up, and that need not be unduly distortive of competition in so doing, but which would be made much more difficult by the presence of this clause in the legislation. We already see government departments moving out of London into the regions. Inevitably, we need the same to happen for some business investments, too, if the Government are serious about levelling up.
I do not see why the Bill would want to prevent subsidies for productive relocation projects moving into disadvantaged areas, which could be a boost in many instances to the levelling-up agenda. This has already given rise to concerns that it will adversely affect the ability of LEPs and local authorities to use grants and other forms of subsidy to relocate. The question then becomes: how do we prevent issues with internal competition if we do not want this to become a free-for-all?
The answer is that the Bill already covers these aspects. I turn to the subsidy control principles in Schedule 1, where principle F states:
“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom”,
while principle G states:
“Subsidies’ beneficial effects … should outweigh any negative effects, including in particular negative effects on … competition or investment within the United Kingdom.”
These two principles already cover, in my mind, the issues of negative effects on competition or investment within the UK. I therefore believe there is a case that Clause 18 is not required, because if a relocation subsidy was distortive of competition, it would be caught by those two principles in Schedule 1.
In addition, I want to pick up on Amendments 27 and 28, as spoken to by the noble Baroness, Lady Blake, on the meaning of area in Clause 18. For example, are moves within the same local authority permitted or not? We may need some more definition of what comprises an area in Clause 18.
I can see the intent behind Clause 18, but there are existing protections to achieve these ends in the Bill. If implemented, it could present a risk to the levelling-up agenda through a blanket prohibition on productive relocation projects. So far in Committee, the Minister has made the point that this is a framework Bill and will support levelling up through the subsidies that it will enable, but surely we do not want it to have a clause within it that could directly work against levelling up. I look forward to the Minister’s response on this and would welcome further discussions with him on this aspect of the Bill to ensure that it is coherent with the Government’s wider strategy.
Lord German (LD)
My Lords, I appear to have come into this argument about consistency between the noble Lord behind me and my noble friend Lord Purvis. It strikes me that, if this Government are intent on getting a coherent policy, they must have one fitting with the other.
My noble friend just talked about the figure of £780 per head. I will not argue in greater detail what I said during a previous day of debate in Committee, but I also want, in answer to a Written Question and Oral Questions, a statement from this Government that Wales will receive, pound for pound, what it received from the European fund. My target is £780. If the Minister could indicate in his reply whether the Government are still intent on reaching that target—and if so, when —that would be helpful.
It seems to me that consistency is also about the way in which the subsidy regime might work. How subsidies have been applied in the past is important. I quote by way of example the case of both sides of the Severn Bridge. One is in Wales, the other is in England. A major UK company relocated from the Welsh side to England. Having reflected on it, the Welsh Government spent a considerable amount of money preparing the site which the company had vacated and turning it into something that became a possible, and certainly large-scale, logistic hub into which a major British company relocated, again moving from one side of the Severn Bridge to the other. That was allowed, because basically what we were seeing was economic development potential and the available subsidy regime being used to the full.
However, I do not understand how this subsidy Bill will mean that companies can relocate or move, except by indices that, we are told, are now not consistent with the subsidy regime. It is therefore difficult for a member of the public or a public body trying to think how they will sort out their subsidy regimes from now on to make certain decisions about the future. Perhaps the Minister can provide us with some certainty on what relocation means, because without a map, a plan or boundaries, where does it stop? Where does it start? Does it mean that both sides of the Severn Bridge are in the same government economic plan and can be at both ends at the same time?
I want to say a few words about the SPEI schemes and ask the Minister some questions about them. In principle, such schemes are helpful and permissive because they follow on from the EU’s SGEI scheme, but there are two differences between the European scheme and the scheme proposed in this Bill. The first is that the SPEI must reflect the principles in Schedule 1, of which principle F is a new one. This amplifies the question I asked just now about whether, without access to a methodology for location, it will be possible to determine the issues raised by principle F. The second difference concerns the need for public interest objectives to be placed as an obligation for the companies concerned—that is, the companies that provided the delivery of goods and services or actually delivered them—in future.
To understand that need, how are we to measure what public good or public service obligation is? That is not yet reflected in the content of the Bill, and I wonder whether the Government will make it clearer, especially as we are probably not talking about the exempt ones but of that lower limit up to £700,000 and then further to £14.5 million. These are important features of any economic development plan for any area. The schemes currently captured by the SPEI rules include housing, rural transport services and some aspects of health. My question to the Minister is: how much broader could SPEI schemes go? The public good could span a wide regime of operations. In the light of two examples, I will ask the Minister how a scheme could be tested and whether he could treat these examples as a means of achieving an understanding of the intention behind this proposal in the Bill.
The amendments in the name of the noble Lord, Lord McNicol, are trying to establish a level of detail that we do not yet have. It is essential to have that detail, either in the Bill or in further explanation from the Government, of what schemes could be involved and use these services. Those services could be provided under current expenditure or from capital expenditure for projects that are needed.
I want to work on leisure centres, and arts centres or concert halls. Leisure centres used to be very much a local authority activity, but they are critical to providing a social good in ensuring the good health of communities. Therefore, many local authorities have now turned to the private sector to build, and sometimes to run, these centres. Would an SPEI scheme be available for that sort of operation?
It is similar for arts centres, which are frequently multipurpose halls now. As well as concert halls, they are perhaps homes for orchestras and community centres. Not only concerts but a whole lot of activities occur in them. Having a regime that provides a subsidy means that ticket charging can be affordable across the community. In places such as London, it is possible not to have a subsidy, because the audience will clearly pay far more for their tickets than they would in other parts of the country.
Given the disparities in the regions and nations of our United Kingdom, it is important to understand how these things will work in practice. A number of these multipurpose halls may well have a resident artist, an orchestra, a teaching capability or an education facility. In fact, it would be easy to demonstrate a public good, but they will need support or a subsidy. Will an SPEI scheme apply equally to them, provided that the public good stands up? It could be said that the availability of affordable tickets for the general population is important, no matter where it comes from.
In conclusion, this section of the Bill needs further explanation, simply because it could be used to great effect by local authorities and the devolved Administrations. Unfortunately, it does not mean that they will have a subsidy to offer, certainly not in Wales, unless the Government can match the £780 a head that we had until last year.
Lord Bruce of Bennachie (LD)
My Lords, the Government are anxious to reduce regional inequality and to promote greater equality, but it is difficult to understand how that it is going to happen without the economy seeing some relocation. The Government’s plans today involve taking money away from the home counties and transferring it to the north of England. That puts them in a political quandary, because if they do not deliver material results in the red wall seats and they have also alienated their blue wall seats, they may find themselves losing on both fronts. That is a problem for them, but from the country’s point of view we want to see those inequalities being reduced. My question to the Government is how they think this can be achieved if any suggestion of relocation is prevented.
Lord Thomas of Cwmgiedd (CB)
My Lords, I have a few short points. First, I support the noble Lord, Lord Ravensdale, regarding Clause 18 not standing part of the Bill. It is always very unfortunate when we have in legislation something that says that a subsidy is prohibited by the sanction if it is given to an enterprise subject to a condition that the enterprise relocates. The Explanatory Notes make it very clear that, by “condition”, something explicit is meant. Does it mean therefore that something implicit is permissible? As the Bill aims to achieve transparency, should we not be open and clear, particularly regarding the enforcement by the CMA, about what precisely we will allow in respect of relocation? The noble Lord may be right about the principles governing it, but a provision that makes it dependent on whether it is explicit or implicit is of benefit only to the lawyers, and we do not need to go down that route.
The second issue goes to the question of how this is to work and be enforced, which is the interrelationship of subsidies, procurement and the levelling-up fund. It seems quite clear that procurement obviously can operate as a subsidy, although there is an exemption—the Minister explained it in answer to Amendment 3, tabled by the noble Lord, Lord Wigley—which might exempt certain schemes from it. How does the value-for-money concept in the procurement Bill relate to subsidies?
My last question goes to the levelling-up funds. I assume that something will be done to ensure that they will not be part of financial assistance but, even if they are not for the purposes of the Bill, no doubt the Competition and Markets Authority and the court will have to take into account, in looking at distortion, the cumulative effects of funds from the levelling-up fund and funds from the local authority, because they are both, in essence, forms of state aid. It may be difficult to do it today, but can we have a paper which explains interrelationship of subsidy by way of procurement and how the levelling-up funds relate to the Bill? They are all potentially forms of state aid.
Lord Callanan (Con)
My Lords, I thank the noble Lord, Lord McNicol, for tabling the lead amendment in this group, and the noble Baroness, Lady Blake, who ably introduced it. It was great to be reminded by the noble Lord, Lord Purvis, of my previous existence in the campaign against the northern regional assembly—I dread to think how many years ago that was. I seem to remember that Mr Cummings was also involved in the campaign; the noble Lord missed his opportunity to have a go at poor Dominic for that. This is an interesting group of amendments which promotes some good questions. I will try to address the points from the noble Lord, Lord McNicol, and the noble Baroness, Lady Blake, and from the noble Lord, Lord Berkeley, on Amendment 25A, as well as the points from the noble Lords, Lord Ravensdale and Lord Wigley, and the noble and learned Lord, Lord Thomas.
As the noble Baroness, Lady Blake, helpfully reminded us, the context for this is the publication of the levelling-up White Paper. In that, we have announced a comprehensive programme of policies that will put the UK on a path towards greater economic prosperity in every region and place—including, I hope, the north-east of Scotland. We will do this through significant targeted investment, such as the £4.8 billion levelling-up fund that has been referred to, which will invest in infrastructure that improves everyday life across the UK, including by regenerating town centres and high streets, upgrading local transport and investing in cultural and heritage assets.
It is not in question that any government subsidy scheme set up in the context of this levelling-up fund or otherwise should be in compliance with the provisions under this Bill, once it is in force. However, as we discussed on Monday and as raised by the noble Lord, Lord Purvis, again today, subsidies can of course be an important tool to achieve levelling up, but for reasons of time and efficiency I will focus today on the Bill itself and the amendments tabled. I am sure there will be plenty of opportunities to debate the levelling-up fund and its excellent proposals in this House in future.
Lord Wigley (PC)
Does the Minister accept that cultural levelling up is part of the Government’s aim, and that cultural facility away from London and the south-east is a very important part of life and the economic substructure? Therefore, is it in order for money to be used to attract cultural investment, whether in theatres, concert halls or other aspects, which may attract business away from London and might be caught under the provisions of the later clause which arises in this group? How is that going to work?
Lord Callanan (Con)
I agree. Personally, I am fully in favour of cultural institutions transferring out of London. I will address the relocation point in my later remarks.
This grouping spans several clauses of the Bill but, in responding to the amendments, I will keep coming back to the central refrain that I iterated on Monday as well. The Bill regulates the giving of subsidies where there is a market failure or an equity rationale, with the intention of minimising distortions to competition, investment and trade. It is intended to be a flexible and minimally burdensome regime that applies to subsidies of all types and in all policy areas. As such, my central contention that applies to a lot of these amendments is that there is no need to privilege or exempt certain sectors or highlight certain objectives. Nor is it for the Bill to dictate rigidly the purposes for which public authorities should use subsidies or how they should achieve their purposes.
Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme is made by a Minister of the Crown for the purposes set out in the Bill. Amendment 14 would clarify that the Government may create streamlined subsidy schemes for the purposes of supporting areas of relative economic deprivation. Specifying particular policy objectives at this stage on the face of the Bill may in fact lead to the power to create streamlined subsidy schemes being interpreted in an unduly narrow way in the future.
Lord Purvis of Tweed (LD)
If a public authority—let us say the Scottish Government—had a scheme and defined for the purposes of that scheme the entirety of Scotland, therefore allowing relocation anywhere within Scotland, is the Minister satisfied that this would come under the Bill?
Lord Callanan (Con)
If it was in compliance with the other principles in the regime, of course it would be in compliance. It would be for the Scottish Government to determine what they would consider—
Lord Purvis of Tweed (LD)
If the Secretary of State decided that the geography was the whole of the United Kingdom, would that be acceptable under the Bill, too?
Lord Callanan (Con)
The noble Lord is dragging me into hypotheticals, but obviously the purpose of the Bill applies to the whole of the United Kingdom, so the principles would apply across the whole country, yes.
Lord German (LD)
The Minister has mentioned the question of guidance twice. Guidance is not law, of course, unless it is. It exactly what it is meant to be: guidance. Given the importance of guidance to the question of what an area is, would it be possible for this guidance to be issued, even in draft form, before we conclude this Bill, so that we can at least know what is in the Government’s mind?
Lord McNicol of West Kilbride (Lab)
Just to take both earlier points, if the Secretary of State defined an area as the whole of the United Kingdom, and that covers it, part of the subsidies could be used to move businesses inside the whole of that area. If that is the case, it defeats the whole purpose of it, does it not?
Lord Callanan (Con)
I do not want noble Lords getting mixed up. I was referring to the fact that schemes can be designed for the whole of the United Kingdom. The purpose of this clause is to prohibit direct subsidies where a business is paid a sum of money to move from area A to area B—let me finish this point—depending on the definition of the areas that we spoke about previously.
However, that is only for direct subsidies, of course. The attractiveness, training provisions et cetera that could exist or be subsidised in a different area might make it more attractive for that business elsewhere, but the idea is to avoid the situation in the US that I talked about, where they come along and give companies—I will not name them, but noble Lords know the examples I am talking about—huge amounts of money literally to get it to close down its operations in one state and move to another. That is what we are trying to avoid, but we fully accept that it is perfectly in order to increase the attractiveness of an area, show how wonderful it is and show what is available there, including trading provision, sites et cetera. However, we do not accept using direct financial assistance to move from one part to the next.
We have already published illustrative guidance. We will look at enhancing that further with more detail before we commence with the legislation. If it is drafted and ready in time, I will share it with the noble Lord, of course.
Lord Fox (LD)
Without labouring the point, but labouring the point, I want to come back to the point made by the noble and learned Lord, Lord Thomas, about the grey areas that appear to be here. This is not a hypothetical example—it is a real one without names—but imagine that you have an inward investor, possibly doubling down on an investment that has already been made. As part of the process of negotiating with that investor, government, whether national or local, determines that it is important to have a technology park where the investor’s suppliers are aggregated and work together to support the investor.
The level of support needed to create the system of suppliers that supports the inward investment, which is clearly of benefit to the region, and therefore to the country, is clear. However, it is also clear that, if arms are not twisted, they are also being bribed or given money to create that park, that environment, to make sure that the inward investor gets what they want when it comes to the investment. Is the Minister saying that this sort of process will be entirely legal even if Clause 18 remains in the Bill?
Lord Callanan (Con)
Yes, if they are an inward investor coming into the country and they do not already have an operation in another part of the country.
Lord Callanan (Con)
That is not the example the noble Lord quoted. My understanding is that, if they are just increasing the attractiveness of an area and there is no direct financial payment to the company to move from one area to the next, yes, that would be allowed. If that is not correct, I will write to the noble Lord, but that is certainly my understanding of how that would work.
As I explained, this prohibition puts down a marker that is intended to prevent the small class of disruptive but harmful subsidies, such as poaching and outright bidding wars. I suggest to the noble and learned Lord, Lord Thomas, that it would not be easy for such subsidies to circumvent this prohibition.
Lord Purvis of Tweed (LD)
I am grateful to the Minister; he is being very generous. This is just to confirm this point: if a public body is able to self-define an area under this clause, there would be nothing to prevent the Scottish Government from defining the area as Scotland. They could therefore offer relocation subsidies to businesses in England to relocate to Scotland, and vice versa; there would be nothing to stop the Secretary of State from defining the area as England, which would be more worrying, and therefore having subsidies that are specifically for those relocating from, say, Wales.
Lord Callanan (Con)
I think the noble Lord is confusing two different areas. There is the area that would define a particular scheme and the direct subsidies that we are talking about. Yes, clearly there would be a prohibition on the Scottish Government directly financing the relocation of a company from England to Scotland, or vice versa.
Lord Callanan (Con)
It does not matter, because anywhere within the United Kingdom is the area covered by this Bill.
Lord Purvis of Tweed (LD)
Minister, Clause 18 could say the United Kingdom, but it does not. It says “area”. As the Minister has said on a number of occasions today, the public authority defines the area.
Lord Callanan (Con)
It would be the area of the particular authority that is offering the subsidy. Earlier, I offered a more precise definition of what the area would be, whether it is the Scottish Government for Scotland or the council area that the noble Lord, Lord Bruce, referred to in north-east Scotland. They would be the areas of the authority combined. If the Scottish Government, for instance, wanted to offer a direct subsidy for a company to move, or the British Government offered a subsidy for a company to relocate, even within their own area, it would not be permitted.
As I said, indirect attractiveness in enhancing training provisions, for example, would be permitted. This is to prohibit a particular small class of actions. The example that we used was in the United States. We have all seen examples of companies moving from one state to another. They literally close down one operation and move to another because of the enormous subsidies offered. That is what we want to prohibit. We certainly do not want to prohibit areas—indeed, it would be contrary to our policy aims—from making themselves more attractive by offering indirect subsidies, as this would help the levelling-up agenda. I hope I have clarified that.
Amendment 34 was tabled by the noble Lord, Lord McNicol. First, I will say a few words about the purpose and effect of Clause 29, which this amendment seeks to change. The clause sets out the specific provisions for giving subsidies for services of public economic interest, which are services provided to carry out particular tasks in the public interest. These are services where, without a public subsidy, a vital public service would not be supplied in an appropriate way by the market—or, in some cases, would not be supplied at all. These could include, for example, ferry links between Scottish islands—no doubt the noble Lord, Lord Berkeley, would want to quote the example of the Scilly Isles—and a rural bus service.
The provisions in Clause 29 facilitate the subsidies being given while ensuring that this is done transparently, that they are reviewed regularly by the public authority, and that they avoid overcompensating the beneficiary. The Government’s aim in drafting Clause 29 was to provide a simple yet effective framework within which public authorities could confidently provide SPEI subsidies that would allow the continued provision of important services and, in doing so, ensure that the subsidy is limited to what is necessary to deliver that service.
In response to the question from the noble Lord, Lord German, about whether a leisure centre would be considered an SPEI, I do not want to comment on that specific scenario. There is no reason in principle why it should not be, but the Bill would absolutely allow a subsidy to a leisure centre, whether it is an SPEI or not—we could probably have lots of debates about the degree to which leisure centres are SPEIs—if the public authority was assured that there was a market failure or equity rationale and the other relevant requirements were met. I will purposefully not comment on his proposition that the residents of London should not benefit from public leisure centres. I am sure that is not what he was trying to imply.
The amendment tabled by the noble Lord, Lord McNicol, seeks to add a further requirement on public authorities when considering the cost of delivering the SPEI. They would need to consider the social and economic welfare of users of the service and of those engaged in its delivery. These will be important factors for many, if not all, SPEIs, and I expect that public authorities would regularly take account of these considerations when reviewing these types of services on a case-by-case basis. For example, service providers of rural transport services may be required, by the terms of their contract, to consult service users through annual customer surveys or regular engagement with local stakeholders to show that the service in fact meets local needs.
However, the inclusion of this amendment in the Bill would introduce additional complication and a degree of uncertainty for public authorities in how they undertake this assessment. The defining factor for SPEIs must be the type of service that is provided and the fact that it would not be adequately provided by the market. The provisions in Clause 29 are designed to ensure that those services are designed appropriately and with minimal market distortion. As important as the social and economic welfare of service users and providers is, I do not believe it is at the core of this assessment and of the subsidy control provisions.
More broadly, it is important to emphasise that the subsidy control regime does not sit in isolation, nor should it determine every element of spending decisions taken by public authorities in the UK. They must continue to take into account spending rules and to ensure value for taxpayers’ money. They must also make evidence-based, democratically accountable policy decisions about how and where to intervene, in a way that takes into account the specific characteristics and needs of the geographical area and the subject matter for which they are responsible. It may therefore be appropriate for public authorities to include reference to the social and economic welfare of service users and providers in their own guidance on specific SPEIs.
With respect to the social and economic welfare of those engaged in delivering the services, I remind the noble Lord that the UK has one of the best employment rights records in the world. We continue to build on this record, ensuring that our workers have access to the rights and protections they deserve. I therefore do not believe that it is desirable for the subsidy control regime that we are debating to prescribe how public authorities must account for the social and economic welfare of service users and those engaged in delivering the service.
Finally, I will comment on Amendment 36. I am also grateful to the noble Lord, Lord McNicol, for tabling this especially thought-provoking amendment. I understand that the noble Lord intends it to be a probing amendment and I will treat it as such. It raises some interesting questions about subsidies and the nature of the relationship they create between a public authority and a subsidy beneficiary.
The social value Act, from which I assume his amendment takes its inspiration, requires a public authority that is procuring the provision of services, goods or works to give weight to social value factors in what would otherwise have to be a strict value-for-money calculation. Authorities within the scope of that Act should consider whether it applies where a subsidised contract is awarded. In contrast, and perhaps paradoxically, the giving of public money in the form of a subsidy is not primarily a market-based or economic calculation. Of course there are economic duties, within this regime and in public spending controls, to ensure that a subsidy is efficient and effective.
However, the first requirement of this regime—the first condition that a public authority must satisfy before giving a subsidy—is, in essence, one of social value: what is the equity rationale? Is there a market failure and what is the benefit to wider society in providing this subsidy? I hope this answers the question of the noble Baroness, Lady Jones, on the same subject. Moreover, public authorities must conclude their assessment against the principles with the balancing test in principle G: that the beneficial effects of the subsidy should outweigh any negative effects. Of course, these duties fall on the public authority and not the beneficiary directly but, in considering the first and last principles, the public authority must consider the effect of the subsidy in the round.
If it were reasonably foreseeable that, in the actual purchasing of a good or service funded by subsidy, the beneficiary would be undermining the equity rationale for giving the subsidy or that it would somehow worsen another equity objective, then it is hard to see that the subsidy could satisfy either principle A or G. None of this is to say that a public authority cannot impose secondary requirements on a beneficiary, where the size and nature of a subsidy might lead it to do so. Many public authorities award subsidies through a written contractual arrangement that sets out the terms and conditions under which the financial assistance is given, and this would be the way to impose such conditions. But it would be disproportionate to require public authorities to impose social value conditions in all cases, particularly as the questions of equity are already built into the fabric of the regime.
As an aside, the noble Lord has also proposed that public authorities should be able to impose penalties if the use of the subsidy does not deliver the chosen social value purposes. As I have explained, it is not proportionate to require public authorities to impose these secondary requirements. However, let me reassure him that Clause 77 provides that if a subsidy is not used for its intended purpose, it can of course be recovered.
I am grateful to all noble Lords for putting forward their amendments and for the long subsequent discussion that has taken place, but I hope I have set out the reasons why I am unable to accept these amendments on behalf of the Government. In the light of the fulsome explanations I have provided, I hope that noble Lords will feel able to withdraw or not press their amendments.
Baroness Blake of Leeds (Lab)
I thank everyone. Given the nature of the earlier discussion, particularly about the cultural venues, perhaps I should declare my interest as a vice-president of the LGA at this point, with apologies for not doing so earlier. I wonder if noble Lords are all sitting feeling relieved that they are not standing here trying to pull all this together. On behalf of the Committee, I thank everyone who has contributed; it has been a very helpful debate. I also thank the Minister for his fulsome response.
However, the nature of the amendments we are considering in this group and their probing nature is such that noble Lords have been seeking reassurance. Although the Minister has attempted to give us reassurance, without looking through the detailed responses that the Committee has given this afternoon I am not convinced that on the matters raised we can all put our hands up and say that that reassurance has been received on all points. I hope there will be opportunities to come back and look at the continuing areas of concern.
I am also struck by the fact that we have not had the opportunity to discuss in detail the evidence submitted by experts during the House of Commons proceedings, including the very serious arguments by Professor Fothergill and Dr Pazos-Vidal about the benefit of defining areas. I confess that I am at a loss as to how the Government can bring this down to the point where the interested parties can make sense of the opportunities available to them, and how we can move this forward in a simple way that would enable areas and businesses to benefit, without the excess bureaucracy that the Minister assured us would not get in the way. I remain to be convinced on some of these points.
“(5) A streamlined subsidy scheme must be made or modified by regulations subject to the negative procedure.”Member’s explanatory statement
This amendment would require a streamlined subsidy scheme to be made by regulations, as recommended by the DPRRC.
Lord Fox (LD)
My Lords, they say that a change is as good as a rest, so the Minister should be very sprightly now, as these amendments bring a slight change of gear. The group consists of eight items, mostly on the same theme, with the exception of the clause stand part in the name of the noble Baroness, Lady Bennett. Because that is so different, in the interests of time and clarity I shall not speak to it, so I look forward to hearing more about it from her.
I am tempted to say, “Here we go again”. The pattern we see here is one that we see with every Bill. First, the Government table new legislation absolutely riddled with secondary legislation. There is usually at least one case of secondary legislation allowing the amendment of primary legislation. Then the Delegated Powers and Regulatory Reform Committee steps forward and issues a report highlighting those issues and recommending remedies. Next, the Minister—in my area it is always the noble Lord, Lord Callanan—stands up, pleads the case for flexibility and sometimes, indeed increasingly, disputes Parliament’s competence to even make some of the decisions that will be required in the future. If we are successful through this process, some, although usually not all, the offending clauses get removed or modified. Lately, however, I detect an emboldened Minister. Increasingly—the ARIA Bill is an example—he uses the Dispatch Box to refute the arguments of the DPRRC.
We should be clear that this committee is an important senior committee of your Lordships’ House, and its report Democracy Denied? The Urgent Need to Rebalance Power between Parliament and the Executive stated that
“the principles of parliamentary democracy, namely parliamentary sovereignty, the rule of law and the accountability of the executive to Parliament”
should be at the heart of how a department approaches the delegation of legislative powers. The Bill falls far short of that objective, which is why there are so many amendments in my name in this group. I am also pleased to support the noble Lord, Lord McNicol, and the noble and learned Lords, Lord Judge and Lord Thomas, in Amendment 50, which seeks to deal with Clause 47, which is clearly the most egregious example of executive overreach.
I turn to the amendments in order. Amendment 15 would require a streamlined subsidy scheme to be made by regulation. Clause 10 allows Ministers to make streamlined subsidy schemes, which are defined opaquely in Clause 10(4). This demonstrates that Ministers consider that all subsidies within such a scheme comply with the Bill’s subsidy control principles and requirements. In practice, it means that if a public authority keeps within the limits of the scheme it is no longer required to consider the subsidy control principles or requirements when giving an individual subsidy. Streamlined schemes will be laid before Parliament after being made. They will not be subject to the negative or the affirmative procedure for regulations. The DPRRC report sets out a very good rationale for recommending that the power to establish streamlined subsidy schemes in Clause 10 should be exercised by regulation and that then the negative procedure would be appropriate, hence Amendment 15.
Next is a probing amendment to raise concerns about the definitions in Clause 11 being made by regulations, as also highlighted by the DPRRC. Clause 11 allows certain definitions to be defined by affirmative regulations rather than appearing in the Bill. These definitions are
“subsidy, or subsidy scheme, of interest”
and
“subsidy, or subsidy scheme, of particular interest”.
We have touched on this already. These definitions are important in determining the scope of the subsidies or the schemes that must be referred to the CMA under Clauses 52 to 64. The DPRRC is sceptical about the Government’s reasoning for leaving these definitions out of the Bill, and so am I. The DPRRC states:
“The power in clause 11(1) to define in regulations certain key terms is inappropriate and we recommend that it be removed from the face of the Bill.”
As a coda, and this is quite unusual, the DPRCC adds:
“Although we have been critical of the over-use of Henry VIII powers, we prefer to see key definitions appear on the face of the Bill—perhaps with a Henry VIII power to amend by affirmative regulations—rather than not appearing on the face of the Bill at all and always being a matter for regulations.”
That is an interesting twist, and one that is worth debating.
Amendment 26 addresses Clause 16(4) to (7) and seeks to require designations related to marketable risk countries to be made by regulations not by direction. Again, this is recommended by the committee.
Clause 16(4) is subject to neither the affirmative nor the negative procedure. The Government’s reason for having no parliamentary procedure is that they
“want to be able to act rapidly to allow short-term export credit finance where market factors may have rendered the list of marketable risk countries in need of amendment.”
One thing that the Covid crisis has demonstrated is that there is no barrier to the rapid tabling and approval of regulation. One thing that Brexit has demonstrated is that your Lordships’ House has a huge capacity to handle literally thousands of regulations when they are set before it. So any pleading that executive power is needed because Parliament cannot move fast enough is tosh, frankly—or, as the DPRRC puts it rather more politely,
“the Government can make rapid legislative changes by negative regulations or ‘made affirmative’ regulations. The idea that the making of regulations is inconsistent with the need to move quickly is fallacious. Negative and ‘made affirmative’ regulations can be made as quickly as can a direction.”
In other words, it is tosh. This amendment would install a process of regulation rather than ministerial direction.
Amendment 30
“would remove the ability of the Treasury to amend the definition of ‘deposit taker’”.
Amendment 31
“would remove the ability of the Treasury to amend the definition of ‘insurance company’”.
Amendment 32
“would remove the ability of the Treasury to amend the definition of ‘insurer’”.
Clauses 25 to 27 give the Government the ability to revise certain definitions to cater for developments that cannot be anticipated at the time of the Bill’s enactment. By way of example, the definition of “deposit taker” in Clause 25 uses a standard definition found across the statute book. If this definition required amendment in some future primary legislation, it would be perfectly possible for that legislation to contain the necessary consequential provision to enable the definition in Clause 25 of this Subsidy Control Bill to be amended in due course. The same reasoning applies to the definitions of “insurance company” in Clause 26(4) and “insurer” in Clause 23(7). Amendments 30 to 32 would remove the ability to amend those definitions, which, clearly, would not hamper future changes.
Amendment 50, proposed by the noble Lord, Lord McNicol, and signed by myself and the noble and learned Lords I mentioned, would remove Clause 47, which aims to give the Treasury powers
“to keep financial stability directions secret from Parliament and the public, thereby enacting a recommendation of the Delegated Powers and Regulatory Reform Committee.”
As the committee states,
“clause 47 involves fundamental issues of government accountability and parliamentary scrutiny … Not only does the provision enable the Government to disapply a legislative provision—the Bill’s subsidy control requirements—by a direction that can be kept secret from Parliament, but the justification for the power not being subject to any parliamentary scrutiny procedure includes, according to the Memorandum, ‘the potential for non-approval by Parliament’”.
In other words, this has to be included because Parliament might not agree with it. That should give us pause for thought.
The DPRRC is clear on the malign nature of this clause. It says that
“clause 47 is extraordinary for several reasons … Parliament has no power to scrutinise and reject a Government direction suspending the application of the Bill’s subsidy control requirements … Parliament may be deliberately kept in the dark about the existence of such a direction if the Treasury elects to rely on clause 47(7) … One of the Government’s reasons for having no parliamentary procedure is that the potential for non-approval by Parliament would create uncertainty that the subsidy will continue to be available. In other words, because the Government might be defeated if the direction could be voted upon, there should be no parliamentary procedure and no vote.”
In conclusion, the committee recommends
“that clause 47(7) should be removed from the face of the Bill”,
which is what Amendment 50 would do.
I am sure the noble and learned Lords who follow me, and indeed the noble Lord, Lord McNicol, will be more erudite, but I leave this set of amendments with a final injunction that we should seek to uphold all the DPRRC’s recommendations, not just the most serious ones. Parliamentary power is being eroded, little by little, one piece at a time. We have to resist this. I beg to move.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
My Lords, I point out that if Amendment 15 were to be agreed, I could not call Amendments 16 or 17 by reason of pre-emption.
Baroness Jones of Moulsecoomb (GP)
I agree with every word that the noble Lord, Lord Fox, just said. I liked him shouting “tosh!” at the Government; that was great. That is a very gentle word for it. He also sent me into a mild panic, because I had not realised that my noble friend Lady Bennett had tabled a clause stand part debate in this group. All I can do is repeat her explanatory statement which says that this
“is intended to elicit why Bank of England monetary policy subsidies are excluded from the provisions of the Bill.”
I hope there is an answer on that in the Minister’s speech. I had thought the noble Lord, Lord Fox, was perhaps talking about my Amendment 33 which we have of course already debated. I thank him for his remarks.
On this group generally, I have argued many times about government regulation-making powers, because I am absolutely sick of the Government bringing skeleton legislation that needs little more than a parliamentary rubber stamp for them to make substantive law by future regulations. This is a power grab that most of us absolutely abhor. However, this is a unique case. I want to support these amendments for new regulation-making powers because the alternative envisaged by this Bill is that, instead of making regulations which are passed by Parliament, the Government would simply make a decree and then inform Parliament after the fact. I support the amendments.
Lord Judge (CB)
My Lords, I apologise that I was not able to attend Second Reading. I had other commitments in the House, so ask noble Lords to forgive me.
I put my name down in support of the noble Lord, Lord McNicol, and was delighted to do so. However, I am sure he will forgive me if I explain that I am actually not supporting him but the Delegated Powers and Regulatory Reform Committee, which is what we should be looking at. The noble Lord, Lord Fox, thought there might be some erudition, but there is no need for it; this is a perfectly simple constitutional aberration.
When the Minister comes to reply, I would like him to kindly look at paragraph 16 of the committee’s report, where there are three “extraordinary” provisions—that was the word used—which need attention. Unless he can answer in a way that convincingly refutes their effect, we might as well keep on fighting about this. As I say, it is a constitutional aberration and we should not have it. It is an amazing thing for one of our committees to say that a subsection, in this case Clause 47(7), should be removed from the Bill. We need to know why it should not.
Lord Thomas of Cwmgiedd (CB)
I shall add two very short points. First, it seems to me absolutely fundamental to a democratic society that the laws made by a legislature permit everything to be done openly and stop anyone prohibiting publication at any time. As the committee said, there is enough discretion in the earlier subsection. Secondly, accessible and open legislation is essential to the rule of law. It seems to me that this clause is an attack on both democracy and the rule of law and has no place in this Bill.
Lord Hope of Craighead (CB)
My Lords, when the Minister comes to reply, would he explain the purpose of Clause 47(6), which requires that the direction must be published? We need to understand the purpose of that subsection before we look at Clause 47(7) which is the subject of this discussion. As I understand it, it is there in the interests of transparency and clarity. If that is the purpose, it is even more surprising that there is a power to disapply.
After all, the purpose of the direction is to inform somebody. Who is it who is to be informed? It is not subject to parliamentary procedure, but it is there for a purpose. We need to know from the Minister expressly what that purpose is, so that we understand the significance of Clause 47(7).
Lord Purvis of Tweed (LD)
My Lords, I support my noble friend Lord Fox and will add a couple of points. First, on the streamlined schemes, there is the potential for them to be very major and, in effect, a policy driver in themselves. But if they are laid and are not in an order, which we would have the ability to scrutinise, they will not necessarily come with an equalities or impact assessment. It will be a fundamental weakness if they are simply laid. It goes against the grain of what we have been trying to argue, which is for good-quality proposals that come with equalities assessments. It will bypass that and that is a retrograde step.
On the ability to amend without there also being scrutiny, I point out, having checked on legislation.gov.uk, that there are 15 references to deposit-takers in other legislation and 34 references to insurers. What the Government propose is simply to amend primary legislation and a suite of other measures. The area of confusion for me is that there is also legislation that relates to Scottish insurance, which could be changed by a Secretary of State without there being proper scrutiny of that either.
My final point relates to the element of secrecy in Clause 47(7). The Government seem to be proposing that we go back to a situation of hue and cry, in which measures by the Treasury that could be supporting individual businesses will never be reported. We will know only if there are whistleblowers, if people are raising concerns and they have that knowledge. We saw to our cost with the Libor-fixing situation what can happen when there is a lack of transparency and reporting. It is simply not good enough. When I was a member of the Finance Committee of the Scottish Parliament, we had mechanisms for our committee to meet in private when Finance Ministers were able to say, either on the grounds of national security or during the economic crash, that there were reasons why information would not be made public at that point. We were briefed and there would, subsequently, be a report that Parliament could have. There are other mechanisms for secrecy than this approach.
Finally, I have been a Member of two Parliaments for 18 years now. I never thought I would read a parliamentary committee highlighting this statement:
“In other words, because the Government might be defeated if the direction could be voted upon, there should be no parliamentary procedure and no vote.”
This provision should not progress. It is as simple as that.
Lord McNicol of West Kilbride (Lab)
My Lords, I am grateful to the noble Lord, Lord Fox, for tabling these amendments. As we have heard, they reflect the bulk of the DPRRC’s recommendations. I also thank the noble and learned Lords, Lord Judge and Lord Thomas of Cwmgiedd, and the noble Lord, Lord Fox, for signing Amendment 50, even if it was not to support me but the recommendations of the DPRRC.
The DPRRC took the unusual step of voicing its concerns for Clause 47(7) at first, rather than working through the Bill and its clauses in turn. That goes to highlight even further its real concerns, specifically around issues of transparency and secrecy. We will come on to further amendments on transparency and try to open this up because, as we have heard, when you shine a light on the decisions being made, they are put under scrutiny. Issues and concerns can be brought to the fore so that we do not, as the noble Lord, Lord Purvis, said, end up relying on whistleblowers.
Taking the point made by the noble Lord, Lord Purvis, it may be that the immediate release of certain directions and information could have undesirable consequences in terms of market behaviour, but there must be other ways of taking it forward. The noble Lord has touched on one of them at the Scottish Parliament, where meetings were in private but the information was subsequently released.
At Second Reading, the Minister said:
“However, we will of course take into account the findings from the Delegated Powers and Regulatory Reform Committee’s report and we will review accordingly.”—[Official Report, 19/1/22; col. 1712.]
I know we are all sitting here waiting to see if any of those will be enacted, and I very much look forward to the Minister’s response. The words of the DPRRC have been quoted but it is worth putting on the record points 13 and 14 in its 17th report, which say that:
“We do not recall any other occasion where the Government have argued that one reason why Parliament should not be able to scrutinise delegated legislation is because the Government might be defeated on it … Neither have the Government cited any precedent where the ability to disapply a legislative provision (here, the Bill’s subsidy control requirements) can be achieved by a direction that can be kept secret from Parliament.”
With that, I look forward to the Minister’s response.
Lord Callanan (Con)
My Lords, this group of amendments contains a number of amendments tabled in relation to the Delegated Powers and Regulatory Reform Committee’s report on the Bill, which I received and, like all noble Lords, read with great interest. I thank the noble Lords, Lord Fox and Lord McNicol, for their amendments. I was also going to thank the noble Baroness, Lady Bennett, but sadly she is unable to join us today, which of course is a real tragedy for us all. Nevertheless, we have the benefit of the noble Baroness, Lady Jones, in her stead, which is wonderful for us.
I wholly echo the sentiments expressed by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Judge, on the vital role that the DPRRC plays in supporting the work of your Lordships’ House. I am grateful to my noble friend Lord McLoughlin and his committee for their scrutiny of the Bill.
As I stated at Second Reading, I am very well aware of the strength of feeling across the House on the provisions in the Bill highlighted today. I was expecting many of the speeches that were given. I am sure that noble Lords are aware that my right honourable friend the Lord President of the Council, Jacob Rees-Mogg, has also taken an interest. He recently wrote on this issue to my noble friend Lord McLoughlin and the previous chair of the committee, my noble friend Lord Blencathra, noting that the Government are taking its findings into consideration. While at this stage I cannot commit to changing anything in the Bill, I will take away the comments of noble Lords for due consideration. It is important that we get this legislation right and that the powers are proportionate and measured, as well as conducive to effective subsidy control.
Let me start with some thoughts on Amendment 15 to Clause 10. I previously noted that Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme must be laid before Parliament before it is made, or modified, by a Minister of the Crown. Streamlined subsidy schemes offer public authorities a swifter route to demonstrating compliance for categories of subsidies at especially low risk of causing market distortions, that promote UK strategic policy objectives and which the Government judge to be compliant with the subsidy control principles.
This amendment would require streamlined subsidy schemes to be made or modified by regulations subject to the negative procedure. Indeed, the noble Lord’s amendment is in line with the recommendation made by the DPRRC in its report. The Government believe that Clause 10 sets out a proportionate level of parliamentary scrutiny for streamlined subsidy schemes. The regulations will be laid before Parliament both when they are made and when they are amended. I also intend to engage with the devolved Administrations, other public authorities, and the experts in the subsidy advice unit on the development of these schemes.
Lord Purvis of Tweed (LD)
Is it the view of the Minister that the powers under subsection (6) allow for delayed disclosure?
Lord Callanan (Con)
Yes, that is the subsection which provides the ability to publicise that fact—it is in subsection (6).
Lord Purvis of Tweed (LD)
So the point the Minister is making, which is to have the legal ability to delay disclosure, is afforded under subsection (6). The deletion of subsection (7) then does not affect that power. It would mean only the removal of the ability for there to be no disclosure at all, because the power to delay disclosure would be under Clause 47(6). Is that correct?
Lord Callanan (Con)
We think that subsection (7) is important for financial stability and legal certainty but, as I have said on the other amendments in this group, I am happy to take this away and look at the matter further.
This is the very effect that assistance, and the direction that facilitates that assistance, would be deployed to avoid. Northern Rock serves as a clear example, where the revelation that the firm was in receipt of emergency liquidity assistance led to a run on the bank. That exacerbated its problems and, in the end, hastened its failure. Consequently, if disclosure of financial stability directions cannot be deferred, it would effectively render them unusable in situations where it is necessary to provide lending on a covert basis. Making a direction unusable in this way would be especially problematic if the success of the financial assistance was dependent on the use of a financial stability direction to disapply any of the requirements.
In relation to the specific statement being referenced in paragraph 16 of the report, as mentioned by the noble Lords, Lord Purvis and Lord Fox, that statement makes it clear that the concern is not about the risk of parliamentary defeat. The concern surfaced in the statement is the perception of stakeholders of a risk that non-approval could result in the rejection or undermining of the proposed subsidy. In that circumstance, the primary concern would not be in relation to a defeat in Parliament but that, as a result of that risk perception among stakeholders, the subsidy would be ineffective in the short term or even rejected by the proposed recipient. This would mean that the use of the power would not even get to the point of a vote.
The current drafting of Clause 47(7) provides a clear mechanism in law for delaying publication and a basis on which the Treasury can make the decision that the publication would undermine the purposes for which the direction was given. When the Treasury considers that publication would no longer undermine the purpose of the direction, it would at that time—this comes to the point made by the noble and learned Lord, Lord Hope—be required to publish that direction in accordance with the duty in Clause 47(6). Therefore, subsection (7) simply makes explicit the ability to delay publication where that publication would undermine the purpose for which the direction was given. It does not provide a means for the Government to avoid scrutiny indefinitely.
Lord Judge (CB)
What is the point of Clause 47(7) if the object is to allow, in appropriate circumstances, a deferral or a delay in the publication of the information?
Lord Hope of Craighead (CB)
Might I add to my noble and learned friend’s question? To whom is the information to be given? Who needs to know about this direction? It is rather important to understand how the scheme is supposed to work. Presumably, the publication is to serve a purpose; one needs to know to whom it will be disseminated.
Lord Callanan (Con)
Ultimately, the purpose is to provide transparency so that, after the fact, the public and Parliament are informed on the subsidy that has been given. However, we maintain that it is important to keep the subsidy under the radar unless it would undermine the purpose for which it was given in the first place if it were publicised. The example of Northern Rock is the one that we quote, as it would potentially cause a run. I recognise the strength of feeling from the DPRRC and among noble Lords on these clauses. As I have said, I will look at them further before we get to Report—[Interruption.] I am happy to have satisfied the noble Baroness, Lady Jones, for a change.
Turning to some of the comments on why Clause 11 should stand part of the Bill, this clause enables the Secretary of State to make secondary legislation to define subsidies or subsidy schemes of interest or of particular interest. Again, I recognise that the power set out was criticised in the DPRRC’s report, and that it recommended that these definitions be on the face of the Bill. If I may briefly summarise the purpose of this clause, Part 4 of the Bill establishes the mechanisms for the referral of these subsidies and schemes to the subsidy advice unit. Voluntary referral will be available for subsidies or schemes of interest, while subsidies that are classified as subsidies of particular interest will be subject to mandatory referral. After referral, the public authority’s assessment of compliance with the subsidy control requirements will be evaluated by the unit, and a report containing its findings will be published. This is a pragmatic way of ensuring that additional scrutiny is given to potentially distortive subsidies. The clause therefore allows the Government to define these types of subsidies and schemes.
The noble Lord sought clarity on why the Government intend to set relevant criteria and thresholds in regulations, rather than in the Bill. Let me point out the illustrative regulations that the Government published last week, as well as the accompanying policy statement. I welcome any comments that noble Lords may have on these documents, of course, and stress that the Government will take careful note of the views expressed when developing these draft regulations. I hope that this provides further clarity and assurance on how the Government intend to use these powers.
The reason why the Bill takes a power to define these categories is because it is important that the Government are able to modify the criteria over time in response to market conditions, or the periodic reviews that will be carried out by the subsidy advice unit, to ascertain how the domestic control regime is working in practice. Both Houses will of course have an opportunity to debate any regulations in draft to ensure that the criteria for what constitutes “of interest” or “of particular interest” are robust and capture the right subsidies and schemes for additional scrutiny.
Lord Fox (LD)
My Lords, this has been an interesting debate. The Minister said “for the moment”—perhaps for the moment.
I appreciate that the Minister has at least left his door ajar to some of this, but the body language, and indeed the language, still indicate that there is this cultural campaign to make sure that executive power is gathered where possible and that the legislature is pushed to one side. This is what the DPRRC referred to in its report; it is what we have to put up with in every piece of legislation. Actually, as I said, I get the sense that the Government are emboldened and keep going even further with this. I feel that your Lordships will have to consider where we go with this on Report.
I have a couple of observations. When a Minister says that something is too technical, I feel as though I am being tapped on the head and told that I should not worry about such things—this coming from the Minister who tabled the 17 technology areas for the security and investment Bill, which was one of the greatest aggregations of technical information that I have ever seen. The idea that we and Parliament are not capable of handling something that is “technical” is deeply patronising.
Turning the focus to Clause 47(7), nowhere in it are the words “delay”, “temporary” or “otherwise” used. If, as the Minister implied—said absolutely, in fact—the purpose is a temporary delay in what would otherwise be a fully transparent process, that is not what Clause 47(7) says. If that is what the Minister wishes to put to us, that is what it should say in the Bill, but it does not.
Putting those comments to one side, I am sure that we will come back to this unless the Minister mobilises the full forces of righteousness and comes back with some meaningful amendments. I beg leave to withdraw Amendment 15.
Amendment 15 withdrawn.
Lord Callanan
“(7) A subsidy scheme or streamlined subsidy scheme may provide for the value of a subsidy to be determined by reference to its gross cash amount or the gross cash equivalent.”Member’s explanatory statement
This amendment ensures that subsidy schemes and streamlined subsidy schemes can refer to the gross cash amount or gross cash equivalent amount of the subsidy, as determined by regulations made under Clause 82.
Lord Callanan (Con)
My Lords, the amendments in this group are technical amendments that would update the Bill to permit regulations made on gross cash equivalent to apply to all parts of the Bill to which they are relevant. These amendments have the same basic purpose so I will take them together.
Subsidies can come in many different forms, from cash grants to discounted contributions in kind. It is important to establish a common methodology for calculating the value of the latter kind of subsidy as this will avoid public authorities taking different, and difficult to compare, approaches to this issue. Clause 82 enables the Secretary of State to make provisions by regulations, which will be subject to the negative procedure, for how the gross cash amount and the gross cash equivalent amount are to be determined for four different clauses that are listed in the Bill. These regulations will set out a methodology for calculating the value of any subsidy or scheme for use by public authorities. This will avoid public authorities using to calculate gross cash equivalent a range of methodologies that may not be wholly or easily comparable with each other.
Clauses 10 and 11 concern the creation of subsidy schemes and streamlined subsidy schemes, and enable the Secretary of State to make regulations defining the meaning of subsidies or subsidy schemes of interest or of particular interest. The amendment to Clause 82 would ensure that regulations made under it, which make provisions about how the gross cash amount and the gross cash equivalent are to be determined, are applicable to all regulations and schemes made under the terms of the Bill.
The other amendments to Clauses 10 and 11 would enable the values of subsidies of interest or of particular interest, subsidy schemes and streamlined subsidy schemes to be defined by reference to the gross cash amount or gross cash equivalent amount of the subsidy or scheme. I hope noble Lords will agree that these are minor and technical amendments that will avoid any need for complex cross-referencing in the regulations and reduce any confusion for public authorities; I therefore ask that they be accepted. I beg to move.
Baroness Jones of Moulsecoomb (GP)
I would like to raise a small, technical point; I think that the Minister skimmed over it in the debate on Amendment 33 in my name, possibly because I did not explain it properly. Subsidies for fossil fuels should be calculated using the IMF definition of financial assistance for fuel consumption multiplied by the difference between existing and efficient prices. In his reply, the Minister explained that he would not want to ban subsidies for fossils fuels, but he did not say anything about the merits of the IMF definition of fossil fuel subsidies. This is an important issue because it factors in the negative impacts of environmental and social costs, which are otherwise ignored. When we look at fossil fuel subsidies holistically, we realise just how much more expensive fossil fuels are than renewables. I do not expect an answer today, but it would be good to have an answer in writing whenever possible because the Minister did not mention it.
Lord Callanan (Con)
That issue is not covered by these amendments, but I will come back to the noble Baroness in writing.
Lord Fox (LD)
My Lords, those on this side welcome these three amendments. It is always hard to get those first government amendments out; after then, you can keep them coming, Minister. We have one or two suggestions about what you might like to put in them.
It is good to have a consistent approach; indeed, a consistent approach to how you value a subsidy is a good starting point. Perhaps we can then have a consistent approach to how local authorities evaluate the need for a subsidy, and to how they are regulated and managed within areas. Consistency is what we are calling for. This is clearly the first baby step towards having a control system operated from a level playing field.
Lord McNicol of West Kilbride (Lab)
I echo the points of the noble Lord, Lord Fox: it is interesting to see government amendments at this early stage, even though none of these issues was raised at Second Reading. Likewise, we are not going to oppose any of these amendments.
Similarly, not just on consistency but on transparency, a good number of amendments were tabled in Committee on which we are more than happy to work with the department and the Minister to bring them back on Report. This will hopefully deal with a number of issues on which we have concerns, so that we do not object to them at that point.
Lord Callanan (Con)
I am happy to see that the Liberal Democrats believe in consistency and to work with the opposition parties when amendments are required, as appropriate.
Lord Callanan
“(2A) Provision under subsection (2)(a) may provide for the value of a subsidy to be determined by reference to its gross cash amount or the gross cash equivalent.”Member’s explanatory statement
This amendment ensures that subsidies of interest and subsidies of particular interest can be defined by reference to gross cash amount or gross cash equivalent amount, as determined by regulations made under Clause 82.
Member’s explanatory statement
This amendment would require individual subsidies given under a subsidy scheme to be judged against the subsidy control principles.
Lord McNicol of West Kilbride (Lab)
My Lords, we understand the Government’s desire to keep the subsidy control regime as straightforward as possible so that public authorities at all levels can respond to events as they arise. The Minister knows that we generally support these aims but, as we made clear at Second Reading, we have real concerns about the lack of transparency and accountability. The three amendments in this group have been tabled to look at that. The issue of transparency concerns individual subsidies given under a subsidy scheme not showing as transparently as others on the database or elsewhere.
Amendments 21 and 24 would require individual subsidies inside a scheme to be judged against the subsidy control or energy and environmental principles, as appropriate; I thank the noble Baroness, Lady Sheehan, for putting her name to Amendment 24. The Minister may tell us that removing both Clause 12(2) and Clause 13(2), as the amendments outline, is unnecessary, as Clause 12(3) and Clause 13(3) state that the schemes should not be made unless an authority is “of the view” that the individual subsidies “will be consistent with” the principles. However, being “of the view” that something is consistent with the rules is not the same as specifically stating it or judging that it has been defined within the rules.
More importantly, the lack of transparency arising under the subsidy schemes could be vast. Individual subsidies—large amounts of money or support—could be hidden; they would not be shown and would not be transparent if they are within the schemes. The first two amendments look to set that out.
Baroness Sheehan (LD)
My Lords, I added my name to Amendment 24. I also support Amendment 21, which is closely related, and Amendment 68, which has real implications in addressing limits on enforcement for subsidies that may have been misdirected. I thank the noble Lord, Lord McNicol of West Kilbride, for tabling these amendments and for his very able introduction of them.
To my mind, Amendments 21 and 24 have been tabled to try to establish why the Government wish to disapply the subsidy control principles and the energy and environment principles from a subsidy merely because it has been given under a subsidy scheme. According to the excellent Library briefing on the Bill, the Government have said that a subsidy scheme is a means for public authorities to award a number of subsidies to enterprises on a discretionary basis, as opposed to awarding subsidies on a case-by-case basis to individual enterprises. To use the Minister’s words, the Government want to try to create a “minimally burdensome” scheme. It would make it quicker and easier for subsidies to be given if this were to be the case.
As drafted, the Bill says that subsidy schemes must be made by a public authority only if the subsidies provided for by the scheme will be consistent with the subsidy control principles laid out in Schedule 1—I hope noble Lords are still with me; I think it will make sense in Hansard—or, where relevant, the energy and environment principles laid out in Schedule 2. That is all well and good. A subsidy made under a subsidy scheme must comply with the principles laid out in Schedules 1 and 2, so you would think it would be open to review on that basis and enforceable as such. But you would be wrong, because Clause 12(2) states that
“‘subsidy’ does not include a subsidy given under a subsidy scheme.”
Why? It does not make any sense. Hence Amendment 21 is needed to take out this nonsense, so that the subsidy control principles can apply to all subsidies.
Similarly, Amendment 24 would remove Clause 13(2) so that the energy and environment principles can also apply to all subsidies. Given that there is a threshold for transparency and accountability of about £500,000 for subsidies given under a subsidy scheme, that will very quickly add up to millions of pounds, for which, as the Bill is currently drafted, there will be no scrutiny. That would not serve businesses or the Government.
Amendment 68 is necessary because Clause 70(2) says that the CAT cannot be asked to review a subsidy decision if the subsidy was given under a subsidy scheme; only the subsidy scheme itself can be reviewed. That makes a nonsense of the enforcement regime because no route will then exist to review whether a subsidy complies with the subsidy scheme. To the question of when a subsidy is not a subsidy, the answer is when it is given under a subsidy scheme. Surely the Minister can see the absurdity of such a position. Every subsidy must be available for review if necessary. That is why these amendments are necessary. I thank the noble Lord, Lord McNicol of West Kilbride, for tabling them.
Lord Fox (LD)
My Lords, it is with great pleasure that I follow my noble friend Lady Sheehan and the noble Lord, Lord McNicol, in support of these amendments. Subsidy schemes seem to be designed as monoliths with no granularity at all. Why is that one of the central theses of this Bill? What possible advantage do the Government seek to gain, other than the ability to hide what money is going to whom? To those of us on this side of the Committee, that appears to be what is going on.
Amendment 21 would ensure that subsidy schemes cannot be used to hide subsidies that would, if they were stand-alone subsidies, be reported, as my noble friend set out. It is clear to all three of us that there is huge scope for significant and expensive subsidies to be hidden in these schemes. That seems to be the only reason why this is in the Bill. I am sure that the Minister will want to explain the reasons, because that must be the response to these amendments. I am sure that we will all be happy to throw our hands up if we are wrong and there is a hugely important reason why this is needed for the operation of the subsidies.
Amendment 24, co-signed by my noble friend, would require individual subsidies given under the subsidy scheme to be judged against the energy and environment principles. Once again, we are back to Monday evening, when my noble friend Lord Purvis posed a question regarding principle G in Schedule 1. The noble Lord, Lord Callanan, got to answer it; I suppose that this time it is the turn of the noble Baroness, Lady Bloomfield. During that debate, the Minister seemed to make it clear that sustainability considerations are indeed implicit in every aspect of the Bill. He suggested that, by implication, there must be some benefit for these things to be legal, but there is no explicit reference to that. I apologise if I am putting words in his mouth because principle G says the opposite. Therefore, rather than repeat what I have said, I have invented another one of my little examples, for which I apologise in advance.
Let us say that I have won a subsidy to expand my pottery business. As part of the submission, I cite increased employment and increased local sourcing of services as the beneficial effects that investment in my pottery business would bring. Nothing in the schedule or the rest of the Bill says that I have to benefit the environment by using less energy. If I am successful, I employ 30% more people and use 30% more local services, therefore achieving the scheme’s objectives, while also using 30% more energy to fire my products. That would appear to be how the Bill will work. Therefore, we need Amendment 24 to include consideration of the environmental impact that that subsidy would bring. It is very simple.
Amendment 68 would allow individual subsidies given under a subsidy scheme to be reviewed. Once again, it is cracking open the monolith and being able to look at the granularity within a scheme. Again, it follows my initial points: we need to be able to see inside these schemes for transparency to be available.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank the noble Lord, Lord McNicol, for tabling Amendments 21, 24 and 68. Perhaps it would be helpful if I started by explaining the status of subsidy schemes in the Bill and why the Government have taken this approach.
Public authorities that seek to give multiple subsidies have three options available to them. First, they can consider each subsidy separately and assess its compliance with the principles and the other requirements in the Bill. Secondly, they can set up a scheme—that is to say, they can identify a group of possible subsidies, with defined parameters, and ensure that any possible subsidy within that group complies with the subsidy control requirements. Thirdly, they can use a streamlined subsidy scheme or another scheme where a public authority—perhaps the UK Government or one of the devolved Administrations—has already assessed that defined group of possible subsidies as compliant with the requirements.
Clauses 12 and 13 place a duty on public authorities to consider the subsidy control principles and the energy and environmental principles respectively before deciding whether to give an individual subsidy or make a subsidy scheme. A public authority cannot go on to give the subsidy or make the scheme unless it is of the view that it is consistent with the principles, including the energy and environmental principles the noble Lord, Lord Fox, emphasised. Once created, public authorities can then award multiple subsidies under that scheme with the confidence that they comply with the subsidy control principles.
By making a scheme instead of assessing multiple individual subsidies against the principles, public authorities will save themselves the administrative time and effort—ultimately equating to taxpayers’ money—it takes to consider any assessment, even one that is light touch and common sense. Schemes also provide a way for public authorities to grant subsidies with greater confidence and security because anyone wishing to make a challenge in the Competition Appeal Tribunal must do so to the scheme itself within the limitation period of one month following publication of information about the scheme on the transparency database. That one month period can be extended by a pre-action information request. We believe that this strikes the right balance between facilitating proper scrutiny of the scheme and removing any perpetual threat of challenge, which can make public authorities more reluctant to give, and recipients more hesitant to accept, beneficial subsidies.
Noble Lords will be aware that this subsidy control regime presents a new approach tailored to the specific needs of the United Kingdom. I do not believe that it is generally useful to justify elements of the Bill on the grounds that they correspond to how things used to be done in the EU state aid system, but it is helpful to underline that public authorities have been making use of subsidy schemes for the purposes of administrative simplicity for a long time. Although the EU mechanisms for decision-making and challenge were quite different, public authorities that gave subsidies in compliance with pre-approved schemes generally did not need to obtain further approval for each individual subsidy under a scheme and could proceed to give those subsidies with confidence.
I also add, as the noble Lord, Lord McNicol, pointed out, that transparency is very important. Subsidies given under schemes over £500,000 must be uploaded on the transparency database under the Bill as it stands. We believe that the £500,000 threshold represents an appropriate balance between minimising the administrative burden and requiring subsidy transparency in the public interest.
Baroness Sheehan (LD)
On Amendment 21 to Clause 12, if that amendment was agreed to and the line
“In subsection (1) ‘subsidy’ does not include a subsidy given under a subsidy scheme”
was taken out, it would have no impact on a public authority’s ability to continue to allow subsidies under the subsidy scheme. It would not slow the process up.
Baroness Bloomfield of Hinton Waldrist (Con)
I take the noble Baroness’s point on that. I would like to discuss it with the team when I have had a chance to look into it more thoroughly.
As I have just set out, under the terms of Clause 70, an interested party may not submit an application for the Competition Appeal Tribunal to review a decision to give an individual subsidy under a scheme. This is to ensure that scrutiny and challenge occur at the scheme level. The noble Lord’s amendment would enable applications for review to be made to the Competition Appeal Tribunal for individual subsidies granted under a subsidy scheme without the requirement for the broader subsidy scheme also to be reviewed.
Lord Fox (LD)
I am glad that the Minister has come to this point. Earlier on, I think I heard her say that transparency on a subsidy would raise the potential for a challenge to happen, but the whole system of policing this is through challenge, so how can challenge happen if invisibility is the result of this?
The Minister was suggesting that you can challenge only the overall scheme, not the individual granularity of a scheme within it, but that flies in the face of the central principle of the Bill which is that if I am a business and another local business gets a subsidy, I can challenge that through the CMA, assuming that there are grounds for it. If I do not know that my local competitor is getting that money because its subsidy is locked inside one of these schemes, I cannot challenge it. So the Minister is correct: transparency will lead to more challenge and that is the purpose of the systems put in place within the Bill. We need some working through of this from the Minister—it may not be now but perhaps in writing—because it seems that there are two things working in opposite directions.
Baroness Bloomfield of Hinton Waldrist (Con)
Given that the whole structure of the subsidy regime is to have the overarching scheme, compliant with all the principles contained in the Bill, and then a series of other subsidies given within that, if you increase the likelihood of challenge and therefore reduce people’s confidence in it, why would a local authority or a government body give a subsidy? Why would there be any incentive for them to give a scheme? While we are wholly appreciative of the importance of transparency, there is a balance to be struck here. Perhaps we could make more progress and I can write to the noble Lord.
Lord Fox (LD)
It was the Government who chose to put the principle of challenge on the face of the Bill. The noble Lord, Lord Lamont, and I are coming to the idea of creating a body that can police those things. Perhaps that would solve some of the problems that the Minister suggested—but those problems are central to the way in which the Government have decided that subsidies should be policed under the Bill.
Baroness Bloomfield of Hinton Waldrist (Con)
I understand the point the noble Lord is making, but I suggest we would do better to continue this discussion with officials, and come back to him and to the whole Committee in writing.
Making individual subsidies granted in line with the terms of a subsidy scheme eligible for review by the tribunal would undermine a key benefit of creating a scheme—which, as I was saying, would be the administrative simplicity for public authorities, including the security that subsidies can be granted under the terms of a scheme without additional challenge or assessment. However, I fully recognise noble Lords’ underlying concern that schemes could be used to shield unlawful subsidies from challenge. If a subsidy purports to be part of a scheme but does not comply with its terms, an interested party may indeed bring a challenge. This would be on the basis that the subsidy should not enjoy the protection of the scheme but was instead a stand-alone subsidy where the public authority did not consider the subsidy control principles.
Lord McNicol of West Kilbride (Lab)
On that point, how would another business or organisation know the subsidy existed if it was part of the scheme?
Baroness Sheehan (LD)
May I intervene too, on the same point? If a business does know about a subsidy and thinks it is unfair, it cannot go to the public authority and ask for a review. The bar is so high that the review can only be at the level of the scheme—which the business had nothing to do with designing. The public authority would have to do it. The business has no comeback.
Baroness Bloomfield of Hinton Waldrist (Con)
Every grant made over £500,000 will be visible. Noble Lords may be arguing that that bar is too high, but maybe we will come to that at a later stage.
Lord McNicol of West Kilbride (Lab)
The fundamental point remains: how do people know that the subsidy has been given if it is part of a scheme? They cannot challenge it.
Baroness Bloomfield of Hinton Waldrist (Con)
If it is over £500,000 it will be visible.
As I was saying, a challenge would be on the basis that that the subsidy should not enjoy the protection of the scheme but was instead a stand-alone subsidy where the public authority did not consider the subsidy control principles. The CAT could be asked to determine that question. If the CAT finds that the subsidy ought to have been treated as a stand-alone subsidy, it could also be asked to determine whether the relevant subsidy control requirements had been met.
It is also important to note that subsidies given under the schemes may be subject to other obligations and other forms of challenge. A public authority that gives a subsidy in breach of its general public law duties may be challenged through the judicial review process in the general courts, even if the subsidy is given under a scheme. And of course, if the scheme is substantially changed beyond the parameters set out in Clause 81 on permitted modifications, it must be reassessed and uploaded to the transparency database, and can again be challenged. For the reasons I have set out, and with the caveat that we shall return to some of these questions, I ask that, for the moment, the amendment be withdrawn.
Lord McNicol of West Kilbride (Lab)
As we have said in the back and forth of the discussion on these three amendments, there are still a number of real concerns about the subsidy schemes: how they operate and, more importantly, how they can be challenged and dealt with. I will withdraw Amendment 21 at this stage, but I seek some conversations with the department and the ministerial team before we progress to Report.
Lord Purvis of Tweed
“(c) must not make the scheme without a statement that the scheme will operate, either in full or in part, under this Act or EU regulations.”Member’s explanatory statement
This amendment would require a public authority to make a statement that the scheme will operate, either in full or in part, under this Act or EU regulations before it can be made.
Lord Purvis of Tweed (LD)
My Lords, I shall speak also to Amendment 53 in this small group, which relates to the interaction between this legislation and EU legislation that will continue to apply to Northern Ireland. I do so in the context of the news today that the Agriculture Minister in Northern Ireland has unilaterally ended the checks on the Irish Sea border at midnight tonight. That will inevitably raise more tension in a situation where we would have hoped that, as a result of the Foreign Secretary’s talks with the vice-chair of the Commission, there would be de-escalation of tensions. However, it seems that that the context has changed dramatically.
The Northern Ireland consideration of the Bill is still live. The Government have already taken an approach on the levelling-up agenda that is different from that in Northern Ireland. I am confused about why Northern Ireland was given a distinct status within the levelling-up fund. However, the key element is this legislation. Amendments 22 and 53 are probing amendments and are designed to be constructive because, regardless of any outcome of the negotiations between the Foreign Secretary and Vice-President Šefčovič, EU law will continue to apply in certain areas in Northern Ireland, even if they are limited. There has been a debate about how limited that might be, but in certain areas it may be fairly substantial. Even if the Commission accepts everything in the Government’s Command Paper on renegotiating or resetting the Northern Ireland/Ireland protocol and the Government get everything they want—that is a large if and has probably become much larger after the news today—EU law will still operate and Northern Ireland will still operate under two legal systems for certain areas of subsidy control. These were raised at Second Reading, so I do not need to go into detail on what they are.
The Foreign Secretary said that the UK should never have to notify another power—that is the European Commission—on any decision about setting tax. That will still be the case because part of this provision is on revenue and taxation. The guidance published under Section 48 of the United Kingdom Internal Market Act, which was designed to clarify the situation, did not clarify it in many areas. I read it thoroughly. Separate guidance was published on 24 June last year. It included an annexe, Public Authorities’ Assessment of How Individual Subsidies Comply with UK-EU Trade and Cooperation Agreement Principles. It had a checkpoint system. There are 18 questions that anybody providing a subsidy in Northern Ireland or GB will have to satisfy in order for them to have a greater understanding of whether EU law applies. Some of those questions are almost impossible to answer, but nevertheless there is a process that must be gone through. The Northern Ireland Department for the Economy states that 14 ongoing subsidy schemes are covered within the GBER and are likely to be in the European Union’s purview. My reading of this legislation is that, in any new scheme put forward by the European Union, Northern Ireland public authorities will be able to choose to operate under a new European Union scheme. That would be under state aid and the purview of the CJEU so, regardless of any negotiation, we are going to be operating under separate and distinct reporting schemes.
Lord Lamont of Lerwick (Con)
My Lords, the noble Lord, Lord Purvis, has raised a very relevant point; I appreciate that it is a rather awkward point for the Government. As the noble Lord said, it is not simply about the overlap of law and whether EU or UK law applies, but there is also—this is why this is absolutely relevant to this Bill—an issue about state aids, because subsidies are covered in the protocol. Many people in Northern Ireland are afraid that there will be a reach-back and that a subsidy that affects Northern Ireland businesses, even if it originates in the UK, will make that UK subsidy regime subject to EU state aid law. This is potentially a clash of regimes and is extremely important.
The Government’s view in the protocol has been that they think that the EU state aid regime should apply only to state aid that is given specifically in Northern Ireland and not to state aid that was designed for the rest of the UK, even if it reaches Northern Ireland businesses. That still leaves the very difficult issue of where the borderline is. You could imagine, for example, a scheme whereby the UK Government gave help to a motor plant in the north-east of England, which was manufacturing cars that were then transported to dealers in Northern Ireland, who then sold them on to southern Ireland. That is where the whole issue arises, because of the EU’s fear about the single market being undermined by the back door.
This issue is not going to go away. Somehow, the Government have to find a demarcation between state aids in the UK and state aids in Northern Ireland. As I have just tried to exemplify with the issue of the motor industry and motor cars, it is extremely difficult to draw a hard and fast line. I do not know whether the Minister can say anything about this. This Bill will pass, but regardless of what is finally enshrined in law when it becomes an Act, this issue will remain a very great problem.
Baroness Blake of Leeds (Lab)
We are extremely grateful to the noble Lord, Lord Purvis, for tabling these amendments and outlining his thoughts on this incredibly complex and very difficult issue, as the noble Lord, Lord Lamont, stressed. This needs huge sensitivity in dealing with it. I do not think that we have anything to add at this stage, but we welcome the fact that a light has been shone on this issue. The feeling we had was that it is surprising that more amendments have not been tabled on this topic, but we expect that there will be more as the groups progress. For now, having heard from the noble Lords, Lord Purvis and Lord Lamont, we will be extremely interested to hear the Minister’s initial response to the matters being raised.
Baroness Bloomfield of Hinton Waldrist (Con)
It might indeed be an initial response, because the noble Lord has the advantage of me: I was not aware of the announcement made this afternoon by Northern Ireland’s Agriculture Minister, while we have been in Committee. However, I thank the noble Lords, Lord Purvis of Tweed and Lord Fox, for tabling these amendments. I appreciate that they are intended to be helpful and generate some discussion about these issues, which I suspect will be ongoing.
I begin with Amendment 22, which would require public authorities to make an explicit statement as to whether a subsidy scheme falls under the new domestic regime or EU state aid rules before it is made. Clause 48 already makes it clear that the subsidy control requirements do not apply to a subsidy given, or a subsidy scheme made, in accordance with Article 10 of the Northern Ireland protocol, nor do the requirements apply to a subsidy or subsidy scheme to which Article 138 of the EU withdrawal agreement applies.
It follows that, in the very limited number of cases where public authorities determine that schemes are operating under EU state aid law, the required information will be uploaded to the relevant EU databases on the Commission’s website. All other schemes, which represent the vast majority, will fall under the new domestic regime and be uploaded to the UK transparency database. As such, we do not consider it necessary to include a requirement on public authorities to make a statement as to whether a scheme operates under the Bill or EU state aid rules.
I thank my noble friend Lord Lamont for his comments. I understand his concerns about the interaction between the state aid regime and the subsidy control regime. I assure him that the EU state aid rules under the Northern Ireland protocol currently apply only in certain circumstances to aid that affects trade in goods and electricity between Northern Ireland and the EU. Such subsidies are within the scope of the protocol only where there is a genuine and direct link to Northern Ireland and a real, foreseeable impact on trade between Northern Ireland and the EU. The Commission’s unilateral declaration of December 2020 made it clear that Article 10 could affect a subsidy in GB only if there was a genuine and direct link in Northern Ireland. This would be the case if, for example, the beneficiary had a subsidiary in Northern Ireland.
EU state aid rules also apply under Article 138 of the withdrawal agreement in relation to aid for EU programmes and activities within the multiannual financial framework as a transitional provision. To respond to the concern of the noble Lord, Lord Purvis, that state aid rules would continue to apply even if the UK’s negotiating position were accepted, these are specific and limited circumstances. I trust that this will allay the Committee’s concerns on this important issue.
Amendment 53 from the noble Lords, Lord Purvis of Tweed and Lord Fox, would require a mandatory referral to the CMA’s subsidy advice unit, or SAU, for any subsidy which the public authority believes has a connection to economic activity in Northern Ireland, but where that authority has decided that the proposed subsidy is not within the scope of Article 10 of the Northern Ireland protocol. The SAU would then, as part of its report, determine whether EU rules would apply.
I am afraid that I must reject this amendment as we believe that it is unnecessary. The Government have already provided guidance for public authorities to determine in advance whether the subsidy they are planning to give will be in scope of the Northern Ireland protocol. A requirement for the subsidy advice unit to make a report in advance would needlessly delay the deployment of a large number of subsidies that are clearly not in scope of the Northern Ireland protocol. It would also significantly increase the workload of the SAU and the cost to taxpayers.
The Government have published guidance for public authorities on the Northern Ireland protocol, making it clear where it does or does not apply. This guidance was last updated in June 2021, and we will continue to update it as needed. This guidance supports public authorities to make an informed decision on whether their proposed subsidy is in scope of the Northern Ireland protocol, and there exists in the department an advisory team that any public authority can contact for additional support. We need not bring delay into the system unnecessarily.
I emphasise that this amendment is at odds with the Bill’s position that a measure that would currently fall within the scope of Article 10 of the Northern Ireland protocol should not be subject to the rules and processes contained in this Bill. That is the whole purpose of Clause 48. This means that it cannot be referred to the SAU for any reason, and the SAU will not undertake any evaluation in relation to the protocol or the EU state aid rules. It is the responsibility of central government to ensure that the UK is compliant with those rules. As such, any subsidy in scope of the mandatory referral provisions in Clause 52 is, by definition, not in scope of the Northern Ireland protocol provisions for the application of EU state aid.
The SAU has important advisory and scrutiny functions: to evaluate public authorities’ own assessments of compliance with the subsidy control requirements; and to monitor and evaluate the operation of the domestic regime as a whole. However, it is not a regulator with responsibilities for making definitive judgments, including on whether a specific subsidy is in scope of the Northern Ireland protocol.
I therefore ask the noble Lord, Lord Purvis, to withdraw his amendment and other noble Lords not to press theirs.
Lord Purvis of Tweed (LD)
I am grateful for the Minister’s response. As much as the Government are asserting that there will not be a challenge or confusion, it is necessary to have greater clarity for those who are putting the schemes together and those who will potentially challenge some of the recipients.
I am grateful to the noble Lord, Lord Lamont, for raising the issue of reach-back. It will remain an issue. The fact that the Government state that they will take responsibility for notifying the Commission about subsidies given does not necessarily mean that they will be free from challenge. Given the fact, from our discussions with my noble friend Lord Fox, that this is fundamentally a challenge-based system, greater clarity on this matter will be important—particularly given that there could be areas of dual approach.
We all know that Northern Ireland has a high number of intermediary businesses. These are for both businesses that have activity in Northern Ireland and GB and businesses based in Ireland or the European Union that have some form of manufacturing or processing in Northern Ireland as well as in GB. These enterprises will, by definition, operate under dual systems and potentially apply for either state aid or subsidy control operations; indeed, I would be amazed if they did not. This means, therefore, that any of those applications or schemes are potentially open to challenge.
I did not agree with the Minister when she said that increasing the role to provide that certainty will represent an increased cost to taxpayers. I have read the impact assessment. If the Government are right that this applies to limited areas, I do not think that it will be a massive burden on the 19 people in the CMA who will be operating on this anyway. The Government seem to be relying on the fact that any confusion or uncertainty can be resolved by seeking advice from BEIS or Defra and the department’s subsidy control team.
Lord Purvis of Tweed
“Subsidies free from political motivation or influence
For the purposes of this Act a subsidy is only lawful if provided free from political motivation or influence.”Member’s explanatory statement
This amendment would prohibit subsidies that are not provided free from political motivation or influence.
Lord Purvis of Tweed (LD)
Great—we have got here. I rise to move Amendment 35.
“Billions were written off and no one seemed to care but me”
was the headline of the Times interview with the noble Lord, Lord Agnew, which made for rather depressing reading. We are regrettably in the context of an enormous amount of money that has been lost through fraud, with the bad cocktail of the allegations made by William Wragg MP of blackmail of MPs with projects in their constituencies. That chair of a Select Committee is speaking to the Metropolitan Police about allegations of blackmail. One of the reasons why this is significant for the Bill was highlighted in one of our previous discussions. The default is that information will not be put in the public campaign but will need to be challenged. That creates a poor recipe.
I was struck when I looked at the prospectus for the levelling-up fund. As we discussed before, this is a separate process, but it is linked to the levelling-up agenda. William Wragg has made allegations of blackmail and funds not being allocated to the constituencies of individual MPs. I suspect that the noble Lord, Lord Lamont, will not want to contribute to this group, but I may talk to him separately as he has great experience—I am not making any allegations, I must say. I will clarify that straight away. I have a dossier here but it is nothing to do with him.
The levelling-up fund introduced an unusual concept: Members of Parliament will back a bid under the levelling-up fund, as a priority. The number of bids received by a local authority will relate to the number of MPs in that area. As GOV.UK states:
“Accordingly, local authorities can submit one bid for every MP whose constituency lies wholly within their boundary.”
I think it is a novel experience in the UK system to ask an MP to nominate a bid for a government fund. That is why I was interested in hearing separately about the experience of the noble Lord, Lord Lamont. As the allegations from William Wragg are that there has been blackmail by government Whips, who can then use leverage through this process because this fund specifically gives MPs a role, this is a considerable concern. Rightly or wrongly, this Bill opens up even greater flexibilities for public bodies or individual elected representatives.
We know that, from the Prime Minister downwards, we should all operate under the Nolan principles of selflessness, integrity, objectivity, accountability, openness, honesty and leadership; I believe that is still the case. On integrity:
“Holders of public office must avoid placing themselves under any obligation to people or organisations that may try inappropriately to influence them in their work.”
On openness:
“Holders of public office should act and take decisions in an open and transparent manner.”
For any public body with delegated responsibilities for elected officials, who now could well be directly linked with subsidy schemes whose operations involve billions of pounds, we need a heightened level of audit and transparency so as to avoid political direction, both on individual subsidy decisions under a scheme and on the establishment of the scheme itself—as well as on the power of government Whips.
There is already considerable use of delegated powers for decision-making in local government, on planning and in other areas. Nothing in the Bill would prevent subsidy schemes being operated under local government delegated powers. That could be a positive; the Minister may argue that it would reinvigorate local government. I am not necessarily opposed to the idea, but if that is the case—I think this was the point made by the noble Lord, Lord Lamont, at Second Reading—with these greater powers, for accountability to be effective, there should be greater transparency.
On our discussion on the previous group of amendments, without that transparency and reporting, the job becomes even harder. If the job on accountability is even harder, the vulnerability in operating against the Nolan principles is heightened. The Minister, the noble Baroness, Lady Bloomfield, conceded at the Dispatch Box in Committee that there was a concern about the shield of scrutiny in this area and suggested that there would be further discussions. I wrote that down. We can check Hansard, but I did write it down, because I thought it would be useful later in Committee. The Minister should not scold herself, because that is a very welcome development.
The cure for all this will be transparency. Already we know that accounting officers operating under local government have to certify that the decisions being made in many areas have been made under fiduciary duties and are legal. That duty will, I hope, still apply to subsidy schemes. There will be other bodies—local enterprise partnerships, for example—that are not directly elected. There will also be bodies authorised under the Bill that will not operate at the traditional levels of accountability of elected bodies. There should therefore be a heightened provision for working free from political motivation or influence.
Surely we do not want to go back to the situation in which there were bridges to nowhere, and decisions were made that we only found out about through scandal. Clearly, we want to protect ourselves from blackmail, fraud and waste. The Government may wish to change some of the language in the amendment—I am open to discussing that with the Minister—but I hope that we will be able to add to some of the principles, so that any decisions involving public money will not be fraudulent or subject to political interference and those with malign intentions will not be able to hide behind the shield of secrecy.
Baroness Blake of Leeds (Lab)
I speak to this amendment with significant experience as a senior local councillor. Obviously, the Nolan principles applied to all of us. Recently, in public-private partnerships such as the LEPs, all members had to declare their interests. Sometimes, because of commercial sensitivity, some of the private sector partners chose to step down from the LEP. That level of transparency is now accepted practice—and quite rightly so. It is an enormous tragedy that the noble Lord, Lord Purvis, had to table such an amendment but it reflects the extraordinary times we are living in.
I have to be honest: standards in public life are being severely scrutinised now and, in many cases, found wanting. It is with huge regret that we are in a position where such a requirement has to be brought forward in this debate, but that is where we are. The noble Lord, Lord Purvis, is absolutely right to draw attention to the current state that we are in.
Lord Fox (LD)
My Lords, it is a great pleasure to follow that speech by the noble Baroness, Lady Blake. I was reassured by some of things she said about how the Nolan principles are being applied at the local level—that that is her experience is reassuring. Of course, it brings this Bill into focus again.
To some extent the amendment is idealistic, but look at it the other way round. What is the converse of this amendment? It is that we allow a Bill to go through that will be subjected to huge political manipulation and little transparency. We have already seen that the Government are not averse to using political direction to spend literally billions of pounds. I ask the Minister to put himself in the boots of the Opposition, because the Bill that he is creating is one that future Governments will have to use. If the Minister, if he were listening, were to put himself—
Lord Fox (LD)
Sorry; I withdraw that. If the Minister were sitting in the opposition seat and opposing this Bill—or, indeed, opposing its use—he would, I am sure, find it very difficult. That is why it is to the enormous credit of Her Majesty’s loyal Opposition that they are standing hard against this Bill. I am sure that they harbour a view that, in time, they will find themselves in government and the temptation for them—indeed, for any Government—to use these powers would be quite high. It is therefore to the Opposition’s credit that, together, we are seeking to put some transparency into this.
At Second Reading, I said that the more flexibility and opacity there is in the subsidy system, the more opportunity there will be for subsidies to be directed for political purposes. I did not use the phrase “pork barrel” but I should have, because there is no other way of explaining how almost seven-eighths of the £1-billion English towns fund goes to Conservative-held seats. There is no way to explain how that money goes there other than political direction. I am sure that the Minister will tell me that there is a formula. There is a formula for almost anything; if you know what you want to create, you build the formula to achieve it. We are already seeing that. I assume that schemes like that will be rolled into a subsidy scheme so that we never see the granularity by seat. This is perhaps our last chance to point to that evidence before it all gets rolled up and aggregated so that we cannot disassemble it.
As we look at this Bill, we should look at the future of subsidies in this country, not the short-term gain for a political party. That is what we are seeing at the moment: a short-term gaming, or potential gaming, of the subsidy system. That is why this amendment was moved and why we have had an interesting short debate on it. I will be interested to see whether the Minister decides to engage at all, because sometimes he just does not. If he does decide to engage, I will be very interested to hear what he has to say.
Lord Callanan (Con)
It is very unfair of the noble Lord, Lord Fox, to suggest that I would not engage with his amendment. In this debate, I particularly enjoyed the noble Baroness, Lady Blake, using exactly the same argument that I will deploy against the amendment to argue somehow that she is in favour of it.
Anyway, let us explore the amendment as it was tabled, because I think we will all agree that it is a particularly ridiculous amendment. However, I thank the noble Lords, Lord Purvis and Lord Fox, for putting it forward. Essentially, the amendment seeks to prevent subsidies being given where there is a political motivation or influence. I will not engage with some of the broader points noble Lords made about transparency and things like that because we will come on to those points later in the debate, but I will take the amendment as it is printed. I suspect that what both noble Lords actually meant to say is that they seek to prevent improper political influence over subsidy decision-making. On that, we completely agree, of course. However, as I will argue, I do not believe that this amendment is necessary to achieve that.
First, there are already a number of safety nets in the Bill which will help to prevent improper political influence over subsidy decision-making. Any subsidy, unless exempted, must meet the subsidy control principles, including remedying an identified market failure or addressing an equity rationale. In addition, the subsidy must be limited to what is necessary to achieve it. A subsidy which had improper political influence would struggle to meet those principles.
Secondly, Clause 77 prevents the misuse of subsidies, and a public authority may recover a subsidy from the beneficiary where it has been used for a purpose other than the purpose for which it was given. Even outside the subsidy control requirements, a subsidy must meet value-for-money tests, which help to ensure that public spending is being made appropriately. For UK government spending, this is governed by the Treasury Green Book—all those in government who have to engage with the Treasury will know how rigorous it is in implementing that—and, of course, all the principles set out in Managing Public Money. They will be generally applicable to all public authorities in the UK, although the devolved Governments have their own detailed rulebooks, as is right. Finally, a subsidy granted for an improper purpose may give rise to judicial review on public law grounds.
More broadly—this comes back to the point that the noble Baroness, Lady Blake, made, even though, bizarrely, she was arguing in favour of the amendment—it is unclear how a public authority might avoid any political motivation whatever. I do not think that that would be desirable. When the noble Baroness, Lady Blake, was in a position of authority on Leeds City Council, her authority, or a devolved Government, for example, was or would have been democratically elected. I assume that when she stood for election with her party she set out her political priorities. She might have said that where a subsidy was appropriate she wanted to stand for election on that basis. It is right and proper that she should have been able to do that where the subsidy met the subsidy control principles. It would be almost impossible for any democratically elected local authority or a devolved Government to avoid any political influence. We are all politicians, some of whom were democratically elected. This applies to central and local government.
All subsidies have a degree of political motivation or influence because they are desired to achieve a public policy objective on which people stand for election and which will have been set by a public authority with democratic accountability. Let us pursue the example from the noble Baroness, Lady Blake. If she stood for election on Leeds City Council with a commitment to, for instance, provide subsidised transport in rural parts of Leeds—I think Leeds has some rural areas—it might have been appropriate to provide a subsidy to a bus operator. That commitment will have been made at a political level as the result of her manifesto in a political election. That would have been a politically motivated subsidy, but I think we would all agree that, in the circumstances, that would have been wholly appropriate and presumably useful for that particular area.
I hope that I have demonstrated that the amendment is unnecessary. The wording is clearly seriously flawed. I therefore hope the noble Lord will be able to withdraw it.
Lord Purvis of Tweed (LD)
I am grateful to the Minister and to my noble friend Lord Fox and the noble Baroness, Lady Blake. This very short debate has been illustrative because, some of the flippancy aside, it addressed the vulnerabilities that could arise from a lack of transparency in certain areas of subsidy schemes. There is absolutely no intention to prevent anybody standing to represent people in their area and to argue the case for their area. That is absolutely fundamental and a positive. I did it. I fought hard to keep structural funds in the south of Scotland. I will fight the fact that that money is now being taken away by the Minister’s Bill. That is something I will fight for. I will be very passionate for it, and I will hold the Conservatives to account for taking those funds away from the Scottish borders.
“(aa) the subsidy database and its contents are subject to routine audit, and” Member’s explanatory statement
This amendment would require regular audits of the subsidy database to ensure its contents are of appropriate quality.
Lord McNicol of West Kilbride (Lab)
My Lords, I shall speak also to the other three amendments in this group. Without wanting to do the Minister’s job for him, let me start by acknowledging that there is a rolling programme of improvements to the subsidy database which I think all sides would acknowledge does not yet meet the standards one would expect a database of this importance to meet. Irrespective of that rolling programme of improvements, the introduction of a new subsidy control regime affords us an opportunity to look again at how subsidies are reported by public authorities so that they can be looked at by possible economic competitors and the public at large and be held to a higher account. The most obvious and effective way of ensuring the database fulfils its purpose is to ensure that it is subject to periodic audits with any recommendations being acted upon within a reasonable timeframe. We see no reason why the Minister would not want to accept Amendment 37. As the Government have freely admitted, the quality of the data has not been sufficient.
I turn to Amendments 44, 45 and 46. I thank the noble Lord, Lord Fox, for putting his name to them. Amendment 44 would require relevant authorities to include in the entry to the database the exact date on which the information was submitted. One of the fundamental differences from the previous scheme, the European state aid scheme, was that agreements were made before the scheme came into effect. The flipside of this is that that obviously speeds it up, but the schemes or the subsidies will already be in place. Putting into the database the specific date on which the information was submitted will again help with the transparency around it. It is hard to think of any case against such a requirement so I hope the Minister will be able to confirm that. It increases transparency and provides clarity for those gathering the information from the database. It may also allow identification of those authorities that are particularly good or bad at submitting their entries.
Amendment 45 would require information on domestically sourced content to be posted on the database. While Clause 17 prohibits subsidies contingent on the use of domestically produced content, nothing in the WTO provisions or elsewhere, including the TCA, would prevent basic reporting requirements. Some organisations, including the GMB trade union, believe that regular reporting of the use of domestic content could drive—but, importantly, not compel—contractors to make better use of UK supply chains. Indeed, in specific cases such as steel procurement, the Government have set a benchmark of 60% domestic content for the offshore wind sector, so some of these requirements already exist. Putting them inside the database and shining a light on them could help encourage more.
Finally, Amendment 46 would require authorities to demonstrate the terms and conditions of their subsidy schemes. When I first read it, I thought Amendment 46 may well have fitted into the group we dealt with three groups previously, but because it is relevant to the database it probably sits within this debate. The argument, however, is very similar to the debate we had three groups ago.
All the amendments are intended to improve the quality of the database and the amount of information available to practitioners operating in that field. Interestingly, Chapter 3 of the Bill is headed “Transparency”, so a bit more transparency may help.
One point not covered by the amendments, but to which we may well come back, is that the chapter on transparency, especially Clause 34, uses the word “may” a lot. To take one example, Clause 34(3), at line 28, says:
“In relation to subsidy schemes, the regulations may require a public authority’s entry to include”.
When the Minister responds, I wonder whether he could give us just a bit more detail. These are partly probing amendments but, on the use of “may”, when would those regulations and requirements on the public authorities have to be followed and when would they not have to be followed? Again, I think the use of “may” in there does not help. With that, I beg to move.
Lord Fox (LD)
My Lords, I rise to speak to Amendments 44, 45 and 46, to all of which I have added my name. It is a pleasure to follow the noble Lord, Lord McNicol. Amendment 44 requires the date a subsidy scheme is entered into to be put into the database, Amendment 45 is about domestically sourced content and Amendment 46 is about other areas of specifying the date. All three of these amendments come together to play to the word that we have been using in these groups, which is “transparency”.
I shall briefly focus on Amendment 45 because it is an interesting point. The nature of what we are talking about hinges around Clause 17(1), which I assume is a WTO-driven point that we cannot favour domestic content over external content. I accept that we need to follow WTO rules. However, as the noble Lord, Lord McNicol, said, that does not stop us collecting the data. Why collect the data if you do not have an actionable need to use it? Therefore—never mind the subsidy that is running, for which we are collecting the data—if it turns out that all that subsidy leads to imports only rather than domestic benefit to the supply chain, when we come to extending or repeating that subsidy or using it in a similar way in another sector, I assume that it is perfectly legal within WTO for the Government to take the benefit and the learnings of that data, having of course given themselves the power to collect it through Amendment 45, to modify future schemes which would still be legal within WI and benefit the domestic supply chain. WI? Jam for all. I meant WTO.
It is a legal question. The Minister may not have the answer straightaway. That data having been collected, I assume, and I would like confirmation, that it is perfectly legal to use that data to design repeat or future schemes so that the UK economy benefits more from that subsidy. That is my main question on these amendments.
Lord Callanan (Con)
I am grateful to the noble Lord, Lord McNicol, for these amendments. I think we have much more consensus on the principles. I shall start with Amendment 37. I think we agree that the database should be as accurate as possible. There was an extensive debate in the other place about the quality of the database and the requirements on public authorities when uploading to the database. As was set out there, the database is relatively new and, as the noble Lord acknowledged, it continues to be developed. My department has been working on a range of improvements and we continue to review how it operates. I genuinely welcome any feedback that noble Lords have now or in future on how it can be improved.
Since Report in the other place, our officials have launched an initiative to follow up with public authorities where the information on the database is vague or the links provided go to a landing page rather than providing the necessary detail about a subsidy. In addition, where the subsidy control team receives information about schemes that have been made, that information is now cross-referenced with what is on the database to ensure that it is correct. More broadly, the Government are committed to best practice when it comes to public data, and the subsidy database uses the service standards specified by the Government Digital Service.
Lord Fox (LD)
I understand the Minister’s sensitivity, and I thank him for his answer. I was putting it the other way around: having had a scheme that, it turns out, really benefits only the international market, as the data tells you, that data can then be used to decide not to have a similar scheme. So it is a question not necessarily of designing a new scheme but of not committing the same mistake again because the data gives you the ability to make those decisions. That was the point that I was trying to make.
On the previous issue, I am sure that the Minister will already know that the impact assessment says that the cost of adding more data points is minimal, so there is no cost in financial terms, although obviously there is some administrative cost.
Lord Callanan (Con)
We are not necessarily against adding new data points, but it depends what they are. Of course, as I mentioned earlier, all subsidies will need to benefit the British public and be well delivered. But of course there is the WTO provision that we need to be careful about, particularly in the context of the TCA and the action that is being launched against us. I will not go any further into the prohibition because I see that the noble Lord is going to ask me about it.
Lord Purvis of Tweed (LD)
I have a separate point, on the principle of adding on the issue of local content and domestic goods. I understand and entirely agree with what the Minister said about the WTO prohibition of subsidy schemes that are prejudiced against non-domestic or non-local content. But of course the recipients, if they are manufacturers and exporters, will also have to categorise their own goods under the rules of origin, under both the TCA and the WTO, for all our FTA agreements—so that data will be there. I think that there is a great benefit to having, across key sectors where the Government want to identify whether there is market failure, the knowledge base regarding the level of domestic production. It is not a case of directing the subsidy towards it, which would contravene WTO rules; it is building up that knowledge base that will help overall industrial policy, which would be a positive—especially when it comes to regional production and manufacturing in certain areas.
Secondly, while I agree with the Minister about the discrimination, we can of course use countervailing measures, as the Minister knows—so, in relation to that knowledge base for domestic products, the WTO allows us to particularly support domestic production when it comes to countervailing measures. So, again, that would be information that the Government would find useful to have.
Lord Callanan (Con)
I understand the noble Lord’s point, but I go back to the fact that this prohibition exists for a good reason. I accept his point about additional data points that could be incorporated at very little cost, but of course he is picking on particularly narrow subsidies that might be given to the manufacturing industry. His points about rules of origin are for separate schemes under the TCA. I will think about his points.
But the prohibition exists for a good reason and is reflected in Clause 17. Of course, if all countries were to subsidise local content, world trade would be unduly distorted, and UK firms would suffer as a result, so that is why we as a country have signed up to these agreements at both WTO and EU TCA level. It is essential that all members of the WTO play by the same rules, which include a prohibition of local content and export subsidies. The UK does not provide, and does not intend to provide, subsidies that are prohibited by the WTO or under the TCA. I make that point clear.
I believe in the advantage of global trade—not just the WTO rulebook, but the global connections and markets that promote prosperity and growth worldwide, and specifically in the UK. Global supply chains allow British businesses to use inputs that are the best and most cost-effective in the world. Certain companies and industries may in some cases have their own targets for local content or for something similar—that is indeed what we have done under the contracts for difference schemes, but others are watching these commitments closely—or there may be a commitment to use products from the local area. However, those commitments would not be tied to the giving of a subsidy in any way, and as a result should not be included in a subsidy database entry.
I think I have dealt with most of the points raised. I had some additional points I wanted to make to back up what I have said, but my Whip tells me we are on a hard stop for a couple of minutes’ time. Are there any particular points raised in the debate that I have not dealt with? I think I have dealt with them all and explained our position—so, as we have agreed with most of his points, I hope that the noble Lord, Lord McNicol, will feel able to withdraw his amendment.
Lord McNicol of West Kilbride (Lab)
I thank the Minister for his response. It was really nice to hear him agree with many of the points that we raised. I just need to encourage a bit more of a hard commitment to amend the Bill, rather than a verbal agreement. I do not think anyone on this side was arguing in favour of prohibition. I was simply outlining the idea of getting the information on to the database, not about using it for a prohibition. No one was arguing that point. As for the changes, I suppose I should take one out of four, but I hope we will be able to bring forward some more. I beg leave to withdraw the amendment.
Subsidy Control Bill
Monday 7th February 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 84-IV Fourth marshalled list for Grand Committee - (7 Feb 2022)
The Deputy Chairman of Committees (Baroness Watkins of Tavistock) (CB)
My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes. For the Committee’s information, we have no Members taking part remotely today.
Clause 33: Duty to include information in the subsidy database
Amendment 38
Baroness Blake of Leeds
Member’s explanatory statement
This amendment removes the declaration exemption for individual subsidies given under a scheme, meaning those subsidies would have to be entered into the subsidy database.
Baroness Blake of Leeds (Lab)
My Lords, Amendment 38 stands in the name of my noble friend Lord McNicol. I declare my interest as vice-president of the LGA.
Just to revisit the context of this, I believe, very important group of amendments, we are looking at the broader context of accountability, probity and transparency in all things to do with public money, making sure that we do not leave any room at all for corruption or cronyism as we take the Bill forward. We will be considering the whole issue of individual subsidies under £500,000 being excluded from the database. Huge concern was expressed in the other place, at Second Reading and in Committee last week—across all parties, to be fair—and representing a range of different interests which had their comments noted through the consultation exercise that has taken place. We are very concerned at the lack of scrutiny provision also, bearing in mind that we are talking about a system depending on challenge without all necessarily having all the information.
I am extremely grateful to the noble Baroness, Lady Humphreys, and the noble Lord, Lord Lamont, for supporting various amendments in this group. I am very glad to continue discussions on transparency, as I have said, reflecting, as I am sure we all have, on the very interesting exchanges on related subjects in the last meetings. Taken collectively, these amendments will allow us all to see whether BEIS and the Government have updated their thinking on the transparency thresholds and exemptions since the Bill went through the Commons. I think we are all approaching this in a spirit of hope that some serious reflection has taken place on these very important matters.
If we are to have confidence in this new regime and the public authorities that use it, transparency measures will be hugely important. We all have personal experience in this area; every one of us will be familiar by now with the need for regular reporting requirements around official meetings, travel and gifts. All this is done in the spirit of making sure that none of us is above the scrutiny of the public, particularly where public money is a point of consideration. This is not down to any particular group or party; it is simply a practical demonstration of the importance of knowing how public funds are being utilised.
Amendment 38 was tabled as a probing amendment but has taken on a new significance following last week’s discussion where my noble friend Lord McNicol and the noble Baroness, Lady Bloomfield, were at odds on how an unpublished subsidy made under a scheme could be challenged by an interested party. The simple answer is that, if information is not published, then there is no right of recourse should one business or public authority feel undermined by a subsidy awarded to another business and/or by another authority. The Government insist that we do not need to worry since any subsidy over £500,000 will be published, but is it not the case that in many circumstances a subsidy one-tenth of that value can have significant differential impact on the fortunes of two businesses operating in the same field?
Amendments 39, 47 and 48 are to different provisions in the Bill and vary slightly in the burdens that would be placed on public authorities, but they are premised on the same basic point: a threshold of £500 is consistent with transparency rules already followed across much of the public sector. We are talking about consistency, clarity and transparency. If the Government are serious about having a transparent and evidence-based subsidy regime, should we not be able to see the detail of the subsidies being handed out? As with domestically sourced content, having extra data would allow more informed analysis of what schemes are effective and where future efforts should be focused.
We can of course pre-empt some of the Minister’s arguments—for example, that this would place unfair burdens on smaller awarding bodies and that these subsidies have a less distortive effect—but on balance we do not find these compelling, and neither did a number of Members of Parliament or expert witnesses in the House of Commons. I would point out that cost is not an excessive burden; because of the systems that already exist, the burden is estimated to be relatively small, around £20,000 a year. Bodies such as Transparency International and the Centre for Policy Studies are equally putting their weight behind arguments to take this forward.
Amendment 49 is designed to probe why certain SPEI services are excluded from reporting requirements while others are not.
I suspect that we will end up seeing some movement on the matter of monetary thresholds, but I wish to sound a warning on this: we may not be able to settle on £500, but I ask that we do not choose too large a sum or the incentive for authorities just to knock off £1 to get below the threshold and thus sneak in under the regime will remain too tempting. I beg to move.
Baroness Humphreys (LD)
My Lords, I wish to speak to Amendments 39, 47 and 48 in the name of the noble Lord, Lord McNicol of West Kilbride, to which I have added my name; I also support the other amendments in this group. Taken together, these amendments would improve transparency in the awarding of subsidies and help to spot harmful ones. They would show where the new subsidy spending is working and give businesses the information they need to challenge potentially unlawful subsidies.
As the Bill stands, individual subsidies of less than £500,000 will be excluded from transparency in the subsidy database. As I said at Second Reading, if these rules continue to exist, they will allow for the possibility of multiple subsidies of less than £500,000 to be received by an enterprise. None of that would be published and there would be little other scrutiny.
Amendment 39 would reduce the threshold for entering subsidies into the database to £500 and would bring the subsidy scheme into line with transparency thresholds elsewhere in the public sector. Local authorities, for example, must publish all expenditure over £500, and grants by all government departments and arm’s-length bodies are now published annually by the Cabinet Office.
It has been argued that, in the case of these subsidies, a threshold of £500 is low—perhaps too low—but it is vital that the threshold is set at this level. According to the Centre for Public Data,
“a threshold of, for example, £100,000 would still create distortive incentives for authorities to cluster awards just below the threshold, still allow authorities to make unpublished multiple awards just below the threshold, and would exclude useful evidence for no reason.”
Sometimes, it seems that Governments believe that they own the funds they spend but, in reality, it is the taxpayer who will fund these subsidies. Lowering the transparency threshold will demonstrate to the UK taxpayer that harmful and wasteful subsidies will be identified.
Crucially, it would allow public bodies to answer this important question: how many subsidies of less than £500,000 have they awarded? They could answer the question openly and honestly, with facts and figures. Under the Government’s proposed system, the same question could be met with a vacant stare, as the figures will not be readily available or will not exist. The total of funds awarded would also be unclear.
As the noble Baroness, Lady Blake, said, the Government estimated in their impact assessment that operating the lower threshold would come with a cost of about £20,000—a small price to pay for transparency. However, savings would also be made in the reduction in the number of FoI requests, for example, and fraud risk and fraud recovery costs would be reduced as transparency enables public scrutiny. A transparency database already exists within BEIS for public authorities to report their subsidies, so merely uploading another few rows on to each spreadsheet could provide the transparency that this amendment seeks. All these reasons for this call for transparency also apply to Amendment 48.
I appreciate that Amendment 47 will probably be viewed as problematic by the Minister’s department because, in seeking to introduce transparency into the SPEI financial assistance process, it could create new burdens on authorities. I have no wish to do that. I will listen with interest to the Minister’s response, and reserve the right to bring back on Report an amendment that would deal with the transparency issue alone but would still deliver the flexibility that the Government wish to see.
The 2018 figures show that some £8 billion was allocated to government subsidies in the UK. With levelling up on the agenda along with net-zero targets and R&D, it is very likely that this figure will increase—substantially, we hope. Using the £8 billion as a basis, it is estimated that if the Government’s proposals in this this Bill were enacted, about 50% of the subsidies would not be transparent, so how would the Government be able to account for at least £4 billion-worth of spending of public money?
With transparency comes accountability. In an era of accusations of cronyism and corruption, our ratepayers demand both. I hope that the Minister will understand their demands and be prepared to accept these amendments.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise briefly to offer Green group support for all these amendments, to which we might well have attached our names were we not caught in this massive legislative pile-up. I should declare my interests as a vice-chair of the LGA and of the NALC. With the amendments having been so comprehensively and effectively introduced by the noble Baronesses, Lady Blake and Lady Humphreys, I shall make just a few additional points.
One of the most popular hashtags in my rather busy Twitter feed is #LandofCronies. There is grave public concern about corruption, cronyism and the nature of decision-making on government spending. Indeed, I put it to the Minister that these amendments collectively could be a great protection for Ministers in future, enabling them to say, “Here’s the transparency. What we’re doing is very clear and very obvious.” I note that in the other place such diverse and broadly respected organisations as the Centre for Policy Studies, the Adam Smith Institute and Transparency International backed similar amendments and that the Financial Times has warned that the new planned flexible regime could pose a “significant risk” and
“On the altar of speed, it has sacrificed scrutiny”—
it being the Government.
We are in a very interesting situation whereby the subsidy regime, having been under the control of EU rules and the UK having traditionally provided much less public funding than most other countries—around £8 billion a year—is now about to increase dramatically just as the controls utterly fall away. This is about showing people what is done; it is democracy and transparency in action. There is broad support for these amendments, so I would be delighted to hear the Minister express that the Government are moving in this direction.
Baroness Altmann (Con)
My Lords, I support these amendments. I support the aim of a more flexible scheme than the EU has, and I welcome the Government’s commitment to introduce transparency to their new subsidy scheme, but, as others have explained, this Bill potentially reduces transparency.
The amendments in this group had strong support in the other place, not least from our honourable friends John Penrose and Kevin Hollinrake. I also thank the Centre for Public Data, which has worked with them to provide information to help the Government achieve what they want to achieve perhaps in a better way, which is what these amendments may enable to be done.
I support the use of subsidies to achieve the levelling-up agenda and the net-zero agenda. I think that we all realise that regional growth and infrastructure need an extra boost now. However, can the aim of reducing central control of subsidies and relying on transparency, so that interested parties can challenge subsidies that they believe are unlawful, be achieved by a process whereby those interested parties will not know that there is a subsidy unless it is more than £0.5 million and there could be a series of subsidies just below that which could amount to quite substantial sums? It would help me understand how this aim could be realised if the transparency that I think we could rely on cannot be achieved because the database does not include a record of those very subsidies that are meant to be challenged. I suggest that this seems somewhat illogical, and I urge my noble friend either to bring back his own amendments on Report or to consider accepting these amendments.
Lord Thomas of Cwmgiedd (CB)
I just want to add one very brief word. In a number of the amendments today and on Wednesday, we are really concerned with the movement from the regime that has existed in the EU to a regime more of self-policing. All these amendments interlock, and at the end of the day we will need to pull them together and see how we effect for this country a proper and workable regime.
This amendment deals with one court—the court of public opinion—and we shall turn to the CAT and the Competition and Markets Authority in due course, but it seems to me that, on each of these, the Government have an option. They have to do something to make the move away from the control of state subsidies in the way that the EU did to a more liberal and generous regime. But experience ought by now to have told this Government that, unless there are clear transparency and other mechanisms in place, we will end up with something that will cause more of a problem than we had under the old system. I warmly support these amendments.
Lord Wigley (PC)
My Lords, I shall speak to these amendments very briefly. This has been a bipartisan debate, and there is a consensus across the Committee that amendments along these lines can improve the working of the Bill and make it more acceptable in the court of public opinion. I urge the Minister, if he cannot accept the amendments as they stand today, to consider at least bringing forward his own amendments at the appropriate time.
Lord Fox (LD)
My Lords, I was not intending to speak to this set of amendments until I received the Minister’s letter—this time before the Committee started rather than during it, which is a great step forward. Unfortunately, the letter creates a problem for me because what I understand from the debate seems not to be represented in this letter, so perhaps the Minister can explain.
On the issue of subsidy schemes, the letter states:
“As my noble friend Baroness Bloomfield stated during the Committee session, all schemes must be uploaded to the transparency database”—
and I understand that to be true, so the scheme will go up on the database. The letter continues:
“This database will be freely accessible and is a key part of the new subsidy control regime, enabling the public and any interested parties to see which subsidies have been awarded, and to whom.”
But my understanding is that people will be able to see only those subsidies that exceed the limit, whereas the implication of the letter is that all subsidies will be accessible to everyone freely via the database. I would like the Minister to acknowledge that that is not the case, whether they are within a scheme or stand-alone, and this letter is therefore incorrect.
Lord Purvis of Tweed (LD)
My Lords, further to that point, I wish to ask a couple of questions. First, on a factual issue—I have been struggling to find this—what has the typical award been for relatively small schemes that will operate under the Bill? I am familiar with schemes in my former constituency, either under LEADER+ or a number of other schemes, where there was not a single award over £500,000 but there was transparency as to who received it, because that is basically along the principles on which local authorities operate. So my question, really, is: what piece of legislation will trump the duty that the noble Baroness, Lady Blake, referred to? If a local authority has a duty to publish, then ordinarily if it receives a grant through, for example, the levelling-up fund—on which the Minister wrote to me; I thank him for his letter and look forward to the answer to the question on a separate occasion, as I have replied to his office to highlight an omission from it—what will be the primary duty on the local authority as far as making that information public is concerned? Will it be under the duty on the local authority to publish subsidies greater than £500,000, or, if it is defined as a subsidy scheme, will it not be under such a duty?
However, my specific question is: how will this Bill interact with the Freedom of Information Act? The only way that any enterprise or anybody would be able to find out what the award is if it is under £500,000 would be to submit a freedom of information request. I have not seen anything in this legislation which excludes elements of the Freedom of Information Act, and I therefore assume that all elements of the Freedom of Information Act will apply. If that is the case, it is rather pointless having a £500,000 limit for publication if you can get all this information by issuing an FoI request. If the Minister’s response is, as I expect, that the whole thrust is to have less burden on our public bodies for the administration of this scheme, I wonder which is less burdensome: simply publishing what is already used under the e-claims scheme—I understand that most applicants under these schemes will be through the e-claims schemes, and therefore it is a press of a button to publish the information for an award—or responding to an FoI request. If I were a member of a public body, I know which one would be far less burdensome for me. I wonder whether the Minister agrees.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I am grateful to the noble Lord, Lord McNicol, for his amendment, which was moved so ably by the noble Baroness, Lady Blake. I am delighted that the noble Lord, Lord Fox, received my letter before the Committee this time. I will have to learn the lesson that it prompts more questions from him during the debate. It is obviously better if the noble Lord receives the letter after the debate has taken place—I am joking, of course. We always endeavour to get him the information he has looked for as early as possible.
The amendments, taken together, seek to introduce a common threshold for transparency for subsides that are not challengeable on subsidy control grounds because they are not subject to the main requirements in the Bill. They include subsidies given under schemes, minimal financial assistance and subsidies for services of public economic interest.
I say at the start that I am well aware of the debates that occurred in the other place on this important issue, which were alluded to by a number of speakers, and I recognise the strength of feeling behind the calls for greater transparency. I am sure noble Lords are aware that my colleague Minister Paul Scully committed the Government to review the evidence collected as part of the consultation alongside that provided by witnesses to the Committee about the transparency provisions. Officials continue to review the available evidence base and I commit to updating the noble Lord, Lord Fox, and all other Members of the Committee before Report about where we have got to in that review, and I will update Members on the cost impact of the different options as soon as possible.
Transparency of subsidy awards is an important part of this control regime and is a key tool to support the enforcement provisions. It is essential that interested parties are able to see subsidies to determine whether they may be affected and whether they wish to challenge the subsidy award or subsidy scheme to which the noble Lord, Lord Purvis, referred. Of course, the database is a vital tool in providing this transparency. The aim of the database should always be to enable interested parties to see those subsidies that they may wish to challenge. However, it has not been, and should not be, designed to be a general database of public authority spending. Other tools for general public authority financial transparency exist elsewhere, and I think the noble Lord, Lord Purvis, would accept that uploading additional data represents a cost to public authorities, and of course that is ultimately borne by taxpayers.
It is important that the database requirements find the right balance to ensure that appropriate, accurate and timely information is available to the public on the database about subsidies that they may wish to challenge. To respond directly to the concerns of the noble Lord, Lord Fox, I am happy to clarify and confirm that the subsidies on the database are primarily those that are subject to challenge under this regime. I apologise if there was any ambiguity in my letter.
I turn to the amendments put forward by the noble Lord, Lord McNicol—
Lord McNicol of West Kilbride (Lab)
I thank the Minister for giving way. Just on the point about challenge and that if a subsidy is below the £500,000 it will be part of a scheme, I think he said before that if it was given as part of the subsidy scheme, it would have to meet the seven principles; it would be good if that could be clarified. Probably more importantly, however, is whether a one-off subsidy that is less than the individual subsidy limit—the £315,000—has to meet the principles. My understanding from some of the earlier discussions in the other place is that that was not confirmed or clarified. Can the Minister clarify whether a subsidy that is less than £315,000 has to meet the seven principles or the other energy principles?
Lord Callanan (Con)
Yes, of course. All subsidies need to meet the principles—this discussion is about what parts of those are published. If a subsidy is awarded under the scheme, then the scheme principles would also need to comply with the subsidy control principles.
Lord McNicol of West Kilbride (Lab)
So, just to be absolutely clear, if a subsidy is awarded that is less than £315,000 as an individual subsidy, it says in the Bill that it needs to meet the seven principles and possibly the energy principles.
Lord Callanan (Con)
My understanding is that, yes, that is the case. If that is not correct I will certainly clarify that to the noble Lord, but my understanding is that that would be the case.
Baroness Altmann (Con)
I apologise to my noble friend, but may I ask for clarification from him as well? He mentioned a cost to implementing this; can he confirm that the Government’s estimate of the cost is £20,000 and that local authorities already have such databases right now?
Lord Callanan (Con)
Just to clarify the points from the noble Lord, Lord McNicol, yes, it would need to meet the scheme requirements if it was given under a scheme. If the subsidy is not minimal financial assistance —so it exceeds £315,000 accumulated over three years—it does have to meet the principles; if it is MFA, it does not need to meet the principles. Reviewing the cost as an impact assessment does not necessarily cover all those options.
Lord McNicol of West Kilbride (Lab)
So, if it is under the £315,000—sorry, forget the scheme, I confused things by talking about the £500,000 for the scheme. If an individual subsidy is less than £315,000—this is quite important for transparency—it does not have to meet the principles that are laid out in the Bill?
Lord Callanan (Con)
I will come back to the noble Lord in writing. It is a complicated area to clarify the exact legal position on that. Sorry, can my noble friend Lady Altmann remind me of her question?
Baroness Altmann (Con)
Can my noble friend confirm that the Government’s estimate of the cost in relation to the subsidy scheme—which he referred to as a potential reason why the Government might not accept these amendments—is £20,000 and that local authorities do already have databases that could be used?
Lord Callanan (Con)
That returns to the point that I made earlier. The commitment given by Minister Scully in the other place is that we will review the costs; I committed to return to the Committee with the relevant cost provisions, which I will do before Report.
Amendment 38 would remove, for the purposes of transparency, the distinction between a subsidy awarded under a scheme and a stand-alone subsidy. The amendment seeks to have one, uniform threshold for all subsidies. Taken together with Amendment 39, this new uniform threshold would be just £500.
Subsidies given under a published scheme are currently required to be uploaded to the database if they are more than £500,000. This threshold is set at that level because the database will already include information about the scheme under which these subsidies are given. In our view, this information will be sufficient for others to understand whether their interests will be affected by any subsidy given under that scheme and whether they should therefore seek to challenge the scheme.
The Bill provides for various reasons why a subsidy or scheme cannot be challenged on subsidy control grounds. For example, a subsidy award given under a published scheme cannot be judicially reviewed in the Competition Appeal Tribunal on subsidy control grounds. This is because it is the scheme that is assessed against the principles and is challengeable, rather than the individual award made under that scheme. As such, this Bill does not provide for the possibility to challenge subsidies given under schemes in the Competition Appeal Tribunal. The scheme itself should be challenged, not the individual awards.
Additional information about small subsidies would therefore have very limited value for those concerned about potentially distortive subsidies and would detract from the core purposes of the database. These requirements would lead to additional red tape for public authorities—well beyond the requirements they had to fulfil under the EU state aid regime—and in a great many cases, as I said earlier, the information would simply duplicate what those authorities already publish in appropriate formats elsewhere.
Lord Purvis of Tweed (LD)
I have been reviewing the code on the publications from local government; local authorities must publish on a quarterly basis any expenditure that exceeds £500, including grant payments, grants, grant-in-aid and credit notes over £500. Public bodies will publish this quarterly already, unless this Bill means they are excluded from doing so if the payment is through a subsidy scheme. If this completely takes away the duty to publish that the public body already has, it makes no sense whatever. I do not understand where the additional burden comes in, given that the local authority publication code is already there for quarterly publication.
Lord Callanan (Con)
Nothing in this Bill affects the existing duties of local authorities and others to publish any financial information that they already do. This Bill concerns the information that needs to be published on the subsidy database. The same point applies to the earlier question from the noble Lord, Lord Purvis, about freedom of information. I hesitate, given the trouble I got into last time, to return to the FoI principles, but nothing in this Bill affects the original FoI legislation or the principles contained in it.
I turn to Amendment 47, which seeks to introduce a transparency threshold of £500, above which subsidies granted as minimal financial assistance would need to be uploaded to the database. As noble Lords will be aware, the MFA exemption allows public authorities to award low-value subsidies of up to £315,000 per recipient over three years, with no requirement to consider the subsidy control principles or other requirements, and no need to upload on to the subsidy control database. I think that clarifies what the noble Lord, Lord McNicol, asked about—what I said earlier on this was probably incorrect, so my apologies for that. The Government have taken this approach to ensure that public authorities can deliver smaller subsidies quickly and easily without undue administrative burden, since they are very unlikely to have any appreciable distortive effects.
This amendment, by seeking to require the addition of low-cost subsidies to the subsidy control database, would certainly introduce an additional burden for public authorities. Introducing a low-value transparency threshold for such low-value subsidies would require additional staff time and costs as the volume of entries would be expected to increase significantly—for what gain, bearing in mind that these subsidies are those that, by their very nature, are unlikely to have any appreciable distortive effects?
On this basis, I do not believe that the amendment would introduce the appropriate balance between sufficient transparency to allow for meaningful scrutiny and an efficient allocation of resource to identify those subsidies that are most likely to harm our economy, either locally or nationally.
Turning to Amendments 48 and 49, as we have discussed before, the Committee will be aware that services of public economic interest—SPEI—are vital services that, without public subsidy, would not be supplied in the appropriate way by the market or, in some cases, would not be supplied at all. This clause exempts certain SPEI subsidies from the transparency requirement in Clause 33 to upload the subsidy on to the database. There are two categories of exemption: first, for subsidies of less than £14.5 million; and, secondly, subsidies for one of the activities listed in subsection (1)(b). In response to the question posed by the noble Baroness, Lady Blake, the reason for the difference is that, in our view, subsidies in the second group are even less likely to distort competition.
These amendments would mean that all SPEI subsidies of £500 or more would need to be uploaded on to the database. I submit that this would represent a significant burden on public authorities, yet it is generally agreed in the Committee, I think, that these subsidies, granted for public services, are unlikely to be unduly distortive.
The same arguments put forward for not setting a transparency threshold of £500 for MFA apply equally here, in that doing so would not represent a balanced or proportionate outcome for our domestic regime. Although noble Lords are right to challenge the Government on the issue of transparency, I would like to set out why reducing the exemption from transparency requirements for SPEI subsidies to £500 would not result in a stronger regime.
First, by its nature, granting subsidies for public services is unlikely to be unduly distortive. This is because the very reason they are needed is that other providers are unable or unwilling to provide the necessary service at a reasonable cost. This goes back to the example we discussed last time, when the noble Baroness, Lady Blake, referred to bus services in rural areas: granting a public subsidy there is unlikely to be distortive because the reason why the public authorities have to provide that service is because nobody else in the market does so. The lower risk of distortion therefore justifies a higher transparency threshold.
Secondly, Clause 29 sets out that the award of a SPEI subsidy must be given in a transparent manner, which means that the subsidy must be being given through a written contract or other written legally enforceable arrangement. As the noble Lord, Lord Purvis, noted, public authorities normally publish these contracts, and it is good practice to do so.
Thirdly, a public authority providing SPEI subsidies must be satisfied that the subsidies are limited to what is strictly necessary in providing that service, with regard to costs and reasonable profit, and must keep that under review. This means that the SPEI enterprise should not gain an unfair advantage over other enterprises; consequently, again, there is unlikely to be undue distortion to competition.
The Government do not share the view that requiring public authorities to upload SPEI subsidies with a value as low as £500 would contribute to a more robust regime. SPEI subsidies are, and will continue to be, subject to appropriate safeguards where public authorities actively ensure that this is the case so that contracts deliver value for money for the citizens in that particular area.
Although I understand the objectives of the noble Lord, for the reasons I have set out, I cannot accept this amendment. I hope, therefore, that he will feel able to withdraw it.
Lord Fox (LD)
I have a brief question because £14.5 million is a curious number. There is no reason why it should be a round number in millions, but it is strange. Can the Minister explain the genesis of that particular number? Also, could I be cc’d into the Minister’s reply to the important question asked by the noble Lord, Lord McNicol, on the subject of what is in and what is out?
Lord Callanan (Con)
Indeed. The noble Lord, Lord Fox is clearly not tired of receiving letters from me, so I will happily copy him into the letter that I send to the noble Lord, Lord McNicol. I will have to come back to him on his question about the £14.5 million. I will include that in yet another letter—or maybe even the same one.
Baroness Blake of Leeds (Lab)
I thank the Minister for his very full response, as always. The level of detail means that we will indeed require letters. Maybe the simplest way forward is for us all to receive the same response on the issues that we have all raised in Committee, so we are all on the same page.
I do not want to prolong this debate too much. I note that the Minister in the other place, Mr Scully, undertook to review the consultation, including the debates that we have had in this House. I go back to the spirit of hopefulness that I mentioned earlier—or maybe naivety perhaps, but we are all allowed to be naive for a little while, I hope—because this is a serious issue, and it is fairly unusual for such issues to get such cross-party and cross-sector support.
I have a question. When we talk about burdens and costs, I am always intrigued. Could the Minister perhaps write to us with an estimate of the costs if things go wrong—that is, when there is a challenge and it ends up in court in arbitration? That sort of thing happens regularly if you do not have a robust system that is clear and transparent. Burdens work both ways.
There is already a system in place that is tried and tested. Public authorities, whether local authorities, combined authorities, LEPs or devolved Governments, have been working on these matters for a long time, and there is established good practice out there. It troubles me that some of the provisions in the Bill could undermine an enormous amount of work.
Going back to the principles, we are talking about the need for consistency and clarity and, most of all, the fact that we should do everything we can to ensure that every pound of public money is accounted for and accountable and can be followed as it goes through.
Lord Callanan (Con)
If I may interrupt the noble Baroness, I am trying to save my letter writing to the noble Lord, Lord Fox, who was concerned that my workload would be unduly increased: for his information, apparently the £14.5 million figure comes from the TCA.
Baroness Blake of Leeds (Lab)
It only remains for me to beg leave to withdraw the amendment.
Member’s explanatory statement
This amendment would require subsidies or schemes to be entered in the database within three months of being made, rather than one year, if given in the form of a tax measure.
Lord McNicol of West Kilbride (Lab)
My Lords, I am just waiting for the noble Lord, Lord Lamont, to rejoin us as he has helpfully signed these amendments with me. I shall also speak to Amendments 41, 42 and 43. This is a straightforward group of amendments that, along with the next two sets, deal with the whole issue of transparency. I am grateful to the noble Lord, Lord Lamont, for signing these four amendments. The Bill is interesting in that it throws up some unusual alliances, but that should make for an infinitely better piece of legislation by the end of this process. As we heard in the last group, these are not party-political issues; they are issues aimed at improving the legislation.
Lord McNicol of West Kilbride (Lab)
My Lords, this is a straightforward group of amendments and I thank the noble Lord, Lord Lamont, for signing them. My very first reading of these clauses left me with a real sense of confusion and, while I have tried my very best to get into the head of the Minister, or at least those drafting the Bill, I am not sure I have achieved that.
Amendment 40 would require subsidies or schemes to be entered in the database within three months of being made, rather than one year, if given in the form of a tax measure. Amendment 41 would require subsidies or schemes to be entered in the database within one month of being made, rather than six months, if given in any form other than a tax measure. Amendment 42 would require that modifications to subsidies or schemes entered into the database are made within three months of that modification, if given in the form of a tax measure. The final one, Amendment 43, would require that modifications to subsidies or schemes entered into the database are made within one month of that modification, if given in any form other than a tax measure.
This proposed new system is fundamentally different from the previous EU system of state aid and, more importantly, different from pre-authorisation of the subsidies. All parties have welcomed that change, and we do on these Benches; however, the proposed new system of post-award disclosures, monitoring and/or possible challenges will work only if there is complete transparency, or at least a nod towards transparency, be that, as we heard on the previous group, on the amount or, on this group, on timing, or, in future groups, under systems that are put in place to allow those challenges. These amendments are important as the balance in the Bill as it is written does not feel right—the balance between those being able to challenge or look at our businesses or organisations and see what is out there and those who will have already received those subsidies.
As it stands, authorities are being afforded between six months and a year to make their entries to the subsidies database, depending on the form of relief they are offering. Much of the public sector, as we heard in the previous debate, is accustomed to fulfilling transparency requirements within a month of the end of a quarter, so these amendments, similar to the financial ones, are already being adhered to. The financial management through local authorities already adheres to very similar systems to what we are looking to amend here. One might have some sympathy for the Government’s approach if they were equally as generous in the time given to refer matters to the Competition Appeal Tribunal, the CAT, but as we will discuss later, this is not the case. The time limits on appealing are tighter.
Last Wednesday, the Minister rightly took pride in the number of changes being made to the subsidies database, arguing it was now simpler than ever for public authorities to meet their reporting requirements. If that is the case, why would somebody be given a full calendar year to upload their reporting of subsidies? We do not accept that reducing the time limit would place an unacceptable burden on authorities; we believe it would greatly assist efforts to improve transparency and ensure proper accountability for decision-making.
On 26 October, at the first witness session in Committee in the other place, Professor Rickard said on this issue:
“I think six months is too long. If it is a tax break for 12 months, after 12 months a competitor might be out of business”.—[Official Report, Commons, Subsidy Control Bill Committee, 26/10/21; col. 21.]
This group of amendments would rebalance a perceived or real inequality between those receiving the subsidy and those who may be affected by it, and their ability to challenge that subsidy. I beg to move.
Lord Lamont of Lerwick (Con)
My Lords, I added my name to these amendments in the name of the noble Lord, Lord McNicol. I shall not weary the Committee by repeating the points that he made, but I strongly agree with him. I added my name just because I was puzzled and regard as unfair the imbalance between the time given to public authorities to list subsidies and the very short timetable for people to object to them. I do not see why it should take six months to make public what has been done, while one month seems an extraordinarily short time for somebody to challenge it. As may have been said when I was unfortunately out of the room trying to get on PeerHub, one could easily imagine circumstances where perhaps the website was not working very well, and a few days were missed. “It never happens,” the Minister says. Well, we shall see. That would be a first in public sector computers.
There seems to be an imbalance here. What is sauce for the goose ought to be sauce for the gander—or is it the other way round? Six months is certainly far too long and one month is far too short. I agree with everything that the noble Lord, Lord McNicol, said.
Lord Fox (LD)
My Lords, during the debate on the previous group, the noble Baroness, Lady Altmann, asked, “How will they know?” This amendment seeks the answer to the question: how will they know in time? As the noble Lord, Lord McNicol, said, because of the limits of reporting, we are talking about very sizeable subsidies that could exist with a competitor company for up to a year before a person is able to find out what their company is competing against. I am sure that the Minister would understand that that is not a fair situation, and it is within the gift of the Government to make it fairer.
Both noble Lords spoke about the imbalance; that is, a long time to report it and a short time to appeal it. One would almost think that the Government were seeking to discourage the process of challenging subsidies. I am sure that that is not the Minister’s aim and therefore the best way of expressing that aim is to redress that balance.
Reflecting on the last debate and this one, I think that we are in a bit of a mess around reporting—or, indeed, we are not but the Government are. On the one hand, we have the database with the six-month time limit and a very high ceiling; on the other hand, we have local authority websites with a three-month time statute and a much lower ceiling, and potentially we have FoIs—although the problem is that you need to know something exists before you can FoI it. The Government have therefore knowingly or unknowingly set up a multiple market for information.
If I am a business and I need to know what is happening in my sector, the Minister will say that this information is freely available. It is freely available on a pull basis. I shall have to employ someone to go out there regularly to check whether the information exists, where it is and what is happening in my sector. If I am a small business in a market where the receipt of subsidy could affect my business, I shall have to employ an extra person or part of an extra person to do that. This does not seem a sensible way of dealing with the issue. A central database with a shorter time span and a lower value ceiling would be the best way to help businesses thrive.
Lord Callanan (Con)
I thank the noble Lord, Lord McNicol, and my noble friend Lord Lamont for these amendments, which seek to reduce the time available to public authorities to upload their subsidies to the database. I note the comments made by the noble Lord, Lord McNicol, on the limitation period, which I look forward to discussing in our next Committee session.
As is the case with the thresholds on transparency, our objective here in setting the upload deadlines has been guided by the fine balance between minimising bureaucratic burdens while ensuring that accurate information is available promptly for interested parties to enable them to consider whether to launch a challenge. We agree that subsidies should be available to be seen on the database as soon as is practical. However, there are good reasons why public authorities require longer than the one and three months put forward in these amendments.
First, let me note that public authorities have an incentive to upload subsidies as quickly as possible. The sooner a subsidy is uploaded to the database, the sooner the clock for the limitation period starts to run, and therefore the sooner the public authority and the beneficiary will gain certainty that the subsidy will not be challenged. Public authorities also have a strong incentive to upload subsidies accurately first time round to avoid the possibility of having to amend entries later on.
Upload deadlines as short as one and three months may result in more public authorities needing to amend their entries at a later date. Although this is of course possible on the database, it creates an unnecessary burden for those authorities. This means that the initial period where the subsidy has been uploaded is more likely to contain inaccuracies, which will not help an interested party to know whether they wish to challenge. Surely we agree that, although we all want prompt uploads to the database, upload speed should not come at the expense of accuracy.
Lord Purvis of Tweed (LD)
Can the Minister confirm that, as we discussed in the debate on the previous group, if this scheme is run by a local authority in England, its duty to publish in three months still stands under the code? If so, this will have to be published within three months anyway, but that is just in a local authority area, not on the national database. So there is this rather ridiculous period of between three months and six months in which it would be uploaded on to the subsidy database. If the Minister’s argument is that doing this in three months will mean having a lot of mistakes in it, he needs to go back to the local authority code, not make assertions here in Committee.
Lord Callanan (Con)
As I said, none of the provisions in this Bill change any of the requirements on local authorities, but the transparency requirements are different in each case depending on what the award is and whether it is under a scheme. Sometimes, if it is a generally approved scheme, there are literally thousands of small grants, for instance. Sometimes the recipients are not identified under local authority transparency but may need to be identified under a particular scheme, depending on the size of the award. The noble Lord is correct that none of the requirements in the Bill change the requirements on local authorities; we are talking about different information for different purposes.
I understand the point made by noble Lords that, in most cases, one month should be sufficient to avoid excessive mistakes that could cause confusion for interested parties. None the less, I note that public authorities face a great many administrative obligations. Therefore, there would be an increased risk of error, or an increased cost in avoiding error, resulting from a deadline of one month—particularly for authorities that give a large number of subsidies in possibly quite complex formats.
Furthermore, the inaccuracies may not result from avoidable human error. To take another example, many subsidy schemes, particularly but not only those in the form of tax measures, are created with estimates for the value of the budget or the individual awards, but the final amounts may vary from that estimate. Sometimes the subsidy award is variable—it could be a performance-related grant—and if the beneficiary exceeds its estimates for the subsidy objective, it may be entitled to a proportionately larger subsidy. In other cases, such as subsidies in the form of tax measures, which I am sure my noble friend would never have been responsible for when he was Chancellor, the variation may be a result of higher or lower than expected expenditure—for example, on research and development—which will in turn affect how much tax subsidy that beneficiary would be entitled to.
Lord McNicol of West Kilbride (Lab)
Before the Minister sits down—I ask this as I genuinely do not know—he stated that 76%, or however much it was, of those who responded to the consultation supported the deadlines of six months and a year. Does he know what the consultation said about the other side of this, with regards to the timescales for challenge?
Lord Callanan (Con)
The figure I used was 74%, not 76%. I do not have that information, but I can certainly get it for the noble Lord—I will supply it in writing.
Lord Lamont of Lerwick (Con)
My Lords, the Minister was very persuasive about tax measures. I quite follow what he said about the uncertainties that would surround trying to calculate the cash value of tax subsidies, but he did not spend very much time talking about the one-month period, which is the one that seems a bit unreasonable. It seems as though they are paying more attention to the compliance costs of the public sector than to the costs of the challenger, which ought to be equally kept in mind. Surely one month is a very short period to challenge a subsidy which may have suddenly arrived out of the blue and may require a private sector company to take legal advice on whether it is challengeable. Four weeks to get legal advice, mount a challenge and go through all the formalities seems a very short period of time.
Lord Callanan (Con)
I understand the point that my noble friend is making. As I mentioned in my reply to the noble Lord, Lord McNicol, the limitation period is the subject of separate amendments, so we will have a further opportunity to discuss that in the next Committee session. Again, it is a balance between wanting to provide certainty so that the schemes can proceed and the beneficiary can proceed with some certainty, but I understand the point that my noble friend makes. The whole regime is designed to be as flexible as possible, and probably more permissive in many respects than the EU state aid regime. As I say, we will have a longer period to discuss the limitation period and the challenge on a future occasion.
Lord Purvis of Tweed (LD)
With regard to companies or interested parties, Clause 76 allows an interested party to make a request to a public authority for information about a subsidy or a subsidy scheme that the authority has given or made, and there has to be a response within 28 days. Presumably, that covers all the subsidies that are then issued under that subsidy scheme by the public authority, in advance of them being uploaded on to the database. Is that correct?
Lord Callanan (Con)
If the information is available, perhaps in other formats, my understanding is that they can start the challenge immediately, but the formal period for challenge starts after the subsidy is uploaded to the database.
Lord Purvis of Tweed (LD)
I am grateful, but that was not my question. Regardless of the period of challenge after the subsidy has been updated on the database, Clause 76 allows an interested party to make a request to a public authority for any information about a subsidy or a subsidy scheme that the authority has given or made. That does not state that it is uploaded on the database. It would basically require the interested party to make a request of the public authority for any subsidy issued under that scheme by that public body at any stage. They would have to do it blind, because it would not be on the database, but if they believe that there is a subsidy scheme that they have an interest in, within that certain local market, and they ask for information about that subsidy, that information would have to be provided by the public authority before it has been uploaded to the database. Any greater efficiency or lack of bureaucracy has completely gone if they are able to do that under Clause 76 anyway.
Lord Callanan (Con)
The position in the clause is fairly transparent; they will be able to ask for information on the scheme and the authority would have a duty to provide it. That is separate from the provisions for uploading it to the database.
Lord McNicol of West Kilbride (Lab)
My Lords, I thank the Minister for his response. As the noble Lord, Lord Lamont, picked up, he very much focused on Amendments 40 and 42, rather than Amendments 41 and 43. The Minister is absolutely right that there will need to be a balance between bureaucratic burden and proper transparency and oversight. As the Bill sits just now, I do not believe that the balance is in the right place. I am sure that we will come back to this—after the Division.
Lord McNicol of West Kilbride (Lab)
I had nearly finished. I reiterate that we are going to have to come to some sort of agreed position on the bureaucratic burden, which the Minister understandably comes back to, and the issues of transparency, fairness and proper oversight. The last place we want to be is a situation where the Bill—as we believe it does as it is written just now—leaves open the possibility of some businesses being supported and those subsidies unable to be challenged properly. I beg leave to withdraw the amendment.
Lord Dodds of Duncairn
“(3A) The subsidy control requirements under the Act do not apply if they have the effect of causing any unfair economic disadvantage to Northern Ireland as a result of the implementation of Article 10 of the Northern Ireland Protocol.”
Lord Dodds of Duncairn (DUP)
My Lords, I have tabled this amendment, to which the noble Baroness, Lady Hoey, has added her name, in order to probe the Government’s understanding of the application of the state aid rules which will apply to Northern Ireland and those which will apply to rest of the United Kingdom as a result of the Bill. I know that on previous days in Committee there has been consideration of the relationship between the different rules. When I looked at the Bill, I sought to put down an amendment which would have brought Northern Ireland into line with the subsidy regime for the rest of the United Kingdom, but I was told that because of the provisions of Article 10 of the Northern Ireland protocol, an international treaty, it is not possible to amend the Bill to have the effect that I would have wished to bring Northern Ireland into line with the rest of the United Kingdom.
My Lords, there appears to be some echo in the Room, and I am not sure what is causing it. I shall stand further back from the microphone—I shall pretend that we are in the Ulster Hall—though I am tempted to do without a microphone altogether. I hope that noble Lords can hear me clearly now.
The subsidy control regime in the Bill would apply to only about 50% of the financial support that will be provided to Northern Ireland with the remainder continuing to fall within the scope of EU state aid rules—those applying to goods and wholesale electricity markets. Northern Ireland will be forced to adhere to the strict rules and conditions of EU law on things such as no expansions, maximum grant rates, only new establishments and so on, and when the projects are large or outside the scope of the exemption regulations Northern Ireland will have to seek European Commission approval. Effectively, we have two regimes which are very different in policy terms and practical effect. Under the UK scheme, things will be automatically approved unless specifically prohibited. In Northern Ireland, we are subject to EU rules under which everything is prohibited unless approved, effectively. They are very different policies, and two different systems are applying in one country.
From time to time, the Government have set out their views on the effects of the operation of Article 10 of the protocol. In their May 2020 Command Paper, they were of the view that the provisions of the protocol would apply only in Northern Ireland. However, they later acknowledged that there was a risk of a maximalist interpretation of Article 10 by the EU, which could give the European Commission extensive jurisdiction over subsidies granted in the rest of the UK—an issue that the Government sought to address by tabling amendments to the United Kingdom Internal Market Bill, but we know how that ended. The European Commission also published a notice to stakeholders in January 2021 setting out its guidance. I would be grateful if the Minister could tell us whether or not, as things stand, he is concerned about the conflicting guidance on the scope of subsidies that would be covered by Article 10.
In July 2021, as we know, the Government published a significant Command Paper arguing that the TCA and the provisions of this Bill
“provide a more than sufficient basis to guarantee that there will be no significant distortion to goods trade between the UK and EU, whether from Great Britain or Northern Ireland, thus making the existing provisions in Article 10”,
referred to in Section 48(3),
“redundant in their current form.”
When the noble Lord, Lord Frost—the Minister responsible—resigned, he said in his statement on 17 December, regarding the negotiations with the EU in this regard, that there had been
“some limited discussions on subsidy control”
but made it clear that:
“The rules need to evolve to reflect this new reality”
of the trade and co-operation agreement and the UK’s subsidy control regime. He said:
“Northern Ireland businesses are facing unjustified burdens and complexity, and the Government cannot deliver aid to Northern Ireland, for example for Covid recovery support, without asking for the EU’s permission.”
Since assuming responsibility from the noble Lord, the Foreign Secretary has said that the UK’s position on the protocol, and with regard to the issue of Article 10, has not changed.
So the Government’s position appears to remain as set out in the Command Paper of July 2021, which states that the aim of their negotiations, their policy objective, is to erase Article 10 from the protocol. I should be grateful if the Minister could therefore indicate what progress has been made in the discussions, particularly on this issue. It is an area that is not discussed much. There is a lot of talk about phytosanitary checks and customs, which are important issues in their own right, but little discussion of the subsidy control regime. However, it is significant for Northern Ireland and I would be grateful for an update.
If negotiations do not result in the objectives set out in the Government’s Command Paper, will the Minister indicate what action they will take on their own account to protect Northern Ireland’s economy and what the timescale is? If action is not taken to resolve this matter, either through negotiations or by action on their own account by the Government, there will be no level playing field across the UK when it comes to the subsidy control regime. Northern Ireland will be at a disadvantage, according to the Department for the Economy in Northern Ireland, compared to other parts of the UK when competing for inward investment, for example. Other parts of the UK could be much more attractive as a location for investment as a result of not having to wait for the Commission to grant formal approvals. In Northern Ireland, approvals will take significantly longer than the new timescales envisaged in the Bill for the rest of the UK; they could have far fewer conditions or restrictions and might well receive greater levels of funding than would be possible under the EU regime in Northern Ireland, which prohibits subsidies greater than 50%, whereas under the Bill subsidies may be proportionate but no maximum is specified.
When these issues were raised in the other place, the Business Secretary responded by pointing to the changes to the protocol being sought by the Government in the negotiations, which would bring all subsidies within the domestic regime. Can the Minister confirm that there is not really any solution other than that indicated by the Business Secretary? If EU law applies, it is hard to envisage that there can be any mitigation. There is certainly nothing in the Bill that would ease the problems that Northern Ireland will face in this regard.
The reality is that the interaction of the protocol with the Bill before your Lordships has the potential to impact negatively on the development of the economy of Northern Ireland, and I hope sincerely that the Government will implement the necessary measures to avoid that bad outcome. I beg to move.
Baroness Hoey (Non-Afl)
My Lords, I was pleased to add my name to the amendment in the name of the noble Lord, Lord Dodds. It is particularly because of the situation now in Northern Ireland that many of us want to raise this issue at every opportunity—it was raised also at Second Reading. I accept from the beginning that the Government are trying to deal with some of the problems that have come about. They were perhaps seen some time ago, but the Government are now trying to deal with the realities. The noble Lord, Lord Dodds, has given a clear outline of the detail of how the current situation will affect business in Northern Ireland. I want to speak more from the point of view of morality—the idea that, once again, Northern Ireland is being treated so differently and so separately from the rest of the United Kingdom.
At Second Reading, the Minister said—it was said a number of times:
“We are seizing the opportunities of Brexit.”—[Official Report, 19/1/22; col. 1712.]
As someone who was a passionate supporter of Brexit, I want to seize those opportunities, and I want the people of Northern Ireland to be able to seize them, but it is clear that we will have a different regime and that businesses will lose out, whatever happens, unless this is changed. It is a pity that we could not have a real debate and a vote on Article 10 at some stage in your Lordships’ House, but I accept that we cannot do it in this Bill.
We have a form of colony in Northern Ireland at the moment. Northern Ireland now has a foreign market, a foreign customs regime and a foreign VAT regime adjudicated by a foreign court, and now we will have foreign state aid. I know that the negotiations that are going on are slightly above the Minister’s pay grade, but I hope that he will do his bit as the Business Minister to realise and understand just how unfair this is for the people of Northern Ireland. I hope that he will be able to give us some comfort as to how the Government are going to take this forward if the negotiations with the European Union get nowhere, as I expect.
Lord Empey (UUP)
My Lords, the issue of state aid goes beyond even the points that have already been made, because there is theoretically a possibility of reach-back into Great Britain depending on whether a product was subsidised before it left Great Britain and was part of, or added to, another product of a business in Northern Ireland. The truth is that the Minister does not know the answer to these questions.
I do not understand why there is surprise. The Minister may not wish to comment, but the situation in which we find ourselves is a direct consequence of the proposals made by the Prime Minister to the European Union. He proposed the protocol. When I hear the phrase “Let’s get Brexit done”, it drives me mad. Brexit is done for 97% of the United Kingdom; we are still in the European Union for as much as half of our activities.
This was entirely anticipated, but it was not worked out. So, the protocol came along in late 2019 as the deathbed plan to get Brexit done in a couple of months, and this is one of the pickles we are left in. I may have some issues with the wording of the amendment in the name of the noble Lord, Lord Dodds, but its heart is in the right place. He said, if I picked him up correctly, that it is a probing amendment to try to get answers. I totally support that; it is the right thing to do.
Lord Purvis of Tweed (LD)
My Lords, it is a pleasure to follow the noble Lord. I was thinking that it is not usual for us to have difficulty hearing what the noble Lord, Lord Dodds, says: it was down to technology and I am glad it got sorted. I welcome his amendment because it is another opportunity for the Minister to address these serious points. As the noble Lord indicated previously in Committee, on my Amendment 53, we have tried, as the noble Lord, Lord Empey, asked us to do, where there are difficult areas, to navigate a way forward. Because he is absolutely right: before his resignation, the noble Lord, Lord Frost, said in the Chamber—I think it was in reply to the noble Lord, Lord Hannan—that the Government’s intention was not to replace the protocol but to improve it.
So, we are in a situation where the noble Lord and I come, perhaps, from a different starting point but reach the same conclusion: we find ourselves in an undesirable situation but it is one of the Government’s making, and if there are ways to ameliorate the position, the Government have to come up with the solutions, because what is not really in question, as the noble Lord, Lord Empey, said, is that the Government are not looking to replace the protocol. We are, then, tasked with trying to remove one of the barriers that the Department for the Economy in Northern Ireland has indicated, which is that uncertainty is itself a barrier, and that has to be recognised. That uncertainty is ongoing, which is already one of the damaging impacts, as the noble Lord, Lord Dodds, indicated.
We are, I think, in month four now of a three-week process that Boris Johnson promised to Jeffrey Donaldson of a short, sharp negotiation on the protocol. Four months in, it might just be that Boris Johnson is not so reliable in the commitments he gives—it is a suspicion of mine, but it may well be the case. Nevertheless, as the Minister, the noble Baroness, Lady Bloomfield, indicated to me last week in Grand Committee, when I asked if it was the case that, if the Government secured everything they asked for in the negotiations, then EU state aid rules will continue to apply:
“To respond to the concern of the noble Lord, Lord Purvis, that state aid rules would continue to apply even if the UK’s negotiating position were accepted, these are specific and limited circumstances. I trust that this will allay the Committee’s concerns on this important issue.”—[Official Report, 2/2/22; col. GC 244.]
It really comes down to “specific and limited”. “Specific and limited” will mean that there is the ability for reach-back. It will mean that, for parent companies, the guidance will stand that they will now have to start to run two sets of accounts. It will mean that there will be dual reporting, depending on whether it is state aid or subsidy control. It will mean that there will potentially be dual challenge mechanisms. It will mean that the CJEU will still define the state aid component elements of it. Whether or not there are streamlines, whether or not it is more efficient, whether it is less bureaucratic, as the Government’s Command Paper said, or whether it is “specific” or “limited”, it still means that it is different; it still means that it is not the UK approach. That, I think, is symbolic, but it is also important in content.
I will not use any of the language of “territorial nature” et cetera; that is not for me to say. I will close with one element, though. In the 100-page document The Benefits of Brexit, there is not a single independent reference to Northern Ireland at all. That was published on the day that the Northern Ireland First Minister resigned. We are in difficulty, Minister, and I think that taking what has been offered by some as a way of making the situation better is something the Government should consider very carefully indeed.
Lord McNicol of West Kilbride (Lab)
My Lords, it is a pleasure to follow the noble Lord, Lord Purvis, and his detailed analysis, especially picking up and bringing back some of the issues from last week. With his contribution and the others, I will be short. I am grateful to the noble Lord, Lord Dodds, for tabling this probing amendment and facilitating discussion on this hugely important topic. I will focus my short remarks on the bigger picture rather than the specific details, which I think have been covered well enough.
Regardless of where people stand on the Northern Ireland protocol and the Government’s negotiations to reform it, it is a part of international law, as we have heard. This legislation therefore needs to be consistent with it. There are different legal opinions on the matter and, while some are favourable to Her Majesty’s Government’s approach, others suggest that decisions relating to Northern Ireland will at best be complex but at worst be subject to challenge or litigation. Neither of these outcomes would be good for firms, businesses or the authorities operating in Northern Ireland.
When this Bill was in the Commons, the Government were asked if they would pause to allow room for negotiations to continue. The answer was no. Despite the passage of those months, we appear to be no closer.
With that, I will leave my comments and look forward to the Minister’s response.
Lord Lamont of Lerwick (Con)
My Lords, without endorsing what the noble Lord, Lord Purvis, said, I think this is a very important issue—without going into the wider Brexit questions to which he referred—and it is extremely worrying.
I would like the Minister to confirm whether the Government’s position as stated in this Bill, and which was reaffirmed by my noble friend last week when she replied to the debate, is the final interpretation or is an interpretation that is subject to change. As the noble Lord, Lord McNicol, said, there are different legal interpretations of the protocol, and there certainly seem to be different interpretations between the European Union and the UK Government. Does that not therefore affect the assurances that Ministers can give? What certainty can be attributed to the opinion of Ministers as to what is the meaning of subsidies under Article 10 or subsidies under Article 138, and which subsidies are subject to European Union law and which are not?
Last time, I raised with my noble friend Lady Bloomfield the question of reach-back and what would happen if a subsidy was being given to a company in the north of England that was exporting goods to Northern Ireland and whether that would come under the EU regime or the UK regime. She replied by saying:
“The Commission’s … declaration of December 2020 made it clear that Article 10 could affect a subsidy in GB only”—
I stress the word “only—
“if there was a genuine and direct link in Northern Ireland. This would be the case if, for example, the beneficiary had a subsidiary in Northern Ireland.”—[Official Report, 2/2/22; col. GC 244.]
Is that the only case? If there were no subsidiary, would that be a different outcome?
Lord Callanan (Con)
My Lords, let me first thank the noble Lord, Lord Dodds, and the noble Baroness, Lady Hoey, for this amendment. I know that the noble Lord has strong feelings on the protocol and he and I have discussed it many times before. I have also discussed it with the noble Lord, Lord Empey, throughout the progress of our various pieces of Brexit legislation. I know the issues that are involved, and I will hopefully be able to update the noble Lord on our interpretation of the provisions and where I think we have got to—although there is a limit, as I am sure the noble Lord will understand, on what I can say.
I start by emphasising that preventing undue distortion or economic disadvantage to any part of the United Kingdom is one fundamental objective of this regime. Subsidies are inherently distorting, but this Subsidy Control Bill exists to ensure that public authorities minimise those distortions and economic disadvantage, ensuring that the benefits of the subsidy outweigh any negative effects.
Public authorities will need to consider this in making their decisions about whether the subsidy should be given and how it should be designed. That particularly affects any negative effects in parts of the United Kingdom other than the target area of the subsidy, but it also includes the effects on international trade or investment where the public authority may have less incentive to take those disadvantages into account in its ordinary decision-making processes.
Lord Empey (UUP)
Before the noble Lord sits down, the noble Lord, Lord Dodds, said that this is a probing amendment, so we all may have issues with the phraseology but that is not the point. Never mind subsidiaries, which I can understand; if a product is supplied to a company in Northern Ireland as part of creating another product which would then be sold into the European Union, whether or not it is supplied from a subsidiary should not really be relevant. It does not matter where it comes from, if it is subsidised in Great Britain. Surely that is how the European Union will look at it, rather than simply saying that it must be a subsidiary. The Minister might be underestimating the potential for reach back or for the subsidy to be challenged by a competitor within the European Union. The Government are taking too narrow a definition of what may be at risk.
Lord Callanan (Con)
I understand the point the noble Lord is making but, to return to the words I used, there must be a genuine, direct link to Northern Ireland—it cannot be hypothetical or presumed. We have issued detailed guidance on the subject, but we accept that the current situation is not good enough, which is why we are attempting to renegotiate the terms of the protocol, particularly Article 10.
Lord Purvis of Tweed (LD)
I have the text of the Command Paper in front of me. I heard the Minister say that the Government are negotiating for a single scheme to apply for all businesses across the UK. That is not what the Command Paper argues for in paragraphs 63 to 65. I have raised this before in the Chamber and in Committee. The Government are asking for a dual system, where there will be
“enhanced referral powers or consultation procedures for subsidies within scope, to enable EU concerns to be properly and swiftly addressed.”
The Government are not seeking a single system; they are seeking two systems with a streamlined approach for applicants to go to the EU system. Can the Minister clarify that?
Lord Callanan (Con)
We are seeking to have a single regime—the regime we are discussing now—that applies across the whole of the United Kingdom. As I said, this is the subject of negotiation. Intense discussions are going on. I and other Ministers will update the House as soon as we conclude those agreements.
Lord Dodds of Duncairn (DUP)
My Lords, I thank the Minister very much for his response to the debate and all noble Lords who have taken part in this short but important exploration of the issues surrounding subsidy control in Northern Ireland as a result of the application of Article 10 of the protocol. Sometimes people say that they are not being listened to, but I did not think that the technology would conspire to try to prevent us being heard. However, I am grateful for noble Lords’ consideration of these important matters.
The noble Lord, Lord Empey, was rightly pessimistic about the Minister’s ability to answer some of the questions raised, although he made a stab at it. However, while he was confident about the interpretation of Article 10—particularly in relation to the scope of its application, which remains to be seen—it will be tested in court. The trouble is that the uncertainty around all this will have a chilling effect. There is no doubt that reach back is a very important issue, but many businesses in Northern Ireland will say, “Yes, this is an important issue, but if you solve it, it will not particularly help us as Northern Ireland will still be subject to the EU regime. It may provide some help and certainty to companies in England, Scotland and Wales, but it does not resolve our difficulties.” There is a bit of danger in seeing reach back as the problem; it is a problem, but this does not resolve the issues in Northern Ireland. That is why I am grateful that the Minister has indicated that the Government’s purpose remains to negotiate changes.
The noble Lord, Lord Purvis, rightly pointed to the wording of the Command Paper. It merits very careful reading to compare what is stated to be the Government’s position and the actuality of the basis of the negotiations. It is something that I have pointed out on a number of occasions in Northern Ireland. I also agree with the noble Lord that, whatever the origins of how we got here, the problem remains to be sorted for Northern Ireland. This is a real predicament.
I therefore urge the Government to take this matter extremely seriously. I know that they do but this is a matter of urgency because, as was stated by the noble Lord, Lord Purvis, when he mentioned short, sharp negotiations—I recently reminded the Prime Minister of this fact—that this was supposed to be a three-week negotiation, beginning in September. Sadly, we have almost reached the middle of February and the inevitable crisis that some of us predicted has happened, in terms of the stability of the institutions in Northern Ireland. Time is in short supply.
I am grateful for this debate. It has been useful. With that, I beg leave to withdraw the amendment.
Baroness Randerson
“Agriculture
The subsidy control requirements in Part 2 of this Act do not apply to—(a) the giving of an agricultural subsidy, or(b) the making of a subsidy scheme, so far as it relates to the giving of agricultural subsidies.”Member’s explanatory statement
This new Clause would exempt agricultural subsidies from the subsidy control requirements.
Baroness Randerson (LD)
My Lords, I decided to table Amendment 52 having read the detailed concerns expressed by the Welsh Government and NFU Scotland. In this Bill, the Government propose incorporating agricultural subsidies into the same scheme as subsidies for other businesses. That is not the usual approach to agricultural subsidies. The WTO and, of course, the EU have separate and distinct agricultural subsidy regulation.
My amendment does not refer to them specifically, but there are similar concerns about fisheries subsidies. I read the Minister’s comments at Second Reading with care. He said that the Government believe that having agriculture and fisheries in a single scheme
“will help to protect competition and investment.”—[Official Report, 19/1/22; col. 1748.]
However, he did not mention levels of production or the supply of food. That is an important omission because it is the reason why the WTO and the EU treat agriculture separately. Agriculture is subject to the vagaries of weather and disease and is prone to much greater market volatility than other products. If we do not manufacture our own TV sets in the UK, it does not have the fundamental significance that not growing our own wheat would have. For well over 100 years, regular supplies of domestically produced foods at reasonable prices have been regarded as fundamental to our national security. That applies even in the modern world of global markets.
At Second Reading, the Minister also said that the Government’s decision
“was supported by the majority of the respondents to the UK Government’s consultation who answered the question on agriculture and fisheries.”—[Official Report, 19/1/22; col. 1749.]
I have three things to say about that. First, the pattern of agriculture is different in one part of the UK and another. The devolved nations have a very different view on this, and that needs to be reflected.
Secondly, the Government’s response reveals a worryingly majoritarian approach. England is always the majority in any consultation of this nature by sheer weight of population size. This does not mean that it fully reflects the different requirements of the country.
Thirdly, the Government’s justification is that 81% of people who responded to the question in the consultation were in favour of one or both—agriculture or fish—being included. That is tempered by the fact that only 20% of respondents answered that question, so only 80% of 20% were in agreement. That support does not look so great now, does it?
Lord Bruce of Bennachie (LD)
My Lords, I am very happy to support my noble friend on this amendment, to which I have added my name. She has explained quite accurately and in detail why we believe this is necessary.
My first point is about the consultation, which is slightly disturbing. The Minister, the noble Lord, Lord Callanan, wrote to me after Second Reading having said in response to my intervention that 81% of consultees had supported the inclusion of agriculture. My noble friend had pointed out that that was 81% of a much smaller percentage, but more fundamentally, the Minister failed to acknowledge two things. First, if 100% of consultees from Wales or Scotland were against—I am not saying it was quite that close—to suggest that 81% were in favour, which just about represents the imbalance of population between England and the rest of the United Kingdom, is exactly the wrong approach to devolution. Devolution has to recognise that if the devolved Administrations are sufficiently different from the rest of the UK, there has to be some real effort to accommodate that difference. Citing UK statistics is the wrong way to do it.
The other issue is much more fundamental. There was quite a bit of debate within the Conservative Party a few years back about whether subsidising agriculture was justified at all—whether free market economics should be let rip—but, as my noble friend has said, food production is a little bit more important than that. Food security has always been recognised by successive Governments as relevant.
The common agricultural policy aimed for self-sufficiency across the European Union. Its climatic variation meant that that was in a much higher proportion of food consumed than would be the case with the United Kingdom, but that makes us even more vulnerable once we withdraw. What percentage of our food should be produced from our own capacity at home surely has to be an article of serious discussion. Now that we have left the European Union and the Government are actively negotiating trade agreements around the world, some people seem to argue that all that matters is that the food should be cheap—not that it should be secure; it should just be cheap. The consequence is that we have concluded agreements with New Zealand and Australia which many farmers and food producers, particularly in Scotland and Wales, feel have substantially disadvantaged them in terms of what their farming methods are about.
When we move to the next phase, if farming and agricultural support are devolved, presumably they are devolved to allow divergence—because divergence exists. Grandfathering is all very well but it does not look forward far enough, to where land use could change quite radically. On this occasion, I note that the Green representatives are not here; I think they might have something to say.
At Second Reading, I mentioned that the issue of rewilding is beginning to create some degree of tension. Yes, there is a lot of excitement about the idea of trying to return things to nature, and that it might be helpful in terms of climate change, but what will its social impact be? What will its impact on employment be? What will it do to communities? Will it reduce access? Will it reduce the employment opportunities that farming currently provides? Those are real questions. Wales and Scotland—and Northern Ireland, for that matter—want to pursue a policy that determines, for their benefit, what the right balance is.
I have no particular animus for or against Ed Sheeran, but he claims that he wants to spend £200 million of his fortune rewilding as much of the UK as possible. I want to know how much sensitivity he has. What is fine in Suffolk might be a bit different in Inverness-shire or Montgomery or wherever. It is important that he understands that the land use regime in Wales and Scotland is a matter for the people there, not a pop singer in Suffolk. He can do it as long as it fits with that policy.
I say this to the Minister: it is not clear what five, 10 or 15-year idea the UK Government have. Grandfathering existing regimes does not allow for divergence later as we change our use. Basically, it is not consistent for the Government to argue that they support devolved agricultural policy but wish to take control of the subsidy regime that is essential to the delivery of that policy.
It is also not good enough to say that subsidy control is a reserved matter. Of course it is—I acknowledge that—just as the internal market is, but if the conclusion of that is UK Ministers, who are also English Ministers, saying, “What we really mean is that we will do as we please and the devolved Administrations will just have to lump it”, that is no way to secure the future of the United Kingdom. It is also no way to ensure that the devolution settlement can continue to work when it is under so much pressure. The Government need to understand that there is real concern that including agriculture in this Bill has implications that are bad for not just agriculture but the United Kingdom.
Lord Wigley (PC)
My Lords, I am grateful to the noble Baroness, Lady Randerson, for moving this amendment. I am delighted to follow the noble Lord, Lord Bruce; I agree with his comments. At this point, I should declare my registered interest as a member of the Farmers’ Union of Wales. I am one of the last great landowners of Wales, with six acres of land, so I have a direct interest in the outcome of these debates.
There are at least two dimensions to this issue. The first is whether this sort of legislation is appropriate for application to agriculture in general. Over my lifetime, the question of subsidy in agricultural terms has been related to the security of the supply of food and the price of food. Those are somewhat different considerations to those that may be apposite if we were considering subsidy for the steel industry or other industries. We need a system that is fine-tuned to the agricultural reality, which is different in terms of not only the nature of the product but the scale of the operation; that is particularly true in Wales—and in Scotland as well, I suspect—where there are many small farmers. They are small farmers in terms of their turnover and investment compared with the massive investment one might have in the manufacturing industry.
In Wales, farming is more than just a livelihood, it is a way of life—and a way of life that sustains the community. Therefore, consideration of the impact of subsidy, the relevance of subsidy and when it should and should not be available has many more dimensions to be taken on board than if it were a straight manufacturing subsidy question. My background was in the manufacturing industries, as I have explained before, but I am acutely conscious of the difference that exists between agriculture and the manufacturing industries
Lord Whitty (Lab)
My Lords, I add my voice to the concern about how agriculture is being treated under this Bill. Of course, under the old European system, agriculture was excluded because all agriculture subsidy had to be consistent with the common agricultural policy. We are now moving into a situation where all four nations of the United Kingdom are considering how to change their agricultural policy from one being primarily to produce food on a competitive and effective basis to one that, while food production will still be important, also makes its contribution to the environmental demands, in particular in carbon reduction and management of water and soil.
That is very different from many of the other industries that will operate under this regime. We have a multiple problem here with agriculture. We have no previous history of consistency—well, the consistency was at the European level—and all other aspects were always devolved. We are going to have four different approaches to the new era in agriculture and all of them in their different ways will have a very heavy environmental dimension, so that the way in which the land is managed provides nature-based solutions to reducing carbon and to producing a food balance within the population that is more conducive to reducing carbon and for water and soil management.
Agriculture’s total exclusion from the regime—as this amendment appears to suggest—may not be necessary, but special treatment will be necessary. Before this Bill passes this House, I hope that the Government will respond by indicating that there will be different treatment for agriculture and respect for the four different nations and their different approaches.
Lord McNicol of West Kilbride (Lab)
My Lords, it is a pleasure to follow my noble friend Lord Whitty. I agree with all his comments. I am grateful to the noble Baroness, Lady Randerson, for tabling this amendment to enable further and deeper discussion on another of the many concerns that were raised by colleagues across the House at Second Reading.
As we have already debated, although relatively briefly, the new subsidy regime will operate alongside certain legacy schemes, including, but not limited to, basic payments given under the EU’s common agricultural policy. As we have heard, the Government’s decision to include agriculture and fisheries in the scope of the new subsidy regime is an interesting one. BEIS asserts that there is logic in applying the same rules across the board. While that might make sense in some areas, doing so raises other significant issues. As we have heard from my noble friend Lord Whitty, agriculture is fundamentally different and therefore so are the issues relating to the subsidies and the subsidy control systems. That is before we even touch on the issue of devolved responsibilities.
As we know from many hours following debates on the Agriculture, Fisheries and Environment Bills, these are areas of devolved competence. Some of those matters have been addressed in discussions on the UK-wide common framework arising from the Brexit process. However, due to Her Majesty’s Government’s treatment of subsidy control as an entirely reserved matter, there is no common framework on this topic, something that we have already touched on in Grand Committee and will be returning to in later groups.
Specific nations and regions of the UK have very different interests from those of their neighbours. Public authorities will of course be able to do what they deem appropriate in the context of overarching subsidy control principles, but this is one of the areas where we may end up seeing subsidy battles and/or legal appeals. If we can reach agreement in your Lordships’ House, then we may be able to reduce the chances of some of that happening. One potential solution to some of these issues may be for the Secretary of State to establish one or more streamlined subsidy schemes covering agriculture. I ask the Minister: is that one of the department’s intentions?
I want to ask a couple of practical questions that have been subject to initial exchanges between my advisers and the Minister’s office. I thank her office for that information, but it raises some questions. Is it the case that schemes already made under the Agriculture Act, for example, will be treated as legacy schemes for the purposes of this legislation? If the environmental land management scheme, which has already been rolled out, is treated as a legacy scheme but the Defra Secretary of State later introduces a separate agricultural scheme using powers under either Act, will that new scheme be subject to the subsidy controls? If the answer is yes, will that not make it harder for everyone involved to keep track of which requirements apply and when? If so, how exactly does the decision to include agriculture in the new subsidy control regime meet the target of making the new process more straightforward and less burdensome?
A number of other issues arise around devolved authorities, many of which have been touched on. We will come on to them when we look at the CMA but, if we do not make changes to the Bill as it is currently written, we could end up with a situation in which the devolved authorities have responsibility for these delegated areas but no oversight in the Bill—no engagement with the CMA or the subsidy advice unit—and will not be at the heart of the decision-making. I look forward to the Minister’s response.
Lord Fox (LD)
My father spent half his working life milking other people’s cows and the other half milking cows in a small, tenanted farm. Farming is a way of life across the United Kingdom. You must be committed to it to make it work, so people are anxious when they see this subsidy scheme in such turmoil.
At Second Reading, the Minister said that including agricultural subsidies in the subsidy control regime would
“help to protect competition and investment”—[Official Report, 19/1/21; col. 1749.]
in agriculture and fisheries. First, will the Minister acknowledge that the agricultural subsidy scheme has much wider objectives than simply competition and investment? There is a range of social and other economic benefits that the schemes are supposed to be designed to protect. Secondly, how does including agricultural and fisheries subsidies in the subsidy control regime protect competition and investment better than leaving them where they are: outside the scheme?
Lord Purvis of Tweed (LD)
My Lords, I wish to ask the specific question of how, if this Bill includes all agricultural support without the delineated areas we have discussed previously in Committee—such as for upland farmers and areas with less favoured status—it will interact with the internal market Act.
My noble friend Lady Randerson specifically referenced hill farmers. I represented many hill farmers; I will debate with my noble friend separately the merits of Welsh lamb as opposed to Scottish Borders lamb, but it is fairly obvious which is the superior product. The point is that specific subsidy support for the type of production rather than the end product is allowed under the subsidy scheme because upland farms have less favoured area status. It was delineated.
However, the Government proposed under the internal market legislation that no discrimination would be allowed on any of the end product—the lamb. We allowed that discrimination because of the less favoured area status for hill farming. I question whether, if all this is now wrapped into the subsidy Bill, this is open to challenge in terms of competition and non-discrimination, as specific support for the production of one product—lamb—will be provided to certain farmers in certain areas but will not be available to others who do not have less favoured area status.
This Bill removes all those delineated areas. Presumably, all that is now within scope of the internal market Act. That means, I think, that none of this area of support can have the assured status that it did beforehand. I strongly support my noble friend’s efforts to get clarity on this.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank the noble Baroness, Lady Randerson, and the noble Lord, Lord Bruce of Bennachie, for tabling this amendment and for their concern for the agricultural sector. This amendment seeks to exempt agricultural subsidies and schemes from the requirements of the new domestic regime. I appreciate that the devolved Administrations are particularly concerned about the inclusion of agriculture in the new domestic regime. This issue has come up during our regular engagement, both at ministerial and official level. We have worked hard to understand concerns here, particularly in relation to existing schemes and how they might be considered under the new regime, as well as in relation to the development of guidance on the principles. We have sought to reassure that existing schemes and subsidies will be able to continue indefinitely.
Lord Wigley (PC)
I am grateful to the Minister for her response on the points that I raised, but does she accept that agriculture is a very different industry from the others covered by this sort of Bill and should have its own legislation? She mentioned consultation. What was the response to consultation from the agriculture industry and the farming unions?
Baroness Bloomfield of Hinton Waldrist (Con)
While I absolutely accept that the agriculture industry is completely different from others that will be covered by the Bill for many of the cultural reasons that have been brought up by others, I do not have the information that the noble Lord requests, but we will write, because we undoubtedly have it back in the department.
Lord Bruce of Bennachie (LD)
Less favoured area status was mentioned by my noble friend. In Scotland, 86% of the land has less favoured area status. If we have gained, as we have over many years, a reputation for prime Scotch beef, for example, it has been done by an integration of finishing farmers and suckler cow premiums on the hills. The Minister said that that could be a legacy scheme, but we are doing trade deals with New Zealand and Australia, which may want to challenge that. I think that people want reassurances that such schemes, legacy or adapted in future, will not fall foul of the implications of the Bill. That is the sort of concern that our farmers are facing at the moment.
Baroness Bloomfield of Hinton Waldrist (Con)
I register those concerns. Consultation with the devolved Administrations continues, but I repeat that the subsidy schemes of each devolved Administration can be devised in the context of the particular differentiation between each separate authority.
Lord Purvis of Tweed (LD)
I do not think the Minister addressed the point regarding the interaction with the UK internal market Act, which has also given rise to some concerns. She said that the Bill would be able to focus on agriculture-specific market failures. As my noble friend indicated, it is not market failure as such; it is the circumstances in which the industry operates. Is the Minister saying that, for all these schemes, the CMA will be the unique body that now determines the viability of all the geographical areas? The CMA is the body that has the authority under this Bill to consider whether the schemes are operating according to the principles. Defining what market failure would be within agriculture, on the different types of land, will now ultimately be for the CMA, which is a ridiculous situation to be in.
Baroness Bloomfield of Hinton Waldrist (Con)
I reassure the noble Lord that the CMA has an advisory function; the tribunal will be the body that decides. The subsidies will be devised by the local authority, or the devolved Administration, so that they can use the CMA for advice.
To go back to the earlier point, the Bill will allow the Scottish Government to provide subsidies to less favoured areas should they so wish.
To reiterate, the CMA has only an advisory function. It is the responsibility of the public authority to decide.
Lord Purvis of Tweed (LD)
We have to read this debate in the context of the previous debates. As the Minister has previously said, the Government want to move away from delineating support for geographical areas, so it is utterly pointless to say that a scheme for less favoured area status could be devised, because the flexibility from this Bill means that Glasgow could provide any agricultural subsidy to any farm anywhere, which is frankly ridiculous.
If it is not the CMA’s responsibility under this Bill, it is the competition tribunal’s. How on earth will the competition tribunal have the capacity to judge all the areas for geographical support, for agricultural support and for industry support? It seems a bit of a nonsense.
Baroness Bloomfield of Hinton Waldrist (Con)
The public authorities can devise their own schemes according to their own policy priorities, as long as they comply with the principles of the Bill.
Lord Fox (LD)
Let me give a specific example. Herefordshire County Council decides, within the seven principles of the Bill, to subsidise the production of beef in Herefordshire, brands it “Herefordshire beef from Hereford animals”, and then markets it in Aberdeenshire at a rate that undercuts Aberdeen Angus or whatever it is that my noble friend Lord Bruce is peddling in his area. It seems to me that this Bill puts in place a chaotic situation that cannot be managed. We do not know what an area is, we are allowing flexibility for any authority to take action as long as it sits within the seven principles, and then we are going to rely on the CAT to adjudicate. Is this really what the Government have in mind?
Baroness Bloomfield of Hinton Waldrist (Con)
I think a lot of this overlaps with the internal market Act, which we will debate at length on a later group of amendments. All I can say is that the set of principles will cover the position of the Herefordshire farmer.
Baroness Randerson (LD)
This has been an interesting debate. The noble Lord, Lord Wigley, will understand my point when I say that, as a former Assembly Member for Cardiff Central, I did not think I would be leading on a debate on agriculture—at one point I still had a farm in my constituency, but they built on it.
I learned a lot about agriculture as a Minister in two Governments. I learned about the concept, which comes up time and again, that farming is a way of life. It is a way of life wherever you are a farmer. I have lived in East Anglia and it even applies there where you have the grain barons, because if your farm fails, you lose your home. That is what makes things different from most other occupations. All speakers, with the exception of the Minister, have echoed my concerns.
I want to pick up a couple of points very briefly. Clause 41 refers to a specific amount of money for subsidy below which you will not have transparency. That amount of money is astronomical in relation to subsidies for farming and totally inappropriate. If those figures are used, there will be no transparency even for subsidies of the largest order for the largest farms. That cannot be right.
This is, of course, a probing amendment and I am specifically seeking information on how the special circumstances of agriculture will be dealt with. I hope the Minister will send us some very long letters to explain the situation because there are so many complexities and contradictions in the Government’s position. The EU treated subsidy as exceptional, in general, and something that must be justified, but it treated agricultural subsidy as normalised within a strict policy structure. The WTO treats agricultural subsidy as normalised, but the Government are now apparently applying the approach where subsidy is exceptional for agriculture. That is the basis of the seven principles. You cannot apply those seven principles in the same way that you do to other industries and businesses. Agriculture is not subsidised because of market failures; it is subsidised to ensure supply of a basic requirement of life at a reasonable price. The complexity of the Government’s situation is made worse because of the uncertainties already being felt within the market from the trade deals with Australia and New Zealand which provide additional hurdles.
Baroness Bloomfield of Hinton Waldrist (Con)
There are a couple of points I would like to address now, and obviously I will cover the other points in greater length in writing. Just to reassure the noble Baroness, on the minimum financial assistance in the Bill that she referred to, for most subsidies, including agriculture, it is £315,000 rather than the figures in Clause 41. If the figures are far too high for agriculture, then they will simply be exempt from the requirements and none of those concerns will apply. We are looking at whether the £315,000 is set at the right level, and we have the power to change it for specific sectors.
In answer to the noble Baroness’s question, I am afraid that we did not ask respondents to the consultation where they were based because it is a UK-wide regime, but we will write with more detail if we have it back in the department.
Lastly, as the noble Baroness brought up the difference between the WTO and the EU regimes, I just say that the Agreement on Agriculture within the WTO and the new subsidy control regime fulfil very different purposes. The AoA is an international agreement aimed at reducing distortion of international trade in agriculture; the proposed domestic subsidy control regime facilitates compliance with our international commitments but goes beyond this by protecting UK competition and investment. The WTO provisions are no substitute for a domestic subsidy control regime. The EU is a case in point of a system that has both WTO subsidy commitments and its own internal regime, and this is the approach that we are taking for subsidies in all sectors in the UK.
I will write with any further responses that I need to make, having reviewed Hansard in the morning.
Baroness Randerson (LD)
I thank the Minister for that. I fear that she makes my point for me in terms of Clause 41. My argument is that there needs to be transparency on this, and the amounts of money are set so high that there will not be that transparency. If this scheme is going to work on a farm-by-farm basis, which is what it will have to do, the Government will need to set separate, different and lower figures for agriculture. The Government really need to go away and look at this again.
Please could the Government consider applying some real-life worked examples of how this would apply in different parts of the UK—even within different parts of England? They need to be worked through, and public authorities need to have further information on how this would work. I urge the Government to discuss this issue with local authorities and the devolved Governments before the walls of our systems are bulldozed through in the latter stages of the Bill. I beg leave to withdraw the amendment.
Baroness Blake of Leeds
Member’s explanatory statement
This amendment extends the call-in powers under this section to the Devolved Administrations.
Baroness Blake of Leeds (Lab)
My Lords, in moving the amendment in the name of my noble friend Lord McNicol, I am grateful to the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord Bruce and Lord Wigley, for signing some, and in some cases all, of the amendments in this group. The amendments would extend the call-in power afforded to the Secretary of State to the devolved Administrations in Wales, Scotland and Northern Ireland—I can see a theme developing in these amendments. I know from experience that consultation is a tough thing to do properly. We are seeing repeatedly a lack of appropriate and meaningful consultation and that really needs to be addressed, along with the sense of a lack of respect in dealing with other areas and other bodies that need to be included so that a fair and level playing field can be established.
To be clear, in the Bill at the moment the Secretary of State has the power to direct a public authority and request a report from the CMA in relation to a proposed subsidy or scheme. As currently drafted, that does not extend to the devolved authorities; they do not have the equivalent powers to call in or challenge subsidies. The question for all of us is why that should be the case. It is yet another example of the significant disparity of power under the proposed subsidy regime, even though the devolved authorities clearly have an interest in the application of the regime in their respective nations.
The Government may not feel it is appropriate to give devolved authorities exactly the same power as the Secretary of State—for example, it may make sense to constrain their powers to decisions taken within their jurisdictions—but surely those authorities need some ability to refer matters to the CMA. Another aspect of this measure is that the Secretary of State can issue a call-in direction that requires granting authorities to respond outside of England in relation to subsidies within the CMA. Why does that not happen the other way round?
As we know, we have had a number of debates on devolved matters, but we remain to be convinced that Her Majesty’s Government are moving in the right direction when it comes to matters of devolution. These amendments are an opportunity for the Minister to prove us wrong and illustrate that there has been some movement as a result of the very many representations in this area.
There is also the vexed area whereby a call-in by the Secretary of State could significantly slow down progress in granting financial support for inward investment. This could result in that investment being lost. There are also very sensitive cross-border issues, as we have discussed, which present further challenge and could result in a perceived conflict of interest where they are not appropriately addressed.
I leave it to the noble Lord, Lord Fox, to introduce his amendments, which seek to further extend these provisions. We will, as always, listen to the Minister’s response with great interest. We must get away from the very real sense that Whitehall, unfortunately, is determined to hang on to power rather than really move forward on devolution, to which I believe this subsidy Bill could give great store. I beg to move.
Lord Bruce of Bennachie (LD)
My Lords, I am very pleased to have added my name to this group of important amendments. We are pressing a real depth of concern about the UK Government’s attitude to the devolution settlement altogether. With this Bill and the internal market Act, the Government are using the case for reserved powers to appear to be testing the devolution settlement, not quite to destruction, but to considerable tension.
These amendments ask why it is right that the Secretary of State has the right to instruct a public authority to seek a report from the CMA but the same Secretary of State—who is also the Secretary of State for England—is not susceptible to being challenged over any subsidy scheme that he or she has devised that may be perceived by any or all of the devolved Administrations as contrary to their interests or concerns. As the noble Baroness has said, it may not be the case that there should be absolute equality—we do not have a federal system yet—but we need recognition that it is simply not good enough that the Secretary of State can ignore, cast aside and overrule the devolved Administrations without them having any comparable right to challenge the English regime, never mind the UK regime. It is important that Ministers show some sensitivity and understanding on that.
This Committee does not need me to tell it that I have no sympathy with the SNP case for breaking up the United Kingdom or for independence. My view is that the SNP is a monumentally incompetent, obsessive political party that has no capacity to lead Scotland anywhere useful. However, the fact remains that it is in a mood to try to use every opportunity to stir up discontent and break the UK apart. The Government should not be helping it. They should be looking at how they can show, clearly, openly and honestly, that they are trying to set up a system based on mutual respect and understanding.
Even though the powers are reserved and the Secretary of State, in his capacity as Secretary of State for the United Kingdom, may be the decider of last resort, it should be as a last resort. Until you get to that position, it is important that the devolved Administrations have balanced and comparable powers. My simple question is this: why is it right that the Secretary of State can challenge Scotland, Wales and Northern Ireland on a scheme, but they have no right to challenge him or her on a scheme applied within England, which is what the Bill says?
Lord Fox (LD)
My Lords, just as the noble Baroness, Lady Blake, suggested, I shall speak to Amendments 55, 57 and 59 in my name. We are back trying to break up the monolith again. In the Bill, the Government seek to centralise the power in the Secretary of State in Westminster and, as my noble friend Lord Bruce set out, that person is Secretary of State for both England and the United Kingdom.
Lord Wigley (PC)
My Lords, I cannot allow this debate to go without intervening very briefly. We have had arguments about the consultation with devolved authorities in previous deliberations of this Committee and I am not going to repeat those points. What I want to do, however, is to stress the need for equivalence, and for that equivalence to be perceived, between the role of the Secretary of State in the context of England and the devolved authorities in the context of Wales, Scotland and Northern Ireland because if we do not have that, we are building up a formula that is bound to cause problems.
I cannot possibly allow the comment about my friends in the SNP to go unchallenged, because they, of course, work very hard indeed in the interests of Scotland, as has been recognised by such a large majority of Scottish voters. However, the debate here is not about the relative strengths of the parties; it is about getting a system in this legislation that works. In the absence of a federal or confederal approach—and that, ultimately, will have to be the context in which these things are addressed—in the meantime, for goodness’ sake, let us get a formula that at least appears to be fair and does not have built within it the contradictions which this Bill has at present.
Lord Callanan (Con)
I was expecting more interventions before my reply—I offer my apologies.
These amendments relate to Clause 55, which provides, as has been stated, that the Secretary of State can direct a public authority to request a report from the subsidy advice unit for a proposed subsidy or subsidy scheme. This so-called call-in power will be used as a safety net where the Secretary of State considers that a subsidy or scheme is at risk of not complying with the subsidy control requirements or that it poses a risk of negative effects on competition or investment in the UK and therefore warrants further scrutiny.
In the majority of cases, the most potentially harmful subsidies will be those that meet the criteria for subsidies of particular interest. The Government’s proposal for how these criteria should be defined has been set out in illustrative regulations that have been made available to this Committee. However, it is inevitable that there will be some subsidies or schemes that fall outside those boundaries but would still benefit from the additional scrutiny offered by the SAU. The call-in power is a safety net. It provides a mechanism to catch potentially concerning subsidies that are not caught within the “subsidies of particular interest” definition and have not otherwise been voluntarily referred to the subsidy advice unit. It is expected that such subsidies will be few and will reduce further as the regime settles in.
When the Secretary of State decides to exercise this call-in power, the direction must be published. In addition, the subsidy advice unit must provide annual reports on its caseload, including any subsidies or schemes called in by the Secretary of State. These annual reports will be laid before Parliament. This transparency will help to ensure that the power is being used appropriately and that Parliament has oversight of how and when the power is being used.
Amendments 54, 56, 58 and 60 would allow the devolved Administrations to refer a subsidy or subsidy scheme to the subsidy advice unit under the terms of Clause 55. Similarly, Amendments 55, 57 and 59 would extend the power to call in subsidies for review by the subsidy advice unit to all local authorities in the United Kingdom.
The Secretary of State’s responsibilities and interests in the subsidy control regime are UK-wide. The subsidy control regime is a reserved matter. The UK Government are responsible for the compliance of the UK subsidy control regime in all parts of the United Kingdom with our international obligations, including the trade and co-operation agreement with the European Union. It is therefore right that the UK Government have responsibility for the referral mechanism that deals with any subsidies that fall outside of the established criteria for further mandatory scrutiny. It is also right that the UK Government oversee the functioning of the regime as a whole, including the caseload of the subsidy advice unit.
In response to the specific concerns raised by the noble Lords, Lord Bruce and Lord Purvis, I believe it is important that the positions of the devolved Administrations and other public authorities are taken into account in the exercise of this function. I assure noble Lords that the Secretary of State would take it extremely seriously if he received a request from another public authority to call in a particular subsidy or scheme. Of course, he would engage with the substance of that request and consider it on its merits, but I hope it goes without saying that officials and Ministers in my department would discuss the matter appropriately with the public authority that raised the concern; this would apply even if it were a subsidy given by the UK Government.
Baroness Randerson (LD)
If the Secretary of State has acted as Minister for England and a devolved Government want to get the Secretary of State to call something in on the grounds that they are not happy with it perhaps being uneven or giving an unfair advantage to a company operating in England, what Chinese walls—that is, what process—will the UK Government put in place to ensure that the Secretary of State, who has just made a decision on England’s behalf, will not then judge himself or herself when the issue is called into question by a devolved Government?
Lord Callanan (Con)
The noble Baroness is approaching this issue in completely the wrong way. First, this is a UK-wide regime, so the Secretary of State is acting in his capacity as UK-wide Minister responsible for it. We have said that we will take it extremely seriously if a devolved Administration request a referral to the subsidy advice unit. We are currently in discussions with the devolved Administrations on how such a system could be codified. However, the key point is that this is just a referral to the subsidy advice unit. It is not rendering a subsidy illegal; it is not challenging it.
Directly relating to the point made earlier by the noble Lord, Lord Bruce, a devolved Administration have exactly the same rights as the Secretary of State or a local authority or anybody else to challenge the decision. The right for the Secretary of State to call in a proposal is just to refer it for advice from the subsidy advice unit; it is not to challenge the decision. The challenging of a decision takes place in the Competition Appeal Tribunal.
Lord Purvis of Tweed (LD)
The case that the Minister makes is a case against what he took through in the internal market Act. Under that Act, the Secretary of State is responsible for the economic impact on the whole of the United Kingdom, but a national authority can refer a regulation made by the Secretary of State to the CMA—in fact, one or more of them can refer. Why can they do that in the internal market Act but not in this Bill?
Lord Callanan (Con)
The internal market Act, which we debated at great length, reserved the application of a subsidy control regime to the UK Government. This is now the subsidy control regime that the United Kingdom Internal Market Act set up.
Lord Purvis of Tweed (LD)
I do not think that is relevant, because no one had any doubt about the fact that the internal market is a reserved power. They are both reserved powers; in the internal market Act, the Secretary of State acts on a reserved basis for the whole of the internal market, but it allows a national authority to refer a decision of the Secretary of State to the CMA if it has doubts about that measure. Subsidy control is a reserved matter—there is no doubt about that—but the subsidy Bill prevents a national authority referring a decision by the Secretary of State to the CMA. Why?
Lord Callanan (Con)
I think the noble Lord is getting confused between the subsidy advice unit and the Competition Appeal Tribunal. Exactly the same right exists for devolved Administrations, the Secretary of State or a local authority to challenge a decision in the Competition Appeal Tribunal. This call-in power is related strictly to the ability to request an opinion from the subsidy advice unit. That is where I think the noble Lord’s confusion comes in. The same right exists for authorities to challenge a subsidy, but there is an overall policing function which belongs to the UK Government to look after the international obligations of the UK under agreements such as the TCA.
Lord Purvis of Tweed (LD)
I am talking about a call-in that is exactly the same as in Section 36 of the internal market Act. I am not talking about tribunals; I am not talking about it being adjudicated. I am not confused; I am talking about referrals. The internal market Act allows referrals from a national authority; this Bill does not. All I am asking is why there is a difference between the two.
Lord Callanan (Con)
It is because the responsibilities are different. They might all rest within different parts of the CMA, but the responsibilities under the internal market Act are different to those under the Subsidy Control Bill that we are debating today. The policing of the Act is of course the responsibility of the UK Government; it is a reserved responsibility, but the same right to challenge a decision exists for the Secretary of State as it does for the devolved Administrations. Using the ability to refer a decision to the subsidy advice unit, we are saying that we will take a request from a public authority or devolved Administration very seriously under the Secretary of State’s call-in powers, but, in addition to that, we are currently in discussions with the devolved Administrations to see whether it is possible to reach an agreement on some sort of codifying mechanism to refer decisions to the subsidy advice unit.
We hope that no UK government subsidies would require referral, but I can tell the Committee that Ministers will be open-minded to calling in a UK government subsidy for SAU scrutiny where that is requested by another public authority or considered desirable for other reasons.
To respond to the concerns of the noble Baroness, Lady Blake, the Secretary of State would always take into account any urgent circumstances, whether in considering the use of the call-in powers or in the exemption from mandatory referral for subsidies of particular interest set out in Clause 64.
Lord Bruce of Bennachie (LD)
I am glad that those conversations are taking place, but is not the danger that if the devolved Administrations do not have the opportunity to get that advice, they might as well move to a direct challenge? It makes the friction more extreme rather than less. I accept the point the Minister is making about not wanting lots of frivolous requests, but if the right to request at all is denied, the danger is that there will be more contentious challenges.
Lord Callanan (Con)
We are not denying the right to request, which is why we are currently in discussions with the devolved Administrations to try to codify the system, but we have to accept the reality that they have a fundamental objection to subsidy control being reserved to the UK Government. They do not believe that it should be a UK-wide function. While we can agree and discuss many of the details, it is a black or white situation whether it is reserved to the UK Government. We feel it should be. That was Parliament’s decision in the United Kingdom Internal Market Act. The devolved Administrations do not agree with that, but it is a fact, so while it is possible to agree with them on many of the details, and we have engaged extensively at ministerial and official levels, we cannot resolve the fundamental difference of opinion on the overall principle.
There is a risk that this amendment would overburden the subsidy advice unit with numerous and unnecessary directions for referrals. The noble Lord, Lord Bruce, talked about the ability of the current Scottish Administration to put friction in the relationship and to seek to cause division where there is perhaps no division at the moment, and that would require substantial and unpredictable additional resources. In contrast, given my department’s responsibility for and its relationship with the Competition and Markets Authority, the Secretary of State will be able to take referral decisions that factor in the overall workload and capacity of the subsidy advice unit and will work with others in government to ensure the unit is appropriately resourced to deliver its functions over the medium and long term.
We appreciate that the new regime represents a significant shift from the requirements of the previous EU state aid regime and that public authorities will need to familiarise themselves with the new requirements and processes. Public authorities will already be used to the interim arrangements under our international obligations, including in the trade and co-operation agreement, which require an assessment of a prospective subsidy or scheme against six principles. As always, my department stands ready to support further through guidance and advice to help to ensure that public authorities in all parts of the United Kingdom are prepared and feel comfortable making their own assessments and giving out subsidies, hopefully without the need to seek advice from the subsidy advice unit. Therefore, for the reasons I have stated, I am unable to accept the amendment and hope that, given the explanations I have provided, the noble Baroness will feel able to withdraw the amendment.
Baroness Blake of Leeds (Lab)
I am sure that it does not fall to me to remind the Minister that the Secretary of State might be a woman as well as a man.
I would be grateful if the clarification that the Minister gave to the noble Lord, Lord Purvis, could be given to all of us in writing, as it would be really helpful in trying to move this forward. I am slightly concerned that there is a bit of a patronising element creeping into this, and I think that we need to be very careful about that in terms of how we build the relationships going forward.
It really remains to be said now that we perhaps need to reserve our position on this as we move to the next stage, in the light of ongoing discussions and consultation as the Minister has outlined. I think that we would all like the opportunity to go back to base and to understand how these discussions are continuing. I am sure that we will then come together to make decisions on how to move this forward at the next stage. With those comments, I beg leave to withdraw the amendment.
Lord Lamont of Lerwick
Lord Lamont of Lerwick (Con)
My Lords, I shall also speak to Amendments 57A, 57B and 60A. The purpose of this group of amendments is to give the CMA the right to call in subsidies quite separately from the mandatory referral process, not just those referred by the Secretary of State. The amendments would not give the power of veto to the CMA and would still leave the Competition Appeal Tribunal as the final arbiter. They are designed to introduce some independent enforcement of the rules into the process. In recent years, we have seen more independence given to bodies such as the Bank of England or the OBR. These amendments try to give the CMA, in its new role, a degree of independence for enforcement.
The noble Lord, Lord McNicol, earlier drew a contrast between the position under this Bill and how it was under the EU, namely that no subsidy was legal until it was approved. This is a much more permissive regime which relies heavily on being policed by competitors and citizens who, for the reasons that we discussed earlier in the series of amendments about the thresholds and the timing, may not always spot the need to draw attention to a subsidy that has been granted.
Let me say that I fully accept that subsidies are necessary for social purposes, for areas of deprivation and for remote communities, sometimes just to soften the blow of industrial change. But we also know the reality that subsidies distort competition; there is sometimes a temptation for Governments to throw good money after bad; one can have the politicisation of subsidies; and one can have pork barrelling. The provisions in these amendments are designed to prevent that happening.
This country needs to improve productivity. We need to strengthen the competitiveness of the UK economy and one way in which that can be done is by having a Government who are disciplined and subject to an independent discipline in their use of subsidies. The Government have been spending a lot of money recently on subsidies, some of which I accept are well justified, but we have a list of areas into which money has been injected—electricity, airlines, train operators, OneWeb, the steel industry. When we were discussing this earlier, the noble Lord, Lord McNicol, referred to the absence of a strategy. I am not personally an enthusiast for an industrial strategy, but I find it difficult to see the rationale for all the subsidies that the Government have given.
I have referred before to the Chancellor of the Exchequer’s future fund. In fairness, the Chancellor said he thought people would have a lot of fun with the investments into which he had put taxpayers’ money. More and more information has come out about it. It was recently revealed that millions have been ploughed into one online betting company. Large amounts of money have been deployed into a luxury Caribbean firm selling holidays on private islands, with some of the properties costing £400,000 a week to rent. There are also the cannabis producers, the dating agency—and Bolton Wanderers, which is also getting a direct injection from the Government.
I can understand that the Government want to help small businesses, but in that case help the generality of small businesses, not just one particular business. There may be lots of small Caribbean holiday companies that need help; why should this one be singled out? No doubt Bolton Wanderers needs help, but what about Scunthorpe and Grimsby Town? Why should one dating agency be favoured over another? If you are going to help small businesses then do it by a grant scheme to which small businesses can apply, or by tax relief, which they can benefit from—schemes that can apply to a generality of businesses.
On top of all that, we have had, as has been mentioned several times in this debate, the mysterious investment of £400 million into OneWeb, which required a directive to the Permanent Secretary before he would approve it. The Government really have been extraordinarily reticent about the purpose of that investment, and the amount of information that has been given to Parliament has been very meagre indeed. There is a cause and a need for explanation and investigation of many of these investments.
The words “market failure” are often mentioned; they were mentioned today and in our debate the other day. Market failure can be used to justify almost anything that Governments want to do: a firm cannot find money; the Government want to give it a subsidy, so they just label it “market failure”. But what exactly is market failure? The Minister referred to it the other day, and we have had it referred to several times. One might define market failure as barriers to entry or inadequate information being available to all market participants, but it is another reason why Governments can just slither off the hook and give money to someone for, perhaps, political reasons.
We need to have a careful look at what is called market failure. The British Business Bank was set up in order to cope with market failure but is itself now the subject of great criticism by the Public Accounts Committee for not overseeing the Covid loans properly. So much for its ability to correct market failure.
The whole point of my referring to these rather questionable subsidies, as I regard them, is that I do not think the Government ought to be able to mark their own homework on these issues. They need an enforcer and an independent view. I say that what is wrong with the Bill is that it is designed to give expression to the agreement that was struck with the European Union, the TCA; it is not really a rigorous enforcement of subsidy control at all. The regime is very permissive compared to what we had in Europe and relies far too much on individual citizens and competitors as enforcers. Those who are affected have to spot and know about the subsidies, and they have to do that within a very tight time limit. As I said earlier, what if the website is not working? All these things can make it very difficult for the competitor to take the action to control the subsidies being given to people with whom they are competing.
We need to have more independence in the process. We need the CMA to have the ability to investigate on its own initiative. We need a degree of independence, similar to that which is increasingly being given to government agencies. I hope the amendment will commend itself to Members of the Committee, and I beg to move.
Lord Thomas of Cwmgiedd (CB)
My Lords, I warmly support the noble Lord, Lord Lamont, in this amendment. Earlier this afternoon, I spoke about the centrality of enforcement in the regime introduced under this Bill. I need not repeat what I said then, but it is important to look at the mechanism of enforcement.
Lord Purvis of Tweed (LD)
My Lords, it is always a genuine pleasure to follow the noble and learned Lord in his analysis of these issues. I support the noble Lord, Lord Lamont, in seeking a degree of clarification on why the Government are reluctant for the CMA to have a more proactive role in offering advice.
The Government made the decision to bring forward what is in effect a framework Bill—as the noble Lord, Lord Lamont, highlighted, we have had a number of such Bills—and have said that a lot of it will be fleshed out in either regulation or guidance. The consistency of the application of that guidance is the critical aspect of this, however. We have seen the cost: it is potentially hundreds of millions, if not billions, of pounds, if we are to believe the noble Lord, Lord Agnew. He said that, with the flexibility that comes with not having specific rules, we see what can happen with the lack of consistency—and that was a Minister doing a 10-minute interview with an individual company and then making a decision at the end of it, as he said. He was a Minister who absolutely had decision-making power.
To link that with the previous issue, if the Secretary of State is also a Minister for England and, in addition, the area concerned is agriculture, but the Minister with responsibility will be the BEIS Minister, that highlights some of the areas of concern that there could be. Therefore, the ability of an independent body such as the CMA to have the power to call in and build up a caseload of how it is itself judging the principles and application of those principles will be very important. In the absence of that caseload being built up, we will continue to have a situation where each public body will itself define how it interprets the principles.
The Minister may argue that that is a good thing, but that may not necessarily be so. If you have a wealthy public body that defines market failure differently from a less wealthy public body, ultimately it will only have to go to challenge. Trying to avoid that situation is the intent behind these amendments. I looked at the Treasury’s Green Book, which the Minister referred to. It is the defining body. It has four example of what market failure might be, in addition to what is in principle A within the Bill. There is no existing CMA set of defined markets or set of reports considering how the seven principles will operate; this is a brand-new territory, and it may be a number of years before we come to this situation. Some of the witnesses who gave evidence to the Commons processes said that there will be a major chill effect because of that uncertainty.
Avoiding that aspect, the desirability of an independent body such as the CMA having responsibility under this Bill for putting flesh on the bones of the principles and the definition of market failure is important. We will not be able simply to rely on the guidance from the Government, especially because we know that it might change very quickly. We are already on our second, if not third, set of guidance with regard to the subsidy control principles in Northern Ireland, and the Minister alluded to the fact that we may be on another set before this legislation comes into force. We cannot simply rely on guidance; therefore, there is real merit in these amendments. I am supportive of the noble Lord bringing them forward.
Lord McNicol of West Kilbride (Lab)
My Lords, I think we will have a hard stop at 7.45 pm, so I will try to be brief. Even then, though, I am not sure that we will get through everything. Obviously I am grateful to the noble Lord, Lord Lamont, for tabling his amendments in this group; they sit very nicely with my amendment.
There are some general concerns over whether the CMA is the appropriate body to undertake all this work but, putting that to one side just now, it seems counterintuitive not to give the responsible regulator the ability to initiate its own investigations—especially because, as the noble Lord, Lord Lamont, rightly said, this is a very permissive regime in terms of how it has been pulled together. It is fundamentally different from the European state aid regime and we expect it to be policed by competitors and citizens, and that is only if they have checked the database and if the subsidy has been of a high enough level to make it on to the database—more than £315,000, I think. Even then, they will be able to make those challenges only within a tight timeframe.
On the amendments, although my Amendment 61 is quite detailed, again, we really are not precious about the wording in it or who has oversight, whether it is someone from our own Benches or those of the noble Lord, Lord Lamont—or even if the Government themselves wish to bring an amendment to look to give the CMA, as an independent body, more powers to follow through and ensure that transparency is actually there. My amendment would give the CMA the power to conduct post-award investigations in cases where it believes, God forbid, that a public authority has failed to comply with the requirement. With that, I end my remarks and look forward to the Minister’s response.
Lord Callanan (Con)
I am grateful to noble Lords. I know that time is getting on; hopefully I will have a chance to get through my remarks in the time we have available. This is an important debate and I recognise that, if it were not for the time, other noble Lords might also have wanted to intervene on the role of the Competition and Markets Authority in this new subsidy control regime.
I listened with particular interest to my noble friend Lord Lamont’s reflections on subsidy. In response, I would say that it is important to emphasise that the Bill does not, of course, replace our gold-standard mechanisms—my noble friend may have been responsible for many of them—for managing public money and for the transparency and scrutiny accorded to the UK Government’s spending decisions. I also note that we addressed the concept of market failure in the illustrative guidance we sent round; we believe that it is a fundamental part of the guidance that will be published before the regime comes into force.
Before I address the amendments, let me take this opportunity to lay out why we have taken the approach we have in the Bill as it stands; I hope that this will address the concerns of the noble Lord, Lord Purvis. We start from the knowledge that public authorities, in my view, take their statutory obligations seriously. The subsidy control principles and other requirements are straightforward and sensible, and we expect the vast majority of public authorities to comply with these requirements in giving the overwhelming majority of their subsidies. This regime empowers public authorities to make subsidy control decisions without excessive bureaucracy or regulation of the kind that I think most people accept is found in the EU state aid system and nowhere else in the world.
With this in mind, we proposed the functions of the subsidy advice unit set out in the Bill for two closely related reasons: first, to support public authorities in giving the subsidies that are most likely to be distortive; and, secondly, to ensure that those subsidies are subject to additional scrutiny and transparency before they are given. As the noble and learned Lord, Lord Thomas, set out, we think that this is an extremely important role. Once a subsidy or scheme has been referred, the subsidy advice unit will not attempt to replicate the role of the public authority in giving that subsidy in the first place or deciding whether or not to give a subsidy. Of course, it will also not replicate the role of the Competition Appeal Tribunal in applying the law to every aspect of the case. The subsidy advice unit will not carry out its own independent evaluation of the impacts of the subsidy; nor will it come to a definitive judgment on the public authority’s legal assessment of whether the measure is a subsidy, to answer the question from the noble and learned Lord, Lord Thomas.
Lord McNicol of West Kilbride (Lab)
My Lords, rather than rush through, let us finish here. I am sure there are some issues that we would go into if there were not one minute remaining.
Lord Fox (LD)
I think we are comfortable starting again on Wednesday and giving this proper time.
Lord McNicol of West Kilbride (Lab)
The noble Lord, Lord Lamont, has yet to respond as well. It will not take long on Wednesday.
Lord Callanan (Con)
So shall we finish at this point and start again on Wednesday. Is my noble friend Lord Lamont available for the next Committee session on Wednesday afternoon? We are talking about suspending at this point, because we have run out of time, and returning to this group of amendments then.
Subsidy Control Bill
Wednesday 9th February 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 84-IV(a) Amendment for Grand Committee (Supplementary to the Fourth Marshalled List) - (8 Feb 2022)
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I trust that it will be acceptable to your Lordships for me to pick up exactly where we were cut off in our prime on Monday, which noble Lords will be gratified to know was where I began speaking to Amendments 55A, 57A, 57B, 60A and 61.
Collectively, these amendments would allow the call-in powers currently provided to the Secretary of State to be exercised by the subsidy advice unit as well. Amendment 61 would create a new concept of a post-award investigation, which would be an extensive review by the SAU of the public authority’s decision-making process before giving a subsidy or making a scheme. I recognise the concerns of noble Lords that this system perhaps gives too great a responsibility to the Secretary of State. However, as I set out in response to the preceding group of amendments on Monday, it is appropriate that the Secretary of State is responsible for making these judgments in the interests of the entirety of the United Kingdom. In that function, they are answerable to this Parliament and to the interests of every citizen in the UK, and ultimately, as I keep stressing, for ensuring that the UK is compliant with its international commitments.
However, I would submit that there is a fundamental difference between a power to be exercised by the Secretary of State as a safety net, and a power to be exercised by a body such as the Competition and Markets Authority. There is very little possibility for the latter to exercise discretion and act only in situations that otherwise come to its attention. To carry out the functions envisaged by these amendments, the SAU would therefore have to scale up considerably. It would need a full market monitoring function to remain apprised of any potential new subsidies, including a public-facing arm to gather information and complaints, and it would need to develop clear criteria and decision-making processes for using these call-in powers.
Of course, ministerial decision-making must also be even-handed and evidence-based, but Ministers can and should have more discretion to make case-by- case judgments and will naturally be more aware of forthcoming distortive subsidies and where our international obligations are more likely to be impacted. The amendments tabled would require a very significant shift in the role of the SAU and would move it far closer to being a regulator of subsidies, which, to address the point made by the noble Lord, Lord McNicol, is not the Government’s intention, for the reasons that I have set out. This would of course create costs to the taxpayer, both in setting up this expanded subsidy advice unit and in the legal uncertainty and delays for legitimate subsidies that are placed under review or investigation.
I would also like to address the specific point that a government Minister will be unlikely to call in a subsidy that the Government themselves are giving. As I said in the previous sitting, Ministers will remain open-minded to referring a UK government subsidy to the SAU where it would be beneficial to have additional scrutiny of their own assessment. As with the regulations for automatic mandatory referral, there is no exemption for government subsidies. It is important to recognise that the SAU referral is a mechanism for scrutiny, transparency and advice which will support but not directly form part of the enforcement process, so there is no concern that the Government will be launching a legal challenge against themselves.
In summary, creating a function for the SAU to refer subsidies to itself or to initiate investigations would fundamentally change its role from one of oversight and monitoring to regulation and enforcement—a change which would be welcomed by the noble Lord, Lord Fox, but not by the Government, noble Lords will be shocked to know. I therefore hope that the noble Lord will withdraw the amendment.
Lord Purvis of Tweed (LD)
Before the Minister sits down, I have a question, which may pertain to debates on later groups of amendments. Do the Government consider a subsidy scheme to be a regulatory provision within the terms of the internal market Act?
Lord Callanan (Con)
The internal market Act is of course a separate piece of legislation from the Subsidy Control Bill. I will pass on the noble Lord’s question, think about it and respond later or in writing.
Lord Purvis of Tweed (LD)
I thank the Minister. I ask because my understanding is that a regulatory provision can be a subsidy; it has nothing to do with there being two separate pieces of legislation. As the Minister knows, the internal market Act takes into account any regulatory provision that will have an impact on the operation of the internal market. As the Minister has previously said, subsidy schemes will be considered as part of the operation of the internal market. So, if such a scheme is a regulatory provision under the terms of the internal market Act, any national authority would be empowered under that Act to ask the CMA for its view on whether that provision will distort the internal market. Is my understanding of that correct?
Lord Callanan (Con)
No, my understanding, on advice, is that it does not form a provision under the internal market Act.
Lord Lamont of Lerwick (Con)
Again, before the Minister sits down, I have a couple of questions. I apologise to him for this, but we have had the benefit of actually seeing his words written down in Hansard. Some of the phrases he came out with were quite dense and intricate, and I was rather puzzled by two points. The first was when he talked about the functions of the SAU. He said that it was intended
“to support public authorities in giving the subsidies that are most likely to be distortive.”—[Official Report, 7/2/22; col. GC 383.]
I am puzzled by the word “support”, and puzzled that we would want to support the ones that are most distortive. I am sure I am misunderstanding it, but I would like the Minister to explain.
Lord Callanan (Con)
I will have to look back at those remarks myself. It is possible that I was misinterpreted at the time, but I will have a look and come back to the noble Lord.
Lord Lamont of Lerwick (Con)
Let me also read out a second bit that I felt was particularly incomprehensible. If anybody in the Committee can understand it, I will be very impressed. I will read it slowly. The Minister said:
“I do not believe there is a contradiction in saying that a full assessment of compliance is light-touch regulation for the public authority but could prove arduous to replicate for the subsidy advice unit.”—[Official Report, 7/2/22; col. GC 383.]
Lord Callanan (Con)
I think that speaks for itself. I stand by those words.
Lord Fox (LD)
I thank the Minister for giving way. Perhaps that is why we asked him to stop—so that we could start again today. His answer to my noble friend Lord Purvis is intriguing. He seems to be saying that no matter how much a subsidy affects the UK internal market—I will wait for the Minister to finish his conversation—it can never be within the purview of the internal market Act. Is that what he just said?
Lord Callanan (Con)
Yes. Subsidy is not a regulated provision within the scope of the UK provisions. We are debating this in a future grouping, so we will no doubt be able to come back to it, but my advice is that it is not.
Lord Lamont of Lerwick (Con)
My Lords, I am very grateful to all those who spoke in the debate and supported my Amendments 55A, 57A and 57B. I am grateful in particular to the noble and learned Lord, Lord Thomas, who made a very powerful speech about the need for an independent evaluation of subsidies. The noble Lord, Lord Purvis, pointed out that, if we had an independent assessment, it would increase the possibility of consistency in the whole regime, which I thought was a very important point. The noble Lord, Lord McNicol, made the point that it was completely counterintuitive, after everything that had been said about the control of subsidies, not to have an independent evaluation. So I hope that there is quite a degree of support in the Committee for these amendments.
I do not think that the Minister today really explained why we could not have an independent regulator. He said that it would require a certain scaling up of resources. Well, obviously, it would. He said that it would become more like a regulator, rather than whatever else it is. Well, we want it to be a regulator—that is the whole point—with control of subsidies. But I really did not feel that he had made out a case against. He told us what the SAU does, but he did not explain why it would be wrong for it to do more things or to be scaled up and become a proper regulator.
The reason why I was particularly interested in the two passages that I put to the Minister—he is going to write to explain them to me—is that the more I listened to him, the more it became clear to me that the general line in this Bill is, “Public authorities know what they are doing, so let them, by and large, get on with it. Maybe somebody will object; they have 28 days. Don’t make it any longer because a lot of them might object; just give them 28 days. But by and large public authorities know what they are doing, so we want them just to get on with it”.
The Minister said that the SAU would not carry out its own assessment of compliance. Is that enough? It seems as though what it is going to do is extremely limited: it is just going to examine process. The Minister said:
“The SAU would be acting without the understanding and body of evidence that the public authority will have created in developing the subsidy”.
That is, the public authority will know more than the people who are checking the subsidy. Is that really the right way round? It seems to me a real Alice in Wonderland to call this control of subsidies, when those who have actually invented the subsidy and paid the money know more about it than the people who are regulating them—and this is admitted by the Minister at the same time. The Minister also said:
“There is no intention to build up an extensive monitoring function within my department or the CMA”.—[Official Report, 7/2/2022; cols. GC 383-4.]
Surely, that is exactly what we need. If we are talking about the control of subsidies, how can we have it without monitoring subsidies? That becomes even weaker when you consider what has been referred to again and again in Committee about the 28 days.
It seems to me that the SAU is far too weak for this really to be a Subsidy Control Bill; it ought to be renamed the “Support of Subsidies Bill”, because that is actually what it is. The reality of the Bill is that it is not attempting to control subsidies at all; it is just giving expression to the undertakings that the Government gave on Brexit in the TCA. I see the Minister smiling, although I shall not refer to that again. The Government gave assurances that were embodied in the TCA about not having subsidies that might distort competition with the European Union, so we have to have a control mechanism, and it is this Bill. But there is also a national interest in having proper competition and control of subsidies, and I do not think, frankly, that the Bill does that. It is far too weak. But having made my points and not persuaded the Minister, I look forward very much to the letter he is going to write to me explaining what he said. With that, I withdraw my amendment.
Baroness Blake of Leeds
“(2) The annual report must also contain an assessment by the CMA, on the basis of the reports it has prepared, of the extent to which the subsidy control regime under this Act is meeting its stated policy objectives.”Member’s explanatory statement
This amendment would require the CMA to opine, in its annual report, on the extent to which the new subsidy control system is meeting its stated policy objectives.
Baroness Blake of Leeds (Lab)
I rise to move to Amendment 62, in the name of my noble friend Lord McNicol. I am also looking forward to discussing Amendment 63, in the name of the noble Baroness, Lady Boycott, which is supported by the noble Baroness, Lady Sheehan, and my noble friend Lord Whitty.
Following on from the discussion of the purpose of the work of the CMA and the opportunities it will present, I want to express the concern that we could be missing a real opportunity if we do not look more closely at the way it will work. Amendment 62 has been tabled to probe the question of what practical effect the CMA’s work will have, beyond on the making of individual decisions taken in isolation on the basis of its advice. Also, as we have discussed, what powers will it have to investigate or highlight areas of concern which come to light?
On a general note, in many cases the delegation of responsibilities to a regulator or other form of arm’s-length body creates a symbiotic relationship whereby day-to-day work can be carried out independently of the department, but that same department can benefit from the experiences of its agency. We remain concerned that, as I have said, we are missing trick and that the whole process is weakened by the lack of a need to respond annually on what work the CMA is undertaking collectively. It is not clear whether there will be a sense of the overall contribution that the CMA and subsidy control will make to key policy areas. Will its findings have an impact on future policy and statutory guidance, or is its sole purpose simply to state opinion or comment on the individual cases before it?
Amendment 63 will enable us to have a specific debate on the policy objectives around net zero, particularly linking to the outcomes of COP 26, as we have discussed before in Committee, and highlighted by the publication this week of the levelling up White Paper. Where are we going to be able to assess progress? Surely, a section of the CMA’s annual report would be a very good place and opportunity to bring together the sense of purpose of the subsidy regime.
We have talked a great deal about what subsidies are and who they are there to benefit. Surely this presents an opportunity to make sure that there is the transparency, clarity and real sense of forward thinking that will help take strategic objectives forward. As I say, we are concerned that the Bill is fairly silent on these areas, and we would like to hear from the Minister what the contribution of the CMA and its work will be to the progress of strategic priorities going forward. With those comments, I beg to move.
Baroness Boycott (CB)
My Lords, I declare my interests as set out in the register and apologise for being unable to attend day one in Committee. I am very grateful to the noble Baroness, Lady Sheehan, for introducing my amendments on that day, and to the noble Lord, Lord Whitty, and the noble Baroness, Lady Hayman, for their support.
Today I am introducing Amendment 63, again with the welcome support of the noble Baroness, Lady Sheehan, and the noble Lord, Lord Whitty. Some of the reasons for this amendment have just been set out. It is linked to my earlier amendments in that it is aimed at ensuring that progress towards achieving our net-zero and environmental goals is reported on and monitored after decisions on subsidies have been made.
Amendment 63 provides that a review of the impact of the subsidy control regime on progress towards achieving net zero and our environmental goals should be included in the annual report prepared by the CMA, as has just been mentioned. The Government have said that the new subsidy regime aims to enable public authorities to deliver
“strategic interventions to support the UK’s economic recovery and deliver government priorities such as … net zero.”
As debated on day one, the framework permits subsidies that support our net-zero goals, but there is very little in the Bill that actually enables subsidies that support or encourage consideration of net-zero and environmental goals in their design and the way they are awarded.
Ultimately, if we do not do this, the Government will not know whether the subsidy regime is delivering on its net-zero and environmental priorities. Tracking underlying progress is absolutely crucial to identifying whether their aims are being met and to understanding what progress or changes we need to further make.
On day one, the Minister said that:
“Net-zero and climate change considerations are not inherent to all subsidies”,
and that placing a principle that considers our climate change and environmental commitments in the Schedule 1 principles
“could lead to public authorities having to do bespoke, possibly onerous, assessments for every single subsidy awarded or subsidy scheme made”.—[Official Report, 31/1/22; col. GC 158.]
The delivery of net zero is one of the key strategic priorities of this Government, but if there is to be no specific principle ensuring that public authorities properly factor this into their decisions, it seems even more important that we put clear monitoring and reporting of these issues in the Bill.
The Bill sets out an overarching monitoring and reporting process, predominantly led by the subsidy advice unit within the CMA, which includes determining
“whether any changes should be made to the regime as a whole or certain aspects of the regime.”
However, absolutely nothing explicitly suggests that this monitoring and reporting process will encompass the impact of the new subsidy regime on achieving the strategic net-zero priority.
With nothing in the Bill that embeds this consideration, it is really difficult, if not impossible, to understand how the Government intend to monitor whether their strategic objectives are being met, or indeed possibly being undermined. The Government have declared a climate emergency, so it seems quite astonishing that we are prepared to put public money towards efforts that could undermine that goal. Indeed, all public money should be put towards anything that makes this goal more available and possible for us all.
Baroness Sheehan (LD)
My Lords, I rise to speak to Amendment 63 in the name of the noble Baroness, Lady Boycott, to which I and the noble Lord, Lord Whitty, have added our names.
Before doing so, I want quickly to speak about Amendment 62, which I support. I recognise the less than complete nature of the assessment it advocates, namely the
“assessment by the CMA, on the basis of the reports it has prepared”.
However, those reports are limited to the voluntary or mandatory referrals referred to in paragraphs (a), (b) and (c). I also have some reservations about the reference to the legislation meeting its stated objectives; that is living in hope that a stated objective might actually appear in the Bill at some point.
I thank the noble Baroness, Lady Boycott, for her comprehensive introduction to Amendment 63; it leaves me with little to say. These subsidies will be used by hundreds of public authorities. According to figures I have seen, some 550 public authorities will be able to give out subsidies under this regime. Can the Minister confirm that figure? It is important that many of them fully grasp the importance of their decisions. The Government have said that meeting the net-zero target and levelling up will be policy objectives, but words are not enough. We need to be able to demonstrate that that is the case. This amendment would ensure that it is the case with respect to the net-zero target and other environmental targets. The amendment will be especially necessary if the Government resist that tabled by the noble Baroness, Lady Boycott, which would include a new principle to consider net-zero goals.
Clear and detailed monitoring and reporting of climate change risks and opportunities has been successfully implemented in other parts of our economic system—for example, by the FCA and the PRA through amendments to last year’s Financial Services Act, and by the Pensions Regulator through the pensions Act, also of last year. For the first time, the Pensions Regulator has published guidance on governance and the reporting of climate-related risks and opportunities. Such inclusions in those Acts really help to drive climate alignment across these sectors.
This Bill is an opportunity to do the same in relation to our subsidy control regime. Amendment 63 would allow the Government to continue to claim that they are a global leader on climate change.
Lord Whitty (Lab)
My Lords, I have added my name to Amendment 63 but I want to say a couple of things about Amendment 62 because, as we proceed through this Committee, it is clear that there is a bit of fuzziness about what exactly the role of the CMA is. Historically, the CMA and its predecessors have reported effectively on the nature of competition across the British economy but, of course, the issue of state intervention has been left to the European level. Some of us were slightly concerned that the CMA would take over that function after Brexit; in the end, I was sort of convinced that it should, rather than creating a whole new body, but it has to do a number of different things. It has to look after our trade obligations not only to the EU but in all the other trade agreements we have reached, in which we agreed that we will not unreasonably subsidise goods that are traded so as to undercut our trading partners. So, we have a big international obligation—one that can lead to retaliation and all sorts of problems arising with the WTO and other international bodies.
We have all that, but we also have the area of subsidies in the UK. This includes the delicate relationship between the UK Government and the Secretary of State acting for England, the devolved authorities and local authorities. It is a very complex area, and all this is to be landed on a new body within the CMA: the SAU. It is not yet clear whether it will have the resources, expertise and personnel to do that. We have gone along with this, but we need to be clearer on, for example, whether it is a regulator or an overseer and reporter on the activities of the public authorities that are giving subsidies and quasi-subsidies. As we debated earlier in the Bill, this involves a range of things—for example, preferential procurement. At the end of my contribution at Second Reading, I asked the Minister whether my county would be able to give preferential treatment to a local firm because it provided local employment, or whether it had to make sure that the neighbouring county of Wiltshire was not thereby being undercut.
Lord Wigley (PC)
Could my noble colleague clarify his thinking with regard to subsidies to the steel industry? Clearly, such subsidies could have far-reaching effects on the environment. To make a judgment on that would require people with an intricate knowledge of the steel industry and the background and significance of subsidies in that sector. At what level should that decision be taken?
Lord Whitty (Lab)
My Lords, that is probably a question for the Minister rather than for me, but, clearly, the decision on, for example, the Cumbrian coal mine, which is to feed into the steel industry, is an incredibly complex issue which will not be resolved by the narrow criteria of whether it enhances or undermines competition. The noble Lord is correct in that respect, because it would also have a considerable effect on carbon emissions.
Baroness Jones of Moulsecoomb (GP)
My Lords, I shall speak to Amendments 62 and 63. Amendment 62 seems pretty basic post-legislative scrutiny, so I am not quite sure why it is not in the Bill already. The Government are bringing in this legislation and it makes sense for the Competition and Markets Authority to report on whether the legislation works in practice. That is fairly fundamental, is it not? If it does not, then, obviously, we can improve the legislation; if it does, then the Government can pat themselves on the back. The amendment should have been in the Bill. I am expecting the Minister to say, “Yes, of course, we’ll write it in now.”
On Amendment 63—I wish I had added my name to it; I agree with everything that we have heard so far from noble Lords—I have said before that we should have a provision such as this in every single piece of legislation. As the noble Lord, Lord Whitty, just said, it is basic to what the Government claim to care about. The principle should underpin everything that they do. We know that the scale and size of the net-zero problem is huge, and the Government will need a lot of help. They will need a lot of private and public investment, and it will involve a lot of changes to government taxation and spending.
Any aspect of government that thinks that the climate emergency is not part of its remit is not thinking hard enough about it. We need both the whole of government and the whole of society to address the work on the climate and ecological emergencies. Every Bill that comes through here, every tax levied and every pound of government spending should move us towards net zero. There is an environmental saying: doing nothing risks everything. The Minister will say that the Government are doing a lot. I would argue that they are doing bits and pieces, so the saying could be: doing bits and pieces risks everything as well. We need a coherent approach.
I was asked whether I would still like a meeting with the Minister. Yes, I would, and I would like to throw down a little challenge. If the Minister or his team can come up with any issue that is not relevant to our climate emergency, I will be happy to argue how it is relevant. I look forward to that meeting, and I might bring some heavyweights with me.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, each year, the CMA is required by the Enterprise and Regulatory Reform Act 2013 to prepare a report on its activities and performance that year. The report must be sent to the Secretary of State and laid before Parliament.
Clause 66 requires that the CMA include details within its annual report of any subsidies and schemes which have been referred to the subsidy advice unit in that year. This includes referrals made on both a mandatory or voluntary basis, including those made by the Secretary of State, and it is designed to mirror the level of detail required for information on the CMA’s other functions. This information will help to provide transparency as to the number and types of subsidies and schemes referred to the subsidy advice unit. Among other things, it will help both the CMA and Parliament to understand whether the subsidy advice unit is operating as expected and has the appropriate resources to fulfil its functions.
Amendment 62 would add the requirement for the CMA to set out an assessment on the extent to which the regime is meeting its stated policy objectives. On this matter, it is important to draw a clear distinction between the purpose of the CMA’s reporting under this clause, as opposed to the more in-depth review and reporting that it will do under Clause 65. The effect of this amendment will be to combine the purpose of these two distinct categories of report, and in doing so place an unnecessary burden on the CMA in producing its annual report.
In response to the question of the noble Baroness, Lady Blake, on what effect the CMA reports will have, the monitoring reports will already be published for all to see. The Bill contains numerous provisions for amending specific aspects of the regime though secondary legislation. This ensures proper parliamentary scrutiny of any proposed changes to the regime. The purpose of the subsidy advice unit’s regime-level monitoring function is to provide an objective source of information about the functioning of the new system. This feeds into the Government’s objective of monitoring and continuous improvement for the regime, while also providing confidence in the regime to stakeholders and the public across the UK. Requiring more frequent monitoring reports from the CMA, with improved scrutiny and transparency, might indeed seem attractive but in reality, it could cause the opposite effect to that intended by the noble Baroness, resulting in more superficial reports that will be less useful in assessing the overall effectiveness of the subsidy regime.
The information required by Clause 66 is designed to sit within the CMA’s existing reporting requirements. The annual report is a descriptive and limited tool for the CMA to publish key information about its workload and resources and to ensure that it is moving towards achieving its own organisational objectives across all its functions. This report must include summaries of its significant decisions, investigations or other activities carried out during the previous year.
As currently drafted, the requirements under this clause similarly require summary descriptive information in relation to the subsidy advice unit’s functions, which will give an indication of how those functions are being used and whether it has the appropriate resource to fulfil the demand for those functions. This should be placed in contrast to the five-yearly reports specific to the subsidy advice unit under Clause 65, which will provide the CMA with the opportunity to publish a substantive analysis of the operation of the regime and the subsidy advice unit’s role within that regime. Of course, the CMA may include further data or case studies on subsidy control in its annual report if appropriate. Clause 66 is only a minimum list of the information that it will be required to include.
Under the Enterprise and Regulatory Reform Act, the CMA must also include a survey of developments in relation to all its functions, which may include developments within the subsidy control regime that the CMA deems of significant enough importance to publish, and thereby inform Parliament. The Government’s position is that the five-yearly reporting under Clause 65 is the appropriate place for the CMA to provide an assessment of the regime’s performance. The five-yearly report provides for an appropriate timescale for producing such assessments and the CMA is empowered under Clause 67 to gather information for this purpose. This will provide the CMA with the time and resources necessary for the subsidy advice unit to provide for a considered review of the subsidy control regime.
Amendment 62 also requires that the SAU produce its assessment only
“on the basis of the reports it has prepared”.
It is our view that any assessment of the regime’s performance will need to take a much wider view of the regime than only that part of it to which the SAU has reported that year. That is why the five-yearly reporting requirement in Clause 65 has been drafted to give the CMA the scope and power it needs to consider the matter thoroughly. Supplementing those powers with additional requirements in the annual report may only lead to the production of an assessment that is relatively narrow and partial, and that does not have the benefits of a more extensive review over a longer period.
I support the view that there may be circumstances in which we need more analytical and evaluative information more frequently than every five years. I would like to reassure the Committee that the Secretary of State has the power under Clause 65 to direct the SAU to produce a report for a specified period. It is also worth noting that, under the Enterprise and Regulatory Reform Act, the Secretary of State already has the power to request a report or advice from the CMA on any matter relating to its functions.
Regarding parliamentary scrutiny, there should be no reason for any committee of this House or the other place to wait for the CMA’s reporting under either Clause 65 or Clause 66 in order to take a close look at the subsidy advice unit’s functions. It is always open to noble Lords and honourable Members of the other place to examine this regime and the SAU through the usual process of parliamentary committee.
Amendment 63 would expand the scope of the CMA’s annual report to include an assessment of the effect that the regime is having on the UK’s ability to achieve its net-zero carbon emissions goal, set out in the Climate Change Act 2008, and the targets set under the Environment Act 2021.
Baroness Boycott (CB)
Given that the UK has committed to a 50% cut by 2030, a review that takes place only every five years does not seem wholly practical, given that we have only eight years.
Baroness Bloomfield of Hinton Waldrist (Con)
It is the Government’s position that five-yearly reports are sufficiently frequent to take a view of how successful this is. They are the appropriate tool to conduct a review of the environment and energy principles. Clause 65 provides an achievable timescale for delivering complex and substantive analysis of this sort. To ask that we prepare something every year would be an unnecessary burden on the whole subsidy control regime and the structures we have put in place to support this.
The CMA will have the ability to gather all the information needed to conduct such an analysis for these five-yearly reports, through Clause 67. These are powers that the CMA will not have in relation to its annual reports. I therefore humbly request that the noble Baroness withdraw the amendment.
Lord Whitty (Lab)
The other day, we discussed the inclusion of agriculture in the Bill, but the Government have made it clear that, basically, the future of all agriculture subsidy will be environmental objectives. The Minister’s reply to my noble friend’s amendment suggests that she agrees that agriculture should not really be covered by this approach, or that it should at least be treated substantially differently. What she has said, effectively, is that we cannot judge the environmental side; we have to approach it in the same way as every other sector.
Baroness Bloomfield of Hinton Waldrist (Con)
On the specific point about agriculture, I do not know whether the letter addressing those points has been issued yet. I can say that 99.5% of subsidies given to the agriculture industry in the UK would not fall within the remit of the subsidy; they are lower. We do not have the data for Scotland or Wales, but it captures only the very largest subsidy given to the very largest farms. That may include some in Scotland with that sort of acreage—
Baroness Bloomfield of Hinton Waldrist (Con)
I hope that that addresses the noble Lord’s concerns.
Baroness Sheehan (LD)
Can I ask the Minister about her remarks about the OEP’s remit? I think that she said that it would cover whether the Government are meeting their climate change requirements. However, the OEP’s remit does not cover whether the subsidy control regime is working towards our net-zero targets. What the amendments are trying to say—as we tried to include in the Financial Services Act and the pensions Act, successfully—is that a more granular approach will be needed, which has to be provided by the regulatory authorities within the sectors concerned because, otherwise, we really will not know whether each sector is working towards the net-zero targets that we are all trying to achieve in the timespan that we have.
Baroness Bloomfield of Hinton Waldrist (Con)
One of the noble Baroness’s concerns was that there was no overarching principle for the Government’s drive towards net zero. I think that the Environment Act provides the overarching context for whatever we are doing. As I say, the Office for Environmental Protection will also scrutinise the Government’s progress towards targets annually. I do not know what further level of granularity the noble Baroness wishes to apply.
Baroness Bloomfield of Hinton Waldrist (Con)
There is also the Climate Change Act, as my noble friend has just reminded me.
Baroness Sheehan (LD)
I shall not repeat what I have said, but I do not think that the OEP will be able to tell us whether the subsidy control regime is working in the way that subsidies are being allocated in terms of meeting our climate change requirements. There is precedent in this, as I keep saying, with the Financial Services Act and pensions Act, and the actions that the Pensions Regulator took on the back of that Act. They all speak volumes as to how important it is to have each sector being held to account. Those are the points that the noble Lord, Lord Whitty, and the noble Baroness, Lady Jones, made. Every single sector within the country needs to be shown to be pulling its weight and we need to know where we have to put in greater effort, if it is not working towards the net-zero targets.
Baroness Bloomfield of Hinton Waldrist (Con)
I understand the noble Baroness’s concerns, but I am not able to go further than I have done at the Dispatch Box. On the point that the noble Lord, Lord Whitty, made about the steel industry, followed up by the noble Lord, Lord Wigley, we are directing subsidies towards greening industries like that, so we can invest in electric arc technology, and hydrogen as well. It is part of an overall drive by this Government to be consistent with the environment principles that we have laid out.
Baroness Jones of Moulsecoomb (GP)
But can the Minister see our point that the climate emergency has to be part of every part of government thinking and at the moment it is not? It just gets dropped out of piece after piece of legislation as if it was not really part of government thinking. It is all right talking about zero carbon, about how we are on our way and all that sort of thing, but if it is not in every single piece of legislation, it will not happen.
Baroness Bloomfield of Hinton Waldrist (Con)
We are just going to have to agree to disagree on this point. I believe that it is part of the overarching principles of this Government that the environment is one of our most important points. I do not believe that it needs to go on to the face of every Bill. I know that it is in the pensions legislation, but I cannot go further than I have already gone at the Dispatch Box in the context of this Bill.
Baroness Boycott (CB)
My Lords, given how huge this area is in terms of the amount of public money that gets spent and given that the Government have a public commitment to net zero, it seems astonishing that we do not have the legislation blended in to this Bill. We are not talking about minor amounts of money; we are talking about the way in which whole communities live, work and operate.
Baroness Bloomfield of Hinton Waldrist (Con)
I remind the noble Baroness that we have a legal commitment to net zero.
Baroness Blake of Leeds (Lab)
I thank the Minister for her full response to the two amendments before us. In the contributions that have been made both in the debate and in our following up and further probing, there is a sense that we have to go into this more deeply.
Again, we are asking for the same principles that we have talked about with regard to many of these issues around clarity, sense of purpose and benefit. I do not believe that public authorities will find some of this assessment and monitoring onerous, including having to account for the subsidies that they put forward. That is part of established practice and it needs to be formalised in the sense put forward by my noble friend Lord McNicol in Amendment 62, with annual reports as a mechanism for picking it up.
I absolutely agree on the issue of five-yearly reports. We are already in 2022. Are we saying that the first report into progress in these areas around net zero will not be heard until 2027—possibly even 2028, with the way things are going? That cannot be what the Government intend, given the urgency of the situation in front of us in moving towards net zero.
I will not unpick all the excellent points made by noble Lords in this debate because I know that we will come back to this area. I look forward to hearing how we can bring this together and come up with a sensible way forward. As I said in my opening remarks, if we carry on with the Bill in its current form, we will be sitting on a missed opportunity to do something constructive and positive—particularly, in the context of this debate, around net zero but also, looking further afield, in the wider area of levelling up. The climate emergency is a major contributor to the unequal experience of people right across the four nations. Addressing the matters raised in this discussion would be a sensible way forward. With that, I beg leave to withdraw the amendment.
“(3A) The Chair of the CMA Board may appoint up to three non-executive members to the Subsidy Advice Unit established under subsection (1) in order to ensure that the Unit includes at least one person with relevant experience in relation to each of Wales, Scotland and Northern Ireland.”Member’s explanatory statement
This amendment would allow the CMA Chair to appoint up to three non-executive members to ensure that the Unit includes at least one person with experience in relation to each of Wales, Scotland and Northern Ireland.
Lord McNicol of West Kilbride (Lab)
In moving Amendment 64, I will also speak to Amendment 65. I am grateful to the noble Lords, Lord Bruce, Lord Wigley and Lord German, for adding their names to one or both of the amendments.
Just because it was touched on a minute ago by the Minister, I should say that we have received the letters. The lessons from day 3, on Monday, when the letters were received before the Grand Committee started, may well have been learned. Notwithstanding that, I thank the Minister and his department. I have not read the letters in detail because I was engrossed in the previous debate, but I want to pick up one small point in them. Obviously it is worrying that any subsidy under the level of £315,000 does not have to be entered on the database. What is even more worrying is that that subsidy does not even have to abide by the principles in Schedules 1 and 2. This gives more weight to the arguments for reducing the subsidy level and admittance on to the database, especially if the subsidies do not have to meet the principles in the schedules.
Lord Bruce of Bennachie (LD)
My Lords, I speak in support of Amendment 64, to which I have added my name. I also support Amendment 65, which my noble friend Lord German will address in more detail. Overall, and as has been said, this Bill has worrying implications for the devolution settlements. Just as the United Kingdom Internal Market Act may be used to impact the devolved Administrations unfairly—certainly, that is their concern—reserving the subsidy regime to the UK Parliament and the powers that have been given to the Secretary of State are causing alarm across the devolved Administrations.
The Government like to claim, and the Minister has made this point a few times, that leaving the EU gives the devolved Administrations more power and flexibility. Under the EU, they were constrained by the state aid rules that no longer apply. Now, they can pursue their own. That would be true if the UK Government were not introducing legislation that allows them to override the devolved Administrations, without even a requirement for consultation and with no reciprocal rights to challenge UK Ministers’ decisions as regards not only the UK but England.
Oversight of these two pieces of post-Brexit reserve-power legislation, which I would argue are draconian, has been allocated to the Competition and Markets Authority, which has been asked to acquire skills and experience that it does not yet have. It is important for us to recognise that this is new territory for the CMA.
Thomas Pope of the Institute for Government says that this Bill
“does not yet guarantee a Brexit success story. Gaps in the legislation could deny Parliament”—
I would argue are denying Parliament—
“a proper chance to scrutinise how the new system will work—and point to future rows between the UK government and the devolved administrations.”
He further points out that the regulations have no input from the devolved Administrations. The Minister keeps saying that he is consulting, but the devolved Administrations say it is not consultation at all. Pope argues that
“a successful system needs buy-in from all parts of the UK.”
That is absolutely the case. He went on to say that the Institute for Government’s report
“recommended that any regulations should be made in consultation with the devolved administrations”—
I emphasise the following—
“with the process preferably led by experts in the CMA. The government’s approach risks future clashes”.
These arguments have been further developed by George Peretz QC, who points out, as previous debates in this Committee have highlighted, that granting authorities need to test their subsidies against the effects on competition and investment, without reference to the wider issues—in other words, social and environmental implications, and the other issues we are discussing. It is a very narrow definition, which could lead to broader subsidy intentions being overridden. It is true that the TCA refers to the socioeconomic situation of the disadvantaged area concerned. How could the EU not agree to that, given the CAP and its own state aid rules? But there is no definition of what constitutes a disadvantaged area or what disadvantage is. We have discussed the lack of any area map in previous Committee debates.
Mr Peretz goes on to say that
“nothing in the Bill provides for the devolved governments to have any say in the appointment of CMA panel members who will, as part of the Subsidy Advice Unit, exercise the CMA’s powers under the Bill”,
such as they are, and
“there is no equivalent to the provisions of Schedule 3 to IMA20 that require the Secretary of State to seek the consent of the devolved governments before making appointments to the Office for the Internal Market”.
Why is that the case for the internal market Act but not the Subsidy Control Bill? Surely, consistency, at least, requires that. This amendment seeks to remedy this and, I suggest, for very good reason. As I said, the CMA is moving into new and unfamiliar territory. It is surely essential that it understands the needs of the devolved areas and can balance them across the UK.
The powers that the Secretary of State has, which are not reciprocated for the devolved Administrations, put the CMA in a potentially invidious position. If the Secretary of State seeks to challenge, for example, the livestock support regime of any of the devolved Administrations, he or she can do so—on so far unstated but potentially restricting grounds. If a Minister introduces a subsidy, let us say, for London which the devolved Administrations feel disadvantages them, they have no corresponding right to challenge. I would anticipate the argument of grandfathering current regimes and repeat what I said in the debate on agriculture earlier in the week: that, over time, the regimes may change as circumstances change and, at that point, they will not be grandfathered and may be subject to challenge. That is important to note.
As George Peretz points out, the result looks distinctly unbalanced. For example, if the Welsh Government decide to grant a subsidy to which the Secretary of State objects, perhaps on the basis of its impact on England, the Secretary of State may be able to refer it to the CMA and will have standing to challenge it before the CAT. The Secretary of State may also be able to issue guidance that recommends against types of subsidy that the Welsh Government might have in mind, guidance to which the CMA and the Welsh Government have to have regard. On the other hand, if the Secretary of State grants subsidies to businesses in England or, using his or her powers under Section 50 of the internal market Act, to businesses in Wales to which the Welsh Government have objections, none of those possibilities are open to the Welsh Government. I rest that case, because it is crucial.
The Minister may argue that, as with the Monetary Policy Committee of the Bank of England, members are appointed to the CMA for their expertise rather than their geographical base, but he is ignoring that no such expertise yet exists for the new regime. It is surely imperative that, from the outset, the CMA is fully conversant with the needs of the devolved Administrations and that administering the regime evolves in a way which is sensitive to them. The Minister knows my opposition to separatism and nationalism, but I am a passionate home ruler and believe that the devolution settlements should be upheld and not eroded.
The Minister will assert that these are reserved powers—he has done it several times already during this Committee—and are based on the sovereignty of Westminster and not on a federal system which we do not have, or even a devolved consensus. To disregard the devolved Administrations, regardless of where the legal and constitutional power lies, is reckless. The Government are putting the union at risk in the way they are proceeding with this Bill by using reserved powers and failing to recognise the sensitivities. To say to the devolved Administrations, “You have more freedom than you had under the EU, but we’re having reserved powers that will qualify, test or challenge that freedom” is a two-edged sword that does not stack up. Right now, the mood in the devolved Administrations is that they do not trust the Government’s intentions, not yet knowing what they are.
Lord Wigley (PC)
My Lords, I am delighted to follow the noble Lord and agree with almost all the comments that he made—not entirely, but almost. In particular, I am glad to support Amendments 64 and 65, proposed earlier by the noble Lord, Lord McNicol, and have added my name to both of them.
My feeling—and this is really what the noble Lord was speaking about a moment ago—is that we are building a grit creation machine here. We are creating the grit that will cause difficulties as the wheels of this operation move forward. I do not think that is what the Government really want to do.
I well remember being on a committee chaired by the noble Lord sitting next to me a couple of years ago, when we were questioning the CMA’s role in these matters. We found that the CMA, quite legitimately, had very little experience of dealing with devolved dimensions. This was not a criticism of it; that was not its role. It still does not. We should therefore ensure that we build the necessary talent and experience into the relevant units or committees of the CMA that can at least advise on these matters, but it seems that we want to tie the hands of the CMA. It does not have that background; it has no obligation to work in close proximity to the devolved regimes under the Bill. It should certainly find a way of doing that if it wants the operation to go smoothly, otherwise problems will arise.
Lord German (LD)
My Lords, I have attached my name to Amendment 65 and want to examine the cash and resources which the Government intend to put into the CMA.
Talking of cash and resources, I was very disappointed to read the Minister’s letter to my noble friend Lord Purvis today, in which he says of a previous debate about money:
“I regret that I am not in a position to confirm the per capita allocation of the UK shared prosperity fund in each nation at this stage. However, I emphasise that the Government is meeting its manifesto commitments in Scotland, Wales and Northern Ireland. The fund will match previous EU funding in real terms for all these places.”
The letter says that the fund will match previous funding, but it also emphasises that they are meeting their manifesto commitments. How on earth can you say that you are meeting your manifesto commitments when you cannot tell us whether you are giving £780 per head to Wales in the way that it was described, as a per capita allocation? Clearly, having a per capita allocation is how you judge whether you are meeting your manifesto commitments. I am very disappointed that the Government say that they are meeting their commitment but are unable to provide the figures to show that they are doing so. I hope they will rectify this swiftly.
Turning to the CMA and its resources, we were very fortunate some years ago to receive evidence from the CMA on its readiness to take part in the new world we were entering. However, it is very important to separate out the CMA’s need for resource to carry on its traditional functions of mergers, acquisitions and so on. The chair of the CMA said then, regarding the non-subsidy side:
“We will be involved in much bigger and arguably more complex cases than we typically deal with. We will have to deal with mergers. We will also be involved in the enforcement cases. The extra workload, the complexity and the likely litigation that follows such cases ... implies significant expansion in our activities.”
The chief executive then said:
“We expect a 30-50% increase in mergers coming our way. However, these will tend to be bigger and more complex mergers. On the antitrust side we think we will do between five and seven large extra antitrust cases a year. That will mean an increase of at least 50% on our current workload in that area.”
Between the two of its own size, it is clear that the CMA found that cash was very important.
The chair went on:
“The key point on resources … is that we need approval for the extra cash that we need … We need the cash, but then we need the time to attract and recruit the talent and get them up to speed in terms of the work. We need to start having action relatively soon, given the timescales that we are talking about.”
Given that this was a few years ago, the timescales are now upon us because this Bill is where it all happens. On state aid, he said:
“We have no experience in this area … It would add, I would emphasise, to the expansion that we have to undertake anyway”—
that is, on the other side of the CMA’s work—
“and we would have to find the skills … given the lack of experienced people in the UK itself. It would be a challenge”.
The key challenge identified was the recruitment of lawyers. How is that going? As far as I can tell, lawyers do not come cheap and, with respect to my colleagues behind me, good lawyers come even less cheaply. It is a matter for the CMA to have the appropriate lawyers. At one point, the chief executive said that they are difficult to find and that
“we are now thinking about expanding our office in Scotland, to tap into talent there.”
So it will have talent from Scotland but no representation regarding the decision-making powers of the board—but there we are. He went on:
“We want to see where talent is and what we can do to attract people and keep them in the CMA.”
The price of the challenge was that of finding appropriate salary levels.
In replying, can the Minister tell us how much money, in raw terms, has been put into both sides of this equation: into the traditional work of the CMA, which has now fallen upon it because we have left the European Union; and into the subsidies side? How many new lawyers has the CMA been able to attract? At the time, the chair said that there are lawyers working in private practice
“who are well experienced … in dealing with state aid applications”
on the side of the role now needed by the CMA. How many lawyers with this sort of experience have now been recruited, and at what level? Earlier, the noble Lord, Lord Lamont, talked about the need to have experience on the side of the regulator that is greater than the experience of the people operating the subsidies. We will need lawyers who are even more skilled and who have the greatest skill in managing this sort of operation. I repeat: I suspect that they do not come cheap.
In replying, can the Minister outline specifically where and when the recruitment will take place, how much money is on either side of the equation and whether the Government have a deadline for making sure that all the resources are in place? Also, I will continue to pursue my claim: can the Minister tell me when the Government will match the £780 per head that was promised and is now in the letter?
Lord Hope of Craighead (CB)
My Lords, I want to add to that list of questions. Does the Minister have any information on where the CMA is to be based? It is one thing if it is in London, and quite different if it is in Cardiff, Glasgow, Birmingham or Manchester, for example. One of the concerns is the constant pressure that the devolved Administrations have against the south-east and London-based administrations. If there were some way in which the CMA could locate itself further away from the south-east and closer to other areas, that would at least be to some advantage.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, Clause 68 requires that the CMA establishes a new committee of its board called the subsidy advice unit for the purposes of undertaking the subsidy control functions set out elsewhere in the Bill. I recognise that nothing I can say at the Dispatch Box will completely allay the fears of the DAs that this is a power grab or that we have malevolent intent in all this. All I can say is that the Government are very well aware of these issues. We talk about them constantly and will endeavour to continue the dialogue as we go forward on many fronts.
To return to these amendments, the subsidy advice unit will be a specific committee within the CMA dealing with subsidy control. It will comprise exclusively staff and members of the CMA. In this instance, “members” of the CMA refers to, among others, the chair and individuals who sit on the CMA board, the CMA panel of competition experts and the office for the internal market panel and its chair; “staff” refers to the civil servants employed by the CMA.
Amendment 64 seeks to allow the CMA chair to appoint to the subsidy advice unit non-executive members
“with relevant experience in relation to each of Wales, Scotland and Northern Ireland.”
The CMA was chosen as the home of the subsidy advice unit because of its experience and credibility in acting as a regulator and adviser in matters of competition and consumer law on a UK-wide basis. In carrying out its new functions under the SAU, the CMA will continue to act as it always has successfully, with the whole of the UK in mind.
It is notable that the amendment does not make any mention of “relevant experience” in relation to England, perhaps implying that the CMA already has an excess of England expertise but a deficit in relation to the other parts of the UK. I cannot possibly agree with the noble Lord on that point, if indeed that was the implication.
The amendment is unnecessary because the CMA can and does already recruit to the unit personnel with “relevant experience” in relation to all its functions, various different markets and all parts of the UK. The CMA has an excellent track record of recruitment and retention of staff and members from across the UK, and currently employs staff in Belfast, Cardiff, Edinburgh and London. The CMA has already undertaken external recruitment to a number of posts in the SAU. These were advertised on a location-neutral basis and were open to applicants willing to be based in any of the CMA’s existing offices. It is unnecessary to impose excessive and unhelpful complexity on the CMA’s recruitment process when it has already proved quite capable of finding persons with the “relevant experience” to carry out its functions.
I turn to Amendment 65. Part 4 of the Subsidy Control Bill represents an important pillar of the new domestic regime. The additional flexibility that public authorities will enjoy to design bespoke subsidies and schemes and quickly bring them to fruition to address identified policy problems must be balanced by a proportionate mechanism to provide an appropriate degree of scrutiny. This scrutiny will be crucial for the most potentially distortive subsidies and schemes, which is why the SAU has been given a role in advising public authorities before they award the most potentially distortive subsides or schemes. In response to the noble Lord, Lord Bruce, I say that neither the SAU nor the Secretary of State will be able to block a subsidy being awarded.
The CMA will also have the role of monitoring the efficacy of the entire regime through a periodic review and report to Parliament. This will ensure appropriate oversight and scrutiny of the regime by Parliament to confirm that it remains relevant to the needs of the whole of the UK.
Amendment 65 requires that the Secretary of State must undertake an assessment of the CMA’s capacity to fulfil its new functions under Part 4 of the Bill and make a Statement to both Houses on their findings. If the Secretary of State finds that the CMA is not sufficiently resourced, their report to Parliament must also outline the steps the Government intend to take to address this. I appreciate the noble Lord’s intention and that this is a probing amendment to ensure that the CMA is properly prepared to carry out its new statutory functions. I therefore offer the following statement on preparations for the new subsidy advice unit.
The CMA was allocated funding of some £20.3 million at the spending review in 2020 to establish three new functions within the CMA: the subsidy control function, the office for the internal market and the digital markets unit. Following the 2021 spending review, this budget of around £20.3 million will be maintained for the next three years. The CMA will continue to allocate funding in the 2022-23 financial year to reflect the estimate of resources needed to establish the new subsidy advice unit. This estimate reflects both the functions set out in the Bill on introduction, and the estimated number of subsidies and schemes of interest and particular interest that would be referred to the SAU.
The estimated case load of around 20 cases of both categories per year was arrived at using the methodologies set out in the Bill’s impact assessment. There is unavoidable uncertainty in this estimation, since the SAU’s referral functions are new and unprecedented. However, Her Majesty’s Government remain confident that this represents a reasonable estimate based on the best available evidence.
In terms of recruitment, to establish the SAU, the CMA has estimated that approximately 50 new posts will need to be created across all its professions. The CMA has recently undertaken external recruitment to fill several policy and project management posts in the subsidy advice unit, as well as allocating resource internally. The CMA will continue to recruit to its pools of economist, legal and business adviser resource over the coming months. The CMA is looking to recruit staff with a range of skills and experience, which includes building on its core competition expertise, as well ensuring the necessary skills in areas such as stakeholder engagement.
Lord Purvis of Tweed (LD)
Before the Minister concludes, I listened carefully to her comprehensive reply, for which I thank her. I think I heard her mention an additional 50 posts. The impact assessment indicated an assumed additional headcount of 19. What happened between when the impact assessment was put together and the current commitment was made? Presumably, there is an understanding that the role is much greater than when the impact assessment was put together.
Secondly, given that agriculture and fisheries will be involved, can the Minister assure us that those with a specific understanding of the geographical, agricultural and fisheries market—as opposed to the other sectors, which previously the CMA did not have—have been part of the recruitment process? At the moment there is no indication that they have.
Baroness Bloomfield of Hinton Waldrist (Con)
On the noble Lord’s first point, it has been a year since the Bill was introduced and therefore things have moved on since the impact assessment was done. On his second point, we are looking for a broad range of expertise that will enable the CMA and the SAU to fulfil their functions.
Lord Fox (LD)
Can I ask that in future, all impact assessments be given a time lapse, so we know how many weeks they last for, until such time as they cease to be? Seriously, if one year on the impact assessment for this means that the number of people triples, then it was not necessarily a very accurate impact assessment.
Lord German (LD)
I wonder if, in concluding, the Minister could indicate the deadline for when the 50 extra advertised posts have to be filled? She may have to do so in writing, I understand that. Also, what is the difference between those who will be allocated to the traditional work of the CMA—competition, mergers and anti-trust—and those on the subsidy side of this split? They are distinct areas of work and quite distinct skills are needed. At some stage, could the Minister also tell me how many lawyers have been recruited so far, and how many they are short of. That would be very helpful.
Baroness Bloomfield of Hinton Waldrist (Con)
I think the noble Lord might have to declare an interest on that front, but we will let that lie. I will have to write to him with the specifics on this. Obviously, recruitment is an ongoing process that will continue throughout the next year.
Lord Wigley (PC)
Before the Minister sits down, I have what is meant to be a helpful question. Given that there may be a need for expertise in certain areas in the work of the CMA—expertise it does not have in house—could staff be taken on on a secondment basis to overcome the restriction in subsection (4) referred to earlier? This would provide the expertise for the duration necessary in undertaking specialist areas of investigation. I do not expect an immediate answer, but perhaps the Government might consider it.
Baroness Bloomfield of Hinton Waldrist (Con)
The noble Lord makes a very interesting point. It does have operational independence, and I am sure that is something it would be able to consider.
Lord McNicol of West Kilbride (Lab)
I thank the Minister for her detailed response. When she, the other Minister or the department reply, could the letter be shared between all those who have spoken in this debate?
I have one other question—and I do not expect the Minister to have the answer just now. She talked about a budget of £20.3 million being divided between the SAU, digital and one other body. Could we have the split between the three of them, because they have three distinctive functions, and the one we are concerned about and talking about is the funding of the SAU?
Likewise, I listened in detail but I am not clear whether I missed the point about why Clause 68(4) is so prescriptive and detailed in stating that the SAU will consist
“only of persons who are members of the CMA or its staff”.
If it is that prescriptive, it seems to rule out the points made by the noble Lord, Lord Wigley, so maybe it could be opened up a little.
The Minister, in referring to some of the concerns and issues around devolved authorities, said that the department was well aware of them. These amendments are meant to be helpful and to try to create, foster and build a better relationship—as the noble Lord, Lord Bruce, has outlined—especially as we move from European state aid to our own authorities being able to create and deliver subsidies. One hopes that there are some things in not just this small group of amendments but other groups that will help to generate and foster that better relationship between central government and the devolved authorities. With that, I beg leave to withdraw my amendment.
Lord Purvis of Tweed
“Prohibition of references to the Office for Internal Market
(1) The United Kingdom Internal Market Act 2020 is amended as follows.(2) In section 32 (Office for the Internal Market panel and task groups) after subsection (1) insert—“(1A) The CMA may not make a reference of a subsidy or subsidy scheme under the Subsidy Control Act 2022 to an Office for the Internal Market task group.””Member’s explanatory statement
This amendment seeks to probe the interaction between this bill and the United Kingdom Internal Market Act 2020.
Lord Purvis of Tweed (LD)
My Lords, in moving Amendment 66 I shall speak also to Amendments 72 and 78. In so doing, I thank the Minister for his earlier reply to the brief exchange on the interaction of this Bill with the internal market Act. I wish to probe some of that a little further.
Before I do, I wish to comment, as my noble friend Lord German did, on the letter that I gratefully received from the Minister, which corrected the previous omission of not answering the question in an earlier letter. Of course, one oversight is perfectly acceptable, but the fact that, as the Minister said, the Government are unable to give per capita expenditure on the successor to the structural funds is curious. The Government were very capable of giving per capita expenditure in the spending review period for Scotland on 27 October in their press release, and on 15 December in their press release, but they seem singularly incapable of doing so when it comes to the successor to the structural funds. How are the Government able, on the one hand, to give per capita expenditure from the spending review as a whole, but not when it comes to the structural fund’s component of that? If they are unable to do that on the structural fund’s component, clearly, they are incapable of extrapolating the overall per capita expenditure. There is something rather fishy about that—fisheries, of course, is now part of this Bill—and we will be pursuing that pun further, for the benefit of the noble Lord.
The serious point is that the Government are not honouring their manifesto commitment. They are not matching EU funds and are trying to hide behind this risible “we will rise to” element of the spending review. As my noble friend said, I look forward to getting the per capita, like-for-like figures for Wales, England, Scotland and Northern Ireland. Until we get them, we will not be satisfied.
On Amendment 66, as was said earlier, the subsidies and schemes are able to be used under the principles of Schedule 1. Principle A allows a subsidy to be used for
“an equity rationale (such as social difficulties or distributional concerns).”
That is wider than simply identified market failure. Principle F goes on further in that
“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition”.
So they can impact on competition, but they should minimise that. As the Minister well remembers, the United Kingdom Internal Market Act reformed or amended the Scotland Act, the Government of Wales Act and that relating to Northern Ireland to define what distortive or harmful subsidies are, so their definition is already in statute. For example, under Sections 52 and 53 of the internal market Act,
“A subsidy is ‘distortive or harmful’ if it distorts competition between, or otherwise causes harm or injury to, persons supplying goods or services in the course of a business, whether or not those persons are established in the United Kingdom.”
The devolved Administrations have no wiggle room when it comes to their statutory obligations under the internal market Act, as regards distorting competition. The wiggle room comes in under the subsidy element to minimise competition. I want to probe which legislation they must follow when setting subsidy schemes—what will be the subsidy control Act or the internal market Act. The definitions are very clear.
The noble Lord, Lord Lamont, and others asked about the distortive elements. They are defined under the internal market Act. These are not somehow separate processes, because that Act defines what subsidies are. The second element is that Part 4 of Schedule 3 to the internal market Act excludes types of regulatory provisions. The Minister was categorical in saying that no subsidy scheme, regulation, statutory or regulatory provision that establishes a scheme under the Bill would be considered under the internal market Act, but subsidy schemes are not excluded by Part 4 of Schedule 3, which lists the exclusions to the regulatory provisions. The legislation is perfectly clear about what is covered within the internal market Act and defines this in Section 30(8). There is no difference between subsidies or anything else. A regulatory provision
“means a provision … contained in legislation, or … not of a legislative character but made under, and given effect by, legislation.”
There is broad scope as far as that is concerned. It would be helpful to have a much clearer understanding of why the Government believe that a subsidy scheme is not a regulatory provision, statutory or otherwise.
Indeed, the Act goes further with regard to what is considered non-discrimination and what would be directly or indirectly discriminating for goods or services. The Minister knows that we debated this thoroughly on the internal market Act, which says that a statutory provision for goods
“is within the scope of … non-discrimination … if it relates to any … of the following … the circumstances or manner in which goods are sold (such as where, when, by whom, to whom, or the price or other terms on which they may be sold)”.
As we know and have discussed on previous groups, subsidies can have a relationship with the price of goods and services, and that is permitted under the subsidy Bill but absolutely prohibited under the internal market Act.
Lord Wigley (PC)
My Lords, I shall speak to Amendment 72, which I think is linked with this amendment. It refers to the responsibility of the CMA to act in an even-handed manner when carrying out its functions, particularly with regard to the Scottish Ministers, the Welsh Ministers and a Northern Ireland department.
I ask the Minister how on earth one can reject the requirement to act on an even-handed basis. It seems common sense that any action by the CMA would have to be on an even-handed basis. If that is the case, what is the problem with including these words in the Bill? If the argument is that the CMA may not sometimes act on an even-handed basis, that needs further exploration, which perhaps we can come to at a later stage; but if the Government are rejecting Amendment 72, I would like the Minister to clarify on what possible basis they can do so.
Baroness Blake of Leeds (Lab)
My Lords, I am grateful to the noble Lord, Lord Purvis, for tabling these amendments. At Second Reading and over the past three and a half days of Committee, we have repeatedly come back to how the new subsidy regime interacts with the broader provisions contained in the United Kingdom Internal Market Act.
As we know, the Government have clearly classified subsidy control as a reserved matter, but there a number of sectors where local or devolved interests may conflict with the wider interests of the internal market Act. The Government repeatedly come back to the notion that the new regime should facilitate the smooth functioning of the internal market. However, if we return to Monday’s discussions about Northern Ireland’s unique position and the inclusion of agriculture, we have to accept that those issues have raised more questions than answers when it comes to how the new regime will balance competing interests.
It is fair to say that some of the responses that we have had thus far have not been entirely convincing, and some of the answers given by the Minister seem to have highlighted the complexity of the issues that we are discussing and, therefore, the need to raise the matters in these amendments.
The wording “even-handedly”, as raised in Amendment 72 and used in other legislation, is particularly interesting. What is the Minister’s personal interpretation of that? How will it be administered and who will make the judgments, if it is deemed that unfairness is built into some of the decisions that are made?
We are repeatedly told when debating this Bill as well as when discussing whole rafts of government policy in other areas that there is a commitment to devolution and that is the most important thing—but, in the same breath, the Government say that subsidies must not undermine the internal market. How can both those statements be true?
Lord Fox (LD)
My Lords, this is an interesting debate. I originally set out, as Committee stages are wont to do, to tease out some minor details and things from this legislation, but it is clear that there is a major philosophical point that needs to be established before the minor details can be filled in.
Perhaps the Minister can cast himself back to when he was at school. I am sure that he popped into the odd mathematics lesson. He may well have come across a thing called a Venn diagram. For those who missed that particular week, a Venn diagram is made up of a number of circles. The degree to which they intersect indicates the amount of common area that they have—and perhaps the Minister is beginning to understand the direction of travel.
The issue here is that the Minister is asserting that, when it comes to subsidies, essentially, the internal market Act and this Subsidy Control Bill are discrete circles—that is circles that barely intersect or do not do so at all. We have ministerial assertion, and then we have the words as written in Bills and Acts. My noble friend Lord Purvis carefully and usefully filleted the words from the internal market Act, which seem to indicate that there is a large element of common ground with respect to subsidies between these two circles—these two pieces of legislation. Therefore, it is not possible to unpick the words and aims of the internal market Act when talking about subsidies.
My noble friend set out some of the potential contradictions. I will be simpler, because I am a simpler person. Reading those two pieces of legislation, and looking at words rather than hearing the Minister’s assertions, it seems to me that the Scottish Government could design a subsidies scheme. The CMA and the SAU within it, using this Subsidy Control Bill as their guide, as my noble friend set out, would indicate that this scheme is allowable and that market distortions are only minimal, as the Bill allows. The scheme could therefore be launched. However, the OIM—the Office for the Internal Market—would then analyse that subsidies scheme and detect that there are indeed distortions, albeit minimal ones, in that market. This information would be passed to the Secretary of State, who could, quite properly, then withdraw that scheme or cause it to be withdrawn; that is what the words in that Act and this Bill say. So I am interested to understand from the Minister why this might not be the case.
A separate and slightly smaller issue is that, within the CMA, we have the OIM and the SAU. Will these two organisations be operated discretely? Will there be Chinese walls between them in that they will operate under different Acts? Will they operate off the same data, or will they have to get their data separately? Indeed, coming back to the question asked by the noble Lord, Lord German, will they share the same lawyers when push comes to shove?
We seem to have here two things that the Minister is trying to push apart but which the words bring closely together. The purpose of these amendments is to understand how the Minister can assert that these two worlds are separate when the words indicate quite the opposite.
Lord Callanan (Con)
First, I thank the noble Lords, Lord Purvis and Lord Fox, for their amendments. They seek to probe the interactions between the OIM and the Bill, as well as the functions of the CMA more generally; I will take them together. Seeing as we were all involved in the debate on the then internal market Bill, I am getting flashes of déjà vu with all the different acronyms, such as the OIM and the SAU. Perhaps it is a Venn diagram, as the noble Lord, Lord Fox, indicated, but I will set out the position and, hopefully, resolve it.
Lord Purvis of Tweed (LD)
I have been following the Minister’s line of argument, but I do not think that it comes to the same conclusion. Under UKIM, a provision that is a subsidy scheme is not permitted under the non-discrimination principle, taking into account
“the circumstances or manner in which the goods are sold … by whom, to whom, or the price or other terms on which they may be sold”.
It is prohibited under the market access principles on non-discrimination. The Minister is saying that it is permitted under this Bill, because a measure would absolutely affect the price of the goods under the principles in the schedule. I am just wondering why a subsidy is not considered as a provision under the internal market Act, because they are prohibited under the non-discrimination principles.
Lord Callanan (Con)
The United Kingdom Internal Market Act applies only to certain regulatory provisions, and a subsidy scheme would not meet the necessary conditions required. This is a complicated legal area, and I suspect that the best way in which to advise the noble Lord would be for me to write to him with appropriate details.
Lord Purvis of Tweed (LD)
With respect, we are in Committee on a Bill and we are making law, and simply to say that this is a complex legal area is not correct. We are making law—and it is not convincing to say that these schemes would not be under the Act when there is nothing under the Act that says that they are not. You cannot just assert when we are making law, because we also want to make sure that these provisions are protected from challenge. As to anybody who thinks that this is not going to be open to challenge, because it provides assistance for the certain price of certain goods in one area, it will be challenged under the internal market Act, because it is discriminatory. Unless there is clear legislative protection that this is excluded from these measures, I am afraid that it comes back to the fact that this area is absolutely ripe for legal confusion.
Lord Callanan (Con)
The reason why I made that point clear to the noble Lord—and I understand the point that he is making—is to explain to him the legal advice that I have received from the lawyers responsible for this Bill. Clearly, the noble Lord has a different interpretation, but I have set it out in great detail, and the advice that I have received is that UKIM applies only to certain regulatory provision and a subsidy control scheme would not meet those necessary conditions. Clearly, there are differing views, and there are lots of esteemed lawyers in this room; that is the advice that I have received, and I am happy to go away and speak to the lawyers to get the noble Lord more detailed advice, but I can go no further than to give him the advice that we have received on these provisions.
I turn to Amendment 72. I stress to noble Lords, particularly to address the concerns of the noble Lord, Lord Wigley, that the CMA was chosen as the home of the subsidy advice unit precisely because of both the former’s experience protecting UK competition and its credibility with domestic and international stakeholders. The CMA is independent in its function and will carry out its duties as such, with equal regard and even-handedness towards all four Governments of the United Kingdom. Earlier, my noble friend Lady Bloomfield went into more detail on the different territorial offices of the CMA that already exist and on the way it carries out its functions across all the parts of our nation.
While a similarly drafted clause is included in Section 31(4) of the UKIM Act, I question how appropriate it would be to replicate that provision here. The provision in Section 31(4) reflects the unique relationship between the UK Government and the devolved Governments in ensuring the proper functioning of the internal market and their responsibilities for delivering regulatory provisions for each part of the United Kingdom.
However, a great number of public authorities will be responsible for designing subsidies and schemes that are consistent with the subsidy control principles. Of course, the devolved Administrations have an important constitutional status and a unique role in working with the UK Government on ongoing policy development for subsidy control. But subsidy control is a reserved policy and is not an ongoing legislative architecture for co-ordination between the four parts of the UK. I appreciate the devolved Administrations do not agree with that fact, but it was legislated for under the UKIM Act. I therefore request that the noble Lord withdraws his amendment.
Lord Purvis of Tweed (LD)
I am grateful to the Minister for his reply, but I am also grateful to my noble friend Lord Fox, the noble Lord, Lord Wigley, and the noble Baroness, Lady Blake, for their contributions on this. I am quite happy that we have explored this further. The Minister took the point—I do not think this is legal pedantry—that when it comes to the reality of when subsidies start to be issued, for those seeking to challenge or those aggrieved, this must be watertight. Therefore, I am grateful to the Minister for offering further discussions on this. I understand that his office has been in touch in seeking to organise a meeting, and I am grateful for that. He fully knows now that he will need to be prepared and bring his lawyer along to that meeting to assuage some of the concerns.
I am not entirely convinced that the requirement to act even-handedly goes, because there will be more bodies to act even-handedly towards. I do not think acting even-handedly is a zero-sum thing, given that an even-handed nature is in the internal market Act but not in how it operates as a whole, because that Act and the subsidy control regime are both reserved issues. It jars that, when it comes to the CMA carrying out its functions, it has to act even-handedly in considering the operation of the internal market, but that requirement is absent when it is considering the distortion of competition.
In the meantime, and in looking forward to the meeting with the Minister to reflect on this further, I beg leave to withdraw Amendment 66.
Lord Thomas of Cwmgiedd
Member’s explanatory statement
The purpose of the amendment is to give the CMA standing to exercise enforcement powers through the Competition Appeal Tribunal in respect of decisions on subsidies where it has made a report.
Lord Thomas of Cwmgiedd (CB)
My Lords, I rise to deal with an amendment in relation to what I would call the broad powers of making this Act work. Whether we call it regulation or self-regulation, there has to be a system of compliance. We looked at one, disclosure, and earlier we looked at the CMA’s role. Now it is the CAT’s turn and, before we conclude tonight, we will look at the role of the High Court and the Court of Session on enforcement against the devolved legislatures.
I was going to say something about the Minister’s remarks relating to what he sees as the role of the CMA, but the noble Lord, Lord Lamont, has dealt with this. I think it is only fair to the Minister to allow him to come back and explain what he said, in slightly more detail, about the role of the CMA. Obviously, the role of the CMA relates very closely to the role of the CAT.
Lord Lamont of Lerwick (Con)
Would the noble and learned Lord make it clear that he envisages, through this mechanism—or route, as he describes it—that the CMA would be allowed to challenge the Government?
Lord Thomas of Cwmgiedd (CB)
Yes, indeed; that was my third point. The noble Lord has made it most eloquently in one sentence so I need not make it any further.
My last point on this is simply that the time limit is very short. It will be difficult for private litigants to decide that they want to bring a case. The CMA will be well aware and can act within the time limit. For all those reasons, I beg to move that this amendment be inserted into the Bill.
Lord Lamont of Lerwick (Con)
My Lords, I have added my name to this amendment, which was so powerfully and eloquently moved. Its purpose is to give the CMA standing to exercise enforcement powers through the CAT.
To some extent, this amendment overlaps with the amendment I moved earlier. I strongly agree with what was said about the limitations of relying on people who are affected by subsidy decisions to challenge them within the tight time limits that we have debated. I have already said, probably at too great length, that there needs to be much more independent enforcement.
I do not want to go over all the points I made earlier but, just in case some of the Committee thought I was overegging or inventing it, I want to refer to what the Financial Times said about this Bill. It carried an article on 2 July headed:
“The UK carves a risky new path on state aid.”
It went on to acknowledge what the Government have claimed as the great advantage of the new system—that it is speedier and more flexible—but commented:
“On the altar of speed, it”—
the Government—
“has sacrificed scrutiny. This is worrying from a government that has shied away from accountability and spent lavishly on contracts.”
It went on:
“The government envisages public bodies largely having a free hand in deciding whether subsidies comply with broad principles.”
I mentioned this point earlier: really, the regime seemed to amount to allowing public authorities to do whatever they wanted, and the assumption was that public authorities knew the law and would therefore observe it.
Finally, the FT said:
“The combination of a light-touch system and an interventionist government willing to spend lavishly on special projects creates dangers of a distortive spending spree—and of ministers becoming vulnerable to lobbying by vested interests.”
That is one of the problems. I am not in any way questioning the integrity or motives of the Government, but it is so easy for vested interests to have an undue influence on these decisions and it is a slippery road down to the politicisation of subsidies. I very much think that we need to move one way or another, whether it is by the route that the noble and learned Lord, Lord Thomas, so eloquently laid down or the one that I referred to earlier. We need to move to more arm’s-length, independent and effective enforcement.
When he spoke in reply to my earlier amendment, the Minister said the Government will not refer themselves to the CMA, as though that were perfectly obvious. It may be perfectly obvious that no one would do that, but in a sense they ought to. There ought to be a mechanism by which a Government are referred to the CMA.
When I first got into the House of Commons, I used to come and listen to debates here. People always gave Latin tags. I am sure that if Lord Boyd-Carpenter or Derek Walker-Smith, Lord Broxbourne, were examining this Bill today, their Latin tag would be “Quis custodiet ipsos custodes?”—who will guard the guards? I am sure everybody knew that already. That is the principle. Who is going to contain and limit the Government?
Lord Fox (LD)
My Lords, I rise to speak to Amendment 71 in my name. I thank the noble Lord, Lord Lamont, and the noble and learned Lord, Lord Thomas of Cwmgiedd, for their support. I acknowledge that anything I say is unlikely to carry the weight of those two authoritative Peers, so your Lordships will be pleased to hear that I will be brief.
The noble and learned Lord, Lord Thomas, raised the issue of private enforcement. It is intriguing to me that the Government should choose private enforcement to police something as important as a subsidy regime. They do not use private enforcement to police their income tax regime or all manner of important economic activity, yet they have chosen this route. They have explicitly decided to eliminate the devolved authorities, councils and LEPs from the process of enforcement and have added a 28-day deadline to that private enforcement process, which makes it almost impossible for private individuals to enforce in a timely manner. One would think that enforcement was perhaps not at the forefront of the Government’s objectives when looking at the Bill, and nothing so far has convinced me that the Government are interested in enforcing.
At Second Reading, the noble Lord, Lord Lamont, let out the cri de cœur: who will enforce the Bill? The answer is clear: no one. There is an informal system of bringing to book that will ensure that very little enforcement goes on. Yet if we look somewhere else in the CMA, the Digital Markets Unit is pre-emptively calling the big techs in and dealing with issues under its orbit. It is not that the CMA cannot do it; it is that the Government have decided not to let it do it.
Both these amendments—the one in my name and the other—seek to give a role for the Competition Appeal Tribunal to pre-emptively deal with transgressions. What are the Government frightened of in this? I do not think that the Minister has so far articulated a valid reason as to what is wrong with enforcing the Bill. If the Government think it is important to have the Bill, why not enforce it?
I used one example: the CMA’s own digital markets unit. It is clear that regulators all over are acting pre-emptively. Look at the Pensions Regulator. It can proactively go in and do things, so it is not as if we do not do it in this country. Generally, the regulator can act pre-emptively, except in this case. It is not clear to me what is behind the Government’s decision to do that. My key objective for Amendment 71 is for the Minister to very clearly articulate to the Committee why this subsidy regime should not be policed.
Lord Hope of Craighead (CB)
My Lords, one problem that legislators always face is the inability to look with complete clarity into the future. Trying to predict with any degree of accuracy how this system will work is almost impossible. The advantage of the proposal that my noble and learned friend Lord Thomas is advancing is that if cases go to the CAT, gradually there will be a build-up of decisions that will begin to add extra guidance that we cannot provide in the legislation. This is the way the law works in many fields.
It is that aspect that appeals to me. Gradually, through a series of decisions in various situations, the CAT will be able to add an extra dimension to the way in which this system has tended to work. There is a value in this. I think the word “enforcement” is perhaps rather pointing in the wrong direction. It is more like building up decisions, a category or a case law that would act as guidance for further cases, so that one does not constantly have exactly the same problem being advanced. We would be able to say that there is a decision by the CAT that tells us the answer in that particular situation. Decisions of that kind can be helpful, and I hope very much that the Minister will see value in what my noble and learned friend Lord Thomas is proposing.
Lord McNicol of West Kilbride (Lab)
We welcome the tabling of these two amendments, which move us on from the composition and core investigatory powers of the CMA towards enforcement or, to use the word of the noble and learned Lord, Lord Hope, “guidance” of subsidy decisions, via the Competition Appeal Tribunal. The two amendments in this group aim to achieve similar things but by different means.
In relation to Amendment 67 from the noble and learned Lord, Lord Thomas of Cwmgiedd, the CMA would have the option to refer matters to the CAT. That is a sensible proposition, and we are more than happy to support it. It seems counterintuitive to have a body tasked with investigating or looking at whether due process was followed when the subsidy was awarded, only for a separate person or entity to be left to initiate enforcement proceedings. Even if an interested party were to use the SAU’s output as a basis for referring the matter to the CAT, how much weight does the Minister think such a report would carry? As an entirely separate entity, would it be reasonable for the CAT to disregard or override any of the SAU’s findings?
Amendment 71 from the noble Lord, Lord Fox, takes a slightly different approach. It gives the CAT the powers to pre-emptively investigate subsidies if it believes that an award is not consistent with the principles of the Bill. I am more than happy to support this amendment. Whichever approach is taken, it is clear that all involved need greater clarity on how disputes will play out. I will not repeat the points made by the noble Lord, Lord Lamont, but independent enforcement will bring clearer and better oversight to the Bill.
Lord Callanan (Con)
I thank the noble and learned Lord, Lord Thomas, and my noble friend Lord Lamont for tabling Amendment 67. I also thank them and the noble Lord, Lord Fox, for Amendment 71. Before addressing the two amendments in turn, I will offer some context. We have discussed at length the conception of the new domestic control regime as envisaged by the Government. We have heard criticism to the effect that the regime is, in the view of the protagonists, lacking in robust enforcement.
Of course, international comparisons are somewhat beside the point for our UK-specific approach. It is worth while bearing in mind, though, that the mere fact of establishing a coherent regime for the purposes of subsidy control would place the UK somewhere near the top of the list of the most comprehensive subsidy control regimes. Outside the European Union, no other international partner or competitor will enjoy such a comprehensive and transparent approach to the regulation of subsidies.
Lord Lamont of Lerwick (Con)
Is the reason for that not that the EU insisted on it, and that is why the Bill is being brought forward—not to be effective but to strike agreement with the EU?
Lord Callanan (Con)
This legislation was predicated in the TCA, as my noble friend points out. We are of course meeting our obligations. One of the purposes of this legislation is to meet our international obligations, not just under the TCA but with other trade agreements that we might strike as well.
In our view, an interventionist regulatory role is not necessary for the effective scrutiny of subsidies and would be detrimental to the smooth development and deployment of subsidies where they are needed. I have confidence that public authorities will take their statutory obligations under this regime very seriously and, in fulfilling those obligations, public authorities will be supported by comprehensive guidance. As a result, I do not anticipate that breaches will be by any means a common occurrence. My noble friend referred to the EU state aid regime, which is a different system, but it is revealing of public authorities’ attitudes to their obligations that since 1999, the European Commission has ordered UK public authorities to recover aid on only four occasions.
Lord McNicol of West Kilbride (Lab)
That is because those systems are fundamentally different. The EU state aid system was a pre-authorisation, not a post-investigation or oversight. It is not comparing apples with apples, because of how the systems operate.
Lord Callanan (Con)
I said that it was a different regime but was pointing out the number of times that subsidy has been recovered since 1999. My point is that it is not a frequent occurrence. I totally accept that it is a different system and that they are different regimes, but it served as an example of the behaviour of UK public authorities.
In the event of such breaches occurring, a private person asking the court to review the legality of a public authority’s action is a well-established route for ensuring that those authorities do not exceed their powers or act irrationally, and for preserving the rights of the individual against the state. Indeed, it is the normal way for challenging the actions of public authorities, and that is why we have broadly replicated the judicial review process in this Bill, with some subsidy-specific adjustments and additions. I know that noble Lords sitting at the back will be much more familiar with that regime than I am.
Today and in other Committee sessions, your Lordships have asked, in the absence of an enforcer—I will not attempt to repeat my noble friend Lord Lamont’s Latin experience—who will challenge subsidies and how a potential interested party will know about a subsidy that may affect their interests.
The subsidy control requirements are not a regulatory abstraction; they are there to prevent unnecessary distortions of competition. Where a public authority has failed to assess a subsidy against the principles, there is likely to be harm. Anyone whose interests may be affected by the subsidy, be they individuals, businesses or other public authorities, including the devolved Administrations, they have standing to challenge it. The people best placed to decide whether to bring a challenge are those who are actually operating in the relevant sector and area.
Transparency declarations will provide enough information for people to assess whether their interests may be affected by a subsidy. I once again underline that every subsidy or scheme that is in scope of the main subsidy control requirements and that may be challenged in the Competition Appeal Tribunal is also subject to the subsidy control transparency requirements, with the exception of certain SPEI subsidies, as we debated the other day. For those subsidies that present a greater risk to the market, or where the public authority is less sure of its assessment, the CMA reports will provide further information still.
On the point made by the noble and learned Lord, Lord Thomas, about the costs of pursuing a challenge, in practice an interested party is likely to take legal advice before deciding to ask for a review of a subsidy, and of course that will incur costs. However, as with other kinds of legal proceedings, the CAT can award costs to whichever party is successful. The pre-action information request process will be an important opportunity for a potential interested party to find out more about a subsidy and make a decision about whether to proceed with a challenge, and then to make a decision informed by the likelihood of success, most likely following advice.
I turn to Amendment 67 from the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Lamont, and I return to some of the arguments that I made in respect of the grouping we finished at the beginning of this afternoon’s session. The subsidy advice unit is an advisory body; it is intended to advise public authorities on the most potentially distortive subsidies and, by doing so, to provide a measure of additional scrutiny and transparency to the benefit of interested parties and, ultimately, the public at large. Ultimately, the SAU will shine a light on the underlying assumptions that have led to the development of a subsidy or scheme. It is for the public authority to exercise its own judgment with respect to that information. I have confidence that public authorities will take their responsibilities under this regime seriously and, where the CMA has issued a report, the public authority will give appropriate weight to the CMA’s conclusions.
In response to the question from the noble Lord, Lord McNicol, about the purpose of SAU reports, they will provide a public indication of the quality of a public authority’s assessment. It is in a public authority’s best interests to demonstrate that they have properly considered the potential distortive impacts of a proposed subsidy or scheme, and that offering such a measure is justified and proportionate to the policy problem that they are trying to address. Should a public authority fail to take proper account of the CMA’s conclusions, the report means there will be a significant amount of information about the subsidy in the public domain, beyond what would already have been required by the transparency database. Interested parties will therefore be all the more able to assess whether the subsidy may affect their interests, and of course to mount a challenge if they so wish. There may be a difference of opinion on this, but I am afraid that I just do not agree that there should be a role for the CMA in this.
In response to the Latin question of the noble Lord, Lord Lamont, about who will guard the guards themselves, I repeat that, assisted by guidance, which will help public authorities to understand their obligation—I have cited the example of a number of repayments previously—I think we can expect a high level of compliance with the regime. As the noble and learned Lord, Lord Hope, observed, the Competition Appeal Tribunal will build up a body of case law which will then be an important additional source of guidance for public authorities.
As I said to the Committee on Monday, of course I hope that no UK government subsidies would require referral, but Ministers intend to be open-minded to calling in a UK government subsidy for SAU scrutiny where that is requested by another public authority or considered desirable for other reasons. Furthermore, where necessary, the Secretary of State has the ability to refer subsidies to the Competition Appeal Tribunal. However, I would be surprised and disappointed if he or she had to challenge a subsidy made by a UK government department, but he or she could certainly do so if they felt that a subsidy risked competition and investment within the UK or compliance with the UK’s international obligations.
I turn now to Amendment 71, tabled by the noble Lords, Lord Fox and Lord Lamont, and the noble and learned Lord, Lord Thomas. This would have the Competition Appeal Tribunal refer specific subsidies to itself for decision. I would submit that that is highly unusual and would potentially compromise the CAT’s neutrality. Of course, there are practical objections to this amendment as well. As with all courts, the tribunal’s expertise, resourcing and premises are equipped for hearing cases, not for gumshoe investigatory work. I do not think that the noble Lords are really suggesting that this should be the case.
Lord Thomas of Cwmgiedd (CB)
I have one question for the Minister on the hard economics of recovery of damages. Will there be recovery of damages against authorities that give subsidies wrongly? Secondly, has any estimate been made about the likely recoveries?
Lord Callanan (Con)
Yes, of course, they would be able to recover damages if a party had suffered a loss. I do not think that we have any estimates of likely figures at this stage but, if we have them, I shall certainly share them with the noble and learned Lord.
Lord Thomas of Cwmgiedd (CB)
My Lords, I thank all noble Lords who has taken part in this debate. If we are embarking on a new regime, we must make certain that it is effective—not because of whatever the EU says but for the good of our own nation and economy. Without an effective regime, this will not work.
We have taken different approaches—and I am extremely grateful to all who supported this amendment. The noble Lord, Lord Lamont, took the point of principle: who is going to look after those who make the decisions, particularly the Government? Who is going to refer them? Litigating against a Government, who have a bottomless pit, is very difficult—and, of course, there are political considerations against doing so.
The noble Lord, Lord Fox, asked what sort of regime this was, and whether there was a regulator. Whatever the Minister might say, the CMA is a kind of regulator in the market—unless the Minister is to say that there is no regulation at all. But this is law, so someone must have to enforce it.
Then there is the problem that I have referred to, of hard economic reality. Is it realistic to accept private enforcements? The benefits have been shown by the noble and learned Lord, Lord Hope: that we really need a body of case law to strengthen the regime, and the importance of that will become apparent later.
For all those reasons, I am afraid that I am one of those whom the Minister has not managed to persuade, but I do not think that he thought he had. But I beg leave to withdraw the amendment.
Lord Thomas of Cwmgiedd
Member’s explanatory statement
The purpose of this amendment is to remove any doubts about the position of the devolved governments being interested parties.
Lord Thomas of Cwmgiedd (CB)
I am going to be very brief about this. The point emerged in the earlier remarks of the noble Lord, Lord Bruce, and deals with the question of standing. I want to deal only with the technical point. It is obvious that where the Minister, qua his responsibility as the Minister for England, grants a subsidy, the position of the devolved Government should be exactly the same as if the Minister in England were able to challenge a decision of the devolved Government. There should be parity. We have talked a lot about equity, which I shall return to, but it seems that there is no equity.
The short point of this amendment is to try to ensure there is no dispute about standing. Standing sometimes causes very serious difficulties. If, however, the Welsh or Scottish Government felt that the action of the Secretary of State or some authority in England was disadvantaging people or a particular enterprise in Wales or Scotland, they should surely have the standing to bring that to the CAT. If, for the reasons I have already adumbrated, private enforcement is not successful—and the Minister has said nothing to persuade me that it will be—this is even more reason to have more custodians of the public interest looking to ensure that our noble and other Ministers in London actually stick to the principles of the Bill. I beg to move.
Baroness Randerson (LD)
My Lords, I will be equally brief. The omission of Ministers of the devolved Governments at this stage of the Bill is stark and astonishing. It immediately begs the question why, because the devolved Governments are specifically mentioned elsewhere in the Bill, although they are not given equality of treatment. Here, they are simply omitted. As indicated by the noble and learned Lord, Lord Thomas of Cwmgiedd, we need clarity here.
We particularly need clarity because there is equality of treatment on issues such as common frameworks. There could well be a conflict between what has been agreed by the UK Government in that context and what is in the Bill. I look forward to the Minister’s response.
Lord German (LD)
My Lords, I rise to speak to my Amendment 79, which neatly follows the questions of the noble and learned Lord, Lord Thomas of Cwmgiedd, about standing.
On 13 January, the following fanfare was announced from Downing Street:
“Prime Minister to chair new council with devolved governments”.
The No. 10 press release described this as a
“Landmark agreement on how UK government and devolved governments will continue to work together”,
and how an agreement on this “has been reached”. It promised “new ways of working”, “Reaffirmed principles” of
“mutual respect, maintaining trust and positive working”
and formalised a “council”, led by the Prime Minister, “overseeing strengthened working”.
I am going to come to the document that lies behind the press release in a moment. Of the five things the Government say this is going to achieve, they end with the principle about conflict resolution:
“Resolving disputes according to a clear and agreed process”.
I am trying to seek consistency in this Bill, which has been severely criticised for the relationships it is trying to and has to build with the devolved Administrations. At the same time, we have another document, setting up more machinery of government, which will look at resolving disputes. I understand that resolution of disputes is in the common frameworks procedure, but there is very little in the Bill about how the devolved Administrations can resolve disputes. I suspect—I am pretty certain—that there will be a lot of criticism over the coming months and years from the devolved Administrations.
In the document which lies behind the Prime Minister’s announcement, about the review of intergovernmental relations, there is a two-page section in which the first paragraph states:
“No Secretariat”—
it is an independent secretariat managing the council—
“or government”—
and that is all Governments in the United Kingdom—
“can reject the decision of a government”—
again, that is any Government—
“to raise a dispute.”
So this is a dispute mechanism which has clearly been put in place by the Government to provide an opportunity for the Administrations to raise their disputes. I do understand that if it is enshrined in law, if the legislation is there, it makes it trickier, but as the noble and learned Lord, Lord Thomas of Cwmgiedd, asked, what happens when somebody wants or objects to an interpretation, particularly that of the Secretary of State, and this process escalates?
The Bill contains a lot of procedures which could well lead to a dialogue between the devolved Administrations and the Secretary of State. There is also a huge amount of what is called “guidance”—which we shall come to later—and a number of documents are going to emerge which will perhaps put flesh on the bones of some of the things we have been talking about in the Bill.
My question is this: will this arrangement announced by the council and by the Prime Minister, no matter what this Bill comes to and no matter what the processes described in it are, allow, as the intergovernmental relations document states, any Government to bring a dispute before all the other Governments? There are 30 or 40 lines and another page about how that dispute has to be resolved and the use of an independent secretariat.
If the right relationships as described in the document from the Prime Minister were built into this Bill, I would rather hope that it would minimise the necessity for such a dispute mechanism to arise. My test of this is to ask the Minister the following question. Given the announcement, and given the availability of this procedure, is there anything that he can see apart from the legislation before us that a devolved Administration could not refer to this council? If that is so, there is a strong case for making it easier for the devolved Administrations to engage through the mechanisms of this Bill without having to go through all the processes which would lead to the dispute mechanism outlined by the Prime Minister. I am asking for consistency, and I hope that the Minister can provide it.
Lord Wigley (PC)
My Lords, I am delighted to support the amendment put forward by the noble and learned Lord, Lord Thomas of Cwmgiedd, and agree strongly with the points that he made in opening this short debate. The devolved regimes must surely be in a position in which they can be regarded as interested parties. It stands to reason that that must be the case in certain circumstances, and there must be provision within legislation for those certain circumstances to be looked after in the context of this Bill.
I was delighted to have the opportunity to add my name to Amendment 79 put forward by my colleague, the noble Lord, Lord German. I support the points he made in regard to it. The need for some indication to the devolved regimes that they are partners has surely come out of the debates we have had in the last three or four sittings of this Committee. It is time that the Government found some way of indicating that they are prepared to work on a partnership basis. These two amendments pave the way for that, and I hope the Government can respond positively.
Lord Hope of Craighead (CB)
My Lords, I put my name to Amendment 69 as well, and I support exactly what my noble and learned friend Lord Thomas of Cwmgiedd said about it.
It is worth noting that the definition of “interested party” has to be read together with Clause 70(1). The point is that to apply to the Competition Appeal Tribunal you have to be two things: an “interested party” and “aggrieved”. The definition takes you part of the way there. I am thinking in particular of the Secretary of State, who is an interested party but in order to apply has to demonstrate that in some respect he or she is aggrieved by the making of the subsidy decision.
Lord McNicol of West Kilbride (Lab)
I have very little to add; it has been covered comprehensively. I was happy and pleased to add my name to Amendment 69.
We have talked a lot about equity and balance, and the final group of amendments probably has even more of the issues raised in it so, rather than repeat everything that has been said, I am more than happy to endorse it. We will then pick up the final issues around engagement and involvement with the devolved authorities and central government in the final group.
Lord Callanan (Con)
My Lords, before I speak to the detail of these amendments, this is perhaps a good opportunity to update the Committee on our progress in seeking legislative consent for the Bill, as we promised in our first Committee session on 31 January.
These amendments, and a number of others we have debated, touch on the UK-wide and devolved aspects of the Bill. As we have discussed on numerous occasions, subsidy control is reserved, but there are clauses in the Bill that alter the executive competence of the devolved Administrations. From the very beginning, the UK Government, at both ministerial and official level, have worked closely and extensively with the devolved Administrations in designing the new subsidy control regime. We have worked to secure their support for LCMs for the Bill. I pay tribute to my officials and those in the devolved Administrations for their ongoing efforts in this space.
Our strong preference remains to secure legislative consent, and we will keep all avenues open to achieve this and to remedy the significant concerns of the devolved Administrations. Of course, we also want to ensure the operability of the new regime. Negotiations are still in progress, but I assure noble Lords that I will keep the House updated at the earliest opportunity, without prejudicing the content of those negotiations. I also assure the Committee that, should any amendments be necessary to reflect the outcome of those negotiations, we will table them as soon as possible prior to Report to enable your Lordships’ House to consider and scrutinise them with sufficient time.
Lord Purvis of Tweed (LD)
I am grateful for that “no progress” update from the Minister. With regard to the current situation in Northern Ireland, including the suspension of the Assembly and the resignation of the FM/DFM, can the Minister state whether any of this legislation will be implemented in Northern Ireland during this suspension?
Lord Callanan (Con)
The legislation is UK-wide so it will apply in Northern Ireland but, clearly, the absence of the Assembly will make it extremely challenging to get the Executive’s consent. However, we certainly will continue to engage with officials.
I want to give some context on all the engagement we have done. Since July 2020, BEIS Ministers and officials have had 75 meetings in total with their counterparts in the devolved Administrations. These are not just talking shops, as has been implied, but sessions of meaningful engagement. For example, our engagement has included sharing draft objectives and building-blocks for the new subsidy control regime; sharing both the Government’s consultation and the consultation response ahead of publication; and sharing our illustrative guidance and regulations in advance of publication, as well as continued engagement as this Bill passes through Parliament. This engagement will need to continue as the regime is implemented. In fact, at this very moment, officials are working with their counterparts on a memorandum of understanding that formally sets out a mutually agreed process for engagement on the crucial next phase of policy development and implementation.
Moving back to the detail of the amendments before us, I will start with Amendment 69. Again, I thank the noble and learned Lord, Lord Thomas of Cwmgiedd, for moving the amendment, which is supported by a number of noble Lords. It would give the devolved Administrations the ability to challenge any subsidy in the Competition Appeal Tribunal, whether their interests have been affected or not. As was confirmed at the Dispatch Box in the other place, the devolved Administrations—or, indeed, any other public authority —will generally be able to apply to the CAT to review a subsidy decision where the interests of people in the areas in which they exercise their responsibilities may be affected by that subsidy. This would be a good opportunity to correct what I said on Monday: this is not exactly the same position as the Secretary of State.
The fact that the devolved Administrations are not named in this clause is by no means intended to exclude them or any other party whose interests may genuinely be affected by the granting of a subsidy. Clearly there will be limits, and the interests of the devolved Administration or local authority in a particular subsidy cannot be totally tenuous. However, the broad definition in the Bill gives the CAT maximum discretion so that, whatever the facts of the case might be, it can deem the right people as interested parties.
The reason why the Secretary of State has universal standing to challenge a subsidy, in contrast to the devolved Administrations and local authorities, is that he or she—whoever occupies that office—is responsible for the overall operation of the subsidy control regime and, as I keep saying, for the UK’s compliance with our international agreements in this reserved policy area. Neither of those reasons apply to the devolved Administrations or local authorities. It is wrong to suggest, as some noble Lords have suggested previously, that simply because the devolved Administrations exist, the Secretary of State’s horizons and duty of care are limited only to England.
It is also worth mentioning that the Government expect that the Secretary of State would use this ability only in exceptional circumstances where, in his or her view, a subsidy threatens the whole integrity of the subsidy control framework or our compliance with international agreements. It would be inappropriate to legislate that the devolved Administrations are an interested party in all cases, implying that the Secretary of State does not carry out his or her role as the responsible Minister for the subsidy control regime for everyone in all parts of the United Kingdom.
I turn now to Amendment 79, tabled by the noble Lords, Lord German and Lord Wigley. I am glad that the noble Lords referred to the recommendations of the Review of Intergovernmental Relations through the amendment. The UK Government take these co-operation mechanisms with the devolved Administrations, as set out under this review, very seriously, and we are always open to ways of strengthening these relationships. We are open to using the intergovernmental relations structures to resolve any disputes, in accordance with the IGR principles. That said, this amendment would in effect bypass a number of earlier stages in the dispute resolution process, which has already been agreed between the UK Government and all devolved Administrations. Escalation to the Council is the last resort. As I mentioned on Monday, we are also working closely with the DAs to establish a formal process for raising case-specific concerns with the department once the regime is up and running.
Let me also stress that there is no need to incorporate this provision into the Bill for disputes to be able to come under the IGR structures. Moreover, I do not anticipate that there will be any great need to refer matters of interpretation to those structures. It is important to bear in mind that there is of course a distinction between case-specific dispute, which is a matter of legality, and a public authority’s compliance with its legal obligations, for which the proper place to resolve such disputes is ultimately the CAT and a dispute or discussion between Governments on their roles and responsibilities.
There is little scope for that type of confusion over the roles and responsibilities of the UK Government on one hand and the devolved Administrations on the other in this regime. The Secretary of State for Business has responsibility for the overall operation of the regime and the UK’s compliance with its international agreements. The UK Government may also create streamlined routes to encourage subsidies that further their strategic priorities. In all other respects, UK government departments and the Secretary of State himself are in the same position as the devolved Administrations. They are public authorities within the scope of the Bill. UK government departments are treated in exactly the same way as any other public authority. All public authorities are similarly subject to the Bill and empowered by it.
As I said earlier, my officials continue to have a regular set of meetings with their DA counterparts on all subsidy control matters; these will continue, along with regular ministerial engagement. Where there is a need for dispute resolution, that dispute will come into the ambit of the agreed intergovernmental relations process.
I recognise the strength of feeling in relation to Amendment 69 in the name of the noble and learned, Lord Thomas, but I simply do not agree that either that amendment or the other would be a necessary or useful addition to the Bill. Therefore, with respect, I urge the noble and learned Lord to withdraw his amendment.
Lord Thomas of Cwmgiedd (CB)
I thank all noble Lords who have spoken in this short debate; I do not want to lengthen it with a long reply. I will say only one thing. The Minister has not really answered my noble and learned friend Lord Hope’s question as to the meaning of “aggrieved”. It seems to me that one area in which the devolved Administration may wish to get involved is where a decision is made that does not directly affect their interests but they feel that the decision is wrong in principle and may set a bad precedent. It is that reason—their interest as Governments in upholding the rule of law and the operation of this—that I do not believe was answered by the Minister’s statement, but I will read it carefully. In the meantime, I beg leave to withdraw my amendment.
Member’s explanatory statement
This amendment would extend the time limit for applications to the tribunal under Clause 70 from one month to three.
Baroness Blake of Leeds (Lab)
My Lords, I rise to move Amendment 70 in the name of my noble friend Lord McNicol. I am sure that we can be brief on this matter and that, given the complexity of the other amendments we have been discussing, it is one that the Minister will be able to consider with a good outcome.
We are looking to extend the time limit for applications to the tribunal under Clause 70 from one month to three months. Of course, we have touched on this area several times through our many discussions over the last three sessions and, indeed, today. There is a real concern that the Bill does not provide enough oversight for the new subsidy regime; we have heard different elements of this through the amendments that have been put forward. As noble Lords have observed, there is a significant disparity between the time given to authorities to publicly disclose their subsidy decisions and that given to interested parties to refer matters to the Competition Appeal Tribunal. Only interested parties and the Secretary of State can legally challenge subsidies, and must do within one month of the new subsidy being published. Our contention is that this is unreasonable.
Viscount Chandos (Lab)
My Lords, I will speak briefly in support of the amendment in the name of my noble friend Lord McNicol, spoken by my noble friend Lady Blake. It is one of the most important amendments that the Committee has considered. In my speech at Second Reading, I made the point that the combination of transparency and comprehensiveness of the data that is provided and the time period allowed to interested parties to appeal it lies at the core of the effectiveness of any new regime. As my noble friend Lady Blake pointed out, there is asymmetry between the length of time given to public authorities to put data into the public domain and the very short time period proposed for interested parties to appeal it. Can the Minister name any instance where the Government are subject to a one-month deadline for a significant decision that they have to make?
I do not even think that the one-month deadline is particularly helpful in reducing the workload that may come to the tribunal because, the shorter the deadline, the more an interested party may feel that it has to submit an appeal without having had the time to do the work fully to assess the position. So I urge even more strongly than my noble friend Lady Blake that the Minister considers the case for a change to three months, and I ask him to say, if he is not willing, why he thinks that the one-month deadline is fair and effective.
Baroness Randerson (LD)
My Lords, I am pleased to speak in support of this modest amendment. As the noble Baroness said, the issue has been raised before, and one month is a totally unrealistic timescale. To my mind, it indicates a clear governmental preference to reduce scrutiny of decisions on subsidies that are made in general.
It is especially an issue because this also involves agricultural subsidies and agriculture is, in large part, based on small businesses. I shall give you a picture: farmers in Wales are not commonly monitoring the decisions taken by local authorities in, for instance, eastern England, which might cause them to feel aggrieved. It might take them some time to get up to speed on the implications of those decisions. It might surprise some people, sitting in the centre of London, to know that wi-fi in the centre of Wales is not wonderful. Many communities still rely on the postal service and weekly newsletters, for example from the farming unions. There can be lots of reasons why information that would worry small businesses affected by a subsidy decision would take some time to filter through.
In general, I can think of a host of reasons why one might miss this deadline—for example, summer or Christmas holidays provide an interruption of several weeks to ordinary business. I join the noble Viscount in his point that it could simply be counterproductive. People may think that, if in doubt, they should lob in an appeal to the tribunal because, in reality, they would not be able to find all the information required in the timescale this Bill provides. On a previous group of amendments, the Minister referred to the pre-action information request process. I believe that process will find itself exceptionally heavily used, if the Government do not see that this timescale is far too tight to be practical.
Baroness Altmann (Con)
I rise briefly to add my support to the concerns expressed by other noble Lords that a one-month timeframe, especially for smaller companies, is not only challenging but potentially unachievable and could cause significant detriment to our promising smaller companies. They may be harmed by a subsidy, possibly unintentionally, and this could deny them the opportunity to appeal against that which could be harmful to their business. I urge my noble friend to consider the reasonableness of this amendment. If he is not able to accept it now, could he explain to the Committee how, in practice, this one-month timeframe is reasonable and could reasonably be met by those potentially affected?
Lord Berkeley (Lab)
I intervene briefly to strongly support my noble friend’s amendment and other noble Lords’ comments. One solution that the Minister might be tempted to suggest is to allow them to get it in within a month but add more documentation later. That would be easy.
I refer the Committee to the proposed new rule 98A(7) of the Competition Appeal Tribunal Rules:
“The Tribunal may not extend the time limits provided for in this rule unless it is satisfied that the circumstances are exceptional.”
Probably none of the things that noble Lords mentioned would be classed as exceptional, which confirms that one month is hopelessly short. I very much support three months or even longer, if anyone has a better idea.
Lord Callanan (Con)
My Lords, I thank the noble lord, Lord McNicol for this amendment, and the noble Baroness, Lady Blake, for speaking to it. I also thank the contributions of other noble Lords—and the noble Lords, Lord Fox and Lord Lamont, reflected on this issue during the Monday’s session.
An interested party, which is anyone whose interests are affected by the subsidy, may apply to the Competition Appeal Tribunal for a review of the subsidy within one month of the subsidy’s upload to the transparency database, if there has been a post-award referral to the CMA within one month of that report, or if a pre-action information request has been made within one month of the response to this request. The limit has been set at one month so that we can give legal certainty to public authorities and subsidy beneficiaries as swiftly as possible. It is important to avoid creating such prolonged uncertainty that it acts as a brake on legitimate subsidies.
We must also ensure that interested parties have sufficient time to consider a subsidy before asking the CAT to review it. That is just what this Bill does. An interested party, perhaps a competitor who is thinking of approaching the CAT to review a subsidy, can make a pre-action information request to a public authority. The limitation period is then extended until one month after the public authority has responded. Since the pre-action information request gives the public authority up to 28 days to respond, in practice, the limitation period can run for two or three months after the publication of the subsidy or scheme on this database.
Lord McNicol of West Kilbride (Lab)
If the argument is that we are only giving one month to raise a complaint or to look into this, why are the uploading timeframes six months and/or one year? If the Government want to create legal certainty for the organisation that is giving the subsidy, surely, as the noble Lord, Lord Lamont said on Monday, what is good for the goose is good for the gander. If they want that legal certainly, deliver that within the one month in terms of the upload to the database. Then there is parity and legal certainty.
Lord Callanan (Con)
As the noble Lord, Lord McNicol suggested, we explored this point fully last week. There are good reasons for it. If it is a tax subsidy, the full amount might not be clear. It might be variable, based on a number of different reasons, and the fact of giving a subsidy may well be published in other transparency obligations that local authorities or the devolved Administrations already have. However, I understand the noble Lord’s point.
In response to the noble Baroness, Lady Blake, Clause 71 also makes it clear that in exceptional circumstances, the tribunal may extend the time limits for bringing a challenge. This amendment would extend the general window for bringing a challenge from one month to three months, which is too long. It is longer than the challenge periods available in other areas where business decisions are dependent on the decisions of public bodies, such as procurement and planning decisions, where the limitation periods are 30 days and six weeks, respectively. In those areas, the harmful effects of prolonged uncertainty have been recognised through the shorter challenge periods available. The same reasoning applies in the subsidy control context. If the general limitation period for challenging subsidy decisions was extended to three months, as this amendment proposes, public authorities and subsidy beneficiaries could in practice have to wait as long as five months before having reasonable legal certainty about a subsidy that they have granted.
There is a risk that this could have a chilling effect, not only on the giving of subsidies but on the timely use of them by beneficiaries. For example, a subsidy could take the form of a loan guarantee for a capital investment, such as buying new machinery. Your Lordships will appreciate that some beneficiaries may be reluctant to go ahead with purchasing that machinery for as long as there is a possibility that the subsidy decision could be quashed and a recovery order made.
The noble Baroness, Lady Blake, and the noble Lord, Lord McNicol, asked how the Government can justify giving public authorities six months to fulfil their transparency obligations but providing interested parties only one month to challenge a subsidy. I recognise the strength of feeling on the length of time on the transparency deadline and how this compares with the limitation period. During Monday’s Committee, I set out the reasons why the deadline is set at six months: it allows for better-quality data where subsidies are based on an estimate, and it gives public authorities greater ability to upload their subsidies in bulk, and therefore to reduce administrative burden.
Lord Fox (LD)
I am interested in this concept of a chilling effect. What evidence is there for that, and what consultation has there been? There may or may not be a chilling effect. It seems like more of an idea than a practical reality. I have a suggestion that might help. The Bill could start out with a longer reporting time—perhaps 60 days, or something along those lines—and the evidence, or otherwise, of a chilling effect could be gathered. If necessary, and if the reality of a chilling effect actually emerges, the Government could come back and reduce that period by statutory instrument.
Lord Callanan (Con)
I think that is the first time the Liberal Democrats have proposed giving the Government more secondary legislation powers, but I understand the noble Lord’s point. As I said, I have heard the strength of opinion on both sides of the Committee and will reflect further on this matter.
Baroness Blake of Leeds (Lab)
I thank the Minister for those final comments, which I think are a measure of the contributions we have heard tonight and the strength of feeling on this issue around the Room. My noble friend Lord Chandos really put his finger on it. He is absolutely right that the unreasonableness of this time limit will lead to people putting in appeals just in case more information comes to light. That is a very real proposition.
The case against the one-month limit has been very well made. I thank the noble Baroness, Lady Randerson, for her insight into rural areas and the aspect of holidays, and the noble Baroness, Lady Altmann, for highlighting the real aspect of it being challenging and unachievable. There are so many elements in this that need to be taken away. I thank noble Lords for listening to the arguments that have been made with this amendment today and over a period of time. With those comments, I beg leave to withdraw the amendment.
Lord Callanan
(2) Nothing in this Act applies to the giving of any such assistance, or to the making of any such schemes, except so far as provided for by that Schedule.”Member’s explanatory statement
This amendment clarifies that the subsidy control requirements under the Bill apply in the case of financial assistance provided directly by primary legislation only so far as provided for by Schedule 3 to the Bill.
Lord Thomas of Cwmgiedd (CB)
My Lords, I rise to speak to two amendments that have a relationship I shall endeavour to explain as rapidly as possible, bearing in mind the hour. Amendment 73A relates to Schedule 3 and deals with the very extraordinary powers in this Bill, giving the High Court the power to overrule primary legislation of the devolved legislatures. This is a very real problem. I shall speak largely from the point of view of the judiciary and what we are intending to do.
Before I turn to that, I would say that, if we look at agriculture or anything else where there is an attempt by the four Governments of the UK to agree something that deals with the support of subsidies, it is extraordinary that anything that is legislated for in England is exempt, but what is legislated for elsewhere is not. There is a constitutional reason for that, and I know what the Minister will say, but it is not a matter of practical reality or public perception. It is important that we consider this.
The first extraordinary part of this is that power is given not to the Competition Appeal Tribunal but to the High Court or the Court of Session in Scotland. To my mind, it is worrying that you give to a first-instance court the power to overrule a decision and an Act of a democratically elected primary legislature. Normally, these matters would go to the Supreme Court. Secondly, and much more importantly, is it right that we should put our judges in a position to make decisions about what are effectively the principles in the Bill? People may remember something called the Human Rights Act and the very broad powers it is said to give judges to make decisions. That has had a degree of criticism. Why do we want to do this in a piece of legislation where the phrases are so ill defined? I shall come to that in the second amendment I intend to speak to. We should exercise the greatest degree of care in giving judges the right to overrule the legislature. I am not certain about the extent to which there has been widespread consultation with the judiciary about this, or with others, but this is the first and very significant step.
There is an extraordinary constitutional provision that has to deal with whose rationale is looked at. I do not want to go into the details of that, because that is more a subsidiary point, and I bear in mind the time—but there is an extraordinary constitutional innovation in the clauses in this part of the schedule.
Of course, it might be said of these principles—and I think this is possibly the Minister’s line—that all of this is very vague and there are not going to be many challenges, so do not worry. However, I am afraid people have left provisions in legislation on that basis and it has come back to bite them. What would worry me about this is if something enshrined in the decisions of the Scottish, Welsh or Northern Irish Parliaments or Assemblies, is challenged by someone. What about it happening in the field of agriculture? Someone who is importing goods would have the right to initiate this sort of action, with its very serious constitutional consequences, whereby a judge would have to make a decision, quite often, I imagine, in relation to the principles that are so ill defined.
That takes me neatly to my second series of amendments, which deal with the definitions and status of guidance. I will leave the noble Lord, Lord German, to deal with the question of whether the guidance is binding. It seems unarguable to me that it is not binding.
What I am much more interested in—this highlights the difficulties caused by Schedule 3 and the construction of the Bill as a whole—is the Minister’s power to give guidance as to the meaning. Ordinarily, it is Parliament that decides what something means and, if it does not, it leaves it to the judges. Sometimes, it is put in secondary legislation. However—this is extraordinary—here we are putting the meaning of the wording into guidance.
There are two fundamental problems with that. First, we have visited the word “equity” on a number of occasions—I might call it a word for all seasons—but, even at this late hour, I feel that I ought to refer to John Selden’s famous note about equity. He said:
“Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is equity. ‘Tis all one as if they should make the standard for the measure we call a foot, a Chancellor’s foot; what an uncertain measure would this be? One Chancellor has a long foot, another a short foot, a third an indifferent foot: ‘tis the same thing in a Chancellor’s conscience.”
I refer to that because it is the essence of the problem with the word “equity”. With the utmost respect, I believe that this Committee ought not to shirk its responsibilities in defining what is meant by this and how it applies in certain circumstances. It might be said, “Well, we are constrained by the fact that these are taken directly from the TCA”, but is that in fact a constraint—or do we hanker for the way in which these vague principles were left to the judges in Luxembourg? Do we want to give our judges that pleasure as well? I doubt it, but I am not sure that it has been fully thought through.
It therefore seems to me that we ought to look at this very carefully. There is the constitutional principle in relation to the Minister being able to give guidance on meaning; it plainly is not binding but he should not be giving such guidance because that is a matter for the courts or Parliament. Parliament should not shirk its responsibility to define what some of these things mean. We should not leave it to judges—unless, of course, there is a hankering for, as they do in Europe, leaving things to the judiciary in Luxembourg. This time, however, it would be the judiciary in Westminster, Edinburgh or possibly Belfast—but not possibly in Cardiff.
Lord German (LD)
My Lords, it is always a pleasure to talk after the noble and learned Lord, Lord Thomas of Cwmgiedd, who manages to enlighten us all with observations that might have passed us by if we had not had the wonder of his words.
In Amendment 74 in my name, which would amend Clause 79, I treat “non-binding” as a sine qua non. The reason I put it in was to allow us to have a discussion and debate about the whole extraordinary clause on guidance. All I seek, of course, is for the Minister to agree that it is non-binding. I am sure that he will do so because all the facts speak for themselves, but there is a high head of steam building up in this Committee about the way in which guidance is being used. I will come back to the spearheading on that and how it has moved on but, basically, this Bill has what we call—Parliament also uses this phrase—“have regard to” guidance. This is a problem because it places an expectation that the guidance will be followed unless there are cogent reasons for not doing so.
Subsections (5) and (6) of Clause 79 give the game away a bit. Clause 79(5) says
“the Secretary of State must consult such persons as the Secretary of State considers appropriate”
before making the guidance. What is appropriate is not specified. Clause 79(6) says:
“A public authority must have regard to guidance issued under this section.”
“Must” is very important in this respect.
Lord Wigley (PC)
My Lords, I was delighted to hear the speech of the noble and learned Lord, Lord Thomas, who raised matters of considerable importance to which we will undoubtedly have to return on Report. I support the comments made by my friend, the noble Lord, Lord German.
I shall not speak at length. We have been over and over, time after time, the question of the relationships with the devolved institutions, so I ask the Minister this simple question: will the Secretary of State give an assurance that, in every instance where guidance may have an implication for the Welsh, Scottish or Northern Ireland Governments, he will actively consult them prior to issuing the guidance?
Lord Berkeley (Lab)
My Lords, I rise to speak briefly to my Amendment 80, which is a probing amendment. It is grouped with this lot of amendments, but it is a different subject, and I will try to be as quick as I can.
It relates to Clause 85, headed “Crown application”, which provides that the Act will apply to the Crown, but excluding Her Majesty in her private capacity, Her Majesty in right of the Duchy of Lancaster, and the Duke of Cornwall. I am afraid that this continues the debate about the uncertainty of the role of the Duke of Cornwall and the Duchy. It is one little hobby-horse that I have been pursuing for many years, and I apologise for that. I refer noble Lords who want to get into the detail to the Second Reading of my Private Member’s Bill, the Duchy of Cornwall Bill, on 26 October 2018, which seems a long time ago.
Since the Duchy of Cornwall says that it is in the private sector—I am assuming that the Duke and Duchy are synonymous—why should the Duke of Cornwall or the Duchy be given special treatment in this Bill? No other big landowner or property owner is allowed special treatment. I understand why Her Majesty in her private capacity and the Duchy of Lancaster are, but the Duchy of Cornwall says on its website:
“The Duchy of Cornwall is a … private estate … established by Edward III in 1337.”
This was confirmed in the second-tier tribunal in 2016, after a Mr Michael Bruton had claimed that the Duchy was in the public sector and therefore needed to do an environmental study on putting Japanese oysters into the Helford river in Cornwall, which it owned. In the First-tier Tribunal, Mr Bruton had won, largely because the Duchy’s representative said, “To all intents and purposes, we believe we are above the law”, which is quite an interesting statement. Of course, the Duchy then appealed to the next-tier tribunal and, not surprisingly, with all the free legal advice it gets from the Government, it won. The tribunal’s decision was:
“The Duchy of Cornwall is not a public authority for the purposes of the Environmental Information Regulations 2004.”
Why should the Duchy of Cornwall be treated differently from anyone else—any of us—to whom this Act will apply? If the Minister is not able to answer that question today, perhaps he could write to me. He might want to contact the Duchy itself. I warn him that the last time I raised this, in the leasehold reform Bill debates about three or six months ago, the Minister agreed to write to the Duchy of Cornwall, the Duchy of Lancaster and the Crown Estates about the leasehold reform Bill. We got good responses from the Duchy of Lancaster and the Crown Estates but, as far as I know, no response from the Duchy of Cornwall.
I do not think that right, because the Duchy of Cornwall must have given views on this Bill and I would like to know what it said. Did it send a letter? Did the Minister have correspondence? If so, can he put it in the Library? If he did not, how was this decision made? I think it very unfair that the Duchy of Cornwall—probably uniquely among big estates in this country, whatever their rights and wrongs—should be given this special treatment, for it means an exemption to the Bill.
Lord McNicol of West Kilbride (Lab)
My Lords, I think we have a hard stop in 20 minutes, so I will be very brief. I am grateful to noble Lords who put down amendments in this group, including the Minister; I hope there will be lots more to come from the Minister. My Amendment 75 has been signed by the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord German and Lord Wigley, and I appreciate their support on this, as well as in the debates on many other devolution-focused amendments.
I was going to say, judging by the previous responses on the devolved authority amendments, that I did not think we would hear much change, but actually the Minister’s response to the last debate was heartening, so hopefully this amendment regarding the devolved authorities will receive the same response. I will leave it there. As we finish Committee, I note that the comments made in the DPRRC report were very telling, and I look forward to discussions with the Minister and officials between now and Report. I hope that we can address some of the DPRRC’s concerns.
Lord Callanan (Con)
My Lords, I am pleased to say that we are now on the final group of amendments. I have made it through thanks to the supply of copious quantities of cough lozenges, so I thank Ruth for those.
I first thank the noble Lord, Lord German, for tabling Amendment 74, the noble and learned Lord, Lord Thomas of Cwmgiedd—
Lord Callanan (Con)
I have had some expert advice from the Whips here. I thank the noble Lords for Amendments 73A, 74A and 74B, the noble Lord, Lord McNicol, for Amendment 75, and the noble Lord, Lord Berkeley, for his fascinating Amendment 80, which I will come to.
Amendment 73 is my amendment, the government amendment to Clause 78. This is a minor and technical amendment that will provide greater clarity in the Bill as drafted. It clarifies that the provisions in Schedule 3 to the Bill are to apply to subsidies in devolved primary legislation and primary legislation made by this Parliament. This is because the word “subsidy” is defined as something given by a public authority excluding a legislature. Nothing else is added into scope by this amendment; it simply makes absolutely clear how the provisions in Schedule 3 apply, for the avoidance of any doubt.
Secondly, the amendment makes it clear that it is only the provisions in Schedule 3 that apply to primary legislation made by this Parliament and devolved legislation, and not other provisions of the Bill. Again, this does not make any amendments to the substance of the Bill but just provides clarification.
Amendment 73A was tabled by the noble and learned Lord, Lord Thomas of Cwmgiedd, who wishes to probe the purposes of Schedule 3 with regard to the devolved Administrations. Clause 78 applies the provisions in the Bill to subsidies made by means of primary legislation, as set out in Schedule 3. Because of the specific nature of these subsidies, the obligations on those responsible for them need to be set out separately. To respond to the concerns of the noble and learned Lord, I will set out my belief that Schedule 3 as a whole ensures that the subsidy control regime will be comprehensive and robust, while at the same time taking into account the UK’s fairly unique constitutional make-up.
Lord Callanan (Con)
It’s interesting stuff, this. I suspect that the noble Lord, Lord Berkeley, is not going to get an invitation to an investiture.
Anyway, the ownership of the Duchy of Cornwall is a private matter. Where the Duchy operates on a commercial basis, depending on the specific facts at hand, it may meet the definition of an enterprise in Clause 7; lawyers have had fun drafting this. None the less, and importantly, the Duke’s relationship with the Duchy as its owner is not the exercise of functions of a public nature. It therefore falls outside the scope of the Bill.
To close, I hope that, with the explanations I have been able to provide, noble Lords will feel able not to move their amendments and to accept my Amendments 73 and 76. As we have now reached the end of the final grouping of amendments, marking the end of Committee, I express my sincere thanks to all noble Lords who have taken an interest for their thoughtful, insightful and probing discussions on this important Bill. Lastly, I thank the team of officials who have supported us in so doing. I can give an assurance that my department and I will of course reflect closely on all the points made by noble Lords, and I look forward to further engagement in advance of Report.
Lord Callanan
“(7) The requirement in subsection (5) may be met by consultation carried out before this section comes into force.”Member’s explanatory statement
This amendment ensures that the requirement in Clause 79(5) to consult on the guidance issued under Clause 79 may be met by consultation on the guidance carried out before the Act comes into force.
Lord Callanan
“(e) provision in regulations or schemes made under this Act.”Member’s explanatory statement
This amendment ensures that regulations made under Clause 82 may make provision about how the gross cash amount and the gross cash equivalent amount are to be determined for the purposes of regulations or schemes made under the Act.
Subsidy Control Bill
Tuesday 22nd March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-I Marshalled list for Report - (18 Mar 2022)
19:10 - Division on Amendment 3 - Ayes: 133 / Noes: 139 - Amendment 3 disagreed.
19:46 - Division on Amendment 4 - Ayes: 110 / Noes: 125 - Amendment 4 disagreed.
Viscount Chandos
Member’s explanatory statement
This amendment would specifically include investment in equity securities on the face of the Bill, as well as it being an example in the Illustrative Regulations and Guidance.
Viscount Chandos (Lab)
My Lords, when I spoke to a similar amendment that I tabled in Committee, I was encouraged by the support of the noble Lords, Lord Lamont and Lord Fox, my noble friend Lord McNicol and other noble Lords, so I felt it was worth trying one more time to persuade the Minister to make this small but, I believe, important change.
I have changed the wording of my amendment slightly in response to the concern expressed by the noble and learned Lord, Lord Thomas of Cwmgiedd, that the use of the simple word “equity” as a form of investment risked being confused with the use of “equity” in the social justice sense on which he is so focused. Although participants in financial markets have become used to thinking about equity in both senses, I was happy to change my amendment to include “investment in equity securities” as an example of when a subsidy can be given to avoid any possible misunderstanding.
I acknowledged in Committee that Clause 2(2) did not purport to be comprehensive and that the related guidance includes equity investment as a possible means of subsidy, but I continue to believe it is highly desirable that it is included as an example in the Bill. When responding to my amendment in Committee, the Minister, the noble Baroness, Lady Bloomfield, said that
“attempting an exhaustive list could be counterproductive, implying that measures not listed would not be considered subsidies.”—[Official Report, 31/1/22; col. GC 130.]
I am tempted to say “The prosecution rests, m’Lady.” The Government have chosen to include some examples in Clause 2(2), and although they are not intended to be exhaustive, the inclusion of six means by which financial assistance can be given, without any reference to investment in equity securities, risks exactly what the Minister said she was concerned about; that is, implying that a measure not listed would not be considered capable of being a subsidy. My amendment would not make the list exhaustive and, if it did, surely that would make a compelling case that the exclusion of equity investment was all the more unacceptable.
As I said at Second Reading and in Committee, equity investment is the most complex and hardest to measure of all of the transactions through which a subsidy can be given. Equity is the highest-risk form of capital and should therefore offer the highest prospective return, even if it is not precisely predictable from the outset. A market return on an equity investment is based on assumptions about the cash flow of the company concerned and often relies wholly or predominantly on the terminal value when the investment is realised. Let us say that, based on a company’s business plan, a public body makes an equity investment on terms that are projected to generate an internal rate of return of 10% per annum over 15 years. That may seem a good return compared with, say, the risk-free rate of return on a 15-year gilt, but a commercial venture capital fund would require a return of, say, 15% per annum and if that was the only source of funding for the relevant company’s competitors, the public body’s equity investment would have embedded in it a subsidy equal to 30% of the total amount of the investment being made.
Equity investment is a key instrument for state support for innovation and strategic investment, which, if implemented selectively, carefully and transparently, I strongly support. In their funding of, for instance, OneWeb, the Government would appear to agree with this, although whether it was implemented selectively, carefully and transparently I am not sure. That company’s dependence on Russian rocket launching is a belated reminder of the uncertainty and risks involved in this type of investment.
This Bill seeks to bring transparency and fairness to government support for private enterprise, first and foremost to ensure a level playing field for all participants in the market but also, as a by-product, to improve scrutiny of the use of public funds. This Bill is proceeding with an unusual degree of bipartisanship, as demonstrated by the amendments tabled in the names of both the Government and Opposition Front-Bench spokesmen. I urge the Minister to respond to my amendment in that same spirit and add equity investment to the six other examples of means by which a subsidy can be given. I beg to move.
Lord Thomas of Cwmgiedd (CB)
My Lords, I will speak to Amendment 9 and I am grateful for the support of the noble Lords, Lord Ravensdale and Lord Wigley, and the noble and learned Lord, Lord Hope of Craighead. I should first say how grateful I am to the Minister and to others for the amendments they have made to Schedule 1 to bring in the words “local or regional disadvantage”, to give some concrete context to the words “equity rationale”. This is an important and considerable advance. I am also grateful for the change to Clause 18, which again takes out any argument that if you are trying to attract a business to an area of disadvantage you can be penalised by that call.
However, despite that praise, there is a problem—I see the Minister smile—and it is this: what is lacking are the standards to ensure that there is some proper objective basis for the Secretary of State, the CMA and others to assess whether the use of the subsidy for this purpose is one that is properly justifiable, proportionate to the policy objectives and complies therefore with the subsidy control principles.
The proposal does not, as the Minister may think, seek to constrain local authorities from being imaginative, from being ingenious or from thinking what is the best standard or what is the best way to spend money for their local area. It does not seek to do any of that. What it seeks to do is to set standards to ensure that there is an objective basis for judging whether these bright ideas—this local freedom, which I welcome—are actually objectively justifiable. In short, the amendment seeks first to provide for efficiency and to ensure that scarce government money is spent wisely on thought-through and justifiable schemes that are proportionate to the policy objectives.
It also has another purpose: to ensure that all parts of our kingdom which are not economically disadvantaged cannot use this rationale to grant a subsidy. Levelling up is essential and subsidies can achieve that objective. As I said in Committee—but need not repeat in the time we have available for this important Bill—there has been a lot of controversy about the way in which the shared prosperity or levelling-up fund was used. That was very damaging. It is not appropriate for us to enter into that controversy tonight, but you have to have clear and objective standards. Some say that there were standards for the way in which those funds were distributed. If so, they were not clear and they plainly did not achieve a view among most people that the funds had been well spent. That controversy shows a number of things. First, there will be close examination of the way in which the subsidies are given and whether they are being properly directed to the right areas of our kingdom and not to the wrong areas. Secondly, you will never persuade the disadvantaged that something is being done for them unless it can be objectively shown that the use of funds across the kingdom is directed to helping those who need it most. The only way to do this is to set out clear criteria, and a failure to do so will be damaging to the unity of our kingdom.
In Committee, some commented that one of the terrible issues of the past number of years is that the rich have got richer and the poor poorer. We cannot go on like that, and we must not allow subsidies to facilitate that. I advocated a map. I have listened to what was said and moved away from that. What I therefore advocate are principles, and it seems to me that these principles are simple and could easily be adopted. I will listen carefully to what the Minister has to say, because my amendment is not the only way.
This Bill is going to have guidance, and I am not going to repeat what I said about the undesirability of legislating on an important matter with guidance. It is bad enough doing things by regulation. Guidance is just a step down the road away from what we should be doing. I have to be realistic and I very much hope therefore that, when the Minister responds, he will make it clear that guidance will cover this, will set objective standards and will include the standards to which I have referred. There is a lot of research on this, but we must be very clear. If we are not, we will waste money, be inefficient and make the rich richer. That is something we must not do.
Lord Wigley (PC)
My Lords, I am delighted to follow the noble and learned Lord, Lord Thomas, to whose amendment I have added my name. We discussed these matters in Committee at some length. I am also delighted to see the Government’s Amendment 2, which is a step in the right direction. However, we need to address the purpose of having subsidies and how the achievement of that purpose or failure to achieve such objectives is measured, and we need some quantified basis on which to monitor and fine-tune policy.
We in Wales, unfortunately, have had far too long an experience of so many parts of our country having to depend on assistance to try and overcome economic difficulties. From the rundown of coal and steel in the 1950s and 1960s through to now, that has happened. There has been investment from the public purse to areas such as the north-west of Wales, including Anglesey, and the Gwent valleys, where the income per head is a 10th of the level of Kensington in west London; clearly, policy has failed. Objective criteria were laid down by the European Union with regard to the Objective 1 funding and the subsequent programmes we have had since 1999. They were based on areas below 75% of GVA per head being eligible for assistance. Millions of pounds have gone into programmes of that sort, but they have not necessarily solved the problem. We are looking for a mechanism that enables the economies of these areas to become self-regenerative, not to depend on handouts for ever and a day. That must be the objective. Therefore, there need to be clear criteria.
It is a good step that the Government recognise the need for there to be a regional and social dimension to this, but there needs to be a means of monitoring and fine-tuning and ensuring the growth of the economy from within. Rather than just compensation for not having that economic growth, the ability must be created among people and businesses to generate growth and economic well-being for the future. If we get it right in this Bill, it could be a very important step forward. If we fail, it will be a missed opportunity.
Lord Ravensdale (CB)
My Lords, starting with the government amendment to Clause 18, I must thank the Minister for listening to my concerns in Committee and for responding by putting forward this amendment, which addresses my concerns with the impact of Clause 18 on the levelling-up agenda and meets the intent of my original stand part amendment. I must also thank the officials for the work they put into drafting and finding an acceptable way forward and for engaging with me throughout the process. I thank the noble Baroness, Lady Blake, the noble Lord, Lord McNicol, and the noble and learned Lord, Lord Thomas, for all their support throughout.
The Government have proposed a comprehensive amendment in Amendment 14, which will ensure that subsidies that target regional disadvantage are exempted from the prohibition on relocation of economic activities. It will address concerns from stakeholders I worked with in the Midlands Engine, home to many of the most deprived regions in the UK, that this would be a constraint on supporting disadvantaged areas; and it will address concerns from local authorities and other disadvantaged regions. I believe it will prove an important part of the Government’s toolkit in levelling up, through allowing productive relocation activities that reduce economic disadvantages within the UK as a whole.
I also welcome the clarification, provided through Amendment 2, to the equity rationale in Schedule 1 to the Bill, that it covers subsidies aimed at regional economic disadvantage. This whole package of amendments goes a long way to address concerns expressed by noble Lords in Committee. However, there is always more that can be done.
I very much support Amendment 9 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd, to which I have added my name. It addresses an issue in that the way the common principles are drafted can be viewed through a local context; there is nothing in the Bill to define what a disadvantaged area is, as opposed to an advantaged area. If national direction is absent, there is no means via subsidy control to steer intervention to those areas that need it most. The amendment seeks to set objective criteria to define a deprived area, which would resolve this difficulty. It would also give legal certainty for business on which areas would count as deprived, and hence work to drive investment into those areas.
The other way this could be approached is through streamlined routes. A streamlined route or routes could be created, through the mechanism in the Bill, to provide national direction on funding into deprived areas. This could be on the basis of the same economic indicators as in the amendment of the noble and learned Lord, Lord Thomas, where any one of several markers of deprivation is present. Again, the legal certainty that comes from this route would then help direct business investment into the deprived areas. There would be a clear definition of what a deprived area is, and therefore the areas of the country for which support would be available through the streamlined routes. Obviously the streamlined route would not prevent subsidy in a non-deprived area. It would just mean that the giving of a subsidy in a non-deprived area would be more complex, require more scrutiny and therefore help direct investment into deprived areas.
I would be most grateful if the Minister could give some clarity on a couple of things. First, to echo the request from the noble and learned Lord, Lord Thomas, can the Minister provide some reassurance that the Government will provide some specification or objective criteria of what a deprived area is within guidance? Secondly, can he provide some detail on the government programme for streamlined routes and how these will feed into the levelling-up agenda?
In concluding, I was delighted to see the appointment of Professor Sir Paul Collier to the Government’s levelling-up advisory council. Several years ago he wrote that what was needed was a shock to expectations, which in itself would provide the momentum required to level up the country. Noble Lords will recall Mario Draghi saying that he would do “whatever it takes” to save the euro. In a similar way, the Government need to take on the challenge of levelling up by stating that they would do whatever it takes to level up the regions. The Bill will be a key part of the Government’s toolkit for achieving just that.
Lord Fox (LD)
My Lords, before speaking to this group, I must say that our colleagues, my noble friends Lady Randerson and Lord German have been struck down with Covid, so, although there are amendments in their names, we will struggle on without them. Happily, my noble friend Lord Bruce has been restored from his bout, so at least we are not completely bereft.
I would characterise the purpose of this group of amendments largely as trying to avoid levelling down. I would put it down as damage limitation, and I think many of these amendments go some way towards that process. On Amendment 1, in the name of the noble Viscount, Lord Chandos, having dealt with the dual meaning of the word “equity”, I agree with him that this is a really important principle that ought to be enshrined in the Bill. It is not too late, and I hope the Minister can once again reflect on the wise advice of the noble Viscount and bring something back when we get to Third Reading.
Baroness Blake of Leeds (Lab)
My Lords, I declare an interest as a vice-president of the LGA. I also express—I like the term—a personal “modicum of delight” at having been released from the Covid nightmare and enforced isolation which has unfortunately hit too many of us in this group.
I sincerely recognise the movement from the Government in the amendments tabled. I thank the Minister for taking our comments on board. We have all expressed our reservations and commented from wide experience and knowledge from the front line of how significant these subsidies are—particularly, as has been said, in the context of driving investment, regeneration and putting some substance behind the rhetoric around levelling up. We have given examples of discrepancies in investment and funding, and the real disadvantage that that has caused too many communities across the United Kingdom.
I express my gratitude for the quality of the discussion on the amendments in this group, particularly for several conversations my noble friend Lord McNicol and I have had with the noble Lord, Lord Ravensdale, about what it is like being part of a body with the responsibility for delivering on the ground. The issue here is bridging that gap between the words in the Bill and the reality of how you make this happen on the ground.
My noble friend Lord Chandos has, as ever, expressed his views eloquently. I cannot add to what he has said, other than to thank him for his reasonable and measured approach, which highlights the significance of his comments around the investment in equity securities and how we must ensure that the discrepancies between the contents and the supporting documentation are resolved. We hope that the Minister can offer helpful clarifications on this subject.
Like other noble Lords, we on these Benches are very pleased that the Government have been persuaded of the case for strengthening the Bill’s focus on local and regional economic disadvantage. These points have been raised consistently both in another place and in your Lordships’ House. Without wishing to sound churlish, we feel it is a case of “better late than never”. It seems obvious to use whatever instruments are to hand to bring advantage to all parts of the country.
It may be that the Bill never prevented subsidies from being used to level up deprived areas, but the clarification in Amendment 2 will be helpful for public authorities at all levels. The exemption for relocation subsidies, introduced via Amendment 14, is also a hugely significant step. As we will all recall, we had a very interesting debate on relocation in Grand Committee and how, perversely, not addressing this matter could have caused real damage, inadvertently perhaps. I am glad that we have some movement and some common sense in this area.
I understand the intention behind Amendment 9, in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd. In an ideal world, the Bill would indeed contain further detail on how the equity rationale will work in practice. As has been said several times, the amendment is looking for that clarification—the standards and principles—for how we can ensure that there are no grounds for misinterpretation and confusion. I am fairly confident that the Minister will say that this is exactly the kind of information that will be contained in future guidance, but, again, we must bear in mind the recipients of that guidance and how it will be interpreted. The subsidies must be a force for good. They must clearly demonstrate purpose and benefit to the communities where they are applied. I emphasise the clarity that will be needed around this. Talking to various stakeholders in the field, it is about the level of advice and clarification, and about ensuring that everyone feels that there is a level playing field and that interpretation in different areas is not bringing disadvantage as a knock-on effect.
It is fair to say that the Welsh Government have consistently voiced concerns that the original Bill treated Mayfair and Merthyr in the same manner, and with these changes we are definitely making progress. However, as regards other elements of the Bill and the changes that have been made, we must emphasise the significance and importance of the review process, making sure that that is done in a transparent way at every stage of the game. We are talking about value for money, delivery, the spend of the public pound, making sure that all the concerns around the decisions that have led to investment decisions—which have been fairly, from our point of view, criticised—must be addressed. This is a powerful opportunity and I hope that through the changes that we are seeing, the opportunities are not missed.
As we speak, there is discussion about the spend of the shared prosperity fund, the delay in the skills element of that and the fact that ESIF will fall out next year, and there will be a gap if we do not pick up these issues. All those matters need to be brought together so that the spirit behind the gain-share agreements with all the devolved areas can be delivered with local determination, bringing benefit to all. This is a current and very important debate and I look forward with interest to the Minister’s response.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I start by welcoming the noble Baroness back to her rightful place on the Front Bench, fully recovered. In fact, I say that with more than a modicum of delight—to use my favourite phrase of the week so far. For the noble Lord, Lord Fox, that is the equivalent of being damned with faint praise. So as not to be sexist about this, it is good to see the noble Lord, Lord McNicol, back as well.
The interaction of the subsidy control regime with the Government’s levelling-up agenda has rightly occupied many noble Lords during their consideration of the Bill, both in Committee and on Report. I hope that so far I have been able to provide sufficient reassurance that public authorities are no less able to give subsidies to address regional disadvantage under the Bill than they were under the previous EU state aid regime. Indeed, moving away from the EU’s default prohibition on subsidies and the resulting exemption for certain categories of subsidy in specified areas will allow public authorities greater ability to design measures that address not only regional disadvantage but the stark differences in social and economic opportunity that exist at a much more granular local level.
It is important that public authorities understand the way that they are empowered by this regime to give levelling-up subsidies, so I recognise the value of noble Lords’ suggestions that this would benefit from being made clear in the subsidy control principles. Amendment 2 to Schedule 1 therefore makes it clear that addressing local or regional disadvantage is considered to be an equity rationale for the purpose of assessing compliance with principle A. That was urged on me by many noble Lords in Committee and I am delighted to be able to put that forward—with more than a modicum of delight —on behalf of the Government. This puts it beyond any doubt or confusion that a subsidy to address local or regional disadvantage can be given, provided, of course, that the other principles and requirements of the regime are met.
I am grateful to the noble Baroness, Lady Blake, and the noble Lord, Lord Ravensdale, for supporting this amendment—I am not sure that there are many occasions when people put their name to my amendments but I am more than delighted when they do so. I am also happy to reassure noble Lords, the noble Lord, Lord Ravensdale, in particular, that beyond this change to the Bill, the Government will be exploring the creation of streamlined routes to support levelling up. I reassure the noble Lord that these streamlined routes may have deprivation-related eligibility criteria, although it is important to note that levelling up is about improving opportunities in the whole of the UK.
A streamlined route could therefore facilitate interventions—high street regeneration is one example—that could be used by a range of public authorities, but particularly those who wish to address deprived areas. Although streamlined routes will be produced by the Secretary of State, none of this prevents local authorities or other public authorities making subsidy schemes that have deprivation-related eligibility criteria.
Viscount Chandos (Lab)
I thank noble Lords who have spoken to this group, in particular the noble Lord, Lord Fox, and my noble friend Lady Blake, in confirming their view that this was a worthwhile and important amendment. Therefore, it is disappointing to hear the Minister repeat the same arguments as were made by the noble Baroness, Lady Bloomfield, in Committee, and I have to say that he showed no sign of having listened to my response to those arguments in the remarks that I made in introducing this amendment.
As I have said earlier, the Government’s argument that there is a danger in an example of a means by which a subsidy can be made being left out of that being interpreted as being that it is not susceptible to being used for a subsidy; that is precisely the argument that I was making. Six different examples are listed, which the Minister just read out. What I was suggesting did not make it exhaustive in itself. The Economic Affairs Committee, of which I am privileged to be a member, has heard over recent weeks about how important contracts for difference have been in helping to stimulate the growth in the generation of renewable energy. That may be a guarantee or a purchase of future services, but it is a good example—something that is fairly specialised and rare, which I do not think that it is appropriate to have as an example. But equity investment is one of the principal means by which a Government or a public body can give support, and it is perverse to exclude it.
That said, while I shall consider what I might do at Third Reading, I beg leave to withdraw the amendment.
Lord Callanan
Member’s explanatory statement
This amendment clarifies that Principle A of the subsidy control principles covers subsidies aimed at addressing local or regional disadvantage.
Lord Whitty
“(c) progress towards targets under section 1 of the Climate Change Act 2008 (UK net zeroe emissions target), and section 5 of the Environment Act 2021 (environmental targets).”Member’s explanatory statement
This amendment requires public authorities to consider whether proposed subsidies would have any negative effects on progress towards the UK’s legally binding net zero and environmental targets.
Lord Whitty (Lab)
My Lords, I shall also say a few words about Amendments 51 and 61 in this group. I do so in lieu of the noble Baroness, Lady Boycott, who, unfortunately, has to be at a funeral this afternoon. I declare my interests as set out in the register but in particular a very new one, which is that I have become a director of Peers for the Planet.
This amendment is pretty straightforward. It says that our climate change strategy, our net-zero strategy, about which the Government have been very clear, should be taken into account in their subsidy policy. It is odd that it is not in the Bill, either in Schedule 1, which we are discussing, or virtually anywhere. However, we are lucky tonight because the Minister is of course also Minister for many aspects of net zero. I therefore assume that my amendment will be received with acclaim by the Government Benches. They might think they have a better form of words that they want to bring forward later, but I think my form of words is fairly clear.
We are on Schedule 1 to the Bill, which is headed “The Subsidy Control Principles”. That a flagship policy of the Government which has been said by Ministers time and again should apply across all government policy is not included in that schedule is very odd indeed, and it must surely be an oversight. Even more surprising, it is not referred to in Schedule 2, which relates to energy and efficiency principles, because that is mainly about energy policy. There is a reference which could be said to be relevant, which is to subsidies directed towards the reduction of carbon use and to help decarbonisation, but those are specific subsidies. What my amendment is concerned about is that all subsidy schemes should take into account their implications for our target zero policy and climate change objectives.
I would find it difficult to think the Government could reject that. Ministers have said on many occasions that it is one of our most important policies and strategic commitments. The Public Accounts Committee has recently said that all government departments must take it into account, and that includes new legislation. This is substantial new legislation which may not obviously directly affect climate change, but everything indirectly affects it. Subsidies after all, whatever their form, are about interfering with the market to get a different outcome. It would be odd indeed if the Government did not accept that, if the market was moving in the direction which was more or less in line with our climate change agenda, we should not intervene with a subsidy which reversed it or at least offset it. We are not saying that every subsidy has to be directed at climate change, but the implications have to be taken into account when considering the validity of that subject.
I am expecting a positive response from the Government. I do not think it would cost them a lot in terms of the overall nature of the Bill, but it would give credibility to the overall policy that our net-zero targets should be followed through across the whole of government and all public authorities. If the Government reject it, I will find that very difficult to accept, and I think we would wish to test the opinion of the House. I hope that the Government will be reasonable and either come up with their own wording or just accept the wording which the noble Baroness, Lady Boycott, and I are proposing. I beg to move.
Baroness Bennett of Manor Castle (GP)
My Lords, I rise with great pleasure to follow the noble Lord, Lord Whitty, who has powerfully and clearly introduced this group of amendments. I will offer the Green group’s support for Amendments 3, 51 and 61. Were we not in a state of continual juggling of different Bills, I am sure that we would have attached one of our names to them.
Amendment 3, on which the noble Lord indicated he is likely to test the opinion of the House, is particularly important in considering the negative effects. I am influenced in that view by a visit I made yesterday to a village called North Ferriby and a site threatened with the development of an enormous Amazon warehouse, with significant environmental effects. From those environmental effects flow effects to people’s lives and well-being. It is the absolute reverse of levelling up in that it is making people’s lives much worse. It is clear that, when talking about economic development, there is inadequate consideration of local environmental effects and the broader effects on the state of our world.
However, I rise chiefly to speak to Amendment 5 in my name. Rather than trying to stop damage, this amendment is trying to lead the Government in a positive direction, which could help them deal with some of the issues facing them today and will be tackled by the Chancellor tomorrow.
Amendment 5 is all about helping small-scale community energy projects to make a big impact in the energy system. In Committee, the Minister suggested that community energy is not within the scope of the Bill, but I hope we might see a broader response today, and at least a positive response and acknowledgement from the Minister that this is a huge lacuna in government policy that desperately needs to be filled.
This amendment adds community energy to the list of circumstances that may be used to determine a subsidy, where the generator is a community energy project. What we see is that the rural community energy fund is soon winding down, despite its success. The Minister and I have, in another context, discussed the lack of any other community energy schemes, despite the Government’s promises to deliver them.
You might ask, “Why would subsidies be needed?” The fact is that community schemes often need early-stage seed funding to get them to the stage where they can seek investment. Without that, many communities, desperately keen to set up their own scheme, are never able to get one off the ground. What we are talking about is perhaps something like an electric car club, where a community can generate its own energy. I saw this in Stroud a few years ago: solar panels on the roof of a doctor’s surgery powered an electric car club car. This had all been supported by community investment and was run by the community, with the nature of the project being chosen by the community.
It is clear that this can unlock more than £64 million in private capital investment. It is an incredible opportunity for public money to kick-start a community-led green revolution. Importantly, thinking about the levelling-up agenda, this means that communities with money can put it into their local community and get the money circulating around that community. This is a cost-effective way of unleashing the possibility of many new green jobs.
I am not expecting the amendment to pass today, but there is a huge opportunity here. The crisis the Government are facing is clear: the cost of living crisis and concern, particularly in the context of the tragic situation in Ukraine, about energy self-sufficiency. But there is energy all around us: energy from the sun, the wind and people within communities desperate to help tackle the climate crisis and meet the needs of their own communities. Let us make sure that we have a subsidy scheme that can support all that physical and human energy and put it to good purposes to improve the lives of us all and our environment.
Baroness Sheehan (LD)
My Lords, I rise to speak to Amendments 3, 51 and 61, to which I have added my name. I have checked with the Public Bill Office that my name is on those amendments—it is online but it has not made it to the printed copy. I should also add that I am a director of Peers for the Planet.
The reason I have added my name to these amendments is that I feel strongly about this. I hope that the noble Lord, Lord Whitty, will be press Amendment 3 to a Division if the Minister is unable to meet us half way or come some way towards what we are looking for, which is some recognition of an alignment with our climate change and natural environment concerns.
Just last month the IPCC published its sixth report, which is full of dire warnings about the climate. Time is running out and we are fast approaching a 1.5-degree rise. The raw science tells us that we really have to act now. The concentration of carbon dioxide in the atmosphere is at an unprecedented 419 parts per million; it has never been at that level, records show, in the last 800,000 years. It is going up in a straight-line vertical trajectory at the moment, so we really need to act as quickly as we can. The NASA website shows that many other of the planet’s vital signs are moving in the wrong direction and those adverse changes are accelerating.
A Bill laying out a new subsidy regime is an important policy lever to meet our climate ambitions. However, as things stand, there is a deafening silence on climate and nature alignment in the Bill. Amendments 3, 51 and 61 seek to fill that void, not in a prescriptive manner but by allowing the Government to determine how the aims should be achieved. Notwithstanding what the Minister’s response will be to the amendments, I hope that nevertheless he will confirm from the Dispatch Box that the guidance to the Bill will specifically include how public authorities should approach climate and wider environmental considerations with respect to subsidies. The Minister said as much in his letter to my noble friend Lord Purvis but it would be good to have it reiterated on this occasion.
Baroness Hayman (CB)
My Lords, I support Amendments 3, 51 and 61. I declare my interests as set out in the register.
The amendments seek to ensure that considerations around net zero and the environment are embedded in the legislation at the stage of principles, at the stage of guidance and at the stage of reporting. They are very similar to amendments well discussed in Committee. I have to say that when responding to those amendments the Minister did not show even a modicum of delight; he said that we were banging on—although he did not use that term—about our favourite topics, a term he did use, and said he had a sense of déjà vu. I am afraid it is déjà vu all over again, because these issues are too important for us not to return to them.
I believe there is a disjuncture in the Government’s attitude. When responding, the Minister made absolutely clear the Government’s view that
“net zero is of critical importance.”—[Official Report, 31/1/22; col. GC 159.]
That is not something between us. He also recognised the relevance of the subsidy regime that we are discussing in achieving the Government’s aims, and pointed out that environmental and net-zero schemes had already been agreed under the interim subsidy control mechanism. So we have a situation where the Government recognise the severity of the climate crisis, the fact that economically we need to shift the economy and growth into a sustainable pattern and into areas that will be productive in terms of jobs—and, indeed, will create the sorts of jobs that support the levelling-up agenda we were just talking about, because they are the sort of infrastructure jobs that go across the country—and that we need to support jobs that will provide energy security in future.
Lord Hope of Craighead (CB)
My Lords, I will say a word in support of Amendment 5 in the name of the noble Baroness, Lady Bennett of Manor Castle. Her list of small projects reminds me of the position of the many small islands around the coast of Scotland, in the Northern Isles, the Western Isles and the Inner Hebrides.
About 15 years ago I spent a week on the island of Fair Isle, which lies midway between Shetland and Orkney. It is too far away from the mainland and from those islands to have any electricity supply provided from outside; when I went there it was largely reliant on diesel generators, which were expensive and wasteful and could not run all the time. People had been relying on the diesel generator coming on at, say, six in the evening to fire up their cooking utensils and so on, but just before we got there someone with funding had been able to put up a wind turbine. It was there, and I remember the thrill of the islanders when it was put into operation and provided a reliable source of electricity which was available all day because it did not involve wasteful use of diesel oil.
That would fall well within the small projects in proposed new sub-paragraph (2)(d)(v); it is just one example of the value of these small projects to small islands such as that. I do not know how many like Fair Isle there are still relying on diesel generators, but anything that can be done by introducing and supporting projects of this kind to stop them using carbon fuels and relying instead on the renewables listed here would be of great value. Of course there is a climate change aspect to it, but it also has a real practical value for the communities themselves—otherwise, they are driven to spending money on carbon fuels, which we would all like to stop having to use.
Subsidy schemes for small projects have a real value in these remoter communities that cannot be linked into the grid around the mainland or some of the larger islands which can have their own generating facilities. The list is very interesting and valuable, and I hope the Minister will pay attention to it.
Lord Fox (LD)
I rise to support briefly Amendments 3, 51 and 61. On the point made by the noble and learned Lord, Lord Hope, and our Green friend, I was not aware that this scheme excluded small projects. What it will exclude is us finding out about them as they will all come in under the threshold and will not be reported. I hope that the Minister can perhaps come back and report on them; we will not find them in the database.
We have heard fantastic speeches on Amendments 3, 51 and 61. I will not repeat them but want to pre-empt a little what the Minister’s response might be. I have a hint of that; I suspect that he is guided by his feelings about Ukraine. Since its invasion, the mood will have changed, and that will be his line. The Russians are indeed committing atrocities in Europe as we speak, and it is terrible, but the climate crisis is not standing back while this happens. With this amendment, we are asking the Government to walk and chew gum at the same time. Yes, we have to deal with the consequences of the war and we understand how hard that is, but we have to do that within the context of attacking the net-zero challenge. Unless the Minister can officially announce that global warming is performing a ceasefire, this amendment has to be there for us to meet both the important things that this country has to face right now.
Baroness Blake of Leeds (Lab)
My Lords, I am grateful to the noble Baroness, Lady Boycott, for tabling her amendments and sorry that she cannot be here to move them today; I am grateful that my noble friend Lord Whitty stepped into the breach much more than adequately. I want also to recognise the contribution of the debate and the importance of getting on to the front foot with its urgency on such a range of different issues. Obviously we have the climate emergency, but we have to mention Russia’s illegal invasion of Ukraine and the West’s urgent discussions about how to lower its dependence on Russian oil and gas.
These discussions are happening at the highest possible level. For some, I fear that they will give a convenient excuse to promote activities that will cause significant environmental damage if unchecked, whether that is firing up coal-fired power stations, resuming fracking, or indeed Shell’s announcement just this morning that it will look again at the Cambo field. For many, the focus is on the acuteness of the energy security issues that we are facing, which have come to the forefront, and the ever greater need to develop energy self-sufficiency; that means focusing on the climate imperative together with security issues, regeneration and the new green jobs that will come along.
Following COP 26, the UK remains a key player in driving implementation of the various agreements reached. What hope do we have of ensuring that other countries follow through on their commitments if we do not play our leading role in this global fight? Another aspect is that we know the Government want a degree of flexibility for public authorities at every level, but we do not see anything in Amendment 3 that takes that flexibility away. The Minister has been keen to use the example of Welsh steel during our discussions on this matter. If, when conducting the so-called balance test, the Welsh Government decide that the short-term economic benefits outweigh the costs of emissions, they will be able to award the subsidy. However, as a general principle, public money should be used for public good, and what greater public good can there be than preserving our planet for future generations?
Now is the time for us to double down on our commitments to renewables and nuclear rather than being swayed by those who are seeking to turn back the clock. I finish by picking up on the comments of my noble friend Lord Whitty about pressing Amendment 3 to a vote. If he does indeed decide to do so, we will support him.
Lord Callanan (Con)
My Lords, first, I thank all noble Lords who have spoken on these amendments, which were introduced so ably, as always, by the noble Lord, Lord Whitty. I will respond to them all together since they all relate to climate change and energy matters.
Amendment 3, tabled by the noble Baroness, Lady Boycott, and the noble Lord, Lord Whitty, seeks to include specific mention of our “net zero emissions target” and “environmental targets”. It would require public authorities to consider the negative impacts, with respect to our Climate Change Act and Environment Act targets, when making a balancing test under principle G of Schedule 1. Amendment 61 would allow the Secretary of State to issue guidance to support public authorities with this assessment.
I understand noble Lords’ keen interest in ensuring that subsidies and schemes granted within the UK further our climate change and environmental targets, wherever practical, and that public authorities should be supported by the Government in making robust assessments of the impacts that their subsidies or schemes may have on these targets. The Government share this objective, and our record in office demonstrates that. I make it clear that this applies to some of the other amendments to which I will be coming later: the UK’s net zero target is, and remains, the law of the land. Nothing in this Bill changes or undermines that fact. The Government remain resolutely committed to net zero by 2050. At this point, I welcome the addition of the noble Lord, Lord Fox, to my speechwriting team. However, it is right and proper, particularly in the current crisis, that we keep in mind that our energy transition to net zero is an issue not only of decarbonisation but of national security and—especially at the moment—national importance.
In response to the noble Lord, Lord Whitty, I make it clear that the balancing test in principle G already requires public authorities to take into account all relevant “negative effects”, which would include negative effects in relation to climate change and the environment. Similarly, subsidies that support our net zero and environmental targets should also take those positive impacts into account in the balancing tests. Principle G emphasises particularly “competition”, “trade” and “investment” effects because minimising harmful distortions in these areas is the primary purpose of a system of subsidy control. However, it is not intended to suggest that these factors should override all other policy-making considerations. There is no implication that public authorities should set their climate and environmental obligations—or, indeed, any other duties or objectives—to one side.
I reassure the noble Baronesses, Lady Sheehan and Lady Hayman, and others, that the Secretary of State will issue guidance on the practical application of the subsidy control principles, and regarding the energy and environment principles. This guidance will include instructions on how to take into account, where relevant, any impacts the subsidy or scheme may have on targets under the Climate Change Act or the Environment Act—or, indeed, signpost the public authority to existing guidance to this effect.
It is also worth pointing out that environmental policy is a devolved matter. This regime is designed to empower public authorities with democratic mandates to use subsidies in pursuit of their own policy objectives—within certain bounds which merely protect UK competition and investment—and safeguard our international obligations. It is not seeking to direct the devolved Administrations, or any other public authority, to spend on one specific policy objective, however important and worthwhile that policy objective may be. For that reason, I am highly reluctant to impose any additional constraints on other public authorities which are fundamental neither to subsidy control policy nor to implementing our international obligations. There are later amendments in which noble Lords will seek to persuade me to do the opposite in respect of the devolved Administrations, so I hope that noble Lords will not be so hypocritical as to repeat those arguments back to me then. I believe that these amendments are therefore unnecessary, and I ask the noble Lord, Lord Whitty, to withdraw Amendment 3.
Lord Whitty (Lab)
My Lords, I cannot really hide that I am deeply disappointed by the Minister’s response. One modicum of comfort, if that is the phrase, is that he did say that guidance to public authorities would include a reference to the climate change objectives. I therefore can see no possible reason for him rejecting Amendment 61 on that basis.
On the central issue, the Minister referred to all the existing mechanisms, and there are important existing mechanisms and commitments, but the Climate Change Committee has said to the Government time and again that every new policy ought to include a cross-reference to climate change targets. This is an enormous area of new policy that, rightly or wrongly, we have taken back from the European Union so that we control the levers of power for a new era. Yet the Government stumble at the first hurdle and do not put it in this very important legislation. I do not understand the logic.
To be fair to the Minister, he wants all these things delivered, as the Government appear to do. This is not to say that they override all other policies and objectives, but they should be part of the balance when these things are being considered. There is a danger, in rejecting such amendments to this important legislation, that the interpretation out there—which in a sense has been fed by the media over the last few days—will be of a backing off from commitments to climate change within government circles.
The Government are missing the point and missing a trick here. If they want to reassert that they are still on schedule to deliver the government commitments and the net-zero strategy to which the Minister is committed, that should be in this important legislation. I hope I am wrong, but in order to ensure that this House at least has a chance to give its view on these matters, I am prepared to put this issue to the vote tonight. I beg to move.
Lord Bruce of Bennachie
“Agricultural subsidies
H_ Subsidies for agriculture should, in addition to being connected to the purposes under section 1 of the Agriculture Act 2020, take particular account of areas of agriculture disadvantage and levels of marginality of land.”Member’s explanatory statement
This amendment would require agriculture subsidies to take particular account of areas of agriculture disadvantage and levels of marginality of land.
Lord Bruce of Bennachie (LD)
My Lords, I shall speak to Amendment 4 in the name of my noble friend Lady Randerson and myself. As has already been reported, my noble friend is unfortunately self-isolating with Covid, but we are cosignatories of this amendment.
I hope to have a short but important debate about the role of agriculture in the context of this Bill. In Committee, we moved for the removal of agriculture from the Bill, and it remains our view that it is not appropriate for agriculture to feature in it. The European Union and World Trade Organization, as well as most countries and other organisations, keep agriculture as a completely separate administration, for all kinds of good reasons to do with issues such as food security and the environment. It is also important for the social and economic life of rural communities. In that context, given that the Government have made it clear that they are determined to keep agriculture in the Bill, we have tabled this amendment to try to ensure that the criteria by which agriculture is treated give some comfort—and, more than comfort, substance and reality—to how our marginal farming areas can prosper in future.
It is no secret that there is real concern among farming communities not only about the consequences of leaving the EU and its agricultural regime but about the trade agreements that the Government are signing with Australia and New Zealand, which open up our market to competitive imports—and without a subsidy regime for our marginal areas, we will simply not be able to compete. For example, 86% of the land area of Scotland is designated as less favoured; it is marginal and difficult to farm. It has mostly been dependent, therefore, on a range of different subsidy regimes, whether that is headage or area payments, market intervention or price support. All of those mechanisms have been designed to ensure that farming can be viable in those communities, and that the rural economy of those areas can be sustained.
Therefore, our amendment would put it into the Bill that particular account should be taken of areas of agricultural disadvantage and the levels of marginality of the land. I have cited the figures for Scotland; I do not have the exact figures for Wales, but it involves a significant proportion of the land area of Wales—and it is important for parts of England, such as the border country with Scotland, the Lake District, Cumbria and the ridge of the Pennines. Left to a completely open market and no subsidy support, agriculture on those hills would pretty well disappear. While it may be that the return of wilding is currently supported, it cannot maintain a viable community if there is no activity on that land that can be sustained.
In simple terms, we ask the Government to recognise that marginal land and land that is agriculturally disadvantaged should be explicitly stated as deserving of support. If the Government recognise that, they will give a degree of assurance to farmers across the areas identified, which they desperately need. It is already clear that subsidies are being reduced, and the marginality of those farms gives rise to real concern that they will not be viable in future—and the whole of our landscape will change.
This is a serious issue. It really matters to our hill farmers that they survive, and it matters to our rural culture that they survive, and this amendment would help to ensure that they do.
Lord Wigley (PC)
My Lords, I am delighted to support this amendment. I wish the noble Baroness, Lady Randerson well; it is a shame that she is missing this debate as her heart would very much be in it. She has quoted figures for Wales regarding the marginality of land.
In the context of European funding, which this regime is now replacing, the reality in Wales was that many of the schemes to help rural areas were under European grant systems rather than under specific agricultural systems. There is a coming together of the agricultural support and the support for the rural communities in which those agricultural businesses must exist, and both must work together if they are to underpin the future of the small farms, the hill farms, in Wales. There are many uncertainties at present, as the Minister answering this debate is aware. She has met the farming unions in Wales, and she knows their worries. One way of at least giving some hope for the future is to pass an amendment along these lines; if the Government cannot accept the exact words here, they can come back at Third Reading with an amendment that ensures that there is no inhibition, no prevention, in the new system of helping those rural communities in such vital matters.
The Duke of Montrose (Con)
My Lords, I declare my interests in farming in Scotland and as a member of the National Farmers’ Union of Scotland.
Agricultural support in Scotland is fully devolved but is an area where, as the noble Lord, Lord Bruce, has just emphasised, many elements of rural life can qualify as disadvantaged or marginal. Therefore, I sympathise with those who are keen to see that similar areas of the United Kingdom are adequately supported. However, I weigh it up with the fact that my noble friend the Minister has emphasised in earlier stages of our consideration that existing support schemes will be allowed to continue.
Those seeking to put this amendment into the schedule are surely looking at the rules that might apply to any new support schemes, but at the moment we are not looking at many new schemes. The measures put before us yesterday in Grand Committee were largely to do with amending existing support schemes. There is a possible exception in that elements of the lump-sum scheme, which at present is aimed at encouraging farmers to contemplate retirement, appear to contain the possibility that it could be applied to completely different circumstances. I asked the Minister yesterday whether it would apply for those in financial difficulty.
Lord Whitty (Lab)
My Lords, I will say a couple of words in support of the amendment and widen it slightly. In Committee, we argued that agriculture had to be dealt with somewhat differently. Clearly, the most acute issue is those on the uplands and other disadvantaged areas. It is right that this amendment addresses that and that the Government—at least in words, if not in the Bill—accept that this will have to be the case.
There is another aspect to it. If we drive those farmers out of business and there is no farming on the uplands and other disadvantaged areas, relatively well-heeled organisations will buy that land, claim they are reforesting it or engaging in some other form of environmentally desirable activity and receive a government grant for it—but in the meantime they will destroy the communities, the culture and the whole nature of our upland areas.
I add the proviso that, as the new schemes come in, the subsidy policy will have to be reconciled with other aspects of agricultural policy. It will not be a simple area. As the noble Duke just referred to, the SIs we have seen so far do not give us any clear indication of the way that policy will develop. This will be an ongoing issue between the subsidy regime and the agricultural support scheme.
Lord McNicol of West Kilbride (Lab)
My Lords, I am grateful to the noble Baroness, Lady Randerson, for tabling Amendment 4 and wish her well in her recovery from Covid—it seems that working on BEIS Bills is a Covid-risky business for us all. I also thank the noble Lord, Lord Bruce, for introducing the amendment.
On our Benches, we have been puzzled by the Government’s decision to include agriculture and fisheries in the new subsidy control framework. These are complicated sectors already governed by their respective post-Brexit Acts of Parliament. Given the complex nature of agriculture, I imagine it will be high up on the list of streamlined subsidy schemes created by the Secretary of State or by devolved authorities with approval.
There are genuine concerns around the Government’s approach to the withdrawal of CAP funding and the seven-year transition to environmental land management schemes, ELMS. We support ELMS and the UK Government and devolved Administrations having far greater flexibility than that afforded under the CAP. Nevertheless, as the NFU president Minette Batters has made clear in recent comments, these are challenging times for UK food producers. There has been a worrying long-term trend in the agricultural sector, as my noble friend Lord Whitty just stated, with smallholdings being snapped up by ever-growing larger conglomerates. We take no issue with the bigger producers being present in the UK, but we are concerned about the ever-increasing squeeze on family farms and hill farmers, who struggle to make a living without stable subsidy support.
I am sure the Minister will tell us that this amendment would raise all sorts of unintended consequences, not least that it would fundamentally undermine the ability of the Welsh Government to support their farming sector. However, due to Her Majesty’s Government’s treatment of subsidy control as an entirely reserved matter, there is not a common framework on this topic. This was already touched on in detail in Grand Committee. Specific nations and regions of the UK may have very different interests from those of their neighbours.
Public authorities will of course be able to do what they deem appropriate in the context of overarching subsidy control principles, but this is one area where we may end up seeing subsidy battles and/or legal appeals. Ultimately, this is an opportunity for us to say that, where agricultural subsidies are given, public authorities should have particular regard to issues around the hardship and profitability concerns of smaller producers. As with Amendment 3, we do not believe this text in Amendment 4 precludes any public authority from awarding any particular subsidy; it merely adds an additional consideration to the decision-making process.
Amendment 4 may not instantly solve the problems faced by Welsh farmers, for example, but let us remember that in terms of the Welsh sheep industry something like 90% of the breeding stock fall within upland areas and 70% are in what are known as severely disadvantaged areas. These farms are a crucial part of the British landscape and, while they may not be as profitable as others, there is a public interest in preserving them. We will listen very carefully to the noble Baroness’s arguments, but at this time we are minded to support Amendment 4.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, before I turn to this amendment, I want to take this opportunity to correct the record. During the fourth Committee session of the Subsidy Control Bill on 9 February, I stated that data for England from the Rural Payments Agency showed
“that 99.5% of subsidies given to the agriculture industry in the UK would not fall within the remit of the subsidy”.—[Official Report, 9/2/22; col. GC 428.]
This figure was also provided in a letter dated 8 February responding to the points raised by several noble Lords during the third Committee session on 7 February. Late last week, the data was reviewed, uncovering a calculation error. In reality, Rural Payments Agency data for England shows 96.4% and not 99.5% of farm payment recipients are paid below the level of the minimal financial assistance threshold. I wish to clearly correct that for the record today.
But my conclusion still stands. The vast majority of agricultural subsidies will indeed fall below the MFA threshold and will not be subject to the substantive subsidy control rules, including the principles. It is only the largest subsidies, many of which will be to relatively large and well-off landowners, that will need to be assessed to ensure they comply with the common sense principles in this regime.
I turn to Amendment 4, tabled by the noble Baroness, Baroness Randerson—I wish her a speedy recovery—which was so ably introduced by the noble Lord, Lord Bruce of Bennachie. It seeks to add an additional principle to Schedule 1 that would require agricultural subsidies to be connected to the purposes listed under Section 1 of the Agriculture Act 2020. It would also require subsidies for agriculture to take particular account of areas of agricultural disadvantage and levels of marginality of land.
The subsidy control principles set out in Schedule 1 to the Bill are designed to apply equally to all strands of the UK economy. Their central purpose is to help protect domestic competition and investment, as well as trade and investment between the UK and other countries, from undue distortion which can arise from the giving of subsidies. This amendment, however, would radically depart from this. It would create a new principle which is not aimed at reducing distortion to competition, investment, or trade and is of no relevance to most types of subsidies.
The noble Lord, Lord Wigley, is quite correct: I am fully aware of the concerns of the farmers’ unions—particularly those in Wales, whose representatives I have met—and indeed those of the noble Lord, Lord Whitty. I reassure both noble Lords, however, that nothing in the new system will work against the granting of subsidies because, building on what the noble Lord, Lord Wigley, said, both agricultural and non-agricultural subsidies have much in common and need to work together to support rural economies.
The Bill establishes a clear, flexible framework for granting subsidies and will not inhibit public authorities from taking into account areas of agricultural disadvantage if they wish to do so. Agriculture is of course an area of devolved policy under the devolution settlements of Scotland, Wales and Northern Ireland. Spending decisions on agriculture are for the UK Government on behalf of England, and the three devolved Administrations in the areas in which they exercise their responsibilities. It is for them alone to take these spending decisions, so long as they are compliant with their domestic and international obligations, including the subsidy control regime. I cannot accept an amendment that would have the effect of putting further constraints on how devolved authorities exercise their powers.
My noble friend the Duke of Montrose rightly mentioned that the existing agricultural schemes and subsidies will be able to continue. The Bill provides broad and flexible grandfathering provisions for legacy schemes. Subsidies and schemes in existence prior to the Subsidy Control Bill coming into force may continue indefinitely if provided for under the original terms of the scheme. The Bill does not require subsidies made under legacy schemes to carry out an assessment of compliance against the subsidy control principles.
In particular, I cannot accept a reference to the Agriculture Act in this Bill. This section of the Agriculture Act is an excellent list of legitimate reasons to give financial assistance, many examples of which will be considered subsidies under the definition in the Bill. But I do not know whether my counterparts in the Scottish and Welsh Governments and the Northern Ireland Executive would welcome the application of this largely England-only legislation to their own agricultural policy, when it was never intended to serve that purpose.
The Bill has been designed to support public authorities in giving subsidies in line with their policy goals and the specific circumstances of their areas of responsibility, and the subsidy control principles are conducive to that. Principle A, for example, sets out that subsidies or schemes must be designed to remedy a market failure or address an equity concern. A subsidy designed to address agricultural disadvantage could certainly fall under one or both of these categories, depending on the type of disadvantage meant. Indeed, the Government’s amendment to add “local or regional disadvantage”, as an example of an equity rationale, underlines that.
Marginality of land may also need to be factored into the design of the subsidy or scheme where it is relevant. The subsidy control principles require a public authority to design their subsidies and schemes to change the economic behaviour of the beneficiaries, and to limit the subsidy to what is necessary to bring about the policy objective. It may very well be relevant to take into account the marginality of land to ensure that these principles are met. Fundamentally, however, it is not for the subsidy control regime to dictate whether agricultural subsidies—whether given by Defra, the devolved Governments or another authority—should account for less favourable pastoral land. In many cases it may well be appropriate for agricultural subsidies to factor in unfavourable conditions faced by farmers. However, this is for the public authorities themselves to determine and to incorporate into the terms and conditions of their own schemes.
The noble Lord, Lord McNicol, mentioned the common frameworks. The new domestic subsidy control arrangements and the UK common framework on agriculture are complementary. The inclusion of agriculture in the domestic subsidy regime will minimise the risk of distortions to UK competition and investment and ensure consistency across sectors. The common UK frameworks will enable policy proposals to be discussed and areas of disagreement resolved.
I hope I have managed to reassure noble Lords and, for the reasons I have set out, I ask the noble Lord, Lord Bruce of Bennachie, to withdraw the amendment on behalf of the noble Baroness.
Lord Bruce of Bennachie (LD)
My Lords, I thank the Minister for her response and all noble Lords who have taken part in this important and useful debate. There are just two or three things that need to be picked up. The noble Duke, the Duke of Montrose, started off with some sympathy for what we were saying but then turned against it, citing the continuation of the existing schemes. As the noble Lord, Lord Whitty, pointed out in his intervention, however, the world is changing—rapidly—and it may well be that, in the coming years, new schemes may be introduced and therefore that assurance would not have validity. Indeed, there is a general concern that marginal farms could be bought up by big institutions and squeezed out of existence.
I take the Minister’s point about the Agriculture Act, but we just wanted to make sure that we could add into the Bill the very good principles in the Act. I accept that it applies to England, but it would be very surprising if the Government of Scotland took issue with the principles in it. The point, nevertheless, is that farmers want an assurance that the support that they have had under various schemes since the Second World War is likely to continue in some form or other. There is a very real worry that that is not the direction of travel in which the Government are heading. That the matter is devolved does not preclude it also costing a significant amount of money, which previously came from the European Union’s common agricultural policy and now has to fall on the budget of the devolved Administrations.
I hope the Minister will understand, therefore, that the reason we are trying to put this in the Bill is to set out an explicit assurance that marginality will be a criterion that will be encouraged, just as a minor detail. Moreover, if that is in the Bill, it will make it more difficult for New Zealand or Australia, for example, to suggest that the subsidy is somehow incompatible with a trade agreement. Speaking with the experience of an MP for a farming constituency, I can assure the House that the suckler cow premium and the hill farmers have been the basis of building up the pre-eminence of Scotch beef and Aberdeen Angus beef. It is a system that has worked extremely well. Take the subsidies away from the hill farmers and prime Scotch beef will be much harder to deliver economically. The same applies to lamb in Wales and in Scotland. The hills of Scotland, Wales, the Borders and the Lake District without lambs and sheep would not be the attraction that they have been in the past.
I regret to say that I do not think that the Minister’s assurances go far enough, and I would like to test the opinion of the House.
Subsidy Control Bill
Tuesday 22nd March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-I Marshalled list for Report - (18 Mar 2022)
Lord Thomas of Cwmgiedd
Lord Thomas of Cwmgiedd (CB)
My Lords, in moving Amendment 6, I shall also speak to Amendments 58 and 64 and deal with three issues relating to devolution. I am grateful for the support of the noble and learned Lord, Lord Hope of Craighead, the noble Lord, Lord Wigley, and the noble Baroness, Lady Randerson—although obviously she is not here—on Amendment 6, and of the noble and learned Lord and the noble Lords, Lord Wigley and Lord Fox, on Amendment 64. I shall deal with those two amendments first.
I think it can truly be said that Amendment 6 is a very modest amendment because, unlike what was before the Committee, it does not seek to give the devolved Governments the power to make streamlined subsidy schemes, nor to submit them to their own Parliaments, but simply seeks to make it clear that if a reasonable request is made to the Secretary of State for a streamlined subsidy scheme by one of the devolved Governments then the Secretary of State would make such a scheme and lay it before Parliament in due course.
There are two reasons for that. First, it seems completely wrong in principle for the Secretary of State of his own accord to be able to make streamlined subsidy schemes within an area of devolved competence —I hope that is not in dispute. Secondly, there can really be no justification, if the nations of our kingdom are to be treated on the basis of equality, for the Secretary of State, having the power qua Secretary of State and Minister for England, to have the privilege of making these schemes for England that cannot be made in devolved areas of competence for Wales, Scotland and Northern Ireland. I therefore find it extraordinarily difficult to see what the objection is to this in principle, unless of course there is a commitment by the Government to provide for that in some other way.
On Amendment 64, it is a risk to claim that I am making a second move for a modest amendment, but again, when this is looked at, it will be seen to be modest. It would require the Secretary of State to seek consent from the devolved Governments in respect of some of the regulation-making powers, but not all of them, and in respect of guidance. I think we have debated long enough why guidance is so important.
This amendment is modest for a second reason: it would require the Secretary of State to consult and try to seek agreement over the period of a month. Thereafter the Secretary of State would be free, provided that, as no doubt a reasonable Secretary of State would always do, he had good reasons for not being able to obtain that consent. Again, there may be other ways of achieving that result, and I look forward with interest to hearing what the Minister has to say. It is very difficult to see what objection there could be to this measure.
Amendment 58 raises a very different point. I tabled it simply because it raises an issue of considerable constitutional importance, and one certainly treated by the devolved parliaments and Governments as such. There has been extensive debate in the devolved Governments about it and quite a lot of academic criticism. As is known, this schedule to the Bill sets out an elaborate procedure under which subsidies that have been made under the primary legislation and passed by the devolved legislatures can be challenged in the ordinary courts for breach of the subsidy control and other principles. The position of the Westminster Parliament, which may itself be able to pass legislation that breaches those principles, is of course different because of the principle of parliamentary sovereignty. There is no way this House could constrain a future House from passing a scheme in favour of England or doing something in respect of England which breached the subsidy control principles. It would simply be answerable for breach of its international obligations assumed under the treaty, but that has not always been a treaty with which the Government have accorded full and sufficient attention.
The devolved legislation originally contained principles—and all the amendments have contained principles—that, where the powers of the devolved legislatures are constrained, any issues as to whether they are in fact constrained in legislation passed are remitted to the Supreme Court. This legislation moves away from that fundamental principle, and it is important to realise the considerable concern caused by this move. It arises because, where a court decides to set aside the decision of the elected representatives of the people, considerable concern is always expressed. That concern should be dealt with by a special process, and submitting it to the ordinary courts is not right.
I am afraid that this amendment is a long and complex one and I will not attempt to go through it because it had to go through all those hoops. I have raised it because it seems quite impossible for us to pass this piece of legislation without noting what we are doing. Although I can see the hour—this is not the time for a debate on important constitutional principles—I very much hope that raising this issue now will give the Government pause to think about this and for this House to debate in future how we deal with the problem of ensuring that, when the people of Wales, of Scotland and of Northern Ireland for reasons of quite complicated constitutional doctrine have made a decision through their legislatures, that should be questioned only by a very senior court, through a process that is carefully thought through. We will need to return to that in due course.
Those are the reasons why I have put forward these three amendments, and I beg to move.
Lord Hope of Craighead (CB)
My Lords, I have put my name to Amendments 6 and 64 and I would like to say a word or two about them. I did not put my name to Amendment 58, partly because it came a bit later, although I discussed it with the noble and learned Lord, Lord Thomas, and I understand its structure and support the reasons behind it.
I remember standing here and smiling at the Minister about a week ago because he had put forward an amendment to another Bill in which he was proposing, with our agreement, that the consent of the Scottish Ministers should be obtained before certain steps were taken. I am afraid I have forgotten the name of the Bill and the particular amendment but I think we all congratulated the Minister because he was, I think, following advice that came from the Constitution Committee, which suggested that it was appropriate that this kind of measure should in the Bill. I had the feeling that the tide had turned and that we might see more of that sort of thing.
The noble and learned Lord, Lord Thomas, already made the point that Amendments 6 and 64 are really quite modest, and it is difficult to see any harm that is done to the structure of the Bill or indeed the way matters are worked out by putting into the Bill—through Amendment 6, for example—that a Minister of the Crown may be requested by the devolved Administrations to put forward a streamlined subsidy scheme. The Minister is not bound to give effect to that request, but it does mean that there is an avenue for the devolved Administrations to ask for a particular scheme to be proposed by him. It would be a reassurance to the devolved Administrations that their position has been properly recognised. After all, it is a partnership throughout the United Kingdom to make this scheme work. We do not want to fall into the trap of the then internal market Bill, which was notorious in seeming to ignore the devolved Administrations altogether.
These are modest amendments, as the noble and learned Lord said, which do not disturb the overall working of the Bill. If one is trying to recognise the position of the devolved Administrations, this kind of provision in the Bill would be very welcome, as it was in that Bill last week.
Amendment 58 enables me to ask the Minister about what paragraphs 6 and 7 in Schedule 3 are really doing. They refer to the “appropriate court”; the noble and learned Lord, Lord Thomas, asked whether it is properly designed. It talks about
“subsidy proceedings before the appropriate court”
in which the issue before the court is to be
“assessed by reference to the considerations and views of the promoter of the proposed devolved primary legislation”.
Who will bring these proceedings? It is an important question which I hope that the Minister might answer. What is meant by the assessment
“by reference to the considerations and views of the promoter of the proposed devolved primary legislation”?
Who will be the promoter? The wording of these provisions leaves a great deal to be discovered later. I would very much like to know what exactly is going on here, who will initiate the proceedings, and why the assessment is designed as it is in these paragraphs.
That brings me to the point that the noble and learned Lord, Lord Thomas, was making—that we are dealing here with a matter of great constitutional importance. Apart from the Scotland Act, no other provision directs a court on how to deal with proceedings brought against legislation passed by the devolved parliament. It must be remembered, as he was saying, that the devolved legislatures are democratically elected with the mandate of that democratic election behind them. One is not dealing here with delegated legislation. A much higher order of legislation is being considered, which deserves to be assessed with reference to the mandate that the parliament or assembly has from the electorate which gave it life. It is very important to appreciate the extent to which one is dealing here with matters of real importance to the Administrations and giving proper weight to the democratic mandate which they have.
The advantage of going to the Supreme Court is twofold. First, it avoids the possibility of appeals in the normal process, where the appropriate court takes its decisions and there are then appeals and the proceedings are delayed. The Supreme Court process is very simple and very quick. You go direct to the highest court under a reference which identifies the issue. The court then deals with it. The other point is the uniformity which the Supreme Court can bring through all the jurisdictions.
Lord Wigley (PC)
My Lords, I am delighted to have added my name to Amendments 6 and 64 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd. I did not add my name to the other amendment in this group because I did not have time to study its implications, but I am grateful to him for having put these amendments forward and to the noble and learned Lord, Lord Hope, for his comments.
I am a little worried because these are described as very modest amendments. Are they too modest for me to urge on the Government? No, they are not. The Government, who have been forthcoming on some amendments tonight, should be sending a message to Cardiff and Edinburgh, and to Belfast—to the extent that there is a Government there—that there are acceptable mechanisms for dealing with any disputes. As the noble and learned Lord, Lord Hope, said, there is every argument for having a framework that is acceptable to Westminster and the devolved Administrations so they can at least respect the mechanism and when problems arise they can turn to it. I hope that the Government will be forthcoming on this tonight, and perhaps they will be. If they cannot accept these amendments, there may be other forms of words whereby this can be achieved.
This issue has arisen in so many pieces of legislation over the past two or three years where the relationship between devolved Governments and Westminster is concerned that a framework that is acceptable to both sides need to be established—all four sides, in fact. I hope that doing so will ensure that problems can be resolved before they have been created and that there is a transparent mechanism for everyone to do so, and for that reason I support these amendments.
Lord Purvis of Tweed (LD)
I shall make a few remarks with regard to Amendments 6 and 64 in particular. The noble and learned Lord, Lord Thomas, is modest. He did not need to take us through the hoops of Amendment 58. His argument that the Government should be thinking again on this approach was very powerful. As the noble Lord, Lord Wigley, said, this is now the third Bill, I think, which will become an Act, where the devolved Parliaments have withdrawn consent at the outset and there have been rather tortuous discussions during the passage of the Bill to try to receive consent. Those Parliaments, properly constituted under our constitutional arrangements, feel that the Government are deliberately encroaching on their territory.
We debated this at length in Committee and I do not need to rehearse any of the arguments, but, as the noble and learned Lord, Lord Hope of Craighead, said, the Government seem to be open, when it suits them, to moving the dial towards consultation before further regulations are made. I think the noble and learned Lord was referring to Part 3 of the economic crime Act. In Section 14, the Government indicated that if there were going to be further provisions, the Secretary of State must consult the devolved Administrations on them. In this Bill, the Government have been reluctant to take a similar position of forcing Secretaries of State to consult where there are implications on devolved legislative areas.
In Committee, the Minister fell back repeatedly on saying that this Act is a reserved issue. That has been disputed by some, but even if we take it as read, the implication is that some of the schemes will impinge on devolved legislative competence. Therefore, the amendments in this group are very well made. Amendment 6, which has been supported by my noble friend Lady Randerson, regards offering some form of equivalence. While the Secretary of State indicates that this is a fully reserved issue, when there are schemes that are applicable to England only, there is no equivalent power for Wales, Scotland and Northern Ireland. That is what this amendment is seeking to correct.
I call this devolution equivalence. We are not disputing reserved or devolved competences; we are simply saying that when there are schemes that will be put forward for one nation under the legislative framework for that nation—England—there should be legislative equivalence for schemes operating within other nations. The noble and learned Lord, Lord Thomas, might say that that is modest; I say that it is reasonable. Surely one fundamental principle of our system of devolution could be that when it comes to the implementation of legislation, the reasonable test should apply.
With regard to Amendment 64, as I said, the Government seemed to move in the economic crime Act, but they seem very reluctant in this Bill. I simply do not know why, because both are comparable. Both indicate that there are reserved functions but devolved competences. Ultimately, if the Government believe, as the Minister will make the case, that this Bill will bring about great benefits, there should be equivalence between those authorities to utilise those benefits. Therefore, I hope the Government will consider these modest and reasonable amendments today and, if not, bring back at Third Reading some indications of moving.
Baroness Blake of Leeds (Lab)
We are very grateful to the noble and learned Lord, Lord Thomas, for tabling these amendments relating to the various devolution matters we have had outlined. We have been pleased to engage with the noble and learned Lord between Committee and Report and are glad that he and his supporters have facilitated this debate. The Minister knows we have several concerns around this Bill and its impact on devolution. The arguments have been rehearsed consistently throughout the Bill, and it is regrettable that the Government have not moved on a single one of the devolved Administrations’ requests.
We hope the Minister can clarify the situation around streamlined subsidy schemes. It has been asserted on a number of occasions that, while the Bill does not expressly permit this, devolved Ministers will be able to propose such schemes. Amendment 6 seems a very sensible proposition. If a devolved Minister makes a reasonable request of the UK Government, the Government should facilitate the creation of the relevant streamlined scheme. The simplest solution here is for the Government to accept the amendment, but, failing that, we hope the Minister can offer a very clear answer as to whether the UK Government will respond positively to sensible requests from the devolved authorities.
Amendment 64 is an interesting attempt at reformulating several Labour amendments tabled in Committee. We continue to believe that there should be a formal attempt to gain the consent of the devolved Administrations before exercising certain delegated powers or publishing guidance. Subsidy control may technically be a reserved matter, but, as we have said on numerous occasions, it directly impacts on several areas of devolved competence, not least regional development. When the economic crime Act was fast-tracked through this House, the Government worked hard to accommodate requests from colleagues from the devolved Administrations. We had hoped that would mark a new dawn for the Conservative Party’s approach to the Sewel convention, but this does not appear to be the case.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I will not detain the House too long. Before Committee, I talked all those who were interested through the work we have done to engage with the devolved Administrations and the commitment we gave to take on board many of their suggestions. I know that some Members have had sight of the draft memorandum of understanding that we are trying to agree with the devolved Administrations. There is a commitment from the Government to engage with them. I accept that they have a principled objection to the fact that subsidy control is a reserved matter, so of course they are not willing to provide LCMs on that basis. Having said that, and accepting that reservation, we are still talking to each other, officials are still liaising and we will still attempt to reach agreement with them on the MoU. We have taken and will take into consideration many of the suggestions they have made.
Amendment 64 from the noble and learned Lord, Lord Thomas of Cwmgiedd, would require the Secretary of State to seek the consent of the devolved Administrations before issuing guidance under Clause 79 or making regulations under Clauses 11, 33, 34 and 59. It would require the Secretary of State to wait for up to a month before issuing guidance or making regulations to obtain the consent of the DAs. Where the consent is not given, the Secretary of State will still be able to make the regulations or issue the guidance, but will have to publish a statement explaining the reasons for making the regulations or guidance without DA consent.
I realise that this is a contentious area but, as stated earlier, it is the settled will of Parliament that subsidy control is a reserved matter. In our view, it would not be appropriate for the UK Government to be required by legislation to undertake selective consultations with the DAs on guidance and regulations regarding reserved policy matters, which will affect all UK public authorities, before laying them in the UK Parliament.
Furthermore, as I stated in Committee, a formal consent mechanism would delay the issuing and updating of statutory guidance and regulations. It is important that the Government are able to update guidance quickly should circumstances change, for instance due to the development of new UK case law. Delaying changes would be unhelpful for public authorities and subsidy recipients alike. There is already a requirement in the Bill for the Secretary of State to consult such persons as they consider appropriate before issuing any further guidance—the DAs, of course, being appropriate in this case.
I hope noble Lords are reassured by these commitments. I have already set out that we will continue the extensive engagement we have had with the devolved Administrations in developing the policy for the new regime, including by sharing draft consultation documents on the definitions of subsidies and schemes of interest and of particular interest. It is right that the UK Government are not slowed down by the need to seek the formal consent of the devolved Administrations before issuing guidance.
Amendment 6 in the name of the noble and learned Lords, Lord Thomas and Lord Hope, the noble Lord, Lord Wigley, and the noble Baroness, Lady Randerson, would in effect allow the devolved Administrations to create streamlined subsidy schemes under Clause 10 by making a request of a UK government Minister. To respond directly to the description of this as “modest” by the noble and learned Lord, Lord Thomas, I am concerned that it would significantly affect the Government’s discretion to set out a wider strategy for developing streamlined routes, given the impossibility of refusing “a reasonable request”.
Streamlined subsidy schemes have an important role to play in supporting public authorities to deliver well-designed subsidies that address market failures and UK strategic priorities, while minimising risks of excessive distortion to competition, investment and trade. They are not subject to mandatory or voluntary referral to the subsidy advice unit under the provisions of Chapter 1 of Part 4 of the Bill.
Lord Fox (LD)
I apologise to the Minister and thank him for giving way. I am struggling a little with why the Government want to hoard the right to create streamlined subsidies to central government. I can assume only that it is because it gives the Government the ability to parachute schemes into Scotland, Wales and Northern Ireland—which might not be seen by those devolved Administrations as something they would have—and, because they are streamlined schemes, they cannot be challenged. Is that the reason the Government are not prepared to let devolved authorities have streamlined subsidy schemes for themselves?
Lord Callanan (Con)
No, I think the noble Lord is being unfair; the operation of these schemes is entirely optional. We will consult the devolved Administrations closely before making any such schemes. I only just said that we will seek to involve DA officials and others in expert working groups for each of the routes we are developing.
Lord Fox (LD)
I am sorry to prolong this, but is the Minister now saying that, for a streamlined scheme that is presented by central government and could be taken up by, for example, organisations and companies in Scotland, the Scottish Government have the option of not allowing that to happen? That, I think, is what the Minister just said.
Lord Callanan (Con)
They could choose not to use the scheme if they wished, but it would be a UK-wide scheme. They would be consulted on the development and involved in the expert groups that put them together.
I will move on to Amendment 58, also tabled by the noble and learned Lord, Lord Thomas. This amendment sets out a new route for subsidies given in devolved primary legislation to be considered by the courts, by allowing the relevant law officer to refer the question of whether a Bill is compatible with the principles in Chapter 1 of Part 2 to the Supreme Court. It also removes the requirement for the promoter of the legislation to consider the subsidy control principles and other requirements, and the ability of the courts to consider whether the provisions of Parts 1 and 2 of Chapter 2 have been properly applied, thereby removing the ability of an interested party to challenge the subsidy in the general courts on that basis.
I am of course very grateful for the interest taken by the noble and learned Lord in this clause and for his engagement on it with me and my officials. I believe that both he and I share an objective to ensure that these provisions reflect our constitutional and legal institutions, as well as our obligations under international law. Schedule 3, as it stands in the Bill, accomplishes those objectives.
It is important that the subsidy control requirements apply to subsidies in devolved primary legislation, and that these subsidies are not immune from challenge by interested parties. This is both for consistency with other subsidies and to ensure compliance with our international obligations, particularly under the trade and co-operation agreement with the EU. However, it is also important that the unique constitutional status of the devolved legislatures is respected. That is why we have tailored the provisions in Schedule 3 specifically, and there is no mandatory referral to the subsidy advice unit for these subsidies.
I must therefore reject the amendment tabled by the noble and learned Lord for two reasons. First, it would not meet our international obligations under the TCA, which requires us to make available a route to challenge in a court or tribunal for interested parties, on grounds of compliance with the substantive subsidy control requirements. This amendment would, effectively, remove that route.
In response to the noble and learned Lord, Lord Hope, on the intention of paragraphs 6 and 7, it is those interested parties that may challenge, for example, another public authority or another business, as long as they meet the test set out in Clause 70. The promoter would normally be the government Minister, or the person making an amendment to the Bill, and this is defined in paragraph 2 of Schedule 3.
The second problem with the amendment is that it would have the effect of asking the Supreme Court to consider questions of fact. It is my understanding that the High Court or Court of Session is the appropriate forum to consider these questions in the first instance, followed by the relevant appeals court, and, as relevant, the Supreme Court as the ultimate arbiter for questions of law. Creating a route for the law officers to refer a question to the Supreme Court implies that any challenge to a subsidy in devolved primary legislation would be a constitutional question, as it is comparable to the route for referring devolution issues under the devolution settlements. While the Bill affects the exercise of responsibilities of all public authorities in the UK, I do not consider that this is a constitutional question.
Lord Purvis of Tweed (LD)
I have a point of clarification, because this aspect draws two areas together. Given that agriculture and fisheries are part of this legislation, and because agriculture and fisheries are unquestionably devolved competences, there will be subsidy schemes—let us say for Scotland, an agriculture or fisheries subsidies scheme. The Minister has indicated that there can be a UK-wide streamlined scheme which will cover agriculture and fisheries, so for the first time in the devolution period, there would theoretically be two parallel support schemes for agriculture and fisheries. But there is no capacity for the devolved Administration to challenge the UK-wide scheme, because the Government are indicating that this is a reserved area, even though support for agriculture and fisheries is fully devolved. Furthermore, there is not even a direct route to ask the Supreme Court to consider the competences on the division of this. How does the Minister see the benefit of two parallel schemes: one streamlined and unchallengeable, and another a devolved one on agriculture and fisheries?
Lord Callanan (Con)
I understand the point that the noble Lord is making, but the idea that the UK Government are going to want to set up a streamlined scheme covering agriculture and fisheries in Scotland, in parallel to an existing subsidy scheme that the Scottish Government are already pursuing, is extremely unlikely. A streamlined route can indeed be challenged in the Competition Appeal Tribunal, and we would not introduce such a scheme without consulting closely with the devolved Administrations in the first place. I understand the constitutional question that the noble Lord is positing, but I think this is very unlikely. As the noble Lord well knows, all existing schemes are automatically out of scope of this Bill anyway, so the existing subsidy regimes that the Scottish and Welsh Governments have can continue as they are.
Lord Purvis of Tweed (LD)
I do not think I said that there would be a streamlined scheme from the UK that would be uniquely for Scotland. I indicated that there would be a UK-wide streamlined scheme that would be for agriculture and fisheries within Scotland. As the Minister said, it would apply in England and in Northern Ireland as well. However, there would be, for the first time since devolution, two parallel subsidy schemes operating. While the Government can indicate that there would be consultation, there is no mechanism in this Bill for that dispute to be resolved, because the Secretary of State retains the decision-making power. That is why the support for these two schemes running in parallel is not equitable.
Lord Callanan (Con)
There is a difference in principle here. Subsidy control is a reserved matter. Under the memorandum of understanding, we have said that we will set up a mechanism that the Scottish Government can use to challenge schemes. Of course, any streamlined scheme would be approved by this Parliament anyway. In any practical political environment, there is no way that the UK Government will want to set up a parallel scheme to subsidise agriculture and fisheries, which are devolved competences, when the Scottish Government already have similar schemes in the same area.
As I have said, the devolved Administrations will of course continue, as they have always done, to make subsidies and subsidy schemes using the resources that they have. It is important to note that this Bill does not provide any resources for any schemes, and the court would need to look at the facts of the case on legality grounds in the light of the requirements of Schedule 3 to the Bill. This is, in my view, comparable to other circumstances in which devolved primary legislation is reviewed on legality grounds, such as the Human Rights Act or the United Kingdom Internal Market Act. Importantly, and in contrast to the review of the Competition Appeal Tribunal for other subsidies, the court could not consider common-law public law grounds alongside the requirements of the subsidy control grounds.
For all the reasons I have set out, I hope that the noble and Lord will not press his amendments.
Lord Thomas of Cwmgiedd (CB)
I am grateful to all noble Lords who have spoken in this debate and for the various points that have been made; I hope it is not discourteous if I try to summarise them without individual attribution.
Fundamentally, this union is not going to hold together unless there is an acceptance of equality of treatment, and this Bill drives a coach and horses through that. One illustration suffices: if this Parliament, for England, makes a subsidy scheme that infringes the subsidy control principles, then those overseas cannot challenge it, but they can challenge what is done in Wales, Scotland and Northern Ireland. That is not equality. A second, more vivid example of equality is the ability to make streamlined subsidy schemes. Part of the difficulty we face is that all of this is for future legislation, but we are now trespassing into the constitution.
What has emerged from the questions that the Minister has tried to answer is this: where are we going in areas of devolved competence? He says that no Government would want to do it, but we are a country governed by the rule of law, and the law ought to be clear as to the constitutional responsibilities of the Government of the United Kingdom and of England and the constitutional responsibilities and powers of the devolved nations. This has not been thought through, as is evident from the Minister’s reply. I do not criticise him, because we do not have the detail of the streamlined subsidy schemes so that we could see how this would work.
Thirdly, we are trespassing into dangerous constitutional areas. I am sure that many lawyers will not accept that, if the Government tried to make a streamlined subsidy scheme that infringed on devolved competence, it would be challenged, because that would be made under subordinate legislation and would not have the equivalent status of an Act of this Parliament. It is a great misfortune that we have not thought all of this through.
“(6A) If, within the 40-day period, either House of Parliament resolves not to approve the scheme, or the scheme as modified, then, with effect from the end of the day on which the resolution is passed, the scheme, or the scheme as modified, is to be treated as not having been made.(6B) Nothing in subsection (6A)—(a) affects any subsidies given under the scheme before the end of the day on which the resolution is passed, or(b) prevents a further scheme being laid before Parliament.(6C) In this section, “the 40-day period” means—(a) if the scheme is laid before both Houses of Parliament on the same day, the period of 40 days beginning with that day, or(b) if the scheme is laid before the Houses of Parliament on different days, the period of 40 days beginning with the later of those days. (6D) In calculating the 40-day period, no account is to be taken of any period during which Parliament is dissolved or prorogued or during which both Houses of Parliament are adjourned for more than 4 days.”Member’s explanatory statement
This amendment provides that the making of streamlined subsidy schemes is subject to the negative resolution procedure and provides for the legal consequences if such schemes are not approved.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, the amendments in the name of my noble friend address the findings of the 17th report of this Session by the Delegated Powers and Regulatory Reform Committee. The report’s recommendations on the powers that the Bill delegates to Ministers have been endorsed with vigour by your Lordships’ House. This is a clear indicator of the high regard in which the DPRRC’s expertise is held, and I am sure that that will continue under the chairmanship of my noble friend Lord McLoughlin, to whom my noble friend wrote last week to set out how the Government were addressing the committee’s concerns with regard to the Bill.
As various noble Lords have noted throughout the passage of the Bill, the DPRRC’s report took issue with some of the ways in which it delegated specific powers to Ministers. I trust it will be reassuring to noble Lords that the amendments I shall now speak to respond to those concerns.
First, Amendment 7 amends Clause 10. Clause 10 provides, among other things, that Ministers may make streamlined subsidy schemes to facilitate the granting of subsidies in accordance with the subsidy control requirements. Streamlined subsidy schemes would be laid before both Houses of Parliament after they are made or amended. The DPRRC report recommended that the power to make streamlined subsidy schemes should be exercised by regulations, and that the negative procedure would be appropriate.
I am pleased to say that Amendment 7 does, I believe, meet the spirit of the committee’s proposal. The amendment provides for every new or modified streamlined subsidy scheme to be subject to the negative resolution procedure, meaning that either House of Parliament may resolve not to approve the scheme within 40 days of it being laid. I remain of the view that the nature of these schemes means that the power to make them should not be exercised by regulations. Specifically, they are designed to be easily comprehensible and used by smaller public authorities and include numerous economic criteria that would not be easily expressed in the form of regulations.
I turn to Amendments 10 to 13 to Clause 16, which concerns short-term export credit insurance as provided by UK Export Finance. The committee’s report recommended that the power to amend the list of marketable risk countries, which is included in Clause 16, should be exercised by regulations subject to a parliamentary procedure, instead of by ministerial direction. I trust the House will be reassured to hear that the Government fully accept the recommendation of the report and these amendments achieve this effect.
Amendments 15 to 17 relate to Clauses 25 to 27, which provide for definitions of “deposit taker”, “insurance company” and “insurer” respectively. The clauses include a power for the Treasury to change the definitions in these clauses via regulations. The committee took the view that the Government have not identified with sufficient precision the circumstances in which these powers would be necessary, and consequently recommended that the powers given to the Treasury to amend these definitions be removed from the Bill. The Government accept this recommendation of the DPRRC’s report. Amendments 15 to 17 will remove from the Bill these powers to make regulations in Clauses 25 to 27.
I turn to the committee’s recommendations on the much-debated Clause 47. Noble Lords will be pleased to hear that Amendments 45 and 46 respond to these concerns. The DPRRC raised several concerns on the drafting of Clause 47, in particular subsection (7). I will restate briefly the Government’s position on the necessity of this clause.
The flexibility to delay publication of a financial stability direction is important where that publication would prematurely disclose the existence of a subsidy. Immediately disclosing certain subsidies could potentially cause further damage to confidence in the recipient enterprise, cause a run on that recipient, and damage wider market confidence. While it may be possible to interpret Clause 47(6) as allowing for a delay in publication, that is not the intended purpose of the subsection, which is intended to provide for a duty of publication. The Government’s view is that it is much more appropriate to provide for an explicit process for delay in publication, with a limited and specific condition for such a delay. This is what the Government have done in subsection (7).
The absence of a parliamentary procedure is not to prevent non-approval of the direction by Parliament, but rather to ensure that the effectiveness of any intervention is not impaired by fear among stakeholders that support could be withdrawn. If there is concern that support could be withdrawn, there is a material risk that a recipient enterprise will reject the support offered or that the market will not be reassured by such support. That is why similar powers to act without parliamentary approval are provided for in the special resolution regime, reflecting the importance of legal certainty for the success of emergency interventions.
As the DPRRC report on this provision made clear, legal certainty was one of several factors considered in relation to a parliamentary procedure for this measure and was not the sole deciding factor for choosing the process in Clause 47. Other factors included protecting information flows and necessary secrecy in certain circumstances, and the speed of deployment.
Amendment 46 makes provision for a delay in publication of a financial stability direction in the event that the Treasury considers that doing so would undermine the purpose of issuing the direction. The amendment makes explicit the need to publish a direction and lay it before Parliament when doing so would no longer undermine the reason it was given. It constitutes a temporary delay in publication, not permanent secrecy, as was perceived by the committee, but which I assure noble Lords was never the Government’s intention. This amendment makes that explicit.
Clause 47(6) requires the Treasury to publish a direction in whatever manner the Treasury sees appropriate. In direct response to concerns regarding parliamentary accountability, Amendment 45 adds to this subsection the requirement for the Treasury to lay a direction in Parliament when publishing a direction. This ensures a direct route for parliamentary visibility of a direction in addition to the requirement in Clause 47(6) to publish a direction to the public. The Government fully agree with the committee: parliamentary scrutiny is vital to our democracy and this Government will not try to avoid it.
To further assuage the concerns of the House, I am happy to announce that my honourable friend in the other place, the Economic Secretary to the Treasury, has written to the Public Accounts Committee and the Treasury Committee; these letters commit to confidentially notify the chairs of the use of a financial stability direction to disapply requirements of the Bill where the publication of a direction is delayed.
Before I conclude with this suite of amendments, I must inform the House that there is one area where the Government have not amended the Bill in line with the committee’s recommendations. The committee stated in its report that it considers the powers in Clause 11 to be inappropriate, recommending instead that key terms relating to the definition of “subsidies and schemes of interest” and “subsidies and schemes of particular interest” are placed on the face of the Bill.
The Government do not agree that these definitions should be added to the Bill. It is important that the Government fully engage with external stakeholders as well as Parliament to ensure that this important element of the new regime is fit for purpose. The Government have already published, in January, a set of illustrative regulations, setting out a suggested approach for defining “subsidies and schemes of interest” and “subsidies and schemes of particular interest”.
In that vein, we can commit that the Government will undertake a public consultation before making the first set of regulations under Clause 11 that establish definitions for “subsidies and schemes of interest” and “subsidies and schemes of particular interest”. This consultation is expected to launch very shortly.
I trust that this demonstrates the willingness of the Government to design this important part of the subsidy control regime in an open and collaborative way, and in a manner that uses the expertise of the devolved Administrations and of legal and subsidy control practitioners at all levels of government within the UK. Following the consultation, the final regulations will be laid before Parliament for approval under the affirmative procedure before the regime comes into force.
Finally, Amendment 8 is a minor and technical amendment to Clause 11. It clarifies that regulations made under Clause 11 may make specific reference to the value of the subsidy or scheme or to the sector in which the recipient of the subsidy operates, as well as other appropriate criteria as necessary. I trust that this amendment makes it clear that the list in subsection (2) was always intended to be indicative as opposed to exhaustive. I beg to move.
Lord Hope of Craighead (CB)
My Lords, this group of amendments gives me an opportunity to express my appreciation to the Minister and his team for the work they have been doing under the legislative consent process. The Constitution Committee studied the working of this process for much of last year and in its report, Respect and Co-operation, expressed the concern that the process was not working properly—indeed, we heard quite a lot of evidence from the devolved Administrations that they were dissatisfied with the way it was working.
My impression has been that since late autumn of last year the working of the system has very much improved, and the remarks made by the Minister at the beginning of his reply on the last group of amendments tend to confirm that a great deal of work has been done behind the scenes to try to make the process work. I am therefore much encouraged by what he said, both in private conversations and in the Chamber.
I have one particular to request to make. When we come to Third Reading, I wonder whether the Minister would provide the House with a report to explain why, if it is the case, that consent Motions have not been passed by the devolved legislatures. It would be helpful to know what the sticking points were and why the Government were not prepared to give ground to the devolved legislatures to obtain their consent. It would inform the House. It would also enable us to understand how the process is working and to appreciate that the Government have been working as hard as they could to obtain consent and that there were genuine reasons for their inability to obtain it. I would be grateful if the Minister could do that when we come to Third Reading. I make that point now so that he can take it into account when the time comes.
Lord Fox (LD)
Your Lordships will remember that I made a very long speech on the DPRRC’s reports and I would like to think that it was the power of reasoning within that long speech that led to these very welcome amendments from the Government. I suspect, however, that it is the reputation of the DPRRC and the rigour of its work that caused these changes to be made. For that, we should be grateful and pleased. It is a shame that the Government had to go through this process to do it, but it has happened.
We on these Benches also welcome the announcement made by the Minister on financial stability issues and bringing in the PAC and Treasury Select Committees confidentially on that. That is a common-sense approach, and it goes a long way to solving any issues.
On defining subsidies and schemes of interest and of particular interest, we are disappointed that the definitions are not brought into the Bill, but I hope that following the consultation process the Government will come back and, either formally or informally, inform the Front Benches and those others involved in the Bill of progress, so that when the regulation is made, we will in a sense have been brought into that process. This is a good set of amendments that we broadly welcome.
Lord McNicol of West Kilbride (Lab)
My Lords, we now come to the first mass grouping of a government concessions package. Like others, I express the thanks of these Benches to the noble Lord the Minister and the noble Baroness and the Bill team for the discussions and this good set of revisions to the Bill. There are 11 amendments in all, and as the noble Lord, Lord Fox, has said, many have been previously moved and supported by noble Lords from across the House, especially in Committee.
As we have heard, this group relates to the recommendations in the DPRRC report, which were plentiful and uncharacteristically forceful. Like everyone else, we are glad that common sense has prevailed, particularly in relation to the situation around Clause 47, whereby certain information could have been withheld from Parliament and, by extension, the public.
The concessions made by the noble Baroness in the name of the noble Lord the Minister are most welcome, but the bigger issue at play here is the frequency with which the Government have attempted to take broad powers for themselves, often without proper justification. We hope that that trend will change as we move towards a new parliamentary Session, and these concessions and these moves help to show that. Like the noble Lord, Lord Fox, we would have liked to see movement on Clause 11, on definition of schemes of interest and schemes of particular interest—but we will take these 11 amendments, with thanks.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, this has been a short but constructive debate, and I welcome noble Lords’ support for this suite of amendments.
The noble and learned Lord, Lord Hope, requested a report on the obstacles to the granting of LCMs by the devolved Governments, and I am happy to make that commitment: we will bring a report at Third Reading. We also wish to note the constructive engagement of the noble Lord, Lord Fox, who has successfully picked up the mantle on the issues highlighted in the DPRRC report. I am sure that his speech made some difference, alongside the good standing of the DPRRC and our respect for its work.
Lord Callanan
Member’s explanatory statement
This amendment clarifies that the list in subsection (2) of what may be covered in regulations is intended to be non-exhaustive.
Lord Callanan
Member’s explanatory statement
This amendment provides that the power to provide that a country is not to be treated as a marketable risk country is exercised by making regulations, rather than by giving a direction.
Member’s explanatory statement
This amendment is consequential on the amendment at page 9, line 22, in the Minister's name.
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 9, line 22 and places the Secretary of State under a duty to revoke the regulations made under subsection (4) if a subsection (5) condition is no longer met.
“(7) Regulations under subsection (4) are subject to the negative procedure.”Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 9, line 22.
Lord Callanan
“(4) The prohibition in subsection (1) does not apply if the public authority giving the subsidy is satisfied that the conditions in subsections (5) to (7) are met.(5) The condition in this subsection is that the effect of the subsidy is to reduce the social or economic disadvantages of the area that would benefit from the giving of the subsidy.(6) The condition in this subsection is that the giving of the subsidy results in an overall reduction in the social or economic disadvantages within the United Kingdom generally.(7) The condition in this subsection is that the subsidy is designed to bring about a change in the size, scope or nature of the existing economic activities referred to in subsection (1)(a).”Member’s explanatory statement
This amendment provides an exemption to the prohibition on relocation of activities by allowing subsidies that meet conditions on reducing social or economic disadvantage.
Lord Callanan
Member’s explanatory statement
This amendment removes the Treasury power to make regulations to alter the meaning of “deposit taker”.
Lord Callanan
Member’s explanatory statement
This amendment removes the Treasury power to make regulations to alter the meaning of “insurance company”.
Lord Callanan
Member’s explanatory statement
This amendment removes the Treasury power to make regulations to alter the meaning of “insurer”.
Lord Callanan
(c) the subsidy database is kept under review in such manner and at such intervals as the Secretary of State considers appropriate.”Member’s explanatory statement
This amendment adds a duty on the Secretary of State to keep the subsidy database under review.
Lord Callanan (Con)
My Lords, I rise to move the government amendments in my name, with more than a modicum of delight, on the transparency of the new subsidy control regime. I have listened carefully to the arguments made for lowering thresholds and shortening the upload deadlines and, of course, I recognise the strength of feeling in the House on this matter. As a result, and as we said we would, the Government have gone back to first principles and reviewed the evidence base, ensuring the correct balance between administrative burdens on the one hand and transparency on the other.
As I set out in my letter to your Lordships on 15 March, the Government have published an updated impact assessment on the Bill which, using newly available data, assesses exactly that balance and has informed our approach to these amendments.
I will summarise the effects of this group of amendments. First, we have introduced a single threshold of £100,000, which applies across the vast majority of subsidy types. This is a substantial reduction of 80% from the original threshold of £500,000. Secondly, we have dramatically shortened the upload deadlines, reducing this by half for non-tax subsidy awards, so that subsidies will be visible on the database far sooner. We have retained the deadline for individual subsidy awards given as tax measures at one year. This is because a tax declaration, which is necessary to calculate the subsidy award, can be amended for up to a year after the tax return is submitted. Reducing the deadline here would make the cost of uploading tax subsidy awards disproportionate to the value of transparency for them. Noble Lords have recognised in previous debates that tax subsidies are in a unique position. I hope the House also recognises that, where it has been possible to reduce upload deadlines, we have done so.
In addition, the Government have introduced powers to be able to further amend the thresholds and the upload deadlines. The Secretary of State can review the levels in due course and make further changes as suggested by the available evidence at the time. Such new evidence will come about through the subsidy advice unit’s experience of how the regime is operating and the reports that it makes. I commit that these levels will be reviewed following the publication of the first subsidy advice unit report on the operation of the regime. Importantly, these regulations are made by the affirmative procedure, so Parliament will have maximum opportunity to scrutinise any changes. I know that noble Lords will do so.
The third change is that we have introduced new obligations to require the upload of permitted modifications of a subsidy or scheme. Public authorities will now face the same obligations to upload even minor changes, with the same upload deadlines as for the original subsidy.
Fourthly, we have placed a duty on the Secretary of State to review the transparency database as he or she considers appropriate, thereby ensuring additional quality control. As I stated in Committee, the Government are now carrying out additional checks on the database and following up with public authorities where we find mistakes. This will of course continue. As public authorities become accustomed to the regime they will, naturally, become better at uploading accurate information first time.
Finally, we have introduced an amendment specifying that the Secretary of State may provide statutory guidance to public authorities on pre-action information requests; that is, the provision of information following a request about a subsidy decision to an interested party that is considering whether to ask the Competition Appeal Tribunal to review the subsidy.
It is expected that any such guidance will encourage public authorities to discuss potential disclosure requirements with the beneficiary before the subsidy is given. This will help concerns about the confidentiality or commercial sensitivity of information disclosed in response to a pre-action information request to be addressed without unduly delaying or preventing the provision of sufficient information to potential challengers.
The overall effect of Amendments 18, 19, 21 to 44, 59, 60 and 62 in my name, taken together, will mean that we have a highly transparent subsidy control regime—far more so than existed under the EU state aid rules. Interested parties will be able to see subsidies they can challenge as well as numerous subsidies which are not challengeable under subsidy control requirements but whose publication is nevertheless in the public interest.
The new impact assessment reflects that the cost of lowering the threshold across the different subsidy types to £100,000 would have an administrative cost of £1.6 million over 10 years. This is not negligible, but the administrative costs of lowering the threshold further would be even greater. For example, a threshold of £25,000 per award would lead to a cost of just under £8 million, and a threshold as low as £500 per award—as was suggested by previous amendments—would be almost double that figure at just over £14 million. This has informed the Government’s decision on where to draw the most appropriate balance.
On the effects of shortening the upload deadlines, the impact assessment highlighted how there are unlikely to be significant cost burdens in reducing the upload deadline for non-tax subsidies from six to three months. However, lowering it below three months would have associated costs, as public authorities need to prioritise the gathering, checking and uploading of necessary information over other tasks they have. These costs will vary between public authorities.
The impact assessment also indicates that there would be disproportionate costs in relation to the uploading of tax subsidies to a shorter timeframe because of their unique nature, so the upload limits for tax subsidies in the Bill remain at 12 months, as I outlined earlier.
Before I conclude, I will address Amendment 20 from the noble Lord, Lord McNicol, which seeks to require the cumulation of subsidy awards within a scheme for the purposes of transparency. I recognise that this amendment would not represent a major change and I hope I can take from that that he is supportive of the package of changes the Government have made on transparency. None the less, my view is that it is seeking to solve a problem that does not really exist, creating an unnecessary administrative burden for public authorities.
I would first like to be very clear that the transparency obligation thresholds apply to subsidies, not payments. If a single subsidy to one enterprise for one purpose has been divided into multiple instalments, it remains as one subsidy and would need to be uploaded to the database if its total value was over £100,000. Any public authority trying to avoid the transparency requirements in this way would already be in breach of its obligations regardless of this amendment. I will ensure that this is reflected in the guidance so that public authorities are absolutely clear on this point.
I can see three possibilities for an enterprise to receive multiple awards under £100,000 for the same scheme, and none of them would justify the amendment. The first is entirely legitimate and they are simply separate subsidies. Perhaps different branches of the same business receive high-street regeneration subsidies for different towns in the same local authority. It is worth noting that some schemes will be made by a different public authority from the one giving the subsidy. For example, streamlined subsidy schemes are made by the UK Government but will be used by other public authorities, so the same enterprise could receive a subsidy under one scheme but from two different public authorities. I cannot see that this is a particular problem. In any case, the scheme itself will be on the database and subject to challenge in the CAT as provided for in the Bill.
The second possibility is that the public authority is trying to circumvent the transparency requirements simply to avoid the burden of having to upload its entirely legitimate subsidies, and is giving two separate subsidies under the scheme when it might have otherwise just given one. We can probably rule that out. There is no incentive for a public authority to do that: uploading an award on the transparency database will be a far more straightforward task than trying to parcel out a single subsidy into two different subsidies of £99,000 or less.
The third possibility is that the public authority is trying to game the transparency requirements to evade scrutiny because it believes that the subsidy is not compliant with the terms of the scheme and would be challenged if it came to light. Again, I find it hard to imagine that this is a tactic that any public authority in the UK would be so blatant as to deploy, and it would not be in compliance with the Bill requirements in any event. Should the subsidy lead to significant harms, it is highly likely to become apparent through other means, whether that is the recipient’s accounts, a press release, or other transparency mechanisms such as the local government transparency guidelines. A series of £99,000 awards would perhaps start to look suspicious when they came to light, which they inevitably would.
Overall, the requirement to cumulate awards within schemes for the purposes of transparency is a disproportionate response to a problem that I do not believe will arise in practice. It would add an unnecessary administrative burden to legitimate subsidies in the first category, and I cannot see that it would make much difference to the hypothetical nefarious public authority in the third category, since its attempts to game the system would probably breach the subsidy control requirements.
Therefore, I hope the noble Lord will not move his Amendment 20 and will agree to support, along with the rest of your Lordships’ House, my extensive package of transparency amendments. I beg to move.
Lord Fox (LD)
My Lords, as the Minister has set out, this group includes a number of concessions around the transparency issue. Again, we should thank him for coming some of the way towards the arguments that surfaced in Committee.
We welcome the reduction in the reporting threshold from £500,000 to £100,000. We recognise that that is some way short of the level that many external organisations were calling for and indeed that we wanted, but we also understand that it is a big step for the Government and they have come a long way towards where we think it should be.
I put my name to Amendment 20, tabled by the noble Lord, Lord McNicol, and I am looking forward to hearing his proposal. I am still not 100% convinced by what the Minister said, although he worked hard to explain to us why it would not be an issue. I think some of the points he made were right—sorry, acceptable; I am sure they were all right.
On the Minister’s first point about multiple payments to different branches, if they all have the same parent company, I start to get concerned about that issue. However, the biggest point was that if nefarious activity is going on and a £99,999.99 subsidy is being paid out by this mythological nefarious authority, the Minister said that that would no doubt surface. I am not sure how it would do so, given that there is no reporting requirement, unless that extra penny is forthcoming. Apart from sleuthing, submitting freedom of information requests and citizens’ activity, how does the Minister expect this information to surface—or indeed is he going to have an investigative unit at his side, ready to swoop on such nefarious organisations? I am interested to hear how this disclosure or uncovering process will work.
Other government amendments mean that the declaration of subsidies scheme is being improved in time terms, and that is also very welcome. The Minister was talking about a review process. I think he would be wise to maintain a rolling review in the department to be able to surface any issues and problems. This is a new process and a lot of different organisations will be trying to bed into it. The sooner that any misunderstandings or misapprehensions are understood, the sooner the department and the Government can do something about it.
In closing, I have a personal request. I probably should really understand this but I still do not: could the Minister clarify the rules regarding the declaration of subsidies awarded within subsidy schemes? I have heard different wordings at different times throughout the process, so perhaps the Minister could clarify once and for all how and if individual subsidies awarded under subsidy schemes will or will not be reported.
Overall, we are pleased with the amendments in this tranche. The Minister has moved on transparency, but we hope he will keep that situation under review with a view to more transparency in future rather than less.
Lord McNicol of West Kilbride (Lab)
My Lords, this group of concessions, as the Minister has outlined, is significant because of both the number of amendments and, more importantly, their text and practical effect. We are grateful to the Minister and the Bill team for their engagement on these issues over many weeks now; our discussions have been very useful, and although we have not achieved everything we wanted, as the noble Lord, Lord Fox, said, the new subsidy control scheme will be far more transparent than the Bill initially proposed. There are 31 amendments in this large group, 30 from the Government and one from me. I still think mine is a good amendment but I understand the Minister’s points, which we will come on to in a second.
The main issue is that we remain somewhat unconvinced of the Government’s argument in relation to the £100,0000 threshold. Given that many public authorities already have to publish details of spending at much lower levels—in many cases, it is £500 for local authorities—the £14 million cost quoted by the Minister to take the transparency threshold down from £100,000 to £500 would be well spent because that transparency would then sit across the whole of the subsidy controls and subsidies issued. However, an 80% reduction, coupled with the universal requirements across different subsidy types, is a clear step in the right direction.
To be fair, the noble Lord, Lord Fox, has already stolen a lot of my thunder in relation to Amendment 20. The points he made were absolutely spot on so I will not repeat them; I look forward to the Minister’s response. I tabled Amendment 20 in an attempt to deal with the potential for public authorities to award multiple payments that fall under the £100,000 disclosure threshold. As the Minister outlined in his opening remarks, there are a number of possible reasons why a subsidy may be given at that level. The noble Lord, Lord Fox, is right: it is the final one of those three points, about a nefarious reason why an individual in a local authority would encourage a local authority to give multiple awards under the reporting threshold. A fundamental question still sits there: how will we and, more importantly, businesses and organisations that are or could be affected by a subsidy, challenge it if we have no sight of it?
We would be delighted if the Minister accepted this amendment but he explained in his opening remarks why he will not. If the Government are not willing to accept it, can the Minister outline any other safeguards that could be brought in to check this possible kind of behaviour? He did not touch on safeguards in outlining the three points; his response was that the Government do not expect this to happen or do not believe that it could happen. I hope that the Minister can also confirm, because this is important, that the ministerial delegated powers to amend the transparency thresholds will not be used before—I would prefer that they were not used at all, but especially before—the CMA and other interested parties are able to see the new system in operation. We appreciate that any future increases are subject to a cap but it would make a mockery of the process and the concession package if any of the thresholds were increased before the new system was up and running and had been tested and checked by the CMA.
One area not subject to amendments today but which we see as incredibly important is the process around MFA subsidies. At present, beneficiaries in receipt of MFA subsidies must maintain paper records, which not only increases the bureaucracy involved but goes against the grain of the general transition to paperless record-keeping. We do not believe that moving this system to a digital process would require any amendments to primary legislation, so can the Minister commit today to looking at the available options for digitising the MFA process, either as part of the department’s existing subsidy database workstream or as a stand-alone project?
I will touch on one final point about the move on upload from six months to three months. Again, I fully support this. The sooner this information is uploaded on to the database, the better for all, but we still have concerns about the right to appeal against a subsidy that a business or an organisation could be affected by. That is limited to one month; the Minister and the department have not moved that to six weeks or two months. I have some concern that we could have gone a bit further. With the reduction from six months to three months, we could have increased the ability for someone—or an organisation—adversely affected by a subsidy awarded to a competitor to challenge this by giving them a little more time. I understand the Minister’s argument about wanting the subsidy to be in place, agreed and unchallengeable, before the business will spend it, because it then has certainty. None the less, we could have given a bit more time to those who could possibly be adversely affected by it to make a challenge. With that, I again thank the Minister for the 30 amendments—it is just a shame that he could not go one more and make it 31.
Lord Callanan (Con)
I thank the noble Lords, Lord Fox and Lord McNicol, for their relatively supportive comments. I can provide much of the reassurance for which both noble Lords are looking.
I can certainly reassure the noble Lord, Lord Fox, that the Government will continue to keep both the thresholds and the upload deadlines under review. We will carefully consider new evidence as it arises, most notably from the CMA’s regular reporting on the operation of the regime. As part of this package of transparency measures, the Government have taken the power to be able to amend these limits, as I said, via affirmative regulations. We will certainly want to see how the new regime beds in and operates in practice before we look at any changes. Of course, they are by affirmative resolutions, so I have no doubt that the noble Lord would take me to task if we did this too early.
I can also confirm to the noble Lord, Lord Fox, that subsidies given under subsidy schemes of more than £100,000 must be uploaded on to the database within three months for non-taxed subsidies, and within 12 months for taxed subsidies.
I turn to the point of the noble Lord, Lord McNicol, about how these nefarious subsidies would be discovered. If this nefarious activity is going on, it is clearly already not in compliance with the Bill and can be challenged—so there is no need to add more rules with which the public authority is then not going to comply. We believe that these subsidies will become apparent because they will lead to distortion and harms on the market.
I turn now to the question of safeguards raised by the noble Lord, Lord McNicol. The key safeguards for the regime as a whole are the existence of the Competition Appeal Tribunal enforcement process, the CMA’s regular monitoring reports and the ongoing responsibilities of my department for the successful operation of the scheme. We will carefully see how the system operates in practice and, as I said, keep the levels under review.
I turn now to the noble Lord’s point about cumulation. Cumulation is essential for the minimum financial assistance to ensure compliance with our international obligations. The Bill sets out a straightforward way for public authorities and enterprises to clarify whether the cumulative threshold has been reached. However, this process is not necessary for in-scheme subsidies. The MFA process set out in Clause 37 can be done simply and easily as part of the normal communications between a public authority and a recipient before any subsidy is given—for example, through forms, emails and tick boxes. We are committed to making this regime as straightforward as possible to ensure that funding reaches beneficiaries as smoothly as possibly, while balancing the need for transparency. Preventing misused cumulation of awards within a scheme for transparency is disproportionate, but we will also keep the operation of that under review and will seek to make it as unburdensome as possible for the various public authorities.
With that, I commend my amendments and ask that they be supported by the House.
Lord Callanan
Member’s explanatory statement
This amendment reduces the threshold for the exemption from the requirement to upload to the subsidy database from £500,000 to £100,000.
Lord Callanan
Member’s explanatory statement
This amendment ensures that the one year deadline for uploading to the subsidy database only applies to tax subsidies.
“(aa) if made as a subsidy scheme in the form of a tax measure, within three months of the confirmation of the decision to make the scheme, or”Member’s explanatory statement
This amendment provides a 3 month deadline for uploading tax schemes to the subsidy database.
Member’s explanatory statement
This amendment reduces the time limit for making an entry in the subsidy database from 6 months to 3 months in respect of a subsidy or scheme given in a form other than a tax measure.
Member’s explanatory statement
This amendment ensures that the one year deadline for uploading modifications to the subsidy database only applies to tax subsidies.
“(aa) within three months of the date of the modification, in respect of a subsidy scheme made in the form of a tax measure, or”Member’s explanatory statement
This amendment provides a 3 month deadline for uploading modifications to tax schemes to the subsidy database.
Member’s explanatory statement
This amendment reduces the time limit from 6 months to 3 months for making an entry into the database with regard to modifications to a subsidy or scheme given in a form other than a tax measure.
(a) the subsidy is one to which subsection (2) applied, and(b) the amount of the subsidy as modified is no more than the applicable amount.(6A) For the purpose of subsection (6)(b) “the applicable amount” is—(a) the amount specified in subsection (2)(c), or(b) if regulations under subsection (8)(b) provide for a different amount in relation to the subsidy, that amount.”Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 46, line 39 and defines the limits of the exemption from the database requirements in relation to modifications for subsidies given under a scheme.
(a) substitute a different amount for the amount specified in subsection (2)(c);(b) provide for a different amount to apply, instead of an amount specified in subsection (2)(c), in the case of particular descriptions of subsidy.(8A) An amount specified in regulations under subsection (8) may not exceed £500,000.”Member’s explanatory statement
This amendment amends the regulation-making power to ensure that the transparency thresholds can be amended but also that they are capped.
“(8B) The Secretary of State may by regulations—(a) amend subsections (3) and (5) so as to substitute a different period of time for the period of time specified;(b) provide for a different period of time to apply, instead of a period of time specified in subsection (3) and (5) in the case of particular descriptions of subsidy or subsidy scheme.(8C) A period of time specified in regulations under subsection (8B) may not exceed—(a) one year in respect of a subsidy given in the form of a tax measure;(b) one year in respect of a subsidy scheme made in the form of a tax measure;(c) six months in respect of a subsidy given or scheme made in any other form.”Member’s explanatory statement
This amendment provides a power to make regulations to amend the time limits in Clause 33 for making entries in the subsidy database, subject to a cap.
Member’s explanatory statement
This amendment provides that regulations made under subsection (8) and under the power inserted by the amendment in the Minister's name at page 18, line 13, are subject to the affirmative procedure.
Lord Callanan
“(3A) In subsection (1), the reference to the subsidy control requirements does not include the requirements as to transparency in Chapter 3 of Part 2 except in relation to the giving of a subsidy as minimal financial assistance if the amount of the subsidy is no more than £100,000.”Member’s explanatory statement
This amendment removes the exemption from the transparency requirements in relation to minimal financial assistance, in respect of each individual subsidy which exceeds £100,000.
Lord Callanan
“(3A) In subsection (1), the reference to the subsidy control requirements does not include the requirements as to transparency in Chapter 3 of Part 2 except in relation to the giving of a subsidy as SPEI assistance if the amount of the subsidy is no more than £100,000.”Member’s explanatory statement
This amendment removes the exemption from the transparency requirements in relation to services of public economic interest assistance, in respect of each individual subsidy which exceeds £100,000.
Lord Callanan
Member’s explanatory statement
This amendment removes the exemptions from the transparency requirements for SPEI subsidies over £100,000.
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 13.
Lord Callanan
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 13.
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 13.
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 43.
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 13.
“(c) amend section 36(3A) or 38(3A) so as to substitute a different amount for the amount specified;(d) provide for a different amount to apply, instead of an amount specified in section 36(3A) or 38(3A), in the case of particular descriptions of subsidy.”Member’s explanatory statement
This amendment allows the new transparency thresholds inserted by the amendments in the Minister's name at page 19, line 28 and at page 21, line 8, to be amended by regulations.
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 46.
Member’s explanatory statement
This amendment ensures that Clause 42(2) operates to provide a cap on the amounts that may be specified by regulations under Clause 42(1).
Member’s explanatory statement
This amendment is consequential on the amendment in the Minister's name at page 23, line 13.
“(3A) An amount specified in regulations under subsection (1)(c) or (d) which amend section 36(3A) may not exceed the amount specified in section 36(1).(3B) An amount specified in regulations under subsection (1)(c) or (d) which amend section 38(3A) may not exceed the amount specified in section 38(1).”Member’s explanatory statement
This amendment ensures that where the new transparency thresholds inserted by the amendments in the Minister's name at page 19, line 28 and at page 21, line 8, are amended by regulations, they are subject to a cap.
Member’s explanatory statement
This amendment provides that regulations made under the power inserted by the amendment in the Minister's name at page 23, line 43, are subject to the affirmative procedure.
Lord Callanan
(b) be laid before Parliament.”Member’s explanatory statement
This amendment provides that a financial stability direction is to be laid before Parliament.
“(7) If the Treasury considers that the steps required by subsection (6) would have the effect of undermining the purpose for which the direction is given, the Treasury may delay the carrying out of those steps until such time as it is satisfied that to do so would not have that effect.”Member’s explanatory statement
This amendment ensures that the exemption from the requirement to publish a financial stability direction and lay it before Parliament is temporary; the exemption may only be relied on for as long as the Treasury considers publication would undermine the purpose for which the direction is given.
Lord Fox (LD)
I rise on behalf of the noble Lord, Lord Lamont, to move Amendment 47 and also speak to Amendments 48 to 50. I had never expected to be the noble Lord’s stunt double but I do not regret it at all. As on many issues, the noble Lord and I agree that the role of the CMA requires boosting so that, as he said at Second Reading, it can police the control of the regime. It is a shame that he is not here to speak on his own account as he would do so with much more vigour and verve than I, but we both see these amendments as analogous to the independence that was given to the OBR and the Bank of England. If the Government genuinely want to control subsidies, as the title of the Bill suggests, there should be greater independent enforcement instead of what is a pretty weak SAU.
I have a number of direct questions to channel from the noble Lord, Lord Lamont, before I speak on my own account. It is worth noting that on 7 February, the Minister said that
“the Bill does not, of course, replace our gold-standard mechanisms … for managing public money”.
The noble Lord would like to know: to what mechanisms was the Minister referring? I am looking forward to the answer to that question as much as is the noble Lord himself. As the Minister highlighted at the time, and as is the view of the noble Lord, Lord Lamont, balancing the current budget while having national debt on a declining trend does not deal with the micro issues such as distortions of competition caused by subsidies. That is clearly true. I wonder on my own part why the Minister brought that up. The final point is that the Minister went on to say that
“public authorities … take their statutory obligations seriously … we expect the vast majority of public authorities to comply with these requirements”.—[Official Report, 7/2/22; col. GC 382.]
The interpretation of that is that public authorities, including the Government, are to police themselves. This is not an enforcement mechanism; it is incredibly weak.
For my own part, I would say that this is strong criticism from a former Chancellor of the Exchequer and hits at the heart of the Bill. To that end, I think that we deserve a serious and studied answer from the Minister, which I am sure we will get. This centres around the self-policing, public reporting mechanism that, essentially, has been adopted. What we have are amateur regulators and citizen detectives. It is clear that this is not the way to police something as important as a subsidy regime.
In addition to the amendments from the noble Lord, Lord Lamont, I am delighted to support Amendment 55 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd. Throughout this and previous debates, his dedication to the cause of trying to bring some structure to this legislation should be commended by us all. In many ways, this amendment sits somewhere between the positions of the noble Lord, Lord Lamont, and the Government. As we would expect from the noble and learned Lord, Lord Thomas, it also addresses some serious devolution issues. I am really looking forward to hearing him set out how this amendment will solve some of the problems we have encountered throughout our debates.
A lot of those problems are based around the asymmetry that both the noble and learned Lord, Lord Thomas, and my noble friend Lord Purvis raised on a previous set of amendments. There is an asymmetry here: the Secretary of State in London can call in the CMA, whereas the authorities in Edinburgh, Cardiff and Belfast cannot do the same thing. This is at the core of the problem that people have. When we hear, in response to the request by the noble and learned Lord, Lord Hope, what the stymie on getting legislative consent is, I suspect the problem—one of the central issues—will be a version of that. Addressing that would go a long way towards bridging the gap to getting legislative consent, which I hope is the Minister’s objective.
That said, I will speak no longer and look forward to the noble and learned Lord, Lord Thomas, explaining his Amendment 55 much better. I beg to move Amendment 47.
Lord Thomas of Cwmgiedd (CB)
My Lords, I will speak to Amendment 55. I first thank the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord Wigley and Lord Fox, for their support. The amendment has two purposes, one of which has been outlined by the noble Lord, Lord Fox, dealing with the position of the CMA. The second is to deal with the position of the devolved Governments and legislatures.
I ought to deal first with the position of the CMA. Although I co-signed amendments with the noble Lord, Lord Lamont, before Committee, the amendments he put down did not include two of them; I am not sure why. I have restored them all, because it seems to me that, on analysis, if the Bill is to be regarded as a serious attempt to uphold the rule of law and not as a piece of window dressing to satisfy our international obligations, we need to look more carefully at the position.
There are three methods of enforcement. The first is to have transparency and force disclosure. We know of the force that has; the effect of sunshine as a disinfectant is well recorded in history.
Secondly, there is the need for the CMA to investigate. It seems to me that without the CMA having powers of investigation, you do not have a properly independent system of enforcement compliant with the rule of law. It cannot be right to leave enforcement to those giving subsidies. You must have someone independent and objective in making the investigation. That is a requirement of the way in which all investigations are carried out; they have to be independent and impartial. I simply do not understand why the CMA cannot be allowed to conduct investigations that it thinks should be carried out, not merely those that the Secretary of State wants carried out or that are referred to it. Of course it will carry out the investigations referred to it by the Secretary of State independently, but it does not have the necessary power to do it where it thinks it is in the interests of enforcement.
For a similar reason it seems clear that, as was proposed in the amendments in Committee, the CMA ought to have powers of enforcement before a CAT—this is where it differs slightly from the amendments put forward by the noble Lord, Lord Lamont. Again, independent powers of enforcement are essential. The Secretary of State will have some powers, as will those who say they are injured as a result of what has happened. But that is essentially, to take an analogy with the ordinary enforcement system, a system of effectively private prosecution. My experience of private prosecutions has always been that, unless they are funded for extraneous and charitable purposes, such as is done by the RSPCA, or there is money in it by obtaining a conviction for those who are businessmen interested in getting a private prosecution, it is unlikely that there will be private enforcement. There is no doubt that this kind of enforcement action is extremely expensive. Therefore there is a real risk that there will not be much effective enforcement and that such effective enforcement as there is will be directed only at what I would call big money cases. Having a justice system that deals only with big money cases is recognised to be no just system at all.
The noble Lord, Lord Lamont, put it very pithily by creating Juvenal: “Quis custodiet ipsos custodes?” It seems to me that that summarises it in four words. There must be someone independent, both to investigate and to bring a matter before the courts if necessary, who can ensure that the Secretary of State and others uphold the rule of law. That is all I wanted to say about the position of the CMA.
On the second purpose of the management, I can deal with that briefly. It is an important question even at this hour of night, because it raises the issue of equality between our nations. I spoke at length about this when proposing the amendments in respect of seeking the consent of the devolved authorities and giving them certain powers, but this is an egregious example of inequality. Whereas the Secretary of State qua Minister responsible for England and the giving of subsidies in England can refer matters dealt with by, say, the Welsh, Scottish or Northern Ireland Governments to the CAT, there is no equality the other way round. That seems a fundamental flaw in this part of the Bill. It could be remedied by an undertaking by the Secretary of State that, if he was asked by the devolved Governments to make a reference, he would do so, and I very much hope that the Minister will be able to give such an undertaking.
What is important about these issues of equality is that they matter in two respects: first, that there is equality, but also that there is seen to be equality, and the equality between the nations is fundamental to the union. Secondly, there is the purpose of the amendment relating to the devolved authorities—this differs from the amendments in the name of the noble Lord, Lord Lamont. It seeks to make clear that the devolved Governments will always be interested parties for the purposes of appearance before the CAT. Again, this could be clarified. It would be far better if this was done in legislation, but at least it could be taken some way by the Minister making this clear.
I am sorry to have spoken at such length at this hour of night but these are important points of principle. They go to the rule of law and the position of the CMA, but also go to the equality between our nations and the survival of our union.
Lord Hope of Craighead (CB)
My Lords, I have added my name to this amendment. We should pay tribute to the noble and learned Lord, Lord Thomas, for his insight on the importance of enforcement to make the system work. His two points do not need repetition but the first, about the role of the CMA, begs a question. Why should the CMA not have the powers that are being referred to in this amendment? As far as the equality issues are concerned, the question is: why not? One point in the amendment that particularly appeals to me is the reference to interested parties. All the bodies mentioned there—the CMA and the three devolved Governments—are interested parties. It may be that, as the jurisprudence of the system works its way through the process, this will be established; but it is far better to have it made clear at the beginning, so that its position is plainly established, and the enforcement process can be put through in a proper manner. Paying tribute as I do to the noble and learned Lord, I entirely support his amendment.
Lord Bruce of Bennachie (LD)
My Lords, I support the second part of the amendment tabled by the noble and learned Lord, Lord Thomas, on the point about equality. There is a poll out today which says that the majority of people in Scotland do not expect the union to survive for the next 10 years. I think and hope that they are wrong, but it is indicative of how serious this issue is and that it is really important that not only the law but the Government’s approach recognises the need to accommodate equality of treatment between the devolved Administrations and the UK Government. The noble and learned Lord’s amendment puts that quite clearly, and the Government should take it seriously.
Baroness Bryan of Partick (Lab)
My Lords, I too support Amendment 55. I travelled from Scotland this morning to support it, so I hope that despite the late hour, your Lordships will bear with me.
On the devolved Governments, this is yet another very modest amendment and provides the very minimum recognition that devolved Governments have responsibility for important areas of their economies and should have the right in relation to call-in and enforcement.
I thank the Minister for his letter of 15 March with the update on the Bill’s progress. I do not think that anyone was surprised to read that, despite what he terms the Government’s best efforts, they have not been able to secure the legislative consent Motions. However, I was very sorry to read that the Government have decided to proceed without them. The Minister wanted to emphasise the Government’s determination to continue working collaboratively and transparently with the devolved Administrations, but both the Scottish and Welsh Governments do not believe that there has been a strong attempt to work collaboratively. Instead, they feel that they have been told rather than consulted.
The explanation given in Committee by the noble Baroness, Lady Bloomfield, in her closing comments on the set of amendments dealing with devolution, made it clear that the Government believe that they have every right to override the concerns of devolved Governments on the grounds of the UK Parliament’s status as
“the supreme legislative body of the United Kingdom”,
believing that it is merely
“a reflection of constitutional reality.”
She also stated that she simply did not believe that
“it is appropriate to require the Secretary of State to seek consent even when the Secretary of State may ultimately proceed without that consent on a reserved matter.”—[Official Report, 31/1/22; cols. GC 115-117.]
This issue is at the heart of the problem that this amendment tries, in some small way, to deal with. As has been mentioned, the Secretary of State is acting for what the Minister describes as the “supreme legislative body” but at the same time is representing the interests of England.
Speakers in Committee described this as lacking justice and being unfair. The Minister did not answer on this issue in Committee, nor was it referred to in his letter. We hope that we will find out in due course whether the review of intergovernmental relations will make a real difference. While the UK Government show so little understanding of and lack of esteem for the devolved Governments, it is hard to imagine that there will be a significant change. I hope the Minister can give some reassurance that the Government will reconsider allowing the role for devolved Governments outlined in Amendment 55 as, if they do not recognise the legitimate concerns of the devolved Governments, I fear it will contribute to the break-up of Britain, as the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Bruce, warned.
Lord Wigley (PC)
My Lords, I will detain the House for only a moment as it must take for read my feelings on the devolved questions which we have threshed around so much. I want to put on record how much I and, I hope, the House appreciate the contribution of the noble and learned Lord, Lord Thomas of Cwmgiedd, not only to this debate and earlier debates but for his work in Committee. That he is willing at this stage of his distinguished career to put hours of work into an amendment such as this demands that the Government take notice. He has raised serious points in a professional manner. If the Government cannot respond positively to them now, there is still a chance for amendments to come forward at Third Reading to take on board the points that he has made so eloquently.
Lord McNicol of West Kilbride (Lab)
My Lords, as we move to the final group it seems that Covid has claimed yet another victim in the noble Lord, Lord Lamont, who is unable to move his amendment. It is a shame that we get to this important group so late in the evening. If we had been here earlier, I am sure that the will of the House on Amendment 55 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd, would have been tested. At this late hour, I guess that is not going to happen. It is a shame because this group of amendments tabled by the noble Lord, Lord Lamont, the noble and learned Lord, Lord Thomas, and me are important in how the subsidy control scheme and processes will work. I am sure that those amendments would have brought more sense to the Bill, as did the amendments on transparency. I am grateful to the noble Lord, Lord Fox, for speaking to Amendments 47 and 50 on behalf of the noble Lord, Lord Lamont, and to the noble and learned Lord, Lord Thomas of Cwmgiedd, for speaking so ably to his Amendment 55.
I have tabled two amendments in this group. They both bring us back to earlier debates on the functioning of the challenge process. We continue to be concerned by the prohibition on challenges to individual subsidies made under a scheme. The threshold for successfully challenging a scheme is likely to be substantially higher than that attached to the challenge of an individual subsidy, and the Government’s refusal to move on this area suggests a determination to close the door, or at least to push it back a bit, on the ability legitimately to challenge any subsidies. I apologise for bringing up these issues on the previous group. I was getting a bit ahead of myself there.
We also do not understand why the Government have refused to move on the CAT application deadline. As I said earlier, many organisations will lack the capacity to constantly check the subsidy database to monitor the subsidies received by their competitors. This is a particular challenge for SMEs, which are unlikely to have in-house expertise on these matters but are arguably most susceptible to the impact of any economic distortions caused by a subsidy award.
The Government continue to insist that a six- or eight-week application window to bring a challenge under CAT would be an unacceptable length. From our Benches, we fundamentally disagree. An extended period would give those businesses and organisations possibly affected adversely by a subsidy more time to understand and analyse what was happening. However, with the disclosure deadline for non-tax incentives having been halved from six months to three, doubling the time for submitting a challenge to the CAT would not take us further than what was in the original wording of the Bill.
Having promised businesses, particularly SMEs, time and again that Brexit would mean the slashing of red tape, the Government continue to subject businesses to unacceptable burdens. The new subsidy control system may cut red tape in some respects, but it also imposes unacceptably high barriers in cases where a party feels wronged. We know from discussions between Committee and Report that the Government believe that affected enterprises would have alternative means of legal redress and I look forward to the Minister outlining them in his response to this group of amendments.
However, the fact remains that the entire enforcement side of this new regime does not seem up to scratch. We await the CMA’s initial report and I very much hope I will be proven wrong, but the Government will need to be prepared to revisit some of these matters if it transpires that their chosen approach is failing to ensure fairness, transparency and access to justice.
To finish on this, and to use the words that have come through on this debate, I have a modicum of comfort and delight that we are now completing the Report stage of this Bill.
Lord Callanan (Con)
I thank all those who have contributed to the debate. It has been a good discussion, both tonight and in the previous discussions we have had on the regime as a whole and the subsidy advice unit. I particularly enjoyed the contribution from the spokesman for my noble friend Lord Lamont. This is a trend that should perhaps continue on other subjects on which my noble friend feels strongly.
Lord Callanan (Con)
If the noble Lord is going to write my speeches, he might as well write them for my noble friend Lord Lamont, as well. The answer to the question of my noble friend Lord Lamont, through his spokesman, is the Green Book and Managing Public Money guidelines; I suspect as an ex-Chancellor he knows that very well indeed—probably better than we do.
Government Amendments 52 and 53 to Clause 65 have been tabled to address your Lordships’ concerns regarding the frequency of the CMA’s monitoring reports under Clause 65. Instead of mandating a report within five years of the implementation of the regime, the amendments require an initial report after only three years, subsequently followed up by a further report after another three years. Subsequent reporting will then revert to a five-year cycle.
I hope noble Lords will agree that the publication of these two initial reports will be sufficient to keep Parliament and the public informed of how the new subsidy control regime is functioning, and to assist in setting best practice going forward. As a result of these changes, I have also tabled two consequential amendments to clarify how these new initial reports will interact with other provisions in the Bill. These are Amendments 54 and 63.
Lord Fox (LD)
My Lords, I thank the Minister for his answers, although many of them are disappointing. On Amendment 56, it would be helpful if the Minister could write on how that challenge would work. I am looking particularly at where a scheme has been approved and a number of businesses granted subsidy under that scheme. What happens if I want to challenge not the scheme but the validity of that particular business getting that particular subsidy? It is not clear to me, under the rules, how that works, so could the Minister write a letter to me and the noble Lord, Lord McNicol, clarifying that?
On Amendment 55, repeating the mantra that it is a reserved issue is almost exactly the opposite of what we were calling for: having some sensitivity in the nature of the Bill. It is a reserved issue but it trespasses into areas that are devolved and, as my noble friend Lord Purvis illustrated, agriculture is one such area—there are others. The absence of sensitivity is the disappointing thing.
The noble and learned Lord, Lord Thomas, the noble Baroness, Lady Bryan, the noble Lord, Lord Wigley, my noble friend Lord Bruce and the noble and learned Lord, Lord Hope, all made valid points about reaching across that barrier, but there seemed to be no such reaching from the Minister. I hope he will have time to reflect on this and can come back at Third Reading with something a little more conciliatory than “This is a reserved issue” because that is really not good enough.
The criterion on which I was allowed to act as the spokesperson of the noble Lord, Lord Lamont, was that under no circumstances should I press Amendment 47 so, as a man of honour, I beg leave to withdraw the amendment.
Member’s explanatory statement
This amendment changes the reporting requirement so that the CMA must prepare its first report three years after commencement instead of five years after commencement.
“(aa) the following period of three years”Member’s explanatory statement
This amendment provides that the CMA must prepare its second report three years after its first report, instead of five years after its first report.
“(4A) The Secretary of State may exercise the power in subsection (4) only after the CMA has prepared its reports in relation to the first two relevant periods mentioned in subsection (3).”Member’s explanatory statement
This amendment ensures that the Secretary of State can only direct the CMA to report on specified periods after the first two reports in respect of the first two relevant periods under subsection (3) have been prepared.
Member’s explanatory statement
This amendment is consequential on the amendment at page 46, line 39 in the Minister's name, and provides that for the purposes of paragraph 8 of Schedule 3, the Clause 33 references to subsidies and schemes are taken to refer to those provided by primary legislation.
“(ea) section 76 (duty to provide pre-action information);”Member’s explanatory statement
This amendment adds the duty to provide pre-action information to the list of matters in Clause 79 on which the Secretary of State may issue guidance.
(a) for the purposes of section 33(1) and (3) (see instead section 33(5)), or(b) if the modification is only a permitted modification (but section 33(5) applies to a permitted modification as it applies to other modifications).”Member’s explanatory statement
This amendment removes the exemption from the duty to enter modifications in the subsidy database, in relation to permitted modifications.
Member’s explanatory statement
This amendment provides that the sunsetting provision for the Part 4 regulation-making powers will be triggered by the second report that the CMA makes under section 65, rather than the first report.
Subsidy Control Bill
Monday 28th March 2022
(2 years, 7 months ago)
Lords ChamberRead Full debate Subsidy Control Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-I Marshalled list for Report - (18 Mar 2022)
Lord Ashton of Hyde (Con)
My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Subsidy Control Bill, has consented to place her interest, so far as it is affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
For the benefit of noble Lords, I will first make a statement on legislative consent. As promised to the noble and learned Lord, Lord Hope, on Report and as I have sought to do throughout passage, I would like to update your Lordships’ House on the legislative consent process.
Your Lordships will understand that there remain differences of opinion between the devolved Administrations and the Government. This includes the Scottish and Welsh Governments’ retained in-principle objection to subsidy control being a reserved matter, and their objection to the inclusion of agriculture in the scope of the Bill. It is therefore with regret that I inform your Lordships that we have not been able to convince the devolved Administrations of the need for the UK Government to act in this key area. This is, of course, not the end of our engagement with the devolved Administrations. It is our intention to continue to work closely with them on the future regime, and accordingly our next steps will focus on agreements at working level to support the operation of the Act, including a memorandum of understanding in two parts.
I want to reassure noble Lords that it has never been our intention to proceed without consent in place. Our preferred approach throughout has always been to secure legislative consent Motions. I want to reassure the House that the Government remain fully committed to the Sewel convention and the associated practices for seeking consent. We will of course continue to seek legislative consent from the devolved legislatures when applicable.
Lord Hope of Craighead (CB)
I am grateful to the Minister for fulfilling his commitment and producing the report for which I asked. It is disappointing, but I am reassured by the latter part of his statement—that engagement with the devolved Administrations will continue. I very much hope that that will produce a more fruitful result than has been achieved so far.
Lord Wigley (PC)
My Lords, I also express concern that it has not been possible to get agreement. Quite clearly, it is in everybody’s interest that the devolved Administrations and the UK Government should be working in harmony on these matters. There are issues, concerning agriculture in particular, that are causing concern. Could the Minister therefore give an assurance that, as his discussions go on with the Governments in Cardiff and Edinburgh, he will keep the House informed and give us an opportunity to debate, discuss, or at least put questions forward to him on, the outcome of any such deliberations?
Lord Dodds of Duncairn (DUP)
My Lords, could the Minister outline the position as far as the devolved Administration in Northern Ireland is concerned? He mentioned Scotland and Wales, but perhaps he could touch on what the situation is as far as any legislative consent from the Northern Ireland Assembly—before it was dissolved at the start of this week for the Assembly elections. He is aware—this was raised in Committee—of the grave concerns that there is there now a dual subsidy control system: the EU system in Northern Ireland and the GB system now applying to England, Scotland and Wales. This could, as he said in his own letter to the chair of the Protocol on Ireland/Northern Ireland Sub-Committee on 22 March, cause real problems and confusion for Northern Ireland.
Lord Callanan (Con)
I thank noble Lords for their contributions. In response to concerns of the noble Lord, Lord Dodds, of course I understand the points he is making. He will be aware that negotiations continue on the operation of the Northern Ireland protocol. The noble Lord and I have discussed this a number of times. The Northern Ireland Executive have not been able to respond formally to our request for a legislative consent Motion, given their current status. We will, of course, continue to work closely, as far as possible, with the Executive and with the officials. I will be certain to update the noble Lord when I am able to do so.
Lord Callanan (Con)
I am delighted to open the debate. I am grateful to all noble Lords who have participated in the many debates that we have had across Your Lordships’ House, to create a new domestic regime that will deliver on our international obligations but, crucially, will enable central government, the devolved Administrations and public authorities the length and breadth of the United Kingdom to deliver for their people and their communities.
It is my great pleasure to thank all those who have supported the progress of this Bill. First, I thank my noble friend Lady Bloomfield; it is always a great pleasure to work alongside her. I express my thanks for the considerable contributions that have been made on the Floor of this House in relation to this Bill. I thank, particularly, the Opposition—the noble Lord, Lord McNicol, and the noble Baroness, Lady Blake—for their constructive challenge and the discussions we have had on the Bill, most notably on the issue of transparency, where we have been able to move a lot in response to the concerns raised in particular by the Opposition. It is also worth paying tribute to noble Lord, Lord Fox, for his engagement, and to his Liberal Democrat colleagues for their role in improving this legislation, particularly with regard to devolved powers—and for his personal forbearance with me in my illness during the latter stages of Report. I thank the noble Lord, in particular, for bearing with me.
Baroness Blake of Leeds (Lab)
I will start by sharing our concern at the information the Minister gave regarding the devolved authorities. We look forward to being involved in ongoing consultation and discussions as time goes forward. I echo the comments already made by the noble and learned Lord, Lord Thomas, and the noble Lords, Lord Wigley and Lord Dodds, on this issue.
I think it is fair to say that this Bill might not have been noticed by as many people as the more high-profile Bills that are going through the House at the moment, but everyone who has been involved in it recognises the significance of the work undertaken and just how deep the implications are for how public money will be spent for years to come. As we made clear from the outset, we agreed with the Government’s core principles in this area, including introducing greater flexibility through the removal of pre-notification requirements. However, as we have stressed throughout the debates on this Bill, with power comes responsibility. It is for this reason that we have focused on increasing the transparency obligations on public authorities, as the Minister just outlined. We are talking about large sums of public money, which must be easily accounted for and deliver real value for money. Unfortunately, we have had too many examples recently where we cannot claim that that is the case.
However, we are very grateful to the Minister and to the Whip, the noble Baroness, Lady Bloomfield, for their genuine engagement on these matters. Although we did not achieve everything that we would have liked, we believe the Bill is much improved as a result of the substantial package of concessions brought forward on Report.
I would like to echo our profound thanks to everyone involved through the Bill team. Our access to officials has been particularly helpful; they have been very open. It has enabled us to delve into the detail and discuss potential ways forward, whether legislative or non-legislative.
Despite good progress being made in most areas, there are significant concerns in others—particularly, as we have already highlighted, in relation to the involvement or otherwise of the devolved Administrations and the substantial financial and practical barriers imposed on SMEs and others if they wish to challenge individual subsidies. A particular concern of the business community is the lack of clarity in the guidance around the decision-making on when subsidies will be awarded.
We will have a review, as is outlined in the Bill, of some of these matters in three years’ time, and we hope the Government will act quickly in response to the findings. Until then, we hope public authorities will make the most of this new framework. In particular, I am appreciative that the Government listened to all the arguments about focusing and directing money towards areas with economic deprivation. This is a welcome shift from the Government across this area.
Another regret is failing—just—to pass the amendment to improve the Bill’s green credentials. We hope all levels of Government will continue to have regard to the fight against climate change. Pursuing a net-zero strategy is not just a statutory duty but a moral one. I firmly believe we have missed a trick by not more firmly linking net-zero obligations to the awarding of subsidies.
All that remains is to thank all colleagues who took part during the Bill’s various stages—particularly, as has been highlighted, the noble Lords, Lord Fox, Lord Lamont, Lord Ravensdale and Lord Wigley, the noble and learned Lord, Lord Thomas, and the noble Baroness, Lady Sheehan. I would like to pay tribute to my noble friend Lord McNicol. Unfortunately, he cannot be with us today, but I think we all recognise the amount of work he put in. I would like also to add my thanks to all the staff, clerks and doorkeepers in the normal manner. I end by thanking sincerely Dan Stevens, the officer in our office, for his unfailing patience, support, and clarity of thought and purpose, and for helping us to put down the improvements sought.
Lord Fox (LD)
My Lords, it is genuinely pleasing to see the Minister looking in a substantially better state than he did at the end of Report. I am pleased that he is back up and at the Dispatch Box.
As the Minister has repeatedly told us throughout the process, this Subsidy Control Bill is a consequence of the TCA. The Minister also claimed that it was rare for such controls to exist in other countries around the world, and said it would be a permissive regime, the antithesis of the regime it is replacing. So it is something of a legislative experiment as it goes forward.
Since its introduction, as has been stated, improvements have been made, and the Bill leaves your Lordships’ House much improved. My noble friends, Her Majesty’s loyal Opposition and some important voices from the Cross Benches and Conservative Benches have helped to make these improvements, along with the work of the Minister and his colleagues.
But noble Lords would expect me to say that it remains a flawed Bill. As was highlighted, it is more transparent—but a £99,999 subsidy need not be reported, and that remains a very large sum of money that can be passed from government to business without a report. It invests some powers to the CMA, but insufficient authority. I align myself with the comments of the noble Baroness, Lady Blake, on the subject of the burden on SMEs and the absence of any net-zero quantity.
The biggest uncertainty hanging over the Bill, as far as we can see, is this: if it is permissive, what will it permit? True to the nature of this Government, they have delivered a Bill that is not designed to deliver a strategy—almost the opposite. By permitting authorities to deliver subsidies or subsidy schemes in their area of control, essentially independent of schemes in adjacent areas, they are creating the potential for huge confusion and conflict, with money flowing from the richest areas back into their own communities to ensure that they remain the richest areas. The failure to grasp the need to map deprivation systematically could well render this system very divisive.
My noble friend Lord German used the Welsh example, but I will use an English one, because the Minister is the English Minister. As we know, EU funding in Cornwall over the seven years from 2014 to 2020 was nearly €600 million. This was based on a realistic assessment of the relative poverty of that county. The proof of this Government’s subsidy scheme, system or control, and of their promises, will be how much UK money flows into Cornwall.
As the Minister mentioned, there was the whole devolution issue. I will not repeat all the arguments, but the Government’s mantra of repeating over and again “It is a reserved issue” does not represent negotiation, nor is it designed to win the hearts and minds of those who sit on the edge of the unionist/separatist divide—quite the opposite; to then include agriculture, which is a devolved issue, in the Bill made matters substantially worse. We heard from the Minister that these were the issues driving the absence of legislative consent. Despite the many improvements we have seen, we on these Benches remain very concerned about the effect this Act will have on the union, but I will pass from this critique and move on to the Oscars ceremony part—the Minister can be assured that I do not mean that part of it.
I again thank the Minister. He showed remarkable fortitude during the Bill’s passage, along with his Whip, the noble Baroness, Lady Bloomfield, who showed the customary availability and relatively good humour. Those in Bill team itself were, as usual, authoritative and helpful. I thank them, as set out by the Minister.
During the debates, the noble Lord, Lord McNicol, and the noble Baroness, Lady Blake, the noble Lord, Lord Ravensdale, the noble and learned Lords, Lord Thomas and Lord Hope, as well as the noble Lord, Lord Lamont, made significant contributions that helped to shape the Bill. On these Benches, my noble friends Lady Sheehan, Lady Randerson, Lady Humphreys, Lord German, Lord Bruce and Lord Purvis offered wisdom and experience. In the office, making sure that the whole thing held together, we must once again thank Sarah Pughe, along with Dan in the Labour office, who helped to drive us along.
So the Minister will have his Act. Whether it is indeed a subsidy control regime remains to be seen. I think many of us still suspect that it is actually a mechanism for central government to parachute schemes into areas of its choice, unchallengeable by devolved authorities, local authorities or indeed the CMA.
Subsidy Control Bill
Wednesday 20th April 2022
(2 years, 7 months ago)
Commons ChamberRead Full debate Subsidy Control Act 2022 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Amendments as at 20 April 2022 - (20 Apr 2022)
Mr Speaker
Financial privilege is not engaged by any of the Lords amendments.
Clause 10
Subsidy schemes and streamlined subsidy schemes
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move, That this House agrees with Lords amendment 1.
Mr Speaker
With this it will be convenient to discuss the following:
Lords amendments 2 to 12.
Lords amendment 13, and amendment (a) thereto.
Lords amendments 14 to 51.
Paul Scully
Let me begin by expressing my appreciation for the shared ambition, across both Houses, to create a domestic subsidy control regime that will work for people and communities throughout the United Kingdom. The rigorous debate in both Houses has resulted in the improved Bill that is before us today, and I hope that the Government amendments passed by the House of Lords will in turn be accepted by this House.
I shall start with Lords amendments 13 to 38, 44 to 47 and 51, relating to the topic of transparency. This topic has been well championed in this House by my hon. Friend the Member for Weston-super-Mare (John Penrose), who is no longer in his place. First, in place of the higher transparency thresholds that applied to subsidies given under a published scheme, and given as minimal financial assistance or services of public economic interest assistance, we have introduced a single upload threshold of £100,000, which now applies to all subsidies that are subject to the transparency requirements. Of course, there has never been a threshold for regular stand-alone subsidies, which all need to be published. This represents a substantial 80% reduction from the original threshold of £500,000 for subsidies given under the schemes.
Secondly, we have significantly shortened the upload deadlines; for non-tax subsidy awards, we have halved them from six to three months, so that subsidies will be visible on the database far sooner. The third change is that we have introduced new obligations to upload certain permitted modifications of a subsidy or scheme to the database. Public authorities will now be subject to the same obligations to upload even minor changes, with the same upload deadlines as for the original subsidy. This will ensure that the database continues to provide up-to-date information about subsidies or schemes that are modified after they have been granted. Fourthly, we have placed a duty on the Secretary of State to review the transparency database at such intervals as they consider appropriate, thereby ensuring additional quality control.
Jim Shannon (Strangford) (DUP)
I thank the Minister for what he is saying. He referred to the fact that there had been thorough discussions in this House and in the other place. I am wondering whether those thorough discussions involved the devolved Administrations, particularly the Northern Ireland Assembly, but also the Scottish Parliament and the Welsh Assembly. If there is disagreement, how do the Minister and the Government intend to deal with it?
Paul Scully
The hon. Gentleman makes a really good point. We tried to work with all the devolved Administrations right the way through the process from beginning to end, and we have continued conversations with each of them over this period. Clearly there are, and will be, differences in the process. This needs to work for the whole of the United Kingdom, so I am keen that we continue the dialogue, whether it is with Scotland, Wales or Northern Ireland, to ensure that we can do as much as we can to reach agreement, though clearly that will not always be possible; that is the nature of dialogue.
Deidre Brock (Edinburgh North and Leith) (SNP)
Is the Minister not saying that ultimately, on these devolved matters, the English Government, as represented down here in Westminster, will have a power of veto over the decisions of the Scottish, Welsh and Northern Ireland Governments?
Paul Scully
No. However, the UK Government have a reserved power over subsidy control, so it is the UK Government who act on that reserved power.
Finally, we have introduced an amendment specifying that the Secretary of State may provide statutory guidance to public authorities on pre-action information requests—that is, the provision of information following a request about a subsidy decision to an interested party that is considering whether to ask the Competition Appeal Tribunal to review the subsidy.
I shall now move on to two amendments related to levelling up. Lords amendment 50 makes it clear that addressing local or regional disadvantage is considered to be an equity rationale for the purpose of assessing compliance with principle A. This puts beyond any doubt that a subsidy to address local or regional disadvantage can be given, provided that the other principles and requirements of the regime are met. Lords amendment 9 exempts from the prohibition on relocation those relocation subsidies that have the effect of reducing social or economic disadvantage. The subsidy must, of course, also comply with the principles and other requirements.
Jim Shannon
On the issue of levelling up, I know that the Government and the Prime Minister have given a commitment to levelling up all the United Kingdom of Great Britain and Northern Ireland, but I am always conscious that we want to see that actually happen, not just words. Can the Minister give me some assurance that Northern Ireland—where the cost of living is higher, wages are lower and products and consumer goods are higher in price—will, through the Northern Ireland Assembly, receive the levelling up that we should?
Paul Scully
Indeed, yes. Levelling up does not exclude any one area of the United Kingdom. It also does not exclude levelling up within regions; that is really important. This legislation only provides the framework; the levelling-up fund, the shared prosperity fund and other measures that can use the framework will, I am sure, benefit the hon. Gentleman’s constituency and Northern Ireland as a whole. It is really important that we get this right.
I am happy to report that we produced Lords amendments 1, 5 to 8, 10 to 12, 39 and 40 to respond to concerns about the Bill in the 17th report of this Session by the Delegated Powers and Regulatory Reform Committee. Lords amendment 1 addresses a concern with clause 10. Parliamentary scrutiny of streamlined subsidy schemes made under clause 10 has been strengthened by giving either House the ability to annul any streamlined schemes after they have been made, by applying the negative procedure.
Lords amendments 5 to 8 replace the direction-making power in clause 16 relating to the designation of marketable risk countries with a power to make regulations for the same purpose. Lords amendments 10 to 12 relate to the powers in clauses 25 to 27 to change definitions in secondary legislation. Those powers will be removed. Finally in this group, Lords amendments 39 and 40 address concerns raised by the DPRRC about secrecy regarding the financial stability direction-making power in clause 47. These amendments make it clear that such directions will need to be published in due course. In addition, the Economic Secretary to the Treasury has written to the Public Accounts Committee and the Treasury Committee to commit to notifying the Chairs of those Committees confidentially about the use of a financial stability direction.
I turn to Lords amendments 41 to 43 and 49, relating to the Competition and Markets Authority and the Subsidy Advice Unit. Although the Secretary of State could already direct the SAU to complete a monitoring report for a specified time period under clause 65(4), these amendments make specific provision in the Bill for more frequent scrutiny in the early years of the new regime. Instead of mandating a report within five years of the implementation of the regime, the tabled amendments require an initial report after only three years, to be followed up with a further report after another three years. After that, reporting will revert to a five-year cycle. The Secretary of State will retain the ability to direct that a report be made at a specified period after the publication of the second three-year report. The sunsetting provisions in clause 87(6) have been extended so that they take effect after the second three-year report. Lords amendments 2 to 4 and 48 are minor and technical in nature. They clarify definitions under clauses 11 and 82.
In summary, this substantial package of amendments represents an improved set of measures that will strengthen the new domestic subsidy control regime and make it more transparent and accountable. There will now be greater transparency of subsidies awarded, and improved oversight and monitoring of the regime by Parliament and the CMA. I am grateful to colleagues in both Houses for their hard work on, and attention to, this important Bill. They have helped to bring about these improvements, which I hope will be endorsed by Members from across this House.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to speak in the debate. I start by acknowledging all the efforts in the other place, and thank the peers, staff and civil servants who have helped to move the Bill along to this stage. I also thank colleagues on both sides of this House, including all the Opposition parties.
As Labour has outlined throughout the Bill’s progress, we support the principle of a quicker, easier subsidy regime now that we have left the EU. However, we recognise that any subsidy regime must provide sufficient transparency and accountability for the spending of billions of pounds of public money each year. We have also repeatedly raised our concerns that this regime has failed to match up to the Government’s levelling-up rhetoric. We are pleased to see that many of the Lords amendments, including our amendment to Lords amendment 13, will improve the Bill in some of those areas.
I turn briefly to areas in which we would have liked the Government go further, and I would be grateful for the Minister’s comments on these issues. The first is net zero. Labour has been clear that while this is framework legislation, it should not be an empty vessel. The Government should have used the opportunity of an independent subsidy policy to design a regime that supported their wider industrial policy and our national priorities. We were also disappointed that the Subsidy Control Bill was not published alongside a subsidy strategy. Net zero is a good example of this. The climate crisis is the greatest long-term threat facing our country and the world, and we need urgent action to drive down emissions. That is why, in Committee, we called on the Government to support our amendment to hardwire net zero into the principles that public authorities have to consider when awarding any subsidy or designing any scheme. There was cross-party and cross-Bench support in the other place for a similar amendment.
Kirsty Blackman (Aberdeen North) (SNP)
It is very good to be here to talk about the Subsidy Control Bill again. The Lords amendments that have been accepted and put forward by the Government do make the Bill better. The Bill is better as a result of almost all the amendments that have been introduced; I accept that that is the case. I feel sorry for the Minister because he had to argue against many of these amendments in Committee and on Report. Now they are in the Bill and he is arguing for them, which is great—I am glad he is arguing for them now—but I feel he has been put in a pretty unfortunate position.
Although the Lords amendments make the Bill better, it still falls far short of where the UK’s subsidy control regime should be. We still have major concerns about a number of significant issues. I recognise the improvements on transparency, particularly through Lords amendment 14, which I drafted in Committee, so I am pleased that the Government have put that forward and that it is now in the Bill. It reduces the threshold for subsidies to be included in the transparency database from £500,000 to £100,000. That is incredibly important.
The database will work, and we will know whether subsidies are working as the Government intend, only if we can see which subsidies have been made. The threshold of £500,000 was too high for us to have a good enough overview, and that is without mentioning people’s inability to challenge subsidies if they do not know they exist. Setting the threshold at £100,000 makes it much less likely that a company will be badly damaged by a harmful subsidy that it is unable to challenge because of the lack of transparency.
I am also pleased that the CMA will report on the regime after three years; the period has been reduced. Again, I moved an amendment on that in Committee. I proposed two years, but we can meet in the middle at three years. I am pleased that that reporting is going to happen. Particularly in the initial period, it is important that we know how the subsidy schemes, the database and the challenges are working. This legislation will work only if it is kept under review, and I am pleased that there is an amendment to that effect.
Deidre Brock
I am extremely disappointed that the views and concerns of the Scottish and Welsh Governments and the National Farmers Union across these islands, including NFU Scotland, about agricultural subsidies being in scope have been virtually ignored by this Government. They are certainly not reflected on the face of the Bill. Does my hon. Friend share those concerns?
Kirsty Blackman
I absolutely do. The Government cannot hide behind agricultural being in the trade and co-operation agreement, because the TCA specifically says that agricultural subsidies can and should be excluded from subsidy control regimes. The Government still have not given a good reason for including agriculture in the subsidy control regime. It works in the EU and in the state aid regime, so it is perfectly workable to exclude agriculture from the subsidy control regime. Including such subsidies will cause problems. The fact that NFUs across these islands have raised concerns shows that it is incredibly serious. I urge the Minister to think again about how the issue of agriculture is treated by the Bill.
The shadow Minister extensively addressed net zero. Granting authorities are required to consider the environmental and net zero impacts of energy-related subsidies, but that is not what net zero is about. This is not the only time we will be thinking about how to reduce our impact on climate change. If a granting authority decides to give a significant amount of money to a bus company, for example, it does not have to consider the climate impact. If it decides to scrap all the buses and replace them with diesel taxis, it does not have to consider the net zero impact, because it is not an energy-related subsidy. I am massively concerned that net zero is included only in schedule 2 and not in schedule 1. If the Government are serious about tackling climate change, they need to be looking at every piece of legislation that comes through this place and ensuring that it does not have a negative impact on our ability to meet net zero; and if it does, they should be ensuring that that is then balanced by further, more dramatic actions in order that we can meet net zero.
In summation, the Bill is better than it was, but it still falls far short. I am still concerned about transparency and massively concerned about agriculture. I am hugely concerned about the lack of importance this Government are giving to net zero—that should go through everything we do.
Paul Scully
I thank all hon. Members for their engagement throughout the passage of this Bill and for their contributions this afternoon. I am glad that there has been broad consensus, albeit with some questions, which I will try briefly to address. The importance of that new independent subsidy control regime has been clear throughout the passage of the Bill and it was evident again today, so I thank hon. Members for their broad support.
Let me respond to the question from the hon. Member for Feltham and Heston (Seema Malhotra) about P&O and that kind of example. Clearly, we are shocked by the action of P&O Ferries and angered by the lack of empathy and consideration it has demonstrated towards its employees. The Government are continuing to work to establish whether P&O Ferries or DP World are in breach of any requirements of them as partners in the Thames and Solent freeports. Speaking more generally, I can confirm that the Bill ensures that public authorities can recover a subsidy where it has been misused, but it is important to note that the purpose of a subsidy is to achieve specific change in behaviour to facilitate a specific policy objective; it is not to give the Government ongoing leverage over how a company conducts its affairs. It is for other areas of law to set out the limits of what is acceptable corporate behaviour. None the less, because the subsidy is there to have that specific policy objective, we will make sure that that policy objective is met as best we can. However, it is difficult to enforce—
Seema Malhotra
I am grateful to the Minister for his consideration of this point, but will he clarify whether a company that breaks the law and does not meet minimum standards on employment law, on environmental law or in other areas could still be in receipt of public subsidies through the subsidy control regime?
Paul Scully
It is difficult to come up with the examples, but in essence a subsidy is there to determine a particular policy objective. We would want to partner with businesses and companies that are most likely to deliver those policy objectives: reliable partners. Clearly, ones that are in breach of the kind of examples that the hon. Lady mentions are less likely to be those reliable partners. Technically, she is correct, but this is about how we enforce something, probably after the event; similarly, had we given P&O Ferries a subsidy last year, we probably would not have been able to get that subsidy back. That is the difficulty with enforcement after the event. None the less, the sentiment is absolutely there: we do not want to be partnering with unreliable companies to achieve our policy objectives.
Kirsty Blackman
The issue with that is that if a company is given money to run a freeport and it runs a freeport with that money, it can sack all the staff it likes at P&O and still be eligible for the subsidy. The issue is that there is a gap, which has been well highlighted by the shadow Minister.
Paul Scully
We will work out how the subsidy control regime is working; it is part of what I will come back to in a moment about the CMA’s approach to reporting back how the regime is working. We have to make sure that this is watertight—excuse the pun—if we are going to go down the road of making sure that we can recover any subsidies. I suspect that other areas of law will be better suited to approaching that, rather than specifically dealing with it within this framework Bill.
Seema Malhotra
I am conscious of time, but let me make this brief point, for clarity. There is an important distinction between companies or businesses with which the Government may be working to achieve policy objectives, and their eligibility still to receive public subsidies, potentially to the tune of hundreds of thousands of pounds or millions, where they have explicitly even admitted to this House that they have broken employment law. There is an important distinction here about how public money could be spent and about rewarding those who have behaved badly.
Paul Scully
I thank the hon. Lady for her intervention. This is what I mean about using other areas of law; other areas testing the value of the use of public money will be better suited for addressing exactly those points, but I very much take the one she makes.
John Redwood (Wokingham) (Con)
Would it not in future be possible for the Government, when offering a subsidy to companies, to specify that they need to meet certain labour standards so that the subsidies regime would apply?
Paul Scully
Again, that is up to the public authorities. The whole point about this regime is that it is a loose, permissive framework, rather than something more onerous which adds layer upon layer to recreate the EU state aid system. None the less, I would expect that, again, because of value for money and good governance, any public authority, whether national Government, local government or another public body, would expect to have exactly that kind of criteria—
Kirsty Blackman
The Scottish Government asked that the freeports that were going to be in Scotland had green stuff in them and fair work rules, but the UK Government said no. Now the Minister is saying, “Yes, we can totally do that. That definitely should be in it.” The UK Government refused to let us have that in the freeports planned for Scotland.
Paul Scully
I am not going to get involved in a wider discussion about freeports; I am talking about a framework Bill, which is exactly why I said that other areas of legislation and of governance will better frame this area, as opposed to having it within this framework Bill. I am going well over time on this issue, because I wanted to cover some of the other areas.
Net zero has been mentioned. Schedule 2 contains a lot of common-sense principles already, which support the UK’s priorities on net zero and protecting the environment. They require subsidies in relation to energy and the environment to meet one of the specified aims, such as increasing the level of environmental protection, and to ensure that subsidies do not undermine the polluter pays principle. We talked about the tax subsidies and the timings. Clearly, within the timings of the tax subsidies a longer period is still necessitated, because of the fact that tax returns and such things take longer to go through the process—as opposed to having the immediacy of sponsorship through a subsidy or more immediate cash assistance.
The hon. Member for Feltham and Heston talked about CMA thresholds and limitations, but ultimately that is what the CMA will be looking at in any case as part of its reporting back on the regime and its overall effectiveness. So we will always be able to look at how those thresholds and limitations are working in practice; we want to make sure that that can be put in place.
I wish to conclude by reaffirming what I set out in my opening remarks: this Bill creates a domestic subsidy control regime that will work for people and communities across the UK, creating a robust yet agile system that allows public authorities to provide subsidies where they are needed most. The rigorous debates in both Houses have resulted in the improved Bill we have before us, so I commend it to the House.
Lords amendment 1 agreed to.
Lords amendments 2 to 51 agreed to.
Building Safety Bill (Programme) (No. 3)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Building Safety Bill for the purpose of supplementing the Order of 21 July 2021 (Building Safety Bill (Programme)), as varied by the Order of 19 January 2022 (Building Safety Bill (Programme) (No. 2)):
Consideration of Lords Amendments
(1) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion three hours after their commencement.
(2) The Lords Amendments shall be considered in the following order, namely: 93, 94, 98, 107 to 109, 145, 184, 6, 1 to 5, 7 to 92, 95 to 97, 99 to 106, 110 to 144, 146 to 183, 185 to 191.
Subsequent stages
(3) Any further Message from the Lords may be considered forthwith without any Question being put.
(4) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Alan Mak.)
Question agreed to.
Royal Assent
Thursday 28th April 2022
(2 years, 6 months ago)
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