Subsidy Control Bill

Committee stage
Wednesday 2nd February 2022 Grand Committee

Committee (2nd Day)

16:15

Relevant documents: 17th Report from the Delegated Powers Committee

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

My Lords, welcome to the Grand Committee. Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber that we are not expecting, the Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.

Clause 10: Subsidy schemes and streamlined subsidy schemes

Amendment 14

Moved by

[Baroness Blake of Leeds]

14: Clause 10, page 6, line 32, at end insert—
“(4A) A streamlined subsidy scheme may be made, in particular, to support areas of relative economic deprivation.”Member’s explanatory statement
This amendment would make clear that streamlined subsidy schemes may, among other things, be made for the purposes of supporting areas of deprivation.

[Baroness Blake of Leeds (Lab)]

My Lords, Amendment 14 was tabled by my noble friend Lord McNicol.

We always know in this environment that timing is everything. We must be extremely mindful when debating these elements of the Bill that today the Government published the levelling-up White Paper. It is critical that we bear that in mind as we discuss these important issues, particularly on economic deprivation. We must go back to the lengthy debate that we had on Monday and focus on the benefit that the work we will do here will bring to our communities across the United Kingdom, and focus on the purpose, on what really matters as a result of the improvements that we can make to the Bill. This is an illustration of the importance of joining up key pieces of legislation. Since coming down to the Palace of Westminster I have noticed that this is a work in process and this legislation is something that we can assist with.

Bearing that in mind and being very much aware that a lot of the work that has gone into the levelling-up White Paper has already been released in the media—many noble Lords, I am sure, have had sight of the proposals—I will concentrate on Amendment 14 and refer to the extended list of amendments that have come into this group since Monday afternoon.

As I said, the third group on Monday facilitated an interesting debate on economic deprivation and a number of related issues. It is worth returning to the topic today as the Minister’s responses were not convincing. There is more work to be done on these areas. Some of the amendments in this group go beyond a laser focus on economic deprivation, allowing us to probe slightly broader issues, such as whether and how the concept of social value, used in relation to procurement, will be applied to the subsidy regime. We are grateful to the GMB union for its input on these texts.

The noble Lord, Lord Lamont, made a very powerful contribution on Monday, making the point that areas of high deprivation need a degree of certainty, and that is one of the focuses that we need to bring to bear. Sadly, I have to say that, at first glance, the announcements on levelling up do not provide that certainty. The confirmation of various missions mentioned in the White Paper provides a marginally clearer idea of what the Government want to achieve, but we are still largely in the dark as to how the various 2030 targets will be met.

We have staggering examples of discrepancy in funding. For example, transport in London and the south-east of England received £882 per head in the year 2019-20, while in the north-east it was only £315 per head. Analysis in the Guardian of funds allocated so far through the future high street fund, the community renewal fund and the towns fund also suggests that the wealthiest parts of England are being allocated, in some cases, up to 10 times more money per capita than poorer and, I have to say, often Labour-controlled councils—that point is perhaps best discussed alongside Amendment 35 later today. IPPR North points out that funds allocated to the north thus far amount to an investment of £32 per head, which compares to a £413 per person fall in annual council service spending between 2009-10 and 2019-20. We also have the comments from the National Audit Office, which suggest that grants from two different funds were not based on evidence. We very much want levelling up to be a reality and would support proposals being brought forward that would achieve this end. We have to make sure that, through the work that we are doing in this Bill, we contribute to that end.

Amendment 14 would make clear that streamlined subsidy schemes can be made to support areas of economic deprivation. This would not be a requirement, but would focus the Secretary of State’s mind once the new regime is up and running. Clarity would support the goals of facilitating quicker and more efficient awards of low-risk subsidies. I am sure the Minister will talk up the inbuilt flexibility of the new system, but here is an opportunity to send a signal to the communities that we want to help. I am sure that the noble Lord, Lord Ravensdale, will make the case for his Clause 18 stand apart amendment, which looks at relocation subsidies through an economic development lens, but I hope that Amendments 27 and 28 will at least give us some clarity on how that prohibition will work. Are we talking about movement within or between local authorities, regions and nations of the UK, or does it depend on context? The current drafting is not clear, and this kind of area should not be left to guidance and therefore to different interpretations.

Amendments 34 and 36 seek to move the discussion on to the social value to be derived from subsidies, which might be an alien concept to some considering this legislation. We must avoid always viewing matters purely in terms of the economic bottom line. We all want to create jobs and fuel economic growth, but there is a need to do that in a fairer manner, ensuring job security, good pay and strong employment rights across all sectors and, of course, as we have already discussed, ensuring that we bring in environmental benefits.

In recent years, the Government have spent billions of pounds subsidising a wind sector that sustains a relatively modest number of jobs and has not always supported UK suppliers, including the steel industry. Wind is an increasingly important part of the energy mix, and key to reducing emissions. It is clearly worthy of subsidies, if that is what it takes to make cleaner forms of energy more attractive, and of course to create new jobs. However, the TCA, and international agreements, give scope for the inclusion of social objectives when giving subsidies. We want to understand whether the Government intend to use that flexibility, and if so exactly how.

Amendment 36 draws on the concept of social value, which authorities are compelled to consider under the Public Services (Social Value) Act 2012 when undertaking procurement exercises. Do the Government plan to include similar provisions in the Bill?

There are a great many questions for the Minister to answer on this group. I hope that he will be able to address most of the points today, but I would be pleased to receive further written answers if that is more appropriate. I do not wish to pre-empt other contributions this afternoon, but it feels as if there is much more work to be done in these areas before Report.

[Lord Wigley (PC)]

Amendment 23 in my name has been included in this group. That is a slightly odd grouping, and perhaps I should have pressed for my amendment to be de-grouped. I shall speak to it in a moment, but first may I endorse entirely the comments made in opening this debate? It is vital that we ensure a decent standard of living and income per head throughout these islands. It is not enough to compensate people for being deprived of many of the aspects of life that are valuable to them. We need the economy to be able to sustain populations at a level of income that enables them to get benefits of the sort that are enjoyed in, for example, south-east England.

Let us compare the GDP per head of Kensington and Chelsea and that of the valleys of Gwent, or of Anglesey. Chelsea’s figure is eight times higher. We need economic solutions, not just for Anglesey and Gwent but for the north-east of England, Lancashire and other areas—all the old industrial areas. We need to get the economies working, to ensure that the other benefits that the people of those areas have a right to expect can be delivered.

My Amendment 23 seeks to include in the Bill an assurance that nothing in it prevents a public authority from giving financial support aimed at achieving cultural or environmental objectives. I draw attention to my registered interests with regard to cultural dimensions in which my family is heavily involved. I do not think the amendment should be necessary, for it is a long-standing feature of the cultural scene that grants and subsidies are necessary to underpin activities that otherwise might not be viable. Clearly, in making grant payments to one body, organisation or even company, the Government are in effect giving it a competitive edge over others that do not get such support; the marketplace is hardly designed to support and sustain such activities. Yet many aspects of the arts are inevitably dependent on such interventions, and nothing in this legislation should be open to accusations of undermining cultural viability.

Equally, the objectives of environmental policy must also, surely, be exempt from any restrictive limits placed on public bodies from maximising our ability to reach environmental targets. This is a probing amendment, and I trust the Minister can give me the assurance I seek.

16:30

[Lord Purvis of Tweed (LD)]

My Lords, it is a pleasure to follow the noble Lord to pick up, and indeed support, many of the points he made about geographical inequality, and to tease out a bit further from our debate on the first day of Committee the Government’s refusal to link any form of geographical basis to the proposal on deprivation, as with others.

As the noble Baroness, Lady Blake, indicated, we are now going through parts of the White Paper on levelling up, and I am sure that the struggling communities across many parts of England will be relieved to hear that they are going to get more politicians. It brought back some memories. When I was a youngster, there was the proposal for more politicians in the north-east of England but with no extra money—a proposal for what we might call a north-east assembly. There was a very outspoken MEP in that region at the time—one M Callanan, I think he was called. I remember reading him in the Chronicle and seeing him on Tyne Tees telly. He said—I paraphrase—that with more politicians without any budget, the Government were desperately seeking to shore up their flagging regional devolution campaign. How times have changed.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

For that campaign, we used a large inflatable white elephant.

[Lord Purvis of Tweed (LD)]

That is what I remember seeing on Tyne Tees telly.

[Lord Callanan (Con)]

It was the cheapest campaign I have ever been on.

[Lord Purvis of Tweed (LD)]

Well, I think the proposals for the White Paper are cheaper, because there is no money attached to them at all.

The Government’s position is that, to maintain the level of EU structural support, £1.5 billion a year must be distributed. I will not quibble about some of the details, but let us take it as read that £1.5 billion a year must be distributed. The Government promised that there would be no shortfall. There were two references in the manifesto that stated so:

“a UK Shared Prosperity Fund to ensure that the people of the UK do not lose out from the withdrawal of EU funding”.

The Minister stated so when he led on the repeal of the structural fund SI, and he stated so again on Monday in Committee.

We, national devolved Governments and local authorities thought that this was a straightforward commitment to replace the previous funds without there being a loss of funds, but no. On page 74 of the spending review, the weasel words “rise to” were inserted. The Government stated that, to ensure that the people of the UK did not lose out from the withdrawal of EU funding, the investment would need to be £4.5 billion in this spending review period, but, as they stated on page 74 of the spending review, it is £2.6 billion over the next three years—a cut of £1.9 billion, cutting support in areas most in need. The cuts in the coming years are a staggering £1.1 billion.

As the noble Lord, Lord Wigley, said, nor has there been any commitment to replicating per-person investment support. Under the previous schemes, investment was £130 per person in England, £180 per person in Scotland, £280 per person in Northern Ireland and £780 per person in Wales, reflecting the areas identified for particular need. I would like the Minister to write to me about what the proposed per-person investment will be for 2022. That is when we will know whether indeed we are losing out from the withdrawal of EU funding.

I was genuinely interested in what the Minister said on Monday about the geographical delineations referenced in Amendment 14 with regard to areas of need. He said, and he was specific in his language, that there was a differing approach from that used by the levelling-up fund. I then looked at the levelling-up fund methodology, which states that the methodology used is

“to develop an index of priority places for the Levelling Up Fund.”

Furthermore,

“any comparison of need between places in different nations should be made using a consistent set of GB-wide metrics only.”

The levelling-up fund is using an index of priority places based on need. To be consistent, that is GB-wide, and all authorities, when they are putting forward their bids for the levelling-up fund, will be clear as to what status they are in with regard to the index of priority.

So far, that is clear. However, the Government have said that there is no link between the two. The conclusion might be that this Bill is not linked with the levelling-up approach, but that is not what the Minister said at Second Reading. He said:

“Under this regime, public authorities at all levels of government will be empowered to give subsidies to help address regional disadvantages, supporting our levelling-up aims.”—[Official Report, 19/1/22; col. 1712.]


So the aims are the same, but if there is no methodology to support a scheme’s aims of addressing regional disadvantage under this Bill—in other words, inequalities —how will levelling up actually be achieved? The CMA will only have the ability to review a scheme’s legality under this Bill; it will have no scope to help to address and support our levelling-up aims. Who will do that? Which body will consider whether this Bill is “supporting our levelling-up aims”, as the Minister said at Second Reading?

The Minister might say that they are completely distinct and that the fund will operate completely distinctly from the subsidy regime. I looked at the levelling up-fund prospectus, which states categorically at paragraph 6.9 that all applicants to the levelling-up fund

“must also consider how they will deliver in line with subsidy control (or State Aid in Northern Ireland) as per Government guidance … This will be tested as part of the appraisal process and monitored thereafter.”

How, and by whom? If every application to the levelling-up fund is to be considered in the context of this Bill, they are linked. If the Government are making the case for having a regional index for that fund, for which all applications have to satisfy this Bill, but this Bill says that there will be no index or any regional aspect, how on earth will this be monitored with regard to meeting the levelling-up aims?

My final point refers to further amendments to Clause 18 on markets. The Minister has been at pains to say that there will be no definition of “local market”. I question how all the Government’s different considerations will be satisfied if there is to be a review of the impact on local markets without there being an index such as the levelling-up fund. I simply do not know why the Government have made the clear distinction between this Bill and the levelling-up approach, which they say has to be consistent with the Bill. I hope the Minister will be able to clarify those points.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I sat here on Monday on the first day of Committee and I wondered how much of the replying Minister’s speech was written already—that is, Ministers were not responding to any of the good sense or good words that they heard from this side of the Room. It struck me that that should be seen as a little more important than it was on Monday.

This is an important group, because it is asking what we want to use the subsidies for, rather than just saying, “How do we want to control subsidies?” Supporting areas of deprivation has to be a core principle in our subsidy schemes and everything the Government do. We are very lucky now; we have a department for levelling up and we have a White Paper. Apparently, the White Paper points out how unequal the UK is. If you measure it on any economic or social metric, it is incredibly unequal. We have to ask: what have the Government been doing for the past 12 years? Of course, they are a Conservative Government, so clearly the levelling-up agenda is to mop up all the damage they have done in the past 12 years. Tackling deprivation and inequality will take a lot more than fine words, and streamlining subsidy schemes that are tailored to overcoming deprivation would be a good start.

Similarly, we should be making it easy for public authorities to support cultural and environmental objectives. I support noble Lords who have spoken so far, and I will be interested to hear the Minister’s response to Amendment 23, tabled by the noble Lord, Lord Wigley, on this point, because it would be a great shame if the Bill were to interfere with achieving cultural and environmental objectives. We should concentrate on calculating social value as articulated in Amendment 36, tabled by the noble Lord, Lord McNicol of West Kilbride, as this is still a fledgling area of procurement practice and was one of the features of David Cameron’s early years as Prime Minister when he was still trying to do some good. The Government seem to have stalled on social value since then. If we can improve the methodology for calculating social value and properly embed it in procurement and subsidy schemes, every pound spent by the public sector will have a much greater benefit for our communities. It will help to tackle deprivation, benefit the environment and create flourishing local authorities. I hope the Minister can explain what the Government are doing to advance the social value agenda.

[Lord Berkeley (Lab)]

My Lords, I rise to move Amendment 25A in my name. I shall not speak to any other amendments, because to some extent I am here as an amateur among experts. I have one point to make, which I hope I can do quite quickly. However, I support the general trend from my noble friend’s introduction and other noble Lords who have spoken.

I was unable to speak at Second Reading, because if I had I would have missed the sleeper to Cornwall, which I have to take. I am sorry about that. Many questions that come up are about how and what can replace the different bits of the EU competition regime. I got to know it quite well and got either to like or love it but at least to deal with it. My amendment covers everything that I think are subsidies, although when one looks at the definition of subsidies in the Bill it is unclear whether it covers a one-off payment or a series of payments or even what in the transport world is called the public service obligation. Perhaps somebody will refer me to where I have got it wrong in that instance.

In all these things, there seems to be nothing in the Bill about whether any particular subsidy, whatever anybody is talking about, is value for money or whether it has gone through the government procurement rules, which, in simple terms, means that it has gone out for three quotes or something like that. There may be many instances where that is not appropriate. I worry about whether this is just giving a blank cheque to Ministers or any local authority that chooses without any of the checks and balances. It may go to the CMA in the end, but to start with it is not there. This afternoon, we have been debating the PPE issue. I am not suggesting that was about the urgency for procurement. On the other hand, the urgency has long since passed, and that leaves a nasty taste in some people’s mouths.

My other reason for raising this is that I have been involved in a levelling-up plan for a ferry to the Isles of Scilly, which some noble Lords know about. The local authority applied for £48 million from the levelling-up fund to be given to one private company without any tendering. The noble Baroness, Lady Vere, has been very helpful and has tried to put my mind at rest that government procurement rules will be looked at here. However, there are two issues. I think they apply to many procurement issues that come into the category of subsidy control.

The first is: should it be given at all, and has the amount applied for been properly calculated? Has the authority gone out for competitive tenders or can it demonstrate that it is value for money? Secondly—this is often more difficult—is there a better way of doing it? I have given the example of Scilly, where a better way would be to do it with one ferry rather than two, for half the price. That is not part of a levelling-up application. On the other hand, somebody should be looking at things like this to make sure that the Government, or the taxpayer, are getting value for money.

That could apply to many projects which noble Lords have mentioned on levelling up, including no doubt the railway projects in the regions which my noble friend talked about. It would help me to understand whether there is any check in the Bill involving value for money and going out to competitive tendering, or not, to demonstrate that that has been done before a decision is taken to go ahead.

16:45

[Lord Ravensdale (CB)]

My Lords, I oppose the question that Clause 18 stands part of the Bill. We have had an excellent debate so far on how the Bill fits with assisting disadvantaged areas. It feels quite appropriate to have these discussions on the day the levelling-up White Paper is being discussed in another place.

What runs through all these discussions on disadvantaged areas is that the UK is one of the most geographically unequal major economies. As the noble Lord, Lord Lamont, stated in Committee on Monday, that has only worsened over the last three decades. We need to throw everything at this problem, which is why noble Lords are keen to see more definition on how the Bill will help disadvantaged areas, given that subsidies provide a key part of the mechanism to enable levelling up.

Clause 18 relates to the relocation of activities and states:

“A subsidy is prohibited by this section—


I repeat, prohibited—

“if … it is given to an enterprise subject to a condition that the enterprise relocates all or part of its existing economic activities”.

Of course, we need measures to prevent gaming the system and internal competition. However, this clause appears to be rather a blunt instrument to achieve this end and goes against the flexible nature of the Bill. There are many productive relocation projects that could contribute well to levelling up, and that need not be unduly distortive of competition in so doing, but which would be made much more difficult by the presence of this clause in the legislation. We already see government departments moving out of London into the regions. Inevitably, we need the same to happen for some business investments, too, if the Government are serious about levelling up.

I do not see why the Bill would want to prevent subsidies for productive relocation projects moving into disadvantaged areas, which could be a boost in many instances to the levelling-up agenda. This has already given rise to concerns that it will adversely affect the ability of LEPs and local authorities to use grants and other forms of subsidy to relocate. The question then becomes: how do we prevent issues with internal competition if we do not want this to become a free-for-all?

The answer is that the Bill already covers these aspects. I turn to the subsidy control principles in Schedule 1, where principle F states:

“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom”,


while principle G states:

“Subsidies’ beneficial effects … should outweigh any negative effects, including in particular negative effects on … competition or investment within the United Kingdom.”


These two principles already cover, in my mind, the issues of negative effects on competition or investment within the UK. I therefore believe there is a case that Clause 18 is not required, because if a relocation subsidy was distortive of competition, it would be caught by those two principles in Schedule 1.

In addition, I want to pick up on Amendments 27 and 28, as spoken to by the noble Baroness, Lady Blake, on the meaning of area in Clause 18. For example, are moves within the same local authority permitted or not? We may need some more definition of what comprises an area in Clause 18.

I can see the intent behind Clause 18, but there are existing protections to achieve these ends in the Bill. If implemented, it could present a risk to the levelling-up agenda through a blanket prohibition on productive relocation projects. So far in Committee, the Minister has made the point that this is a framework Bill and will support levelling up through the subsidies that it will enable, but surely we do not want it to have a clause within it that could directly work against levelling up. I look forward to the Minister’s response on this and would welcome further discussions with him on this aspect of the Bill to ensure that it is coherent with the Government’s wider strategy.

[Lord German (LD)]

My Lords, I appear to have come into this argument about consistency between the noble Lord behind me and my noble friend Lord Purvis. It strikes me that, if this Government are intent on getting a coherent policy, they must have one fitting with the other.

My noble friend just talked about the figure of £780 per head. I will not argue in greater detail what I said during a previous day of debate in Committee, but I also want, in answer to a Written Question and Oral Questions, a statement from this Government that Wales will receive, pound for pound, what it received from the European fund. My target is £780. If the Minister could indicate in his reply whether the Government are still intent on reaching that target—and if so, when —that would be helpful.

It seems to me that consistency is also about the way in which the subsidy regime might work. How subsidies have been applied in the past is important. I quote by way of example the case of both sides of the Severn Bridge. One is in Wales, the other is in England. A major UK company relocated from the Welsh side to England. Having reflected on it, the Welsh Government spent a considerable amount of money preparing the site which the company had vacated and turning it into something that became a possible, and certainly large-scale, logistic hub into which a major British company relocated, again moving from one side of the Severn Bridge to the other. That was allowed, because basically what we were seeing was economic development potential and the available subsidy regime being used to the full.

However, I do not understand how this subsidy Bill will mean that companies can relocate or move, except by indices that, we are told, are now not consistent with the subsidy regime. It is therefore difficult for a member of the public or a public body trying to think how they will sort out their subsidy regimes from now on to make certain decisions about the future. Perhaps the Minister can provide us with some certainty on what relocation means, because without a map, a plan or boundaries, where does it stop? Where does it start? Does it mean that both sides of the Severn Bridge are in the same government economic plan and can be at both ends at the same time?

I want to say a few words about the SPEI schemes and ask the Minister some questions about them. In principle, such schemes are helpful and permissive because they follow on from the EU’s SGEI scheme, but there are two differences between the European scheme and the scheme proposed in this Bill. The first is that the SPEI must reflect the principles in Schedule 1, of which principle F is a new one. This amplifies the question I asked just now about whether, without access to a methodology for location, it will be possible to determine the issues raised by principle F. The second difference concerns the need for public interest objectives to be placed as an obligation for the companies concerned—that is, the companies that provided the delivery of goods and services or actually delivered them—in future.

To understand that need, how are we to measure what public good or public service obligation is? That is not yet reflected in the content of the Bill, and I wonder whether the Government will make it clearer, especially as we are probably not talking about the exempt ones but of that lower limit up to £700,000 and then further to £14.5 million. These are important features of any economic development plan for any area. The schemes currently captured by the SPEI rules include housing, rural transport services and some aspects of health. My question to the Minister is: how much broader could SPEI schemes go? The public good could span a wide regime of operations. In the light of two examples, I will ask the Minister how a scheme could be tested and whether he could treat these examples as a means of achieving an understanding of the intention behind this proposal in the Bill.

The amendments in the name of the noble Lord, Lord McNicol, are trying to establish a level of detail that we do not yet have. It is essential to have that detail, either in the Bill or in further explanation from the Government, of what schemes could be involved and use these services. Those services could be provided under current expenditure or from capital expenditure for projects that are needed.

I want to work on leisure centres, and arts centres or concert halls. Leisure centres used to be very much a local authority activity, but they are critical to providing a social good in ensuring the good health of communities. Therefore, many local authorities have now turned to the private sector to build, and sometimes to run, these centres. Would an SPEI scheme be available for that sort of operation?

It is similar for arts centres, which are frequently multipurpose halls now. As well as concert halls, they are perhaps homes for orchestras and community centres. Not only concerts but a whole lot of activities occur in them. Having a regime that provides a subsidy means that ticket charging can be affordable across the community. In places such as London, it is possible not to have a subsidy, because the audience will clearly pay far more for their tickets than they would in other parts of the country.

Given the disparities in the regions and nations of our United Kingdom, it is important to understand how these things will work in practice. A number of these multipurpose halls may well have a resident artist, an orchestra, a teaching capability or an education facility. In fact, it would be easy to demonstrate a public good, but they will need support or a subsidy. Will an SPEI scheme apply equally to them, provided that the public good stands up? It could be said that the availability of affordable tickets for the general population is important, no matter where it comes from.

In conclusion, this section of the Bill needs further explanation, simply because it could be used to great effect by local authorities and the devolved Administrations. Unfortunately, it does not mean that they will have a subsidy to offer, certainly not in Wales, unless the Government can match the £780 a head that we had until last year.

[Lord Bruce of Bennachie (LD)]

My Lords, the Government are anxious to reduce regional inequality and to promote greater equality, but it is difficult to understand how that it is going to happen without the economy seeing some relocation. The Government’s plans today involve taking money away from the home counties and transferring it to the north of England. That puts them in a political quandary, because if they do not deliver material results in the red wall seats and they have also alienated their blue wall seats, they may find themselves losing on both fronts. That is a problem for them, but from the country’s point of view we want to see those inequalities being reduced. My question to the Government is how they think this can be achieved if any suggestion of relocation is prevented.

17:00

I think I mentioned to the Committee on Monday that I moved to the north-east of Scotland in the early 1970s specifically to be engaged in economic development promotion, at a time when the population of the area was falling and was projected to fall further. Of course we had the unexpected benefit of the discovery of oil and gas in the North Sea, which transformed the economy. Nevertheless, two things happened. First, there were discrepancies between what was happening in the growth areas of Aberdeen and in the rural hinterland, which aggravated some of the rural problems. Secondly, we are now in transition away from oil and gas, and the area needs to change its economic mix. Therefore, there are a couple of questions that I would be interested to test the Minister on.

I go back to the problems of rural areas in the 1970s and 1980s. When I was a relatively new Member of the other House, the Government had a youth training scheme. A rural community in the west of my then constituency, Huntly, found it impossible to get trainees placed until the local rotary club asked if it could set itself up as a YTS-promoting authority. I had to engage at first hand with Mr Eric Forth, who was then the responsible Minister, and he gave a dispensation because rotary clubs were not perceived to be the natural means of delivering the scheme. But it was agreed, and the rotary club’s simple answer was, “We will ask our members if they are willing to provide placements in their local businesses for local youngsters from the schools.” It was a huge success and ran for many years. Indeed, when it was closed down, it had a profit that it was able to hand back to the continuing agency.

That perhaps reinforces my point that local people, locally engaged and in partnership with the public and the private sector, are best placed to deliver development, not central agencies being delivered from Edinburgh, London or somewhere else. The local authorities have been savagely squeezed, so their capacity to fund such things has been inhibited. I say to the Government: give the local authorities some of the resources rather than holding them centrally, and let them work to decide on this.

That brings me to my final transitional point. As we face the inevitable decline of activity in the North Sea and the eventual transition to net zero—that still implies oil and gas production, even until 2050, but on a declining basis—the industry is diversifying. It is using its cash flow and expertise to invest. We have an excellent partnership called Energetica, which is trying to promote an energy and business corridor between the northern suburbs of Aberdeen and Peterhead along the Aberdeenshire corridor and involves the private sector, Scottish Enterprise and the local councils. It envisages being a powerhouse for transition. Will it have the resources and be able to do that? What constitutes relocation? If it is confused or unclear, that could be a problem.

We also have an entirely private sector operation called Opportunity North East, which is looking at all the diversifications away from oil and gas to which we could contribute. It is chaired by Sir Ian Wood. He is now retired but the Wood Group, as was, is a FTSE 100 company that employs about 40,000 people worldwide. Interestingly, it has diversified substantially away from oil and gas to the point where only 40% of its turnover now comes from fossil fuels. It still needs that fossil fuel revenue to continue the process of transition.

My question to the Minister is very practical. These are schemes in hand with real ambition to achieve change in an area that is facing real challenges. They require a regime that will enable them at least to do what they are doing, but preferably to get access to funds that enable them to do it more effectively and in ways where they will not be challenged. If a company decides to invest in a situation like that, which might involve some reorganisation of their operation, it is very difficult to determine whether they are relocating or just reprioritising some of their locations. It would be counterproductive if they were stopped in that scenario.

I repeat that if we are trying to redistribute some of the wealth, the growth and the economy, surely relocation is part of that. After all, in principle the Government are keen to redistribute civil servants, who presumably could fall foul of the Bill if they are directed and provided with incentives to move out of London, Edinburgh or wherever. It is important that we get some clarity on how this will work, and a recognition that local partnerships, local authorities and the private sector are better placed than central government to deliver that. It should not be left to short-term political decisions to meet the threat of electoral reversals, but should be based on a proper, transparent strategy which is about showing that everywhere that has the will and capacity to change has the backing and the resources to do so.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I have a few short points. First, I support the noble Lord, Lord Ravensdale, regarding Clause 18 not standing part of the Bill. It is always very unfortunate when we have in legislation something that says that a subsidy is prohibited by the sanction if it is given to an enterprise subject to a condition that the enterprise relocates. The Explanatory Notes make it very clear that, by “condition”, something explicit is meant. Does it mean therefore that something implicit is permissible? As the Bill aims to achieve transparency, should we not be open and clear, particularly regarding the enforcement by the CMA, about what precisely we will allow in respect of relocation? The noble Lord may be right about the principles governing it, but a provision that makes it dependent on whether it is explicit or implicit is of benefit only to the lawyers, and we do not need to go down that route.

The second issue goes to the question of how this is to work and be enforced, which is the interrelationship of subsidies, procurement and the levelling-up fund. It seems quite clear that procurement obviously can operate as a subsidy, although there is an exemption—the Minister explained it in answer to Amendment 3, tabled by the noble Lord, Lord Wigley—which might exempt certain schemes from it. How does the value-for-money concept in the procurement Bill relate to subsidies?

My last question goes to the levelling-up funds. I assume that something will be done to ensure that they will not be part of financial assistance but, even if they are not for the purposes of the Bill, no doubt the Competition and Markets Authority and the court will have to take into account, in looking at distortion, the cumulative effects of funds from the levelling-up fund and funds from the local authority, because they are both, in essence, forms of state aid. It may be difficult to do it today, but can we have a paper which explains interrelationship of subsidy by way of procurement and how the levelling-up funds relate to the Bill? They are all potentially forms of state aid.

[Lord Callanan (Con)]

My Lords, I thank the noble Lord, Lord McNicol, for tabling the lead amendment in this group, and the noble Baroness, Lady Blake, who ably introduced it. It was great to be reminded by the noble Lord, Lord Purvis, of my previous existence in the campaign against the northern regional assembly—I dread to think how many years ago that was. I seem to remember that Mr Cummings was also involved in the campaign; the noble Lord missed his opportunity to have a go at poor Dominic for that. This is an interesting group of amendments which promotes some good questions. I will try to address the points from the noble Lord, Lord McNicol, and the noble Baroness, Lady Blake, and from the noble Lord, Lord Berkeley, on Amendment 25A, as well as the points from the noble Lords, Lord Ravensdale and Lord Wigley, and the noble and learned Lord, Lord Thomas.

As the noble Baroness, Lady Blake, helpfully reminded us, the context for this is the publication of the levelling-up White Paper. In that, we have announced a comprehensive programme of policies that will put the UK on a path towards greater economic prosperity in every region and place—including, I hope, the north-east of Scotland. We will do this through significant targeted investment, such as the £4.8 billion levelling-up fund that has been referred to, which will invest in infrastructure that improves everyday life across the UK, including by regenerating town centres and high streets, upgrading local transport and investing in cultural and heritage assets.

It is not in question that any government subsidy scheme set up in the context of this levelling-up fund or otherwise should be in compliance with the provisions under this Bill, once it is in force. However, as we discussed on Monday and as raised by the noble Lord, Lord Purvis, again today, subsidies can of course be an important tool to achieve levelling up, but for reasons of time and efficiency I will focus today on the Bill itself and the amendments tabled. I am sure there will be plenty of opportunities to debate the levelling-up fund and its excellent proposals in this House in future.

[Lord Wigley (PC)]

Does the Minister accept that cultural levelling up is part of the Government’s aim, and that cultural facility away from London and the south-east is a very important part of life and the economic substructure? Therefore, is it in order for money to be used to attract cultural investment, whether in theatres, concert halls or other aspects, which may attract business away from London and might be caught under the provisions of the later clause which arises in this group? How is that going to work?

[Lord Callanan (Con)]

I agree. Personally, I am fully in favour of cultural institutions transferring out of London. I will address the relocation point in my later remarks.

This grouping spans several clauses of the Bill but, in responding to the amendments, I will keep coming back to the central refrain that I iterated on Monday as well. The Bill regulates the giving of subsidies where there is a market failure or an equity rationale, with the intention of minimising distortions to competition, investment and trade. It is intended to be a flexible and minimally burdensome regime that applies to subsidies of all types and in all policy areas. As such, my central contention that applies to a lot of these amendments is that there is no need to privilege or exempt certain sectors or highlight certain objectives. Nor is it for the Bill to dictate rigidly the purposes for which public authorities should use subsidies or how they should achieve their purposes.

Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme is made by a Minister of the Crown for the purposes set out in the Bill. Amendment 14 would clarify that the Government may create streamlined subsidy schemes for the purposes of supporting areas of relative economic deprivation. Specifying particular policy objectives at this stage on the face of the Bill may in fact lead to the power to create streamlined subsidy schemes being interpreted in an unduly narrow way in the future.

17:15

Concerns might also be raised, on the back of this, about why other desirable policy areas are not mentioned in the Bill as potential streamlined subsidy schemes—and whether their absence may suggest that the Government have deprioritised that policy objective. The Government fully support actions to assist areas of deprivation and facilitate the levelling-up agenda. Indeed, I will ensure that our streamlined subsidy schemes collectively reflect the importance that we attach to levelling up.

The Bill does not restrict the policy objectives that a streamlined subsidy scheme can pursue. We do not want to restrict it unnecessarily to one policy objective, however advantageous that policy may be. The new domestic subsidy control regime will give authorities the flexibility to deliver subsidies where they are needed to support economic growth, without facing excessive bureaucracy or lengthy pre-approval processes. The Government will also publish guidance to make it clear how the principles should be applied by public authorities when considering subsidies that advance the levelling-up agenda, or that promote the economic development of relatively disadvantaged areas.

As for Amendment 23, I entirely agree with what the noble Lord, Lord Wigley, said in his contribution and his intervention, and with the sentiment expressed on this amendment by the noble Baroness, Lady Jones—that the continuing support of our nation’s cultural and environmental objectives is of the utmost importance. I hope that I can give him the reassurance that he sought that the new domestic regime will facilitate subsidies in aid of cultural or environmental goals. Any well-designed subsidy or scheme with these at its core should not experience any difficulty in complying with the regime’s common-sense principles or other requirements.

As I have previously noted, principle A states that public authorities may give subsidies only to pursue a policy objective which either remedies a market failure or addresses an equity concern. Subsidies pursuing cultural or environmental objectives would almost always comply with this principle. Indeed, the illustrative guidance published last week on the application of the subsidy control principles—I appreciate that the noble Lord may not have had an opportunity to look at it yet—provides examples of subsidies targeted at environmental issues and the preservation of cultural sites as measures addressing forms of market failure. Furthermore, it states that subsidies targeted at extending access to cultural or educational amenities would be an example of an equity objective.

It is important that subsidies and schemes, including those with cultural or environmental goals, also comply with the remaining principles. These ensure, for example, that subsidies are not excessively large, that they minimise distortion to UK competition and investment, and that they are designed to bring about a change in the behaviour of the recipient. Of course, not all cultural and environmental funding will fall within the new regime’s definition of a subsidy. However, where it does, it will need to comply with the subsidy control principles I have outlined, but we do not believe that this would be particularly difficult.

The amendment would not meaningfully change the ability of public authorities to use well-designed subsidies to fund art, culture and environmental protection—if that is what they choose to do—because that path is already smooth. It could, however, become a loophole for subsidies and schemes to avoid complying with the basic principles. In certain circumstances, it could hinder the UK’s ability to fulfil our international commitments, particularly those under the trade and co-operation agreement with the European Union—of which the noble Lord is so supportive.

I thank the noble Lord, Lord Berkeley, for his Amendment 25A, which would require public authorities to consider value for money before giving a subsidy or making a subsidy scheme and, where applicable, to consider making subsidies subject to competitive tendering processes. In the light of this amendment, I think he has missed his vocation in Her Majesty’s Treasury. The foundation of the new regime is a set of clear common-sense subsidy control principles. These principles are fundamentally aimed at reducing harmful distortions to domestic competition and investment, as well as trade or investment between the UK and other countries, which can arise from the giving of subsidies. These principles also support public authorities to award subsidies that deliver strong benefits and good value for money for taxpayers. For instance, principle C requires that subsidies be designed to bring about

“a change of economic behaviour of the beneficiary”,

while principle G states:

“Subsidies’ beneficial effects … should outweigh any negative effects”.

The subsidy control principles also support competitive processes for awarding subsidies, where possible. The recently published illustrative guidance states that public authorities should consider implementing an award process which involves at least some element of competition between potential recipients. While I agree with the comment of the noble Lord today that it is important to ensure value for money in public spending, I emphasise that this scheme is not a subsidy for existing public spending control and value-for-money tests, and that he can rely on Her Majesty’s Treasury to impose those tests on all public spending under the Treasury’s Green Book and the principles set out in Managing Public Money.

As I have previously said, this Government do not want unnecessarily to interfere in the spending decisions of democratically elected public bodies. Public authorities, including the devolved Administrations, are best placed to make decisions about the funding of projects that they deem to be priorities in their areas. This is why the new subsidy control regime is designed to empower public authorities to design subsidies in a way that is tailored and bespoke for their local needs, without facing excessive bureaucracy.

Moving on to Amendments 27 and 28, I start by stating the purpose of Clause 18. Clause 18 is a prohibition on subsidies that are explicitly contingent on the recipient relocating—that is, to receive the subsidy, the recipient must cease activity in one area and move to a new area. It is meant to capture examples of outright poaching of an entire business from one area to another of the type that we often see between states in the US. This clause puts down a marker and is intended to prevent a very small class of subsidies that would disrupt the internal market and constitute a serious waste of public money. The prohibition is not intended to capture subsidies that may substantially improve the attractiveness of investment in a specific area and thereby have the indirect effect of recipients relocating. Expansion into a new area would not be prohibited, nor is it intended to prevent those subsidies aimed at levelling up. I understand that this last point is of particular interest to the noble Lord, Lord Ravensdale, and I shall come back to it in my comments on why Clause 18 should stand part of the Bill.

On Amendments 27 and 28 from the noble Lord, Lord McNicol, I know that he is not looking to amend this provision but is instead looking for greater clarity about how it will work and what constitutes an “area” for the purposes of the prohibition. The term is intentionally left undefined and, informed by guidance, public authorities will apply a common- sense interpretation of it. Where a public authority gives a subsidy that is conditional on the recipient ceasing its activities in one area and moving to another, they will need to show that the move is genuinely within the same area. Factors that will be relevant to that assessment include existing definitions of an area, such as county, unitary or mayoral combined authorities’ boundaries, but public authorities will also need to consider other interpretations. The illustrative guidance that we published last week sets out some questions that public authorities should ask themselves as they consider the geographic and distributional impacts of subsidies and as they consider levelling-up objectives more widely. This will be supplemented by further guidance that will be published well in advance of the regime’s commencement. As I have said, the clause is designed purely to prevent poaching and subsidy races between public authorities in which context the definition of “area” will at that time be quite clear. However, fixing local authority areas at this stage risks creating arbitrary geographic distinctions that do not necessarily work in every case.

Going back to the question from the noble Lord, Lord Ravensdale, about whether Clause 18 should stand part of the Bill and picking up on the contribution of the noble and learned Lord, Lord Thomas, I hope these clarifications have shown the utility of this prohibition.

[Lord Purvis of Tweed (LD)]

If a public authority—let us say the Scottish Government—had a scheme and defined for the purposes of that scheme the entirety of Scotland, therefore allowing relocation anywhere within Scotland, is the Minister satisfied that this would come under the Bill?

[Lord Callanan (Con)]

If it was in compliance with the other principles in the regime, of course it would be in compliance. It would be for the Scottish Government to determine what they would consider—

[Lord Purvis of Tweed (LD)]

If the Secretary of State decided that the geography was the whole of the United Kingdom, would that be acceptable under the Bill, too?

[Lord Callanan (Con)]

The noble Lord is dragging me into hypotheticals, but obviously the purpose of the Bill applies to the whole of the United Kingdom, so the principles would apply across the whole country, yes.

[Lord German (LD)]

The Minister has mentioned the question of guidance twice. Guidance is not law, of course, unless it is. It exactly what it is meant to be: guidance. Given the importance of guidance to the question of what an area is, would it be possible for this guidance to be issued, even in draft form, before we conclude this Bill, so that we can at least know what is in the Government’s mind?

[Lord McNicol of West Kilbride (Lab)]

Just to take both earlier points, if the Secretary of State defined an area as the whole of the United Kingdom, and that covers it, part of the subsidies could be used to move businesses inside the whole of that area. If that is the case, it defeats the whole purpose of it, does it not?

[Lord Callanan (Con)]

I do not want noble Lords getting mixed up. I was referring to the fact that schemes can be designed for the whole of the United Kingdom. The purpose of this clause is to prohibit direct subsidies where a business is paid a sum of money to move from area A to area B—let me finish this point—depending on the definition of the areas that we spoke about previously.

However, that is only for direct subsidies, of course. The attractiveness, training provisions et cetera that could exist or be subsidised in a different area might make it more attractive for that business elsewhere, but the idea is to avoid the situation in the US that I talked about, where they come along and give companies—I will not name them, but noble Lords know the examples I am talking about—huge amounts of money literally to get it to close down its operations in one state and move to another. That is what we are trying to avoid, but we fully accept that it is perfectly in order to increase the attractiveness of an area, show how wonderful it is and show what is available there, including trading provision, sites et cetera. However, we do not accept using direct financial assistance to move from one part to the next.

We have already published illustrative guidance. We will look at enhancing that further with more detail before we commence with the legislation. If it is drafted and ready in time, I will share it with the noble Lord, of course.

[Lord Fox (LD)]

Without labouring the point, but labouring the point, I want to come back to the point made by the noble and learned Lord, Lord Thomas, about the grey areas that appear to be here. This is not a hypothetical example—it is a real one without names—but imagine that you have an inward investor, possibly doubling down on an investment that has already been made. As part of the process of negotiating with that investor, government, whether national or local, determines that it is important to have a technology park where the investor’s suppliers are aggregated and work together to support the investor.

The level of support needed to create the system of suppliers that supports the inward investment, which is clearly of benefit to the region, and therefore to the country, is clear. However, it is also clear that, if arms are not twisted, they are also being bribed or given money to create that park, that environment, to make sure that the inward investor gets what they want when it comes to the investment. Is the Minister saying that this sort of process will be entirely legal even if Clause 18 remains in the Bill?

[Lord Callanan (Con)]

Yes, if they are an inward investor coming into the country and they do not already have an operation in another part of the country.

[Lord Fox (LD)]

But if they are relocating suppliers in order to support—

[Lord Callanan (Con)]

That is not the example the noble Lord quoted. My understanding is that, if they are just increasing the attractiveness of an area and there is no direct financial payment to the company to move from one area to the next, yes, that would be allowed. If that is not correct, I will write to the noble Lord, but that is certainly my understanding of how that would work.

As I explained, this prohibition puts down a marker that is intended to prevent the small class of disruptive but harmful subsidies, such as poaching and outright bidding wars. I suggest to the noble and learned Lord, Lord Thomas, that it would not be easy for such subsidies to circumvent this prohibition.

17:30

In response to the noble Lord, Lord Ravensdale, those harmful subsidies are already very unlikely to comply with the principles. However, the degree of harm they could cause to the internal market and the inappropriate use of public money this would involve justify the extra reassurance of this prohibition, as both a deterrent and a hard stop.

In respect to the comments of the noble Lord, Lord Bruce of Bennachie, it is important to restate that this prohibition is not intended to capture subsidies that may substantially improve the attractiveness of investment in a specific area, as I have just explained, which would have the indirect effect of recipients relocating. The approach strikes the right balance: the clause will prohibit some of the most potentially harmful subsidies, without preventing what all would agree are levelling-up subsidies that attract investment to disadvantaged parts of our nation.

[Lord Purvis of Tweed (LD)]

I am grateful to the Minister; he is being very generous. This is just to confirm this point: if a public body is able to self-define an area under this clause, there would be nothing to prevent the Scottish Government from defining the area as Scotland. They could therefore offer relocation subsidies to businesses in England to relocate to Scotland, and vice versa; there would be nothing to stop the Secretary of State from defining the area as England, which would be more worrying, and therefore having subsidies that are specifically for those relocating from, say, Wales.

[Lord Callanan (Con)]

I think the noble Lord is confusing two different areas. There is the area that would define a particular scheme and the direct subsidies that we are talking about. Yes, clearly there would be a prohibition on the Scottish Government directly financing the relocation of a company from England to Scotland, or vice versa.

[Lord Purvis of Tweed (LD)]

No, that is because the area is Scotland.

[Lord Callanan (Con)]

It does not matter, because anywhere within the United Kingdom is the area covered by this Bill.

[Lord Purvis of Tweed (LD)]

Minister, Clause 18 could say the United Kingdom, but it does not. It says “area”. As the Minister has said on a number of occasions today, the public authority defines the area.

[Lord Callanan (Con)]

It would be the area of the particular authority that is offering the subsidy. Earlier, I offered a more precise definition of what the area would be, whether it is the Scottish Government for Scotland or the council area that the noble Lord, Lord Bruce, referred to in north-east Scotland. They would be the areas of the authority combined. If the Scottish Government, for instance, wanted to offer a direct subsidy for a company to move, or the British Government offered a subsidy for a company to relocate, even within their own area, it would not be permitted.

As I said, indirect attractiveness in enhancing training provisions, for example, would be permitted. This is to prohibit a particular small class of actions. The example that we used was in the United States. We have all seen examples of companies moving from one state to another. They literally close down one operation and move to another because of the enormous subsidies offered. That is what we want to prohibit. We certainly do not want to prohibit areas—indeed, it would be contrary to our policy aims—from making themselves more attractive by offering indirect subsidies, as this would help the levelling-up agenda. I hope I have clarified that.

Amendment 34 was tabled by the noble Lord, Lord McNicol. First, I will say a few words about the purpose and effect of Clause 29, which this amendment seeks to change. The clause sets out the specific provisions for giving subsidies for services of public economic interest, which are services provided to carry out particular tasks in the public interest. These are services where, without a public subsidy, a vital public service would not be supplied in an appropriate way by the market—or, in some cases, would not be supplied at all. These could include, for example, ferry links between Scottish islands—no doubt the noble Lord, Lord Berkeley, would want to quote the example of the Scilly Isles—and a rural bus service.

The provisions in Clause 29 facilitate the subsidies being given while ensuring that this is done transparently, that they are reviewed regularly by the public authority, and that they avoid overcompensating the beneficiary. The Government’s aim in drafting Clause 29 was to provide a simple yet effective framework within which public authorities could confidently provide SPEI subsidies that would allow the continued provision of important services and, in doing so, ensure that the subsidy is limited to what is necessary to deliver that service.

In response to the question from the noble Lord, Lord German, about whether a leisure centre would be considered an SPEI, I do not want to comment on that specific scenario. There is no reason in principle why it should not be, but the Bill would absolutely allow a subsidy to a leisure centre, whether it is an SPEI or not—we could probably have lots of debates about the degree to which leisure centres are SPEIs—if the public authority was assured that there was a market failure or equity rationale and the other relevant requirements were met. I will purposefully not comment on his proposition that the residents of London should not benefit from public leisure centres. I am sure that is not what he was trying to imply.

The amendment tabled by the noble Lord, Lord McNicol, seeks to add a further requirement on public authorities when considering the cost of delivering the SPEI. They would need to consider the social and economic welfare of users of the service and of those engaged in its delivery. These will be important factors for many, if not all, SPEIs, and I expect that public authorities would regularly take account of these considerations when reviewing these types of services on a case-by-case basis. For example, service providers of rural transport services may be required, by the terms of their contract, to consult service users through annual customer surveys or regular engagement with local stakeholders to show that the service in fact meets local needs.

However, the inclusion of this amendment in the Bill would introduce additional complication and a degree of uncertainty for public authorities in how they undertake this assessment. The defining factor for SPEIs must be the type of service that is provided and the fact that it would not be adequately provided by the market. The provisions in Clause 29 are designed to ensure that those services are designed appropriately and with minimal market distortion. As important as the social and economic welfare of service users and providers is, I do not believe it is at the core of this assessment and of the subsidy control provisions.

More broadly, it is important to emphasise that the subsidy control regime does not sit in isolation, nor should it determine every element of spending decisions taken by public authorities in the UK. They must continue to take into account spending rules and to ensure value for taxpayers’ money. They must also make evidence-based, democratically accountable policy decisions about how and where to intervene, in a way that takes into account the specific characteristics and needs of the geographical area and the subject matter for which they are responsible. It may therefore be appropriate for public authorities to include reference to the social and economic welfare of service users and providers in their own guidance on specific SPEIs.

With respect to the social and economic welfare of those engaged in delivering the services, I remind the noble Lord that the UK has one of the best employment rights records in the world. We continue to build on this record, ensuring that our workers have access to the rights and protections they deserve. I therefore do not believe that it is desirable for the subsidy control regime that we are debating to prescribe how public authorities must account for the social and economic welfare of service users and those engaged in delivering the service.

Finally, I will comment on Amendment 36. I am also grateful to the noble Lord, Lord McNicol, for tabling this especially thought-provoking amendment. I understand that the noble Lord intends it to be a probing amendment and I will treat it as such. It raises some interesting questions about subsidies and the nature of the relationship they create between a public authority and a subsidy beneficiary.

The social value Act, from which I assume his amendment takes its inspiration, requires a public authority that is procuring the provision of services, goods or works to give weight to social value factors in what would otherwise have to be a strict value-for-money calculation. Authorities within the scope of that Act should consider whether it applies where a subsidised contract is awarded. In contrast, and perhaps paradoxically, the giving of public money in the form of a subsidy is not primarily a market-based or economic calculation. Of course there are economic duties, within this regime and in public spending controls, to ensure that a subsidy is efficient and effective.

However, the first requirement of this regime—the first condition that a public authority must satisfy before giving a subsidy—is, in essence, one of social value: what is the equity rationale? Is there a market failure and what is the benefit to wider society in providing this subsidy? I hope this answers the question of the noble Baroness, Lady Jones, on the same subject. Moreover, public authorities must conclude their assessment against the principles with the balancing test in principle G: that the beneficial effects of the subsidy should outweigh any negative effects. Of course, these duties fall on the public authority and not the beneficiary directly but, in considering the first and last principles, the public authority must consider the effect of the subsidy in the round.

If it were reasonably foreseeable that, in the actual purchasing of a good or service funded by subsidy, the beneficiary would be undermining the equity rationale for giving the subsidy or that it would somehow worsen another equity objective, then it is hard to see that the subsidy could satisfy either principle A or G. None of this is to say that a public authority cannot impose secondary requirements on a beneficiary, where the size and nature of a subsidy might lead it to do so. Many public authorities award subsidies through a written contractual arrangement that sets out the terms and conditions under which the financial assistance is given, and this would be the way to impose such conditions. But it would be disproportionate to require public authorities to impose social value conditions in all cases, particularly as the questions of equity are already built into the fabric of the regime.

As an aside, the noble Lord has also proposed that public authorities should be able to impose penalties if the use of the subsidy does not deliver the chosen social value purposes. As I have explained, it is not proportionate to require public authorities to impose these secondary requirements. However, let me reassure him that Clause 77 provides that if a subsidy is not used for its intended purpose, it can of course be recovered.

I am grateful to all noble Lords for putting forward their amendments and for the long subsequent discussion that has taken place, but I hope I have set out the reasons why I am unable to accept these amendments on behalf of the Government. In the light of the fulsome explanations I have provided, I hope that noble Lords will feel able to withdraw or not press their amendments.

[Baroness Blake of Leeds (Lab)]

I thank everyone. Given the nature of the earlier discussion, particularly about the cultural venues, perhaps I should declare my interest as a vice-president of the LGA at this point, with apologies for not doing so earlier. I wonder if noble Lords are all sitting feeling relieved that they are not standing here trying to pull all this together. On behalf of the Committee, I thank everyone who has contributed; it has been a very helpful debate. I also thank the Minister for his fulsome response.

However, the nature of the amendments we are considering in this group and their probing nature is such that noble Lords have been seeking reassurance. Although the Minister has attempted to give us reassurance, without looking through the detailed responses that the Committee has given this afternoon I am not convinced that on the matters raised we can all put our hands up and say that that reassurance has been received on all points. I hope there will be opportunities to come back and look at the continuing areas of concern.

I am also struck by the fact that we have not had the opportunity to discuss in detail the evidence submitted by experts during the House of Commons proceedings, including the very serious arguments by Professor Fothergill and Dr Pazos-Vidal about the benefit of defining areas. I confess that I am at a loss as to how the Government can bring this down to the point where the interested parties can make sense of the opportunities available to them, and how we can move this forward in a simple way that would enable areas and businesses to benefit, without the excess bureaucracy that the Minister assured us would not get in the way. I remain to be convinced on some of these points.

17:45

The other area that we have focused on is how to bring benefit to places—but again, through the social value debate, are we concentrating enough on the benefit to people who live in those communities? I confess a personal interest in the disclosure of the Minister’s role in the north-east devolution assembly debate. Having been on the other side of the fence in the Yorkshire debate at the time, I can probably tell him exactly when that was. I knew that a certain Dominic Cummings cut his political teeth there: I think that the physical white elephant that the Minister mentioned was dreamed up by him.

So many points have been raised today that I cannot possibly do them all justice, but I want to dwell on my noble friend Lord Berkeley’s pertinent amendment on value for money. In the current climate of looking at how money has been spent over the past couple of years, every single pound of public money is critical. I welcome the comments from all noble Lords. We will take the Minister’s comments away and look at them in more detail, then regroup and consider how to address the real concerns that we still have about so many of the points discussed this afternoon. I beg leave to withdraw the amendment.

Amendment 14 withdrawn.

Amendment 15

Moved by

[Lord Fox]

15: Clause 10, page 6, line 33, leave out subsections (5) and (6) and insert—
“(5) A streamlined subsidy scheme must be made or modified by regulations subject to the negative procedure.”Member’s explanatory statement
This amendment would require a streamlined subsidy scheme to be made by regulations, as recommended by the DPRRC.

[Lord Fox (LD)]

My Lords, they say that a change is as good as a rest, so the Minister should be very sprightly now, as these amendments bring a slight change of gear. The group consists of eight items, mostly on the same theme, with the exception of the clause stand part in the name of the noble Baroness, Lady Bennett. Because that is so different, in the interests of time and clarity I shall not speak to it, so I look forward to hearing more about it from her.

I am tempted to say, “Here we go again”. The pattern we see here is one that we see with every Bill. First, the Government table new legislation absolutely riddled with secondary legislation. There is usually at least one case of secondary legislation allowing the amendment of primary legislation. Then the Delegated Powers and Regulatory Reform Committee steps forward and issues a report highlighting those issues and recommending remedies. Next, the Minister—in my area it is always the noble Lord, Lord Callanan—stands up, pleads the case for flexibility and sometimes, indeed increasingly, disputes Parliament’s competence to even make some of the decisions that will be required in the future. If we are successful through this process, some, although usually not all, the offending clauses get removed or modified. Lately, however, I detect an emboldened Minister. Increasingly—the ARIA Bill is an example—he uses the Dispatch Box to refute the arguments of the DPRRC.

We should be clear that this committee is an important senior committee of your Lordships’ House, and its report Democracy Denied? The Urgent Need to Rebalance Power between Parliament and the Executive stated that

“the principles of parliamentary democracy, namely parliamentary sovereignty, the rule of law and the accountability of the executive to Parliament”

should be at the heart of how a department approaches the delegation of legislative powers. The Bill falls far short of that objective, which is why there are so many amendments in my name in this group. I am also pleased to support the noble Lord, Lord McNicol, and the noble and learned Lords, Lord Judge and Lord Thomas, in Amendment 50, which seeks to deal with Clause 47, which is clearly the most egregious example of executive overreach.

I turn to the amendments in order. Amendment 15 would require a streamlined subsidy scheme to be made by regulation. Clause 10 allows Ministers to make streamlined subsidy schemes, which are defined opaquely in Clause 10(4). This demonstrates that Ministers consider that all subsidies within such a scheme comply with the Bill’s subsidy control principles and requirements. In practice, it means that if a public authority keeps within the limits of the scheme it is no longer required to consider the subsidy control principles or requirements when giving an individual subsidy. Streamlined schemes will be laid before Parliament after being made. They will not be subject to the negative or the affirmative procedure for regulations. The DPRRC report sets out a very good rationale for recommending that the power to establish streamlined subsidy schemes in Clause 10 should be exercised by regulation and that then the negative procedure would be appropriate, hence Amendment 15.

Next is a probing amendment to raise concerns about the definitions in Clause 11 being made by regulations, as also highlighted by the DPRRC. Clause 11 allows certain definitions to be defined by affirmative regulations rather than appearing in the Bill. These definitions are

“subsidy, or subsidy scheme, of interest”

and

“subsidy, or subsidy scheme, of particular interest”.

We have touched on this already. These definitions are important in determining the scope of the subsidies or the schemes that must be referred to the CMA under Clauses 52 to 64. The DPRRC is sceptical about the Government’s reasoning for leaving these definitions out of the Bill, and so am I. The DPRRC states:

“The power in clause 11(1) to define in regulations certain key terms is inappropriate and we recommend that it be removed from the face of the Bill.”


As a coda, and this is quite unusual, the DPRCC adds:

“Although we have been critical of the over-use of Henry VIII powers, we prefer to see key definitions appear on the face of the Bill—perhaps with a Henry VIII power to amend by affirmative regulations—rather than not appearing on the face of the Bill at all and always being a matter for regulations.”


That is an interesting twist, and one that is worth debating.

Amendment 26 addresses Clause 16(4) to (7) and seeks to require designations related to marketable risk countries to be made by regulations not by direction. Again, this is recommended by the committee.

Clause 16(4) is subject to neither the affirmative nor the negative procedure. The Government’s reason for having no parliamentary procedure is that they

“want to be able to act rapidly to allow short-term export credit finance where market factors may have rendered the list of marketable risk countries in need of amendment.”

One thing that the Covid crisis has demonstrated is that there is no barrier to the rapid tabling and approval of regulation. One thing that Brexit has demonstrated is that your Lordships’ House has a huge capacity to handle literally thousands of regulations when they are set before it. So any pleading that executive power is needed because Parliament cannot move fast enough is tosh, frankly—or, as the DPRRC puts it rather more politely,

“the Government can make rapid legislative changes by negative regulations or ‘made affirmative’ regulations. The idea that the making of regulations is inconsistent with the need to move quickly is fallacious. Negative and ‘made affirmative’ regulations can be made as quickly as can a direction.”

In other words, it is tosh. This amendment would install a process of regulation rather than ministerial direction.

Amendment 30

“would remove the ability of the Treasury to amend the definition of ‘deposit taker’”.

Amendment 31

“would remove the ability of the Treasury to amend the definition of ‘insurance company’”.

Amendment 32

“would remove the ability of the Treasury to amend the definition of ‘insurer’”.

Clauses 25 to 27 give the Government the ability to revise certain definitions to cater for developments that cannot be anticipated at the time of the Bill’s enactment. By way of example, the definition of “deposit taker” in Clause 25 uses a standard definition found across the statute book. If this definition required amendment in some future primary legislation, it would be perfectly possible for that legislation to contain the necessary consequential provision to enable the definition in Clause 25 of this Subsidy Control Bill to be amended in due course. The same reasoning applies to the definitions of “insurance company” in Clause 26(4) and “insurer” in Clause 23(7). Amendments 30 to 32 would remove the ability to amend those definitions, which, clearly, would not hamper future changes.

Amendment 50, proposed by the noble Lord, Lord McNicol, and signed by myself and the noble and learned Lords I mentioned, would remove Clause 47, which aims to give the Treasury powers

“to keep financial stability directions secret from Parliament and the public, thereby enacting a recommendation of the Delegated Powers and Regulatory Reform Committee.”

As the committee states,

“clause 47 involves fundamental issues of government accountability and parliamentary scrutiny … Not only does the provision enable the Government to disapply a legislative provision—the Bill’s subsidy control requirements—by a direction that can be kept secret from Parliament, but the justification for the power not being subject to any parliamentary scrutiny procedure includes, according to the Memorandum, ‘the potential for non-approval by Parliament’”.

In other words, this has to be included because Parliament might not agree with it. That should give us pause for thought.

The DPRRC is clear on the malign nature of this clause. It says that

“clause 47 is extraordinary for several reasons … Parliament has no power to scrutinise and reject a Government direction suspending the application of the Bill’s subsidy control requirements … Parliament may be deliberately kept in the dark about the existence of such a direction if the Treasury elects to rely on clause 47(7) … One of the Government’s reasons for having no parliamentary procedure is that the potential for non-approval by Parliament would create uncertainty that the subsidy will continue to be available. In other words, because the Government might be defeated if the direction could be voted upon, there should be no parliamentary procedure and no vote.”

In conclusion, the committee recommends

“that clause 47(7) should be removed from the face of the Bill”,

which is what Amendment 50 would do.

I am sure the noble and learned Lords who follow me, and indeed the noble Lord, Lord McNicol, will be more erudite, but I leave this set of amendments with a final injunction that we should seek to uphold all the DPRRC’s recommendations, not just the most serious ones. Parliamentary power is being eroded, little by little, one piece at a time. We have to resist this. I beg to move.

18:00

[The Deputy Chairman of Committees (Baroness Fookes) (Con)]

My Lords, I point out that if Amendment 15 were to be agreed, I could not call Amendments 16 or 17 by reason of pre-emption.

[Baroness Jones of Moulsecoomb (GP)]

I agree with every word that the noble Lord, Lord Fox, just said. I liked him shouting “tosh!” at the Government; that was great. That is a very gentle word for it. He also sent me into a mild panic, because I had not realised that my noble friend Lady Bennett had tabled a clause stand part debate in this group. All I can do is repeat her explanatory statement which says that this

“is intended to elicit why Bank of England monetary policy subsidies are excluded from the provisions of the Bill.”

I hope there is an answer on that in the Minister’s speech. I had thought the noble Lord, Lord Fox, was perhaps talking about my Amendment 33 which we have of course already debated. I thank him for his remarks.

On this group generally, I have argued many times about government regulation-making powers, because I am absolutely sick of the Government bringing skeleton legislation that needs little more than a parliamentary rubber stamp for them to make substantive law by future regulations. This is a power grab that most of us absolutely abhor. However, this is a unique case. I want to support these amendments for new regulation-making powers because the alternative envisaged by this Bill is that, instead of making regulations which are passed by Parliament, the Government would simply make a decree and then inform Parliament after the fact. I support the amendments.

[Lord Judge (CB)]

My Lords, I apologise that I was not able to attend Second Reading. I had other commitments in the House, so ask noble Lords to forgive me.

I put my name down in support of the noble Lord, Lord McNicol, and was delighted to do so. However, I am sure he will forgive me if I explain that I am actually not supporting him but the Delegated Powers and Regulatory Reform Committee, which is what we should be looking at. The noble Lord, Lord Fox, thought there might be some erudition, but there is no need for it; this is a perfectly simple constitutional aberration.

When the Minister comes to reply, I would like him to kindly look at paragraph 16 of the committee’s report, where there are three “extraordinary” provisions—that was the word used—which need attention. Unless he can answer in a way that convincingly refutes their effect, we might as well keep on fighting about this. As I say, it is a constitutional aberration and we should not have it. It is an amazing thing for one of our committees to say that a subsection, in this case Clause 47(7), should be removed from the Bill. We need to know why it should not.

[Lord Thomas of Cwmgiedd (CB)]

I shall add two very short points. First, it seems to me absolutely fundamental to a democratic society that the laws made by a legislature permit everything to be done openly and stop anyone prohibiting publication at any time. As the committee said, there is enough discretion in the earlier subsection. Secondly, accessible and open legislation is essential to the rule of law. It seems to me that this clause is an attack on both democracy and the rule of law and has no place in this Bill.

[Lord Hope of Craighead (CB)]

My Lords, when the Minister comes to reply, would he explain the purpose of Clause 47(6), which requires that the direction must be published? We need to understand the purpose of that subsection before we look at Clause 47(7) which is the subject of this discussion. As I understand it, it is there in the interests of transparency and clarity. If that is the purpose, it is even more surprising that there is a power to disapply.

After all, the purpose of the direction is to inform somebody. Who is it who is to be informed? It is not subject to parliamentary procedure, but it is there for a purpose. We need to know from the Minister expressly what that purpose is, so that we understand the significance of Clause 47(7).

[Lord Purvis of Tweed (LD)]

My Lords, I support my noble friend Lord Fox and will add a couple of points. First, on the streamlined schemes, there is the potential for them to be very major and, in effect, a policy driver in themselves. But if they are laid and are not in an order, which we would have the ability to scrutinise, they will not necessarily come with an equalities or impact assessment. It will be a fundamental weakness if they are simply laid. It goes against the grain of what we have been trying to argue, which is for good-quality proposals that come with equalities assessments. It will bypass that and that is a retrograde step.

On the ability to amend without there also being scrutiny, I point out, having checked on legislation.gov.uk, that there are 15 references to deposit-takers in other legislation and 34 references to insurers. What the Government propose is simply to amend primary legislation and a suite of other measures. The area of confusion for me is that there is also legislation that relates to Scottish insurance, which could be changed by a Secretary of State without there being proper scrutiny of that either.

My final point relates to the element of secrecy in Clause 47(7). The Government seem to be proposing that we go back to a situation of hue and cry, in which measures by the Treasury that could be supporting individual businesses will never be reported. We will know only if there are whistleblowers, if people are raising concerns and they have that knowledge. We saw to our cost with the Libor-fixing situation what can happen when there is a lack of transparency and reporting. It is simply not good enough. When I was a member of the Finance Committee of the Scottish Parliament, we had mechanisms for our committee to meet in private when Finance Ministers were able to say, either on the grounds of national security or during the economic crash, that there were reasons why information would not be made public at that point. We were briefed and there would, subsequently, be a report that Parliament could have. There are other mechanisms for secrecy than this approach.

Finally, I have been a Member of two Parliaments for 18 years now. I never thought I would read a parliamentary committee highlighting this statement:

“In other words, because the Government might be defeated if the direction could be voted upon, there should be no parliamentary procedure and no vote.”


This provision should not progress. It is as simple as that.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I am grateful to the noble Lord, Lord Fox, for tabling these amendments. As we have heard, they reflect the bulk of the DPRRC’s recommendations. I also thank the noble and learned Lords, Lord Judge and Lord Thomas of Cwmgiedd, and the noble Lord, Lord Fox, for signing Amendment 50, even if it was not to support me but the recommendations of the DPRRC.

The DPRRC took the unusual step of voicing its concerns for Clause 47(7) at first, rather than working through the Bill and its clauses in turn. That goes to highlight even further its real concerns, specifically around issues of transparency and secrecy. We will come on to further amendments on transparency and try to open this up because, as we have heard, when you shine a light on the decisions being made, they are put under scrutiny. Issues and concerns can be brought to the fore so that we do not, as the noble Lord, Lord Purvis, said, end up relying on whistleblowers.

Taking the point made by the noble Lord, Lord Purvis, it may be that the immediate release of certain directions and information could have undesirable consequences in terms of market behaviour, but there must be other ways of taking it forward. The noble Lord has touched on one of them at the Scottish Parliament, where meetings were in private but the information was subsequently released.

At Second Reading, the Minister said:

“However, we will of course take into account the findings from the Delegated Powers and Regulatory Reform Committee’s report and we will review accordingly.”—[Official Report, 19/1/22; col. 1712.]


I know we are all sitting here waiting to see if any of those will be enacted, and I very much look forward to the Minister’s response. The words of the DPRRC have been quoted but it is worth putting on the record points 13 and 14 in its 17th report, which say that:

“We do not recall any other occasion where the Government have argued that one reason why Parliament should not be able to scrutinise delegated legislation is because the Government might be defeated on it … Neither have the Government cited any precedent where the ability to disapply a legislative provision (here, the Bill’s subsidy control requirements) can be achieved by a direction that can be kept secret from Parliament.”


With that, I look forward to the Minister’s response.

[Lord Callanan (Con)]

My Lords, this group of amendments contains a number of amendments tabled in relation to the Delegated Powers and Regulatory Reform Committee’s report on the Bill, which I received and, like all noble Lords, read with great interest. I thank the noble Lords, Lord Fox and Lord McNicol, for their amendments. I was also going to thank the noble Baroness, Lady Bennett, but sadly she is unable to join us today, which of course is a real tragedy for us all. Nevertheless, we have the benefit of the noble Baroness, Lady Jones, in her stead, which is wonderful for us.

I wholly echo the sentiments expressed by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Judge, on the vital role that the DPRRC plays in supporting the work of your Lordships’ House. I am grateful to my noble friend Lord McLoughlin and his committee for their scrutiny of the Bill.

As I stated at Second Reading, I am very well aware of the strength of feeling across the House on the provisions in the Bill highlighted today. I was expecting many of the speeches that were given. I am sure that noble Lords are aware that my right honourable friend the Lord President of the Council, Jacob Rees-Mogg, has also taken an interest. He recently wrote on this issue to my noble friend Lord McLoughlin and the previous chair of the committee, my noble friend Lord Blencathra, noting that the Government are taking its findings into consideration. While at this stage I cannot commit to changing anything in the Bill, I will take away the comments of noble Lords for due consideration. It is important that we get this legislation right and that the powers are proportionate and measured, as well as conducive to effective subsidy control.

Let me start with some thoughts on Amendment 15 to Clause 10. I previously noted that Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme must be laid before Parliament before it is made, or modified, by a Minister of the Crown. Streamlined subsidy schemes offer public authorities a swifter route to demonstrating compliance for categories of subsidies at especially low risk of causing market distortions, that promote UK strategic policy objectives and which the Government judge to be compliant with the subsidy control principles.

This amendment would require streamlined subsidy schemes to be made or modified by regulations subject to the negative procedure. Indeed, the noble Lord’s amendment is in line with the recommendation made by the DPRRC in its report. The Government believe that Clause 10 sets out a proportionate level of parliamentary scrutiny for streamlined subsidy schemes. The regulations will be laid before Parliament both when they are made and when they are amended. I also intend to engage with the devolved Administrations, other public authorities, and the experts in the subsidy advice unit on the development of these schemes.

18:15

I do not believe that it is appropriate to make streamlined subsidy schemes by way of regulations. These schemes will be technical, detailed documents, which are not well suited to being drafted as legislation. It is essential that they are drafted in such a way, and with a level of detail to ensure, that they are understood clearly by small public authorities and by lay persons and technical experts, as well as by lawyers.

I trust that the several illustrative products we published last week demonstrate to the Committee the nature of the streamlined subsidy schemes, and illustrate that they would not easily be achievable by means of a statutory instrument. The Government will also, in sufficient time ahead of publication, publish further details on how streamlined subsidy schemes will be monitored, evaluated and updated.

I recognise the importance of having sufficient parliamentary oversight of the subsidy control regime as a whole, and of having appropriate scrutiny mechanisms for the streamlined subsidy schemes. I am happy to consider this point further.

On Amendment 26, Clause 16 provides a list of 10 countries defined as marketable risk countries. The clause sets out that the Secretary of State may give a direction, which must then be laid before Parliament, that a country on this list should not be treated as a marketable risk country where the conditions in subsection (5) are met. The Secretary of State must revoke any direction where those conditions are no longer met. Marketable risk countries—such as, for instance, the United States or member states of the EU—have higher levels of private insurance market capacity, such that government export credit support is, in our view, not appropriate. The general approach is that export credit insurance cannot be offered by UK Export Finance to UK enterprises for business with customers in marketable risk countries. I am sure that noble Lords would support that principle.

The noble Lord’s amendment would require designations to be made by regulation, not by direction. The Government’s view is that rapid action to amend the list of marketable risk countries may be necessary in the event of any sudden changes in economic circumstances. A direction from the Secretary of State, as opposed to regulation, would enable the Government to act swiftly to amend the list of marketable risk countries. I reiterate that I recognise the strength of feeling among noble Lords on this matter, and I undertake to consider it further.

Amendments 30 to 32 were tabled by the noble Lord, Lord Fox. Their purpose is to remove the ability of the Treasury to amend Clauses 25, 26, and 27 by regulations so as to alter the meaning of “deposit taker”, “insurance company” and “insurer” respectively. The effect would be that, in instances where those definitions need to be altered, the Treasury would have to do so through primary legislation rather than regulations. I am afraid I must also reject these amendments. The ability of the Government to amend these definitions to remain up to date and effective is an important one. The Government must be able to reflect any future changes resulting from the continued evolution of the financial sector.

It is not uncommon for primary legislation to give the Government the power to amend definitions by regulations. Instances can be found in financial services and non-financial services legislation. For example, there are delegated powers in Section 355 of the Financial Services and Markets Act 2000, where the Treasury has the power to specify the meaning of “insurer”. Although there are no plans to do so at this stage, it is vital, in an area of law with a nexus to financial regulation and the UK’s international obligations, as is the case with the Bill, that the Government are enabled to update definitions. The ability to amend these definitions by secondary legislation provides a more effective and faster tool to do this than primary legislation. I emphasise that the power itself is very narrow, in so far as it relates only to those definitions of institutions captured by the requirements. Furthermore, any changes in definitions will be effected by affirmative procedure, ensuring that there is proper parliamentary scrutiny, and be subject to consultation with the Financial Conduct Authority and the Prudential Regulation Authority.

Lastly on the amendments, I turn to perhaps the main event of this grouping: Amendment 50 to the famous Clause 47. The purpose of this amendment is to remove the exception to the duty of publishing a financial stability direction. Again, I understand that the rationale for this is to address the DPRRC’s concern that the use of this exception would remove public and parliamentary scrutiny of the use of this power. The effect of this amendment would be that the Treasury no longer had the explicit ability to delay publication of a financial stability direction where

“that publication … would undermine the purpose for which it is given”.

Again, I must respectfully reject this amendment. The exception under Clause 47(7) serves a meaningful purpose in ensuring that the Treasury can delay publishing a direction while publication could undermine the purpose for which that direction was given in the first place. Furthermore, I do not believe that the removal of Clause 47(7) is necessary to ensure transparency over the use of direction. Subsection (7) was not created with the intention of allowing financial stability directions to be kept secret permanently. We agree that this would not be appropriate; indeed, as the noble and learned Lord, Lord Hope, suggests, subsection (6) is intended to deal with this very aspect of transparency.

There are circumstances where it would clearly be necessary to delay the publication of a financial stability direction. Publishing a direction effectively discloses that financial assistance has been given and therefore undermines the ability to grant assistance on a covert basis. For example, the ability to delay disclosure is critical in instances where the Bank of England provides liquidity support to stabilise a failing firm. In situations such as this, disclosure of the direction could further damage confidence in a firm, exacerbate a liquidity stress, or give rise to financial and market-wide instability—including further firm failures—unrelated to broader market fundamentals.

[Lord Purvis of Tweed (LD)]

Is it the view of the Minister that the powers under subsection (6) allow for delayed disclosure?

[Lord Callanan (Con)]

Yes, that is the subsection which provides the ability to publicise that fact—it is in subsection (6).

[Lord Purvis of Tweed (LD)]

So the point the Minister is making, which is to have the legal ability to delay disclosure, is afforded under subsection (6). The deletion of subsection (7) then does not affect that power. It would mean only the removal of the ability for there to be no disclosure at all, because the power to delay disclosure would be under Clause 47(6). Is that correct?

[Lord Callanan (Con)]

We think that subsection (7) is important for financial stability and legal certainty but, as I have said on the other amendments in this group, I am happy to take this away and look at the matter further.

This is the very effect that assistance, and the direction that facilitates that assistance, would be deployed to avoid. Northern Rock serves as a clear example, where the revelation that the firm was in receipt of emergency liquidity assistance led to a run on the bank. That exacerbated its problems and, in the end, hastened its failure. Consequently, if disclosure of financial stability directions cannot be deferred, it would effectively render them unusable in situations where it is necessary to provide lending on a covert basis. Making a direction unusable in this way would be especially problematic if the success of the financial assistance was dependent on the use of a financial stability direction to disapply any of the requirements.

In relation to the specific statement being referenced in paragraph 16 of the report, as mentioned by the noble Lords, Lord Purvis and Lord Fox, that statement makes it clear that the concern is not about the risk of parliamentary defeat. The concern surfaced in the statement is the perception of stakeholders of a risk that non-approval could result in the rejection or undermining of the proposed subsidy. In that circumstance, the primary concern would not be in relation to a defeat in Parliament but that, as a result of that risk perception among stakeholders, the subsidy would be ineffective in the short term or even rejected by the proposed recipient. This would mean that the use of the power would not even get to the point of a vote.

The current drafting of Clause 47(7) provides a clear mechanism in law for delaying publication and a basis on which the Treasury can make the decision that the publication would undermine the purposes for which the direction was given. When the Treasury considers that publication would no longer undermine the purpose of the direction, it would at that time—this comes to the point made by the noble and learned Lord, Lord Hope—be required to publish that direction in accordance with the duty in Clause 47(6). Therefore, subsection (7) simply makes explicit the ability to delay publication where that publication would undermine the purpose for which the direction was given. It does not provide a means for the Government to avoid scrutiny indefinitely.

[Lord Judge (CB)]

What is the point of Clause 47(7) if the object is to allow, in appropriate circumstances, a deferral or a delay in the publication of the information?

[Lord Hope of Craighead (CB)]

Might I add to my noble and learned friend’s question? To whom is the information to be given? Who needs to know about this direction? It is rather important to understand how the scheme is supposed to work. Presumably, the publication is to serve a purpose; one needs to know to whom it will be disseminated.

[Lord Callanan (Con)]

Ultimately, the purpose is to provide transparency so that, after the fact, the public and Parliament are informed on the subsidy that has been given. However, we maintain that it is important to keep the subsidy under the radar unless it would undermine the purpose for which it was given in the first place if it were publicised. The example of Northern Rock is the one that we quote, as it would potentially cause a run. I recognise the strength of feeling from the DPRRC and among noble Lords on these clauses. As I have said, I will look at them further before we get to Report—[Interruption.] I am happy to have satisfied the noble Baroness, Lady Jones, for a change.

Turning to some of the comments on why Clause 11 should stand part of the Bill, this clause enables the Secretary of State to make secondary legislation to define subsidies or subsidy schemes of interest or of particular interest. Again, I recognise that the power set out was criticised in the DPRRC’s report, and that it recommended that these definitions be on the face of the Bill. If I may briefly summarise the purpose of this clause, Part 4 of the Bill establishes the mechanisms for the referral of these subsidies and schemes to the subsidy advice unit. Voluntary referral will be available for subsidies or schemes of interest, while subsidies that are classified as subsidies of particular interest will be subject to mandatory referral. After referral, the public authority’s assessment of compliance with the subsidy control requirements will be evaluated by the unit, and a report containing its findings will be published. This is a pragmatic way of ensuring that additional scrutiny is given to potentially distortive subsidies. The clause therefore allows the Government to define these types of subsidies and schemes.

The noble Lord sought clarity on why the Government intend to set relevant criteria and thresholds in regulations, rather than in the Bill. Let me point out the illustrative regulations that the Government published last week, as well as the accompanying policy statement. I welcome any comments that noble Lords may have on these documents, of course, and stress that the Government will take careful note of the views expressed when developing these draft regulations. I hope that this provides further clarity and assurance on how the Government intend to use these powers.

The reason why the Bill takes a power to define these categories is because it is important that the Government are able to modify the criteria over time in response to market conditions, or the periodic reviews that will be carried out by the subsidy advice unit, to ascertain how the domestic control regime is working in practice. Both Houses will of course have an opportunity to debate any regulations in draft to ensure that the criteria for what constitutes “of interest” or “of particular interest” are robust and capture the right subsidies and schemes for additional scrutiny.

18:30

Of course, I recognise that the same could be accomplished by putting the definitions in the Bill while taking the power to amend those definitions through secondary legislation, as the DPRRC noted. The main reason why we have not done this is to ensure that feedback can be sought on the precise criteria to use, building on the more general responses to questions in the public consultation last year on which subsidies could be considered as particularly high risk. The illustrative regulations will afford us the opportunity to seek this input from noble Lords, the devolved Administrations and other stakeholders.

I do not believe that it would have been desirable to put these definitions in the Bill when we retained a level of open-mindedness about the precise definitions. I also do not believe that it would have been possible to seek granular responses before publishing the rest of the Bill and setting out the precise mechanisms and processes that apply to these two categories of subsidy. The illustrative regulations also demonstrate the lengthy and detailed nature of this policy, which would not fit easily into the Bill.

Finally, I will share some thoughts on why Clause 46 should stand part of the Bill. This clause sets out that activities conducted by or on behalf of the Bank of England in pursuit of monetary policy are not subject to the subsidy control regime. These measures were implemented by central banks in pursuit of monetary policy and have always been considered to be outside the scope of EU state aid rules. The EU and the UK confirmed in the joint declaration on monetary policies and subsidy control their mutual understanding that activities conducted by a central bank in pursuit of monetary policy are outside the scope of subsidy control provisions in the trade and co-operation agreement.

It is important that the position set out in the joint declaration is put beyond doubt in UK law. One of the Bank of England’s independent statutory functions is, of course, to maintain UK price stability and, subject to that, to support the economic policy of the Government. It is appropriate and necessary that the domestic subsidy control regime exempts monetary policy measures in pursuit of these objectives. The Bank has statutory independence for monetary policy of course, which is a crucial part of the macroeconomic framework. The exemption is consistent with and indeed reinforces the Bank’s independence in taking monetary policy decisions, as such decisions could become the subject of oversight and enforcement on subsidy control grounds.

To close, I look forward to no doubt substantial engagement with noble Lords further on these issues. Therefore, for the moment, I hope noble Lords feel able to let Clauses 11 and 46 stand part of the Bill, and that they will not press Amendments 15, 26, 30, 31, 32 and 50.

[Lord Fox (LD)]

My Lords, this has been an interesting debate. The Minister said “for the moment”—perhaps for the moment.

I appreciate that the Minister has at least left his door ajar to some of this, but the body language, and indeed the language, still indicate that there is this cultural campaign to make sure that executive power is gathered where possible and that the legislature is pushed to one side. This is what the DPRRC referred to in its report; it is what we have to put up with in every piece of legislation. Actually, as I said, I get the sense that the Government are emboldened and keep going even further with this. I feel that your Lordships will have to consider where we go with this on Report.

I have a couple of observations. When a Minister says that something is too technical, I feel as though I am being tapped on the head and told that I should not worry about such things—this coming from the Minister who tabled the 17 technology areas for the security and investment Bill, which was one of the greatest aggregations of technical information that I have ever seen. The idea that we and Parliament are not capable of handling something that is “technical” is deeply patronising.

Turning the focus to Clause 47(7), nowhere in it are the words “delay”, “temporary” or “otherwise” used. If, as the Minister implied—said absolutely, in fact—the purpose is a temporary delay in what would otherwise be a fully transparent process, that is not what Clause 47(7) says. If that is what the Minister wishes to put to us, that is what it should say in the Bill, but it does not.

Putting those comments to one side, I am sure that we will come back to this unless the Minister mobilises the full forces of righteousness and comes back with some meaningful amendments. I beg leave to withdraw Amendment 15.

Amendment 15 withdrawn.

Amendments 16 and 17 not moved.

Amendment 18

Moved by

[Lord Callanan]

18: Clause 10, page 6, line 35, at end insert—
“(7) A subsidy scheme or streamlined subsidy scheme may provide for the value of a subsidy to be determined by reference to its gross cash amount or the gross cash equivalent.”Member’s explanatory statement
This amendment ensures that subsidy schemes and streamlined subsidy schemes can refer to the gross cash amount or gross cash equivalent amount of the subsidy, as determined by regulations made under Clause 82.

[Lord Callanan (Con)]

My Lords, the amendments in this group are technical amendments that would update the Bill to permit regulations made on gross cash equivalent to apply to all parts of the Bill to which they are relevant. These amendments have the same basic purpose so I will take them together.

Subsidies can come in many different forms, from cash grants to discounted contributions in kind. It is important to establish a common methodology for calculating the value of the latter kind of subsidy as this will avoid public authorities taking different, and difficult to compare, approaches to this issue. Clause 82 enables the Secretary of State to make provisions by regulations, which will be subject to the negative procedure, for how the gross cash amount and the gross cash equivalent amount are to be determined for four different clauses that are listed in the Bill. These regulations will set out a methodology for calculating the value of any subsidy or scheme for use by public authorities. This will avoid public authorities using to calculate gross cash equivalent a range of methodologies that may not be wholly or easily comparable with each other.

Clauses 10 and 11 concern the creation of subsidy schemes and streamlined subsidy schemes, and enable the Secretary of State to make regulations defining the meaning of subsidies or subsidy schemes of interest or of particular interest. The amendment to Clause 82 would ensure that regulations made under it, which make provisions about how the gross cash amount and the gross cash equivalent are to be determined, are applicable to all regulations and schemes made under the terms of the Bill.

The other amendments to Clauses 10 and 11 would enable the values of subsidies of interest or of particular interest, subsidy schemes and streamlined subsidy schemes to be defined by reference to the gross cash amount or gross cash equivalent amount of the subsidy or scheme. I hope noble Lords will agree that these are minor and technical amendments that will avoid any need for complex cross-referencing in the regulations and reduce any confusion for public authorities; I therefore ask that they be accepted. I beg to move.

[Baroness Jones of Moulsecoomb (GP)]

I would like to raise a small, technical point; I think that the Minister skimmed over it in the debate on Amendment 33 in my name, possibly because I did not explain it properly. Subsidies for fossil fuels should be calculated using the IMF definition of financial assistance for fuel consumption multiplied by the difference between existing and efficient prices. In his reply, the Minister explained that he would not want to ban subsidies for fossils fuels, but he did not say anything about the merits of the IMF definition of fossil fuel subsidies. This is an important issue because it factors in the negative impacts of environmental and social costs, which are otherwise ignored. When we look at fossil fuel subsidies holistically, we realise just how much more expensive fossil fuels are than renewables. I do not expect an answer today, but it would be good to have an answer in writing whenever possible because the Minister did not mention it.

[Lord Callanan (Con)]

That issue is not covered by these amendments, but I will come back to the noble Baroness in writing.

[Lord Fox (LD)]

My Lords, those on this side welcome these three amendments. It is always hard to get those first government amendments out; after then, you can keep them coming, Minister. We have one or two suggestions about what you might like to put in them.

It is good to have a consistent approach; indeed, a consistent approach to how you value a subsidy is a good starting point. Perhaps we can then have a consistent approach to how local authorities evaluate the need for a subsidy, and to how they are regulated and managed within areas. Consistency is what we are calling for. This is clearly the first baby step towards having a control system operated from a level playing field.

[Lord McNicol of West Kilbride (Lab)]

I echo the points of the noble Lord, Lord Fox: it is interesting to see government amendments at this early stage, even though none of these issues was raised at Second Reading. Likewise, we are not going to oppose any of these amendments.

Similarly, not just on consistency but on transparency, a good number of amendments were tabled in Committee on which we are more than happy to work with the department and the Minister to bring them back on Report. This will hopefully deal with a number of issues on which we have concerns, so that we do not object to them at that point.

[Lord Callanan (Con)]

I am happy to see that the Liberal Democrats believe in consistency and to work with the opposition parties when amendments are required, as appropriate.

Amendment 18 agreed.

Clause 10, as amended, agreed.

Clause 11: Subsidies and schemes of interest or particular interest

Amendment 19

Moved by

[Lord Callanan]

19: Clause 11, page 7, line 7, at end insert—
“(2A) Provision under subsection (2)(a) may provide for the value of a subsidy to be determined by reference to its gross cash amount or the gross cash equivalent.”Member’s explanatory statement
This amendment ensures that subsidies of interest and subsidies of particular interest can be defined by reference to gross cash amount or gross cash equivalent amount, as determined by regulations made under Clause 82.

Amendment 19 agreed.

Amendment 20 not moved.

Clause 11, as amended, agreed.

Clause 12: Application of the subsidy control principles

Amendment 21

Moved by

[Lord McNicol of West Kilbride]

21: Clause 12, page 7, line 19, leave out subsection (2)
Member’s explanatory statement
This amendment would require individual subsidies given under a subsidy scheme to be judged against the subsidy control principles.

[Lord McNicol of West Kilbride (Lab)]

My Lords, we understand the Government’s desire to keep the subsidy control regime as straightforward as possible so that public authorities at all levels can respond to events as they arise. The Minister knows that we generally support these aims but, as we made clear at Second Reading, we have real concerns about the lack of transparency and accountability. The three amendments in this group have been tabled to look at that. The issue of transparency concerns individual subsidies given under a subsidy scheme not showing as transparently as others on the database or elsewhere.

Amendments 21 and 24 would require individual subsidies inside a scheme to be judged against the subsidy control or energy and environmental principles, as appropriate; I thank the noble Baroness, Lady Sheehan, for putting her name to Amendment 24. The Minister may tell us that removing both Clause 12(2) and Clause 13(2), as the amendments outline, is unnecessary, as Clause 12(3) and Clause 13(3) state that the schemes should not be made unless an authority is “of the view” that the individual subsidies “will be consistent with” the principles. However, being “of the view” that something is consistent with the rules is not the same as specifically stating it or judging that it has been defined within the rules.

More importantly, the lack of transparency arising under the subsidy schemes could be vast. Individual subsidies—large amounts of money or support—could be hidden; they would not be shown and would not be transparent if they are within the schemes. The first two amendments look to set that out.

18:45

Amendment 68 would allow decisions to be made on individual subsidies under a scheme subject to an appeal to the Competition Appeal Tribunal. It cannot be right that individual subsidies can effectively be hidden from scrutiny, thus requiring entire schemes to be challenged on the basis of concerns on one or two individual subsidies given within them. We will come on to discuss transparency matters shortly, but I hope the Minister can help move this debate forward a bit. Again, we are focusing in on the issue of transparency and trying to shine a light on decision-making and the financial contributions and support that would be given. With that, I beg to move Amendment 21.

[Baroness Sheehan (LD)]

My Lords, I added my name to Amendment 24. I also support Amendment 21, which is closely related, and Amendment 68, which has real implications in addressing limits on enforcement for subsidies that may have been misdirected. I thank the noble Lord, Lord McNicol of West Kilbride, for tabling these amendments and for his very able introduction of them.

To my mind, Amendments 21 and 24 have been tabled to try to establish why the Government wish to disapply the subsidy control principles and the energy and environment principles from a subsidy merely because it has been given under a subsidy scheme. According to the excellent Library briefing on the Bill, the Government have said that a subsidy scheme is a means for public authorities to award a number of subsidies to enterprises on a discretionary basis, as opposed to awarding subsidies on a case-by-case basis to individual enterprises. To use the Minister’s words, the Government want to try to create a “minimally burdensome” scheme. It would make it quicker and easier for subsidies to be given if this were to be the case.

As drafted, the Bill says that subsidy schemes must be made by a public authority only if the subsidies provided for by the scheme will be consistent with the subsidy control principles laid out in Schedule 1—I hope noble Lords are still with me; I think it will make sense in Hansard—or, where relevant, the energy and environment principles laid out in Schedule 2. That is all well and good. A subsidy made under a subsidy scheme must comply with the principles laid out in Schedules 1 and 2, so you would think it would be open to review on that basis and enforceable as such. But you would be wrong, because Clause 12(2) states that

“‘subsidy’ does not include a subsidy given under a subsidy scheme.”

Why? It does not make any sense. Hence Amendment 21 is needed to take out this nonsense, so that the subsidy control principles can apply to all subsidies.

Similarly, Amendment 24 would remove Clause 13(2) so that the energy and environment principles can also apply to all subsidies. Given that there is a threshold for transparency and accountability of about £500,000 for subsidies given under a subsidy scheme, that will very quickly add up to millions of pounds, for which, as the Bill is currently drafted, there will be no scrutiny. That would not serve businesses or the Government.

Amendment 68 is necessary because Clause 70(2) says that the CAT cannot be asked to review a subsidy decision if the subsidy was given under a subsidy scheme; only the subsidy scheme itself can be reviewed. That makes a nonsense of the enforcement regime because no route will then exist to review whether a subsidy complies with the subsidy scheme. To the question of when a subsidy is not a subsidy, the answer is when it is given under a subsidy scheme. Surely the Minister can see the absurdity of such a position. Every subsidy must be available for review if necessary. That is why these amendments are necessary. I thank the noble Lord, Lord McNicol of West Kilbride, for tabling them.

[Lord Fox (LD)]

My Lords, it is with great pleasure that I follow my noble friend Lady Sheehan and the noble Lord, Lord McNicol, in support of these amendments. Subsidy schemes seem to be designed as monoliths with no granularity at all. Why is that one of the central theses of this Bill? What possible advantage do the Government seek to gain, other than the ability to hide what money is going to whom? To those of us on this side of the Committee, that appears to be what is going on.

Amendment 21 would ensure that subsidy schemes cannot be used to hide subsidies that would, if they were stand-alone subsidies, be reported, as my noble friend set out. It is clear to all three of us that there is huge scope for significant and expensive subsidies to be hidden in these schemes. That seems to be the only reason why this is in the Bill. I am sure that the Minister will want to explain the reasons, because that must be the response to these amendments. I am sure that we will all be happy to throw our hands up if we are wrong and there is a hugely important reason why this is needed for the operation of the subsidies.

Amendment 24, co-signed by my noble friend, would require individual subsidies given under the subsidy scheme to be judged against the energy and environment principles. Once again, we are back to Monday evening, when my noble friend Lord Purvis posed a question regarding principle G in Schedule 1. The noble Lord, Lord Callanan, got to answer it; I suppose that this time it is the turn of the noble Baroness, Lady Bloomfield. During that debate, the Minister seemed to make it clear that sustainability considerations are indeed implicit in every aspect of the Bill. He suggested that, by implication, there must be some benefit for these things to be legal, but there is no explicit reference to that. I apologise if I am putting words in his mouth because principle G says the opposite. Therefore, rather than repeat what I have said, I have invented another one of my little examples, for which I apologise in advance.

Let us say that I have won a subsidy to expand my pottery business. As part of the submission, I cite increased employment and increased local sourcing of services as the beneficial effects that investment in my pottery business would bring. Nothing in the schedule or the rest of the Bill says that I have to benefit the environment by using less energy. If I am successful, I employ 30% more people and use 30% more local services, therefore achieving the scheme’s objectives, while also using 30% more energy to fire my products. That would appear to be how the Bill will work. Therefore, we need Amendment 24 to include consideration of the environmental impact that that subsidy would bring. It is very simple.

Amendment 68 would allow individual subsidies given under a subsidy scheme to be reviewed. Once again, it is cracking open the monolith and being able to look at the granularity within a scheme. Again, it follows my initial points: we need to be able to see inside these schemes for transparency to be available.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank the noble Lord, Lord McNicol, for tabling Amendments 21, 24 and 68. Perhaps it would be helpful if I started by explaining the status of subsidy schemes in the Bill and why the Government have taken this approach.

Public authorities that seek to give multiple subsidies have three options available to them. First, they can consider each subsidy separately and assess its compliance with the principles and the other requirements in the Bill. Secondly, they can set up a scheme—that is to say, they can identify a group of possible subsidies, with defined parameters, and ensure that any possible subsidy within that group complies with the subsidy control requirements. Thirdly, they can use a streamlined subsidy scheme or another scheme where a public authority—perhaps the UK Government or one of the devolved Administrations—has already assessed that defined group of possible subsidies as compliant with the requirements.

Clauses 12 and 13 place a duty on public authorities to consider the subsidy control principles and the energy and environmental principles respectively before deciding whether to give an individual subsidy or make a subsidy scheme. A public authority cannot go on to give the subsidy or make the scheme unless it is of the view that it is consistent with the principles, including the energy and environmental principles the noble Lord, Lord Fox, emphasised. Once created, public authorities can then award multiple subsidies under that scheme with the confidence that they comply with the subsidy control principles.

By making a scheme instead of assessing multiple individual subsidies against the principles, public authorities will save themselves the administrative time and effort—ultimately equating to taxpayers’ money—it takes to consider any assessment, even one that is light touch and common sense. Schemes also provide a way for public authorities to grant subsidies with greater confidence and security because anyone wishing to make a challenge in the Competition Appeal Tribunal must do so to the scheme itself within the limitation period of one month following publication of information about the scheme on the transparency database. That one month period can be extended by a pre-action information request. We believe that this strikes the right balance between facilitating proper scrutiny of the scheme and removing any perpetual threat of challenge, which can make public authorities more reluctant to give, and recipients more hesitant to accept, beneficial subsidies.

Noble Lords will be aware that this subsidy control regime presents a new approach tailored to the specific needs of the United Kingdom. I do not believe that it is generally useful to justify elements of the Bill on the grounds that they correspond to how things used to be done in the EU state aid system, but it is helpful to underline that public authorities have been making use of subsidy schemes for the purposes of administrative simplicity for a long time. Although the EU mechanisms for decision-making and challenge were quite different, public authorities that gave subsidies in compliance with pre-approved schemes generally did not need to obtain further approval for each individual subsidy under a scheme and could proceed to give those subsidies with confidence.

I also add, as the noble Lord, Lord McNicol, pointed out, that transparency is very important. Subsidies given under schemes over £500,000 must be uploaded on the transparency database under the Bill as it stands. We believe that the £500,000 threshold represents an appropriate balance between minimising the administrative burden and requiring subsidy transparency in the public interest.

19:00

Amendments 21 and 24 would require public authorities to assess all subsidies under the principles, even those given under schemes. It would therefore effectively remove the key feature of the schemes in the Bill. There would be no utility for public authorities in creating schemes because they would have to redo their assessments for every subsidy granted within them. As I have set out, I believe these amendments are unnecessary. Any subsidy given under a scheme must be compliant with the terms of the scheme and therefore with the subsidy control principles. There is no disapplying of the principles. I am sure the noble Baroness, Lady Sheehan, will be reassured to hear this. This would create a great deal more administrative burden for public authorities, removing the benefits of individual schemes and of using the streamlined subsidy schemes that this Government will create to allow public authorities to grant subsidies quickly and with confidence in areas that are routine and low risk or aligned to UK strategic priorities.

On Amendment 68, as I have just set out—

[Baroness Sheehan (LD)]

On Amendment 21 to Clause 12, if that amendment was agreed to and the line

“In subsection (1) ‘subsidy’ does not include a subsidy given under a subsidy scheme”


was taken out, it would have no impact on a public authority’s ability to continue to allow subsidies under the subsidy scheme. It would not slow the process up.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I take the noble Baroness’s point on that. I would like to discuss it with the team when I have had a chance to look into it more thoroughly.

As I have just set out, under the terms of Clause 70, an interested party may not submit an application for the Competition Appeal Tribunal to review a decision to give an individual subsidy under a scheme. This is to ensure that scrutiny and challenge occur at the scheme level. The noble Lord’s amendment would enable applications for review to be made to the Competition Appeal Tribunal for individual subsidies granted under a subsidy scheme without the requirement for the broader subsidy scheme also to be reviewed.

[Lord Fox (LD)]

I am glad that the Minister has come to this point. Earlier on, I think I heard her say that transparency on a subsidy would raise the potential for a challenge to happen, but the whole system of policing this is through challenge, so how can challenge happen if invisibility is the result of this?

The Minister was suggesting that you can challenge only the overall scheme, not the individual granularity of a scheme within it, but that flies in the face of the central principle of the Bill which is that if I am a business and another local business gets a subsidy, I can challenge that through the CMA, assuming that there are grounds for it. If I do not know that my local competitor is getting that money because its subsidy is locked inside one of these schemes, I cannot challenge it. So the Minister is correct: transparency will lead to more challenge and that is the purpose of the systems put in place within the Bill. We need some working through of this from the Minister—it may not be now but perhaps in writing—because it seems that there are two things working in opposite directions.

[Baroness Bloomfield of Hinton Waldrist (Con)]

Given that the whole structure of the subsidy regime is to have the overarching scheme, compliant with all the principles contained in the Bill, and then a series of other subsidies given within that, if you increase the likelihood of challenge and therefore reduce people’s confidence in it, why would a local authority or a government body give a subsidy? Why would there be any incentive for them to give a scheme? While we are wholly appreciative of the importance of transparency, there is a balance to be struck here. Perhaps we could make more progress and I can write to the noble Lord.

[Lord Fox (LD)]

It was the Government who chose to put the principle of challenge on the face of the Bill. The noble Lord, Lord Lamont, and I are coming to the idea of creating a body that can police those things. Perhaps that would solve some of the problems that the Minister suggested—but those problems are central to the way in which the Government have decided that subsidies should be policed under the Bill.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I understand the point the noble Lord is making, but I suggest we would do better to continue this discussion with officials, and come back to him and to the whole Committee in writing.

Making individual subsidies granted in line with the terms of a subsidy scheme eligible for review by the tribunal would undermine a key benefit of creating a scheme—which, as I was saying, would be the administrative simplicity for public authorities, including the security that subsidies can be granted under the terms of a scheme without additional challenge or assessment. However, I fully recognise noble Lords’ underlying concern that schemes could be used to shield unlawful subsidies from challenge. If a subsidy purports to be part of a scheme but does not comply with its terms, an interested party may indeed bring a challenge. This would be on the basis that the subsidy should not enjoy the protection of the scheme but was instead a stand-alone subsidy where the public authority did not consider the subsidy control principles.

[Lord McNicol of West Kilbride (Lab)]

On that point, how would another business or organisation know the subsidy existed if it was part of the scheme?

[Baroness Sheehan (LD)]

May I intervene too, on the same point? If a business does know about a subsidy and thinks it is unfair, it cannot go to the public authority and ask for a review. The bar is so high that the review can only be at the level of the scheme—which the business had nothing to do with designing. The public authority would have to do it. The business has no comeback.

[Baroness Bloomfield of Hinton Waldrist (Con)]

Every grant made over £500,000 will be visible. Noble Lords may be arguing that that bar is too high, but maybe we will come to that at a later stage.

[Lord McNicol of West Kilbride (Lab)]

The fundamental point remains: how do people know that the subsidy has been given if it is part of a scheme? They cannot challenge it.

[Baroness Bloomfield of Hinton Waldrist (Con)]

If it is over £500,000 it will be visible.

As I was saying, a challenge would be on the basis that that the subsidy should not enjoy the protection of the scheme but was instead a stand-alone subsidy where the public authority did not consider the subsidy control principles. The CAT could be asked to determine that question. If the CAT finds that the subsidy ought to have been treated as a stand-alone subsidy, it could also be asked to determine whether the relevant subsidy control requirements had been met.

It is also important to note that subsidies given under the schemes may be subject to other obligations and other forms of challenge. A public authority that gives a subsidy in breach of its general public law duties may be challenged through the judicial review process in the general courts, even if the subsidy is given under a scheme. And of course, if the scheme is substantially changed beyond the parameters set out in Clause 81 on permitted modifications, it must be reassessed and uploaded to the transparency database, and can again be challenged. For the reasons I have set out, and with the caveat that we shall return to some of these questions, I ask that, for the moment, the amendment be withdrawn.

[Lord McNicol of West Kilbride (Lab)]

As we have said in the back and forth of the discussion on these three amendments, there are still a number of real concerns about the subsidy schemes: how they operate and, more importantly, how they can be challenged and dealt with. I will withdraw Amendment 21 at this stage, but I seek some conversations with the department and the ministerial team before we progress to Report.

Amendment 21 withdrawn.

Amendment 22

Moved by

[Lord Purvis of Tweed]

22: Clause 12, page 7, line 25, at end insert—
“(c) must not make the scheme without a statement that the scheme will operate, either in full or in part, under this Act or EU regulations.”Member’s explanatory statement
This amendment would require a public authority to make a statement that the scheme will operate, either in full or in part, under this Act or EU regulations before it can be made.

[Lord Purvis of Tweed (LD)]

My Lords, I shall speak also to Amendment 53 in this small group, which relates to the interaction between this legislation and EU legislation that will continue to apply to Northern Ireland. I do so in the context of the news today that the Agriculture Minister in Northern Ireland has unilaterally ended the checks on the Irish Sea border at midnight tonight. That will inevitably raise more tension in a situation where we would have hoped that, as a result of the Foreign Secretary’s talks with the vice-chair of the Commission, there would be de-escalation of tensions. However, it seems that that the context has changed dramatically.

The Northern Ireland consideration of the Bill is still live. The Government have already taken an approach on the levelling-up agenda that is different from that in Northern Ireland. I am confused about why Northern Ireland was given a distinct status within the levelling-up fund. However, the key element is this legislation. Amendments 22 and 53 are probing amendments and are designed to be constructive because, regardless of any outcome of the negotiations between the Foreign Secretary and Vice-President Šefčovič, EU law will continue to apply in certain areas in Northern Ireland, even if they are limited. There has been a debate about how limited that might be, but in certain areas it may be fairly substantial. Even if the Commission accepts everything in the Government’s Command Paper on renegotiating or resetting the Northern Ireland/Ireland protocol and the Government get everything they want—that is a large if and has probably become much larger after the news today—EU law will still operate and Northern Ireland will still operate under two legal systems for certain areas of subsidy control. These were raised at Second Reading, so I do not need to go into detail on what they are.

The Foreign Secretary said that the UK should never have to notify another power—that is the European Commission—on any decision about setting tax. That will still be the case because part of this provision is on revenue and taxation. The guidance published under Section 48 of the United Kingdom Internal Market Act, which was designed to clarify the situation, did not clarify it in many areas. I read it thoroughly. Separate guidance was published on 24 June last year. It included an annexe, Public Authorities’ Assessment of How Individual Subsidies Comply with UK-EU Trade and Cooperation Agreement Principles. It had a checkpoint system. There are 18 questions that anybody providing a subsidy in Northern Ireland or GB will have to satisfy in order for them to have a greater understanding of whether EU law applies. Some of those questions are almost impossible to answer, but nevertheless there is a process that must be gone through. The Northern Ireland Department for the Economy states that 14 ongoing subsidy schemes are covered within the GBER and are likely to be in the European Union’s purview. My reading of this legislation is that, in any new scheme put forward by the European Union, Northern Ireland public authorities will be able to choose to operate under a new European Union scheme. That would be under state aid and the purview of the CJEU so, regardless of any negotiation, we are going to be operating under separate and distinct reporting schemes.

19:15

The Government say that this legislation will then effectively render redundant any of the duplication approaches. Many have suggested otherwise. For example, evidence provided to the sub-committee of the European Affairs Select Committee that the noble Lord, Lord Lamont, and I currently serve on by George Peretz QC has highlighted that there will be a lack of clarity over which regime should apply, which could make public authorities reluctant to give subsidies. We potentially have a situation where there is a chill effect because of the lack of clarity as to whether state aid rules or subsidy control principles apply, in addition to the separate concern about the differential support or likewise to Northern Ireland businesses.

Amendments 22 and 53 are designed to assist in this process and find ways, through the existing mechanisms of the Bill, so that a public authority can make a statement to provide clarity about the scheme it operates under to those who will potentially receive subsidies. Amendment 53 proposes that the CMA should have an additional ability to provide a report on whether state aid or subsidy control rules will apply. I could not think of other options but there may be some, so if the Government wish to bring forward their own amendments now that the dam has broken under the previous scheme, I would certainly welcome discussions with them on this.

I fear that there will be ongoing concern, so suggest we find ways to reduce the tension, as much as possible, in some of these areas for the benefit of schemes that will operate within Northern Ireland or, in particular, for businesses which will operate within GB but have some form of economic relationship with Northern Ireland, including parent companies. Then they would be able to get clarity at the outset, to make sure that the schemes can be operable. I beg to move Amendment 22.

[Lord Lamont of Lerwick (Con)]

My Lords, the noble Lord, Lord Purvis, has raised a very relevant point; I appreciate that it is a rather awkward point for the Government. As the noble Lord said, it is not simply about the overlap of law and whether EU or UK law applies, but there is also—this is why this is absolutely relevant to this Bill—an issue about state aids, because subsidies are covered in the protocol. Many people in Northern Ireland are afraid that there will be a reach-back and that a subsidy that affects Northern Ireland businesses, even if it originates in the UK, will make that UK subsidy regime subject to EU state aid law. This is potentially a clash of regimes and is extremely important.

The Government’s view in the protocol has been that they think that the EU state aid regime should apply only to state aid that is given specifically in Northern Ireland and not to state aid that was designed for the rest of the UK, even if it reaches Northern Ireland businesses. That still leaves the very difficult issue of where the borderline is. You could imagine, for example, a scheme whereby the UK Government gave help to a motor plant in the north-east of England, which was manufacturing cars that were then transported to dealers in Northern Ireland, who then sold them on to southern Ireland. That is where the whole issue arises, because of the EU’s fear about the single market being undermined by the back door.

This issue is not going to go away. Somehow, the Government have to find a demarcation between state aids in the UK and state aids in Northern Ireland. As I have just tried to exemplify with the issue of the motor industry and motor cars, it is extremely difficult to draw a hard and fast line. I do not know whether the Minister can say anything about this. This Bill will pass, but regardless of what is finally enshrined in law when it becomes an Act, this issue will remain a very great problem.

[Baroness Blake of Leeds (Lab)]

We are extremely grateful to the noble Lord, Lord Purvis, for tabling these amendments and outlining his thoughts on this incredibly complex and very difficult issue, as the noble Lord, Lord Lamont, stressed. This needs huge sensitivity in dealing with it. I do not think that we have anything to add at this stage, but we welcome the fact that a light has been shone on this issue. The feeling we had was that it is surprising that more amendments have not been tabled on this topic, but we expect that there will be more as the groups progress. For now, having heard from the noble Lords, Lord Purvis and Lord Lamont, we will be extremely interested to hear the Minister’s initial response to the matters being raised.

[Baroness Bloomfield of Hinton Waldrist (Con)]

It might indeed be an initial response, because the noble Lord has the advantage of me: I was not aware of the announcement made this afternoon by Northern Ireland’s Agriculture Minister, while we have been in Committee. However, I thank the noble Lords, Lord Purvis of Tweed and Lord Fox, for tabling these amendments. I appreciate that they are intended to be helpful and generate some discussion about these issues, which I suspect will be ongoing.

I begin with Amendment 22, which would require public authorities to make an explicit statement as to whether a subsidy scheme falls under the new domestic regime or EU state aid rules before it is made. Clause 48 already makes it clear that the subsidy control requirements do not apply to a subsidy given, or a subsidy scheme made, in accordance with Article 10 of the Northern Ireland protocol, nor do the requirements apply to a subsidy or subsidy scheme to which Article 138 of the EU withdrawal agreement applies.

It follows that, in the very limited number of cases where public authorities determine that schemes are operating under EU state aid law, the required information will be uploaded to the relevant EU databases on the Commission’s website. All other schemes, which represent the vast majority, will fall under the new domestic regime and be uploaded to the UK transparency database. As such, we do not consider it necessary to include a requirement on public authorities to make a statement as to whether a scheme operates under the Bill or EU state aid rules.

I thank my noble friend Lord Lamont for his comments. I understand his concerns about the interaction between the state aid regime and the subsidy control regime. I assure him that the EU state aid rules under the Northern Ireland protocol currently apply only in certain circumstances to aid that affects trade in goods and electricity between Northern Ireland and the EU. Such subsidies are within the scope of the protocol only where there is a genuine and direct link to Northern Ireland and a real, foreseeable impact on trade between Northern Ireland and the EU. The Commission’s unilateral declaration of December 2020 made it clear that Article 10 could affect a subsidy in GB only if there was a genuine and direct link in Northern Ireland. This would be the case if, for example, the beneficiary had a subsidiary in Northern Ireland.

EU state aid rules also apply under Article 138 of the withdrawal agreement in relation to aid for EU programmes and activities within the multiannual financial framework as a transitional provision. To respond to the concern of the noble Lord, Lord Purvis, that state aid rules would continue to apply even if the UK’s negotiating position were accepted, these are specific and limited circumstances. I trust that this will allay the Committee’s concerns on this important issue.

Amendment 53 from the noble Lords, Lord Purvis of Tweed and Lord Fox, would require a mandatory referral to the CMA’s subsidy advice unit, or SAU, for any subsidy which the public authority believes has a connection to economic activity in Northern Ireland, but where that authority has decided that the proposed subsidy is not within the scope of Article 10 of the Northern Ireland protocol. The SAU would then, as part of its report, determine whether EU rules would apply.

I am afraid that I must reject this amendment as we believe that it is unnecessary. The Government have already provided guidance for public authorities to determine in advance whether the subsidy they are planning to give will be in scope of the Northern Ireland protocol. A requirement for the subsidy advice unit to make a report in advance would needlessly delay the deployment of a large number of subsidies that are clearly not in scope of the Northern Ireland protocol. It would also significantly increase the workload of the SAU and the cost to taxpayers.

The Government have published guidance for public authorities on the Northern Ireland protocol, making it clear where it does or does not apply. This guidance was last updated in June 2021, and we will continue to update it as needed. This guidance supports public authorities to make an informed decision on whether their proposed subsidy is in scope of the Northern Ireland protocol, and there exists in the department an advisory team that any public authority can contact for additional support. We need not bring delay into the system unnecessarily.

I emphasise that this amendment is at odds with the Bill’s position that a measure that would currently fall within the scope of Article 10 of the Northern Ireland protocol should not be subject to the rules and processes contained in this Bill. That is the whole purpose of Clause 48. This means that it cannot be referred to the SAU for any reason, and the SAU will not undertake any evaluation in relation to the protocol or the EU state aid rules. It is the responsibility of central government to ensure that the UK is compliant with those rules. As such, any subsidy in scope of the mandatory referral provisions in Clause 52 is, by definition, not in scope of the Northern Ireland protocol provisions for the application of EU state aid.

The SAU has important advisory and scrutiny functions: to evaluate public authorities’ own assessments of compliance with the subsidy control requirements; and to monitor and evaluate the operation of the domestic regime as a whole. However, it is not a regulator with responsibilities for making definitive judgments, including on whether a specific subsidy is in scope of the Northern Ireland protocol.

I therefore ask the noble Lord, Lord Purvis, to withdraw his amendment and other noble Lords not to press theirs.

[Lord Purvis of Tweed (LD)]

I am grateful for the Minister’s response. As much as the Government are asserting that there will not be a challenge or confusion, it is necessary to have greater clarity for those who are putting the schemes together and those who will potentially challenge some of the recipients.

I am grateful to the noble Lord, Lord Lamont, for raising the issue of reach-back. It will remain an issue. The fact that the Government state that they will take responsibility for notifying the Commission about subsidies given does not necessarily mean that they will be free from challenge. Given the fact, from our discussions with my noble friend Lord Fox, that this is fundamentally a challenge-based system, greater clarity on this matter will be important—particularly given that there could be areas of dual approach.

We all know that Northern Ireland has a high number of intermediary businesses. These are for both businesses that have activity in Northern Ireland and GB and businesses based in Ireland or the European Union that have some form of manufacturing or processing in Northern Ireland as well as in GB. These enterprises will, by definition, operate under dual systems and potentially apply for either state aid or subsidy control operations; indeed, I would be amazed if they did not. This means, therefore, that any of those applications or schemes are potentially open to challenge.

I did not agree with the Minister when she said that increasing the role to provide that certainty will represent an increased cost to taxpayers. I have read the impact assessment. If the Government are right that this applies to limited areas, I do not think that it will be a massive burden on the 19 people in the CMA who will be operating on this anyway. The Government seem to be relying on the fact that any confusion or uncertainty can be resolved by seeking advice from BEIS or Defra and the department’s subsidy control team.

19:30

However, this is in contrast with other parts of the guidance in June 2021 which suggested that one of the solutions to this difficulty, which the Minister, the noble Lord, Lord Callanan, confirmed to me at Second Reading, is for businesses that are parent companies of those working in Northern Ireland to start operating two distinct sets of accounts. The Minister, from his sedentary position, says that he did not say that. I did not want to put words in his mouth for me to agree with, but he did confirm that one of the elements within the guidance was operating two separate sets of accounts. That suggests that the Government consider that there is likely to be an ongoing situation where a subsidy can either be challenged or policed by the Commission, or through the UK bodies.

The guidance is that if there is any doubt about whether the NI protocol applies, advice should be sought from BEIS or Defra subsidy control teams for industrial and agricultural measures respectively. I do not believe that seeking what is likely to be non-legal, non-public guidance from BEIS or Defra will be sufficient in this area. I respect the Minister’s response. I believe that there will be more that we must consider on this, and that we will be returning to the issue of Northern Ireland on Report but, in the meantime, I beg leave to withdraw my amendment.

Amendment 22 withdrawn.

Amendment 23 not moved.

Clause 12 agreed.

Clause 13: Application of the energy and environment principles

Amendment 24 not moved.

Clause 13 agreed.

Amendments 25 and 25A not moved.

Clauses 14 and 15 agreed.

Clause 16: Export performance

Amendment 26 not moved.

Clause 16 agreed.

Clause 17 agreed.

Clause 18: Relocation of activities

Amendments 27 and 28 not moved.

Clause 18 agreed.

Amendment 29 not moved.

Clauses 19 to 24 agreed.

Clause 25: Meaning of “deposit taker”

Amendment 30 not moved.

Clause 25 agreed.

Clause 26: Meaning of “insurance company”

Amendment 31 not moved.

Clause 26 agreed.

Clause 27: Subsidies for insurers that provide export credit insurance

Amendment 32 not moved.

Clause 27 agreed.

Clause 28 agreed.

Amendment 33 not moved.

Clause 29: Services of public economic interest

Amendment 34 not moved.

Clause 29 agreed.

Amendment 35

Moved by

[Lord Purvis of Tweed]

35: After Clause 29, insert the following new Clause—
“Subsidies free from political motivation or influence
For the purposes of this Act a subsidy is only lawful if provided free from political motivation or influence.”Member’s explanatory statement
This amendment would prohibit subsidies that are not provided free from political motivation or influence.

[Lord Purvis of Tweed (LD)]

Great—we have got here. I rise to move Amendment 35.

“Billions were written off and no one seemed to care but me”


was the headline of the Times interview with the noble Lord, Lord Agnew, which made for rather depressing reading. We are regrettably in the context of an enormous amount of money that has been lost through fraud, with the bad cocktail of the allegations made by William Wragg MP of blackmail of MPs with projects in their constituencies. That chair of a Select Committee is speaking to the Metropolitan Police about allegations of blackmail. One of the reasons why this is significant for the Bill was highlighted in one of our previous discussions. The default is that information will not be put in the public campaign but will need to be challenged. That creates a poor recipe.

I was struck when I looked at the prospectus for the levelling-up fund. As we discussed before, this is a separate process, but it is linked to the levelling-up agenda. William Wragg has made allegations of blackmail and funds not being allocated to the constituencies of individual MPs. I suspect that the noble Lord, Lord Lamont, will not want to contribute to this group, but I may talk to him separately as he has great experience—I am not making any allegations, I must say. I will clarify that straight away. I have a dossier here but it is nothing to do with him.

The levelling-up fund introduced an unusual concept: Members of Parliament will back a bid under the levelling-up fund, as a priority. The number of bids received by a local authority will relate to the number of MPs in that area. As GOV.UK states:

“Accordingly, local authorities can submit one bid for every MP whose constituency lies wholly within their boundary.”


I think it is a novel experience in the UK system to ask an MP to nominate a bid for a government fund. That is why I was interested in hearing separately about the experience of the noble Lord, Lord Lamont. As the allegations from William Wragg are that there has been blackmail by government Whips, who can then use leverage through this process because this fund specifically gives MPs a role, this is a considerable concern. Rightly or wrongly, this Bill opens up even greater flexibilities for public bodies or individual elected representatives.

We know that, from the Prime Minister downwards, we should all operate under the Nolan principles of selflessness, integrity, objectivity, accountability, openness, honesty and leadership; I believe that is still the case. On integrity:

“Holders of public office must avoid placing themselves under any obligation to people or organisations that may try inappropriately to influence them in their work.”


On openness:

“Holders of public office should act and take decisions in an open and transparent manner.”


For any public body with delegated responsibilities for elected officials, who now could well be directly linked with subsidy schemes whose operations involve billions of pounds, we need a heightened level of audit and transparency so as to avoid political direction, both on individual subsidy decisions under a scheme and on the establishment of the scheme itself—as well as on the power of government Whips.

There is already considerable use of delegated powers for decision-making in local government, on planning and in other areas. Nothing in the Bill would prevent subsidy schemes being operated under local government delegated powers. That could be a positive; the Minister may argue that it would reinvigorate local government. I am not necessarily opposed to the idea, but if that is the case—I think this was the point made by the noble Lord, Lord Lamont, at Second Reading—with these greater powers, for accountability to be effective, there should be greater transparency.

On our discussion on the previous group of amendments, without that transparency and reporting, the job becomes even harder. If the job on accountability is even harder, the vulnerability in operating against the Nolan principles is heightened. The Minister, the noble Baroness, Lady Bloomfield, conceded at the Dispatch Box in Committee that there was a concern about the shield of scrutiny in this area and suggested that there would be further discussions. I wrote that down. We can check Hansard, but I did write it down, because I thought it would be useful later in Committee. The Minister should not scold herself, because that is a very welcome development.

The cure for all this will be transparency. Already we know that accounting officers operating under local government have to certify that the decisions being made in many areas have been made under fiduciary duties and are legal. That duty will, I hope, still apply to subsidy schemes. There will be other bodies—local enterprise partnerships, for example—that are not directly elected. There will also be bodies authorised under the Bill that will not operate at the traditional levels of accountability of elected bodies. There should therefore be a heightened provision for working free from political motivation or influence.

Surely we do not want to go back to the situation in which there were bridges to nowhere, and decisions were made that we only found out about through scandal. Clearly, we want to protect ourselves from blackmail, fraud and waste. The Government may wish to change some of the language in the amendment—I am open to discussing that with the Minister—but I hope that we will be able to add to some of the principles, so that any decisions involving public money will not be fraudulent or subject to political interference and those with malign intentions will not be able to hide behind the shield of secrecy.

[Baroness Blake of Leeds (Lab)]

I speak to this amendment with significant experience as a senior local councillor. Obviously, the Nolan principles applied to all of us. Recently, in public-private partnerships such as the LEPs, all members had to declare their interests. Sometimes, because of commercial sensitivity, some of the private sector partners chose to step down from the LEP. That level of transparency is now accepted practice—and quite rightly so. It is an enormous tragedy that the noble Lord, Lord Purvis, had to table such an amendment but it reflects the extraordinary times we are living in.

I have to be honest: standards in public life are being severely scrutinised now and, in many cases, found wanting. It is with huge regret that we are in a position where such a requirement has to be brought forward in this debate, but that is where we are. The noble Lord, Lord Purvis, is absolutely right to draw attention to the current state that we are in.

19:45

The points that my noble friend Lord McNicol raised around the need for transparency are absolutely pertinent here. I know that we will come back to this area, and that Members from across the House will be really keen to look at it in detail, as was raised in debates in the other place. The recording of details is obviously fundamental. That is why all the debates on the database are so crucial. In this area, the public need to have more confidence than they currently do to ensure the decision-making processes, because we are talking about significant amounts of funds here, which make a huge difference to the recipients and to those who are not successful. That is what we have to be mindful of.

That is why we have been so keen to stress in debate that there need to be clear accountability criteria where decisions are made, so that people can follow the thread of fairness throughout the progress. We welcome that subsidies will be awarded and hope they will make a real difference; however, we should not get away from the fact that awarding subsidies is a political process. That is part of what we are doing here but it needs to be set against those criteria.

If an authority comes in having had in its manifesto, when standing for an election, a strategic plan prioritising green transport, for example, then you would expect subsidies to be delivered against that purpose. Unfortunately, we can all look at the awards of public money where the criteria do not seem to have been followed. These are the issues that we raised before: why is it that money has gone into areas of relative affluence and not into areas of high deprivation? This is an incredibly serious issue and the Government have some serious questions to answer on it.

Clearly, the levelling-up fund will have to face scrutiny of an intense kind to ensure that it is levelling up and addressing the life chances of people in those areas which are put as the priority. We hope that safeguards will be built into the schemes that we are discussing. There is a lack of clarity around this and I hope that the measures which exist in this legislation will be clear and honoured. I hope that the Minister can outline the Government’s thinking on this and how we can, in a very troubled time, all be reassured and get the clarity that we need so that the highest levels of probity will be followed in the award of subsidies under the provisions.

[Lord Fox (LD)]

My Lords, it is a great pleasure to follow that speech by the noble Baroness, Lady Blake. I was reassured by some of things she said about how the Nolan principles are being applied at the local level—that that is her experience is reassuring. Of course, it brings this Bill into focus again.

To some extent the amendment is idealistic, but look at it the other way round. What is the converse of this amendment? It is that we allow a Bill to go through that will be subjected to huge political manipulation and little transparency. We have already seen that the Government are not averse to using political direction to spend literally billions of pounds. I ask the Minister to put himself in the boots of the Opposition, because the Bill that he is creating is one that future Governments will have to use. If the Minister, if he were listening, were to put himself—

[Lord Callanan (Con)]

I am listening.

[Lord Fox (LD)]

Sorry; I withdraw that. If the Minister were sitting in the opposition seat and opposing this Bill—or, indeed, opposing its use—he would, I am sure, find it very difficult. That is why it is to the enormous credit of Her Majesty’s loyal Opposition that they are standing hard against this Bill. I am sure that they harbour a view that, in time, they will find themselves in government and the temptation for them—indeed, for any Government—to use these powers would be quite high. It is therefore to the Opposition’s credit that, together, we are seeking to put some transparency into this.

At Second Reading, I said that the more flexibility and opacity there is in the subsidy system, the more opportunity there will be for subsidies to be directed for political purposes. I did not use the phrase “pork barrel” but I should have, because there is no other way of explaining how almost seven-eighths of the £1-billion English towns fund goes to Conservative-held seats. There is no way to explain how that money goes there other than political direction. I am sure that the Minister will tell me that there is a formula. There is a formula for almost anything; if you know what you want to create, you build the formula to achieve it. We are already seeing that. I assume that schemes like that will be rolled into a subsidy scheme so that we never see the granularity by seat. This is perhaps our last chance to point to that evidence before it all gets rolled up and aggregated so that we cannot disassemble it.

As we look at this Bill, we should look at the future of subsidies in this country, not the short-term gain for a political party. That is what we are seeing at the moment: a short-term gaming, or potential gaming, of the subsidy system. That is why this amendment was moved and why we have had an interesting short debate on it. I will be interested to see whether the Minister decides to engage at all, because sometimes he just does not. If he does decide to engage, I will be very interested to hear what he has to say.

[Lord Callanan (Con)]

It is very unfair of the noble Lord, Lord Fox, to suggest that I would not engage with his amendment. In this debate, I particularly enjoyed the noble Baroness, Lady Blake, using exactly the same argument that I will deploy against the amendment to argue somehow that she is in favour of it.

Anyway, let us explore the amendment as it was tabled, because I think we will all agree that it is a particularly ridiculous amendment. However, I thank the noble Lords, Lord Purvis and Lord Fox, for putting it forward. Essentially, the amendment seeks to prevent subsidies being given where there is a political motivation or influence. I will not engage with some of the broader points noble Lords made about transparency and things like that because we will come on to those points later in the debate, but I will take the amendment as it is printed. I suspect that what both noble Lords actually meant to say is that they seek to prevent improper political influence over subsidy decision-making. On that, we completely agree, of course. However, as I will argue, I do not believe that this amendment is necessary to achieve that.

First, there are already a number of safety nets in the Bill which will help to prevent improper political influence over subsidy decision-making. Any subsidy, unless exempted, must meet the subsidy control principles, including remedying an identified market failure or addressing an equity rationale. In addition, the subsidy must be limited to what is necessary to achieve it. A subsidy which had improper political influence would struggle to meet those principles.

Secondly, Clause 77 prevents the misuse of subsidies, and a public authority may recover a subsidy from the beneficiary where it has been used for a purpose other than the purpose for which it was given. Even outside the subsidy control requirements, a subsidy must meet value-for-money tests, which help to ensure that public spending is being made appropriately. For UK government spending, this is governed by the Treasury Green Book—all those in government who have to engage with the Treasury will know how rigorous it is in implementing that—and, of course, all the principles set out in Managing Public Money. They will be generally applicable to all public authorities in the UK, although the devolved Governments have their own detailed rulebooks, as is right. Finally, a subsidy granted for an improper purpose may give rise to judicial review on public law grounds.

More broadly—this comes back to the point that the noble Baroness, Lady Blake, made, even though, bizarrely, she was arguing in favour of the amendment—it is unclear how a public authority might avoid any political motivation whatever. I do not think that that would be desirable. When the noble Baroness, Lady Blake, was in a position of authority on Leeds City Council, her authority, or a devolved Government, for example, was or would have been democratically elected. I assume that when she stood for election with her party she set out her political priorities. She might have said that where a subsidy was appropriate she wanted to stand for election on that basis. It is right and proper that she should have been able to do that where the subsidy met the subsidy control principles. It would be almost impossible for any democratically elected local authority or a devolved Government to avoid any political influence. We are all politicians, some of whom were democratically elected. This applies to central and local government.

All subsidies have a degree of political motivation or influence because they are desired to achieve a public policy objective on which people stand for election and which will have been set by a public authority with democratic accountability. Let us pursue the example from the noble Baroness, Lady Blake. If she stood for election on Leeds City Council with a commitment to, for instance, provide subsidised transport in rural parts of Leeds—I think Leeds has some rural areas—it might have been appropriate to provide a subsidy to a bus operator. That commitment will have been made at a political level as the result of her manifesto in a political election. That would have been a politically motivated subsidy, but I think we would all agree that, in the circumstances, that would have been wholly appropriate and presumably useful for that particular area.

I hope that I have demonstrated that the amendment is unnecessary. The wording is clearly seriously flawed. I therefore hope the noble Lord will be able to withdraw it.

[Lord Purvis of Tweed (LD)]

I am grateful to the Minister and to my noble friend Lord Fox and the noble Baroness, Lady Blake. This very short debate has been illustrative because, some of the flippancy aside, it addressed the vulnerabilities that could arise from a lack of transparency in certain areas of subsidy schemes. There is absolutely no intention to prevent anybody standing to represent people in their area and to argue the case for their area. That is absolutely fundamental and a positive. I did it. I fought hard to keep structural funds in the south of Scotland. I will fight the fact that that money is now being taken away by the Minister’s Bill. That is something I will fight for. I will be very passionate for it, and I will hold the Conservatives to account for taking those funds away from the Scottish borders.

20:00

When the structural funds were there, I did not seek to direct them to the exclusion of others, after a policy had been set, nor would I seek to favour potential recipients in whom I had an interest. The noble Baroness is absolutely right: that is why we have registers of interest and cannot game the system. It is nothing to do with having political priorities but is everything to do with use. If the Minister took this to its natural progression, the levelling-up fund would not have had a prioritisation of places methodology note; it simply would not. If the Minister’s argument held, there would be no need to state that there are certain areas that can get some of the funds, to the exclusion of others. It would just be a general fund that would be open to all.

As the noble Baroness, Lady Blake, said, we are regrettably in a different situation now. I wonder what would have happened if, under this Bill, in another situation of great pressure, the Government had said, “We’re going to make the VIP lane for PPE a subsidy scheme.” That would have changed quite dramatically the level of transparency and accountability. We have seen that under the VIP lane scheme, in which, suspiciously, only Conservatives were successful, but that is a separate issue. This Bill affords greater openness and should come with greater sense. I take on board the drafting issue raised by the Minister.

We can sort out whether we are doing the next group. I know it is close to dinner time, but let us sort the pork barrel before we have the meal. If it helps the Minister, I can speak for another 25 minutes on this. I could talk for the rest of the Grand Committee on Conservative misuse of public funds.

In the spirit of finding consensus, and taking on board the Minister’s reprimand about my drafting, I will accept his amendment to my amendment and change it to refer to improper use. Until I can reword the drafting to take the Minister’s suggestion on board, so that we can have a conversation, I beg leave to withdraw the amendment.

Amendment 35 withdrawn.

Clauses 30 and 31 agreed.

Amendment 36 not moved.

Clause 32: Subsidy database

Amendment 37

Moved by

[Lord McNicol of West Kilbride]

37: Clause 32, page 17, line 8, at end insert—
“(aa) the subsidy database and its contents are subject to routine audit, and” Member’s explanatory statement
This amendment would require regular audits of the subsidy database to ensure its contents are of appropriate quality.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I shall speak also to the other three amendments in this group. Without wanting to do the Minister’s job for him, let me start by acknowledging that there is a rolling programme of improvements to the subsidy database which I think all sides would acknowledge does not yet meet the standards one would expect a database of this importance to meet. Irrespective of that rolling programme of improvements, the introduction of a new subsidy control regime affords us an opportunity to look again at how subsidies are reported by public authorities so that they can be looked at by possible economic competitors and the public at large and be held to a higher account. The most obvious and effective way of ensuring the database fulfils its purpose is to ensure that it is subject to periodic audits with any recommendations being acted upon within a reasonable timeframe. We see no reason why the Minister would not want to accept Amendment 37. As the Government have freely admitted, the quality of the data has not been sufficient.

I turn to Amendments 44, 45 and 46. I thank the noble Lord, Lord Fox, for putting his name to them. Amendment 44 would require relevant authorities to include in the entry to the database the exact date on which the information was submitted. One of the fundamental differences from the previous scheme, the European state aid scheme, was that agreements were made before the scheme came into effect. The flipside of this is that that obviously speeds it up, but the schemes or the subsidies will already be in place. Putting into the database the specific date on which the information was submitted will again help with the transparency around it. It is hard to think of any case against such a requirement so I hope the Minister will be able to confirm that. It increases transparency and provides clarity for those gathering the information from the database. It may also allow identification of those authorities that are particularly good or bad at submitting their entries.

Amendment 45 would require information on domestically sourced content to be posted on the database. While Clause 17 prohibits subsidies contingent on the use of domestically produced content, nothing in the WTO provisions or elsewhere, including the TCA, would prevent basic reporting requirements. Some organisations, including the GMB trade union, believe that regular reporting of the use of domestic content could drive—but, importantly, not compel—contractors to make better use of UK supply chains. Indeed, in specific cases such as steel procurement, the Government have set a benchmark of 60% domestic content for the offshore wind sector, so some of these requirements already exist. Putting them inside the database and shining a light on them could help encourage more.

Finally, Amendment 46 would require authorities to demonstrate the terms and conditions of their subsidy schemes. When I first read it, I thought Amendment 46 may well have fitted into the group we dealt with three groups previously, but because it is relevant to the database it probably sits within this debate. The argument, however, is very similar to the debate we had three groups ago.

All the amendments are intended to improve the quality of the database and the amount of information available to practitioners operating in that field. Interestingly, Chapter 3 of the Bill is headed “Transparency”, so a bit more transparency may help.

One point not covered by the amendments, but to which we may well come back, is that the chapter on transparency, especially Clause 34, uses the word “may” a lot. To take one example, Clause 34(3), at line 28, says:

“In relation to subsidy schemes, the regulations may require a public authority’s entry to include”.


When the Minister responds, I wonder whether he could give us just a bit more detail. These are partly probing amendments but, on the use of “may”, when would those regulations and requirements on the public authorities have to be followed and when would they not have to be followed? Again, I think the use of “may” in there does not help. With that, I beg to move.

[Lord Fox (LD)]

My Lords, I rise to speak to Amendments 44, 45 and 46, to all of which I have added my name. It is a pleasure to follow the noble Lord, Lord McNicol. Amendment 44 requires the date a subsidy scheme is entered into to be put into the database, Amendment 45 is about domestically sourced content and Amendment 46 is about other areas of specifying the date. All three of these amendments come together to play to the word that we have been using in these groups, which is “transparency”.

I shall briefly focus on Amendment 45 because it is an interesting point. The nature of what we are talking about hinges around Clause 17(1), which I assume is a WTO-driven point that we cannot favour domestic content over external content. I accept that we need to follow WTO rules. However, as the noble Lord, Lord McNicol, said, that does not stop us collecting the data. Why collect the data if you do not have an actionable need to use it? Therefore—never mind the subsidy that is running, for which we are collecting the data—if it turns out that all that subsidy leads to imports only rather than domestic benefit to the supply chain, when we come to extending or repeating that subsidy or using it in a similar way in another sector, I assume that it is perfectly legal within WTO for the Government to take the benefit and the learnings of that data, having of course given themselves the power to collect it through Amendment 45, to modify future schemes which would still be legal within WI and benefit the domestic supply chain. WI? Jam for all. I meant WTO.

It is a legal question. The Minister may not have the answer straightaway. That data having been collected, I assume, and I would like confirmation, that it is perfectly legal to use that data to design repeat or future schemes so that the UK economy benefits more from that subsidy. That is my main question on these amendments.

[Lord Callanan (Con)]

I am grateful to the noble Lord, Lord McNicol, for these amendments. I think we have much more consensus on the principles. I shall start with Amendment 37. I think we agree that the database should be as accurate as possible. There was an extensive debate in the other place about the quality of the database and the requirements on public authorities when uploading to the database. As was set out there, the database is relatively new and, as the noble Lord acknowledged, it continues to be developed. My department has been working on a range of improvements and we continue to review how it operates. I genuinely welcome any feedback that noble Lords have now or in future on how it can be improved.

Since Report in the other place, our officials have launched an initiative to follow up with public authorities where the information on the database is vague or the links provided go to a landing page rather than providing the necessary detail about a subsidy. In addition, where the subsidy control team receives information about schemes that have been made, that information is now cross-referenced with what is on the database to ensure that it is correct. More broadly, the Government are committed to best practice when it comes to public data, and the subsidy database uses the service standards specified by the Government Digital Service.

20:15

This amendment would create a new obligation on the Secretary of State to subject the database to a routine audit. I respectfully suggest that this new obligation is not necessary because the system already incentivises accurate entries. Public authorities may not have fulfilled their obligation to make an entry on the database if that entry is not accurate, which could mean that the limitation period would not start until a correct entry was made. As a result, we expect to carry out less follow-up with public authorities as they become more accustomed to the transparency requirements of the regime. As is the case with transparency elsewhere in government, it is the responsibility of those uploading data to ensure that it is accurate; of course, they are best placed to do so. The data on this database does not need additional verification from my department. An audit such as that envisioned in this amendment would likely be very expensive. We should not forget that, ultimately, this would be a cost on taxpayers.

Turning to Amendment 44, I am delighted to say that I completely agree with the noble Lord, Lord McNicol, that the date of a subsidy upload is fundamental. It should be on the database. As we announced in the other place, a series of improvements to the database have been ongoing, including adding the date of upload to the database; the noble Lord can say that he was successful in that amendment. As of this week, the improvement is now in place, with the publication date clearly shown on the subsidy information page. This will help interested parties to determine when the limitation period will end. This amendment would add this upload date requirement to the list of illustrative requirements that may be added to the regulations made under Clause 34 but, given the operational changes we have already made, I submit that it is unnecessary. It is easier and more straightforward for the database to include the upload date automatically, as it now does. This avoids the imposition of any additional tasks on public authorities and reduces the chance of any error.

The list of illustrative requirements in Clause 34 has been provided to give an overview of the sort of requirements that the regulations on uploading subsidies will require. However, before the regulations are made, we will look closely at exactly what is or is not needed. As part of this process, we will work with the relevant public authorities to better understand what requirements should be included in the regulations. Again, I genuinely welcome thoughts from Members of this Committee on what other requirements should be considered in this process.

Amendment 45 would require the database to include information on the share of local content of the good or services to which the subsidy relates. I fully share the noble Lord’s aim that subsidies given by public authorities in the UK should lead to benefits for our economy and society. The regime already provides the necessary tools for public authorities to assure this, so this amendment is unnecessary. To ensure compliance with the principles, prohibitions and requirements, public authorities need to design their subsidies to ensure that they bring about a change in the beneficiary’s behaviour conducive to achieving their specific policy objective, and that there is no condition on the use of domestic goods or services over imported goods or services. As I mentioned earlier, the subsidy control regime does not replace rules on managing public money or obviate the need for contractual agreements between public authorities and recipients, which ensure that monies cannot be used in ways that do not ultimately benefit the British public.

I will respond to the concern of the noble Lord, Lord Fox. It is perfectly legal and, indeed, important to ensure that a subsidy targets a UK-specific policy objective. If he needs more technical information about compliance with international law, I will be happy to write to him. But, importantly, he will understand that I cannot agree that the use of the database proposed by the noble Lord would be an appropriate way to promote subsidies as a tool to facilitate economic growth in the UK. As both noble Lords are probably aware, WTO rules mean that there is a prohibition on subsidies with local content requirements—namely, subsidies contingent on the use of domestic over imported goods. The TCA of course also includes a similar prohibition for both goods and services within its scope. The noble Lord may be about to remind me that the EU has either just commenced or is about to commence action against the UK in the WTO over the contracts for difference scheme on precisely this point, so he will understand why I will need to be careful about that.

[Lord Fox (LD)]

I understand the Minister’s sensitivity, and I thank him for his answer. I was putting it the other way around: having had a scheme that, it turns out, really benefits only the international market, as the data tells you, that data can then be used to decide not to have a similar scheme. So it is a question not necessarily of designing a new scheme but of not committing the same mistake again because the data gives you the ability to make those decisions. That was the point that I was trying to make.

On the previous issue, I am sure that the Minister will already know that the impact assessment says that the cost of adding more data points is minimal, so there is no cost in financial terms, although obviously there is some administrative cost.

[Lord Callanan (Con)]

We are not necessarily against adding new data points, but it depends what they are. Of course, as I mentioned earlier, all subsidies will need to benefit the British public and be well delivered. But of course there is the WTO provision that we need to be careful about, particularly in the context of the TCA and the action that is being launched against us. I will not go any further into the prohibition because I see that the noble Lord is going to ask me about it.

[Lord Purvis of Tweed (LD)]

I have a separate point, on the principle of adding on the issue of local content and domestic goods. I understand and entirely agree with what the Minister said about the WTO prohibition of subsidy schemes that are prejudiced against non-domestic or non-local content. But of course the recipients, if they are manufacturers and exporters, will also have to categorise their own goods under the rules of origin, under both the TCA and the WTO, for all our FTA agreements—so that data will be there. I think that there is a great benefit to having, across key sectors where the Government want to identify whether there is market failure, the knowledge base regarding the level of domestic production. It is not a case of directing the subsidy towards it, which would contravene WTO rules; it is building up that knowledge base that will help overall industrial policy, which would be a positive—especially when it comes to regional production and manufacturing in certain areas.

Secondly, while I agree with the Minister about the discrimination, we can of course use countervailing measures, as the Minister knows—so, in relation to that knowledge base for domestic products, the WTO allows us to particularly support domestic production when it comes to countervailing measures. So, again, that would be information that the Government would find useful to have.

[Lord Callanan (Con)]

I understand the noble Lord’s point, but I go back to the fact that this prohibition exists for a good reason. I accept his point about additional data points that could be incorporated at very little cost, but of course he is picking on particularly narrow subsidies that might be given to the manufacturing industry. His points about rules of origin are for separate schemes under the TCA. I will think about his points.

But the prohibition exists for a good reason and is reflected in Clause 17. Of course, if all countries were to subsidise local content, world trade would be unduly distorted, and UK firms would suffer as a result, so that is why we as a country have signed up to these agreements at both WTO and EU TCA level. It is essential that all members of the WTO play by the same rules, which include a prohibition of local content and export subsidies. The UK does not provide, and does not intend to provide, subsidies that are prohibited by the WTO or under the TCA. I make that point clear.

I believe in the advantage of global trade—not just the WTO rulebook, but the global connections and markets that promote prosperity and growth worldwide, and specifically in the UK. Global supply chains allow British businesses to use inputs that are the best and most cost-effective in the world. Certain companies and industries may in some cases have their own targets for local content or for something similar—that is indeed what we have done under the contracts for difference schemes, but others are watching these commitments closely—or there may be a commitment to use products from the local area. However, those commitments would not be tied to the giving of a subsidy in any way, and as a result should not be included in a subsidy database entry.

I think I have dealt with most of the points raised. I had some additional points I wanted to make to back up what I have said, but my Whip tells me we are on a hard stop for a couple of minutes’ time. Are there any particular points raised in the debate that I have not dealt with? I think I have dealt with them all and explained our position—so, as we have agreed with most of his points, I hope that the noble Lord, Lord McNicol, will feel able to withdraw his amendment.

[Lord McNicol of West Kilbride (Lab)]

I thank the Minister for his response. It was really nice to hear him agree with many of the points that we raised. I just need to encourage a bit more of a hard commitment to amend the Bill, rather than a verbal agreement. I do not think anyone on this side was arguing in favour of prohibition. I was simply outlining the idea of getting the information on to the database, not about using it for a prohibition. No one was arguing that point. As for the changes, I suppose I should take one out of four, but I hope we will be able to bring forward some more. I beg leave to withdraw the amendment.

Amendment 37 withdrawn.

Clause 32 agreed.

Committee adjourned at 8.28 pm.