Monday 31st January 2022
(2 years, 9 months ago)
Grand CommitteeSubsidy Control Act 2022 View all Subsidy Control Act 2022 Debates 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.