Wednesday 2nd February 2022
(2 years, 9 months ago)
Grand CommitteeSubsidy Control Act 2022 View all Subsidy Control Act 2022 Debates Read Hansard Text Amendment Paper: HL Bill 84-II Second marshalled list for Grand Committee - (31 Jan 2022)
Lord Purvis of Tweed (LD)
My Lords, it is a pleasure to follow the noble Lord to pick up, and indeed support, many of the points he made about geographical inequality, and to tease out a bit further from our debate on the first day of Committee the Government’s refusal to link any form of geographical basis to the proposal on deprivation, as with others.
As the noble Baroness, Lady Blake, indicated, we are now going through parts of the White Paper on levelling up, and I am sure that the struggling communities across many parts of England will be relieved to hear that they are going to get more politicians. It brought back some memories. When I was a youngster, there was the proposal for more politicians in the north-east of England but with no extra money—a proposal for what we might call a north-east assembly. There was a very outspoken MEP in that region at the time—one M Callanan, I think he was called. I remember reading him in the Chronicle and seeing him on Tyne Tees telly. He said—I paraphrase—that with more politicians without any budget, the Government were desperately seeking to shore up their flagging regional devolution campaign. How times have changed.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
For that campaign, we used a large inflatable white elephant.
Lord Purvis of Tweed (LD)
That is what I remember seeing on Tyne Tees telly.
Lord Purvis of Tweed (LD)
Well, I think the proposals for the White Paper are cheaper, because there is no money attached to them at all.
The Government’s position is that, to maintain the level of EU structural support, £1.5 billion a year must be distributed. I will not quibble about some of the details, but let us take it as read that £1.5 billion a year must be distributed. The Government promised that there would be no shortfall. There were two references in the manifesto that stated so:
“a UK Shared Prosperity Fund to ensure that the people of the UK do not lose out from the withdrawal of EU funding”.
The Minister stated so when he led on the repeal of the structural fund SI, and he stated so again on Monday in Committee.
We, national devolved Governments and local authorities thought that this was a straightforward commitment to replace the previous funds without there being a loss of funds, but no. On page 74 of the spending review, the weasel words “rise to” were inserted. The Government stated that, to ensure that the people of the UK did not lose out from the withdrawal of EU funding, the investment would need to be £4.5 billion in this spending review period, but, as they stated on page 74 of the spending review, it is £2.6 billion over the next three years—a cut of £1.9 billion, cutting support in areas most in need. The cuts in the coming years are a staggering £1.1 billion.
As the noble Lord, Lord Wigley, said, nor has there been any commitment to replicating per-person investment support. Under the previous schemes, investment was £130 per person in England, £180 per person in Scotland, £280 per person in Northern Ireland and £780 per person in Wales, reflecting the areas identified for particular need. I would like the Minister to write to me about what the proposed per-person investment will be for 2022. That is when we will know whether indeed we are losing out from the withdrawal of EU funding.
I was genuinely interested in what the Minister said on Monday about the geographical delineations referenced in Amendment 14 with regard to areas of need. He said, and he was specific in his language, that there was a differing approach from that used by the levelling-up fund. I then looked at the levelling-up fund methodology, which states that the methodology used is
“to develop an index of priority places for the Levelling Up Fund.”
Furthermore,
“any comparison of need between places in different nations should be made using a consistent set of GB-wide metrics only.”
The levelling-up fund is using an index of priority places based on need. To be consistent, that is GB-wide, and all authorities, when they are putting forward their bids for the levelling-up fund, will be clear as to what status they are in with regard to the index of priority.
So far, that is clear. However, the Government have said that there is no link between the two. The conclusion might be that this Bill is not linked with the levelling-up approach, but that is not what the Minister said at Second Reading. He said:
“Under this regime, public authorities at all levels of government will be empowered to give subsidies to help address regional disadvantages, supporting our levelling-up aims.”—[Official Report, 19/1/22; col. 1712.]
So the aims are the same, but if there is no methodology to support a scheme’s aims of addressing regional disadvantage under this Bill—in other words, inequalities —how will levelling up actually be achieved? The CMA will only have the ability to review a scheme’s legality under this Bill; it will have no scope to help to address and support our levelling-up aims. Who will do that? Which body will consider whether this Bill is “supporting our levelling-up aims”, as the Minister said at Second Reading?
The Minister might say that they are completely distinct and that the fund will operate completely distinctly from the subsidy regime. I looked at the levelling up-fund prospectus, which states categorically at paragraph 6.9 that all applicants to the levelling-up fund
“must also consider how they will deliver in line with subsidy control (or State Aid in Northern Ireland) as per Government guidance … This will be tested as part of the appraisal process and monitored thereafter.”
How, and by whom? If every application to the levelling-up fund is to be considered in the context of this Bill, they are linked. If the Government are making the case for having a regional index for that fund, for which all applications have to satisfy this Bill, but this Bill says that there will be no index or any regional aspect, how on earth will this be monitored with regard to meeting the levelling-up aims?
My final point refers to further amendments to Clause 18 on markets. The Minister has been at pains to say that there will be no definition of “local market”. I question how all the Government’s different considerations will be satisfied if there is to be a review of the impact on local markets without there being an index such as the levelling-up fund. I simply do not know why the Government have made the clear distinction between this Bill and the levelling-up approach, which they say has to be consistent with the Bill. I hope the Minister will be able to clarify those points.
Lord Thomas of Cwmgiedd (CB)
My Lords, I have a few short points. First, I support the noble Lord, Lord Ravensdale, regarding Clause 18 not standing part of the Bill. It is always very unfortunate when we have in legislation something that says that a subsidy is prohibited by the sanction if it is given to an enterprise subject to a condition that the enterprise relocates. The Explanatory Notes make it very clear that, by “condition”, something explicit is meant. Does it mean therefore that something implicit is permissible? As the Bill aims to achieve transparency, should we not be open and clear, particularly regarding the enforcement by the CMA, about what precisely we will allow in respect of relocation? The noble Lord may be right about the principles governing it, but a provision that makes it dependent on whether it is explicit or implicit is of benefit only to the lawyers, and we do not need to go down that route.
The second issue goes to the question of how this is to work and be enforced, which is the interrelationship of subsidies, procurement and the levelling-up fund. It seems quite clear that procurement obviously can operate as a subsidy, although there is an exemption—the Minister explained it in answer to Amendment 3, tabled by the noble Lord, Lord Wigley—which might exempt certain schemes from it. How does the value-for-money concept in the procurement Bill relate to subsidies?
My last question goes to the levelling-up funds. I assume that something will be done to ensure that they will not be part of financial assistance but, even if they are not for the purposes of the Bill, no doubt the Competition and Markets Authority and the court will have to take into account, in looking at distortion, the cumulative effects of funds from the levelling-up fund and funds from the local authority, because they are both, in essence, forms of state aid. It may be difficult to do it today, but can we have a paper which explains interrelationship of subsidy by way of procurement and how the levelling-up funds relate to the Bill? They are all potentially forms of state aid.
Lord Callanan (Con)
My Lords, I thank the noble Lord, Lord McNicol, for tabling the lead amendment in this group, and the noble Baroness, Lady Blake, who ably introduced it. It was great to be reminded by the noble Lord, Lord Purvis, of my previous existence in the campaign against the northern regional assembly—I dread to think how many years ago that was. I seem to remember that Mr Cummings was also involved in the campaign; the noble Lord missed his opportunity to have a go at poor Dominic for that. This is an interesting group of amendments which promotes some good questions. I will try to address the points from the noble Lord, Lord McNicol, and the noble Baroness, Lady Blake, and from the noble Lord, Lord Berkeley, on Amendment 25A, as well as the points from the noble Lords, Lord Ravensdale and Lord Wigley, and the noble and learned Lord, Lord Thomas.
As the noble Baroness, Lady Blake, helpfully reminded us, the context for this is the publication of the levelling-up White Paper. In that, we have announced a comprehensive programme of policies that will put the UK on a path towards greater economic prosperity in every region and place—including, I hope, the north-east of Scotland. We will do this through significant targeted investment, such as the £4.8 billion levelling-up fund that has been referred to, which will invest in infrastructure that improves everyday life across the UK, including by regenerating town centres and high streets, upgrading local transport and investing in cultural and heritage assets.
It is not in question that any government subsidy scheme set up in the context of this levelling-up fund or otherwise should be in compliance with the provisions under this Bill, once it is in force. However, as we discussed on Monday and as raised by the noble Lord, Lord Purvis, again today, subsidies can of course be an important tool to achieve levelling up, but for reasons of time and efficiency I will focus today on the Bill itself and the amendments tabled. I am sure there will be plenty of opportunities to debate the levelling-up fund and its excellent proposals in this House in future.
Lord Wigley (PC)
Does the Minister accept that cultural levelling up is part of the Government’s aim, and that cultural facility away from London and the south-east is a very important part of life and the economic substructure? Therefore, is it in order for money to be used to attract cultural investment, whether in theatres, concert halls or other aspects, which may attract business away from London and might be caught under the provisions of the later clause which arises in this group? How is that going to work?
Lord Callanan (Con)
I agree. Personally, I am fully in favour of cultural institutions transferring out of London. I will address the relocation point in my later remarks.
This grouping spans several clauses of the Bill but, in responding to the amendments, I will keep coming back to the central refrain that I iterated on Monday as well. The Bill regulates the giving of subsidies where there is a market failure or an equity rationale, with the intention of minimising distortions to competition, investment and trade. It is intended to be a flexible and minimally burdensome regime that applies to subsidies of all types and in all policy areas. As such, my central contention that applies to a lot of these amendments is that there is no need to privilege or exempt certain sectors or highlight certain objectives. Nor is it for the Bill to dictate rigidly the purposes for which public authorities should use subsidies or how they should achieve their purposes.
Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme is made by a Minister of the Crown for the purposes set out in the Bill. Amendment 14 would clarify that the Government may create streamlined subsidy schemes for the purposes of supporting areas of relative economic deprivation. Specifying particular policy objectives at this stage on the face of the Bill may in fact lead to the power to create streamlined subsidy schemes being interpreted in an unduly narrow way in the future.
Lord Purvis of Tweed (LD)
If a public authority—let us say the Scottish Government—had a scheme and defined for the purposes of that scheme the entirety of Scotland, therefore allowing relocation anywhere within Scotland, is the Minister satisfied that this would come under the Bill?
Lord Callanan (Con)
If it was in compliance with the other principles in the regime, of course it would be in compliance. It would be for the Scottish Government to determine what they would consider—
Lord Purvis of Tweed (LD)
If the Secretary of State decided that the geography was the whole of the United Kingdom, would that be acceptable under the Bill, too?
Lord Callanan (Con)
The noble Lord is dragging me into hypotheticals, but obviously the purpose of the Bill applies to the whole of the United Kingdom, so the principles would apply across the whole country, yes.
Lord German (LD)
The Minister has mentioned the question of guidance twice. Guidance is not law, of course, unless it is. It exactly what it is meant to be: guidance. Given the importance of guidance to the question of what an area is, would it be possible for this guidance to be issued, even in draft form, before we conclude this Bill, so that we can at least know what is in the Government’s mind?
Lord McNicol of West Kilbride (Lab)
Just to take both earlier points, if the Secretary of State defined an area as the whole of the United Kingdom, and that covers it, part of the subsidies could be used to move businesses inside the whole of that area. If that is the case, it defeats the whole purpose of it, does it not?
Lord Callanan (Con)
I do not want noble Lords getting mixed up. I was referring to the fact that schemes can be designed for the whole of the United Kingdom. The purpose of this clause is to prohibit direct subsidies where a business is paid a sum of money to move from area A to area B—let me finish this point—depending on the definition of the areas that we spoke about previously.
However, that is only for direct subsidies, of course. The attractiveness, training provisions et cetera that could exist or be subsidised in a different area might make it more attractive for that business elsewhere, but the idea is to avoid the situation in the US that I talked about, where they come along and give companies—I will not name them, but noble Lords know the examples I am talking about—huge amounts of money literally to get it to close down its operations in one state and move to another. That is what we are trying to avoid, but we fully accept that it is perfectly in order to increase the attractiveness of an area, show how wonderful it is and show what is available there, including trading provision, sites et cetera. However, we do not accept using direct financial assistance to move from one part to the next.
We have already published illustrative guidance. We will look at enhancing that further with more detail before we commence with the legislation. If it is drafted and ready in time, I will share it with the noble Lord, of course.
Lord Fox (LD)
Without labouring the point, but labouring the point, I want to come back to the point made by the noble and learned Lord, Lord Thomas, about the grey areas that appear to be here. This is not a hypothetical example—it is a real one without names—but imagine that you have an inward investor, possibly doubling down on an investment that has already been made. As part of the process of negotiating with that investor, government, whether national or local, determines that it is important to have a technology park where the investor’s suppliers are aggregated and work together to support the investor.
The level of support needed to create the system of suppliers that supports the inward investment, which is clearly of benefit to the region, and therefore to the country, is clear. However, it is also clear that, if arms are not twisted, they are also being bribed or given money to create that park, that environment, to make sure that the inward investor gets what they want when it comes to the investment. Is the Minister saying that this sort of process will be entirely legal even if Clause 18 remains in the Bill?
Lord Callanan (Con)
Yes, if they are an inward investor coming into the country and they do not already have an operation in another part of the country.
Lord Callanan (Con)
That is not the example the noble Lord quoted. My understanding is that, if they are just increasing the attractiveness of an area and there is no direct financial payment to the company to move from one area to the next, yes, that would be allowed. If that is not correct, I will write to the noble Lord, but that is certainly my understanding of how that would work.
As I explained, this prohibition puts down a marker that is intended to prevent the small class of disruptive but harmful subsidies, such as poaching and outright bidding wars. I suggest to the noble and learned Lord, Lord Thomas, that it would not be easy for such subsidies to circumvent this prohibition.
Lord Purvis of Tweed (LD)
I am grateful to the Minister; he is being very generous. This is just to confirm this point: if a public body is able to self-define an area under this clause, there would be nothing to prevent the Scottish Government from defining the area as Scotland. They could therefore offer relocation subsidies to businesses in England to relocate to Scotland, and vice versa; there would be nothing to stop the Secretary of State from defining the area as England, which would be more worrying, and therefore having subsidies that are specifically for those relocating from, say, Wales.
Lord Callanan (Con)
I think the noble Lord is confusing two different areas. There is the area that would define a particular scheme and the direct subsidies that we are talking about. Yes, clearly there would be a prohibition on the Scottish Government directly financing the relocation of a company from England to Scotland, or vice versa.
Lord Callanan (Con)
It does not matter, because anywhere within the United Kingdom is the area covered by this Bill.
Lord Purvis of Tweed (LD)
Minister, Clause 18 could say the United Kingdom, but it does not. It says “area”. As the Minister has said on a number of occasions today, the public authority defines the area.
Lord Callanan (Con)
It would be the area of the particular authority that is offering the subsidy. Earlier, I offered a more precise definition of what the area would be, whether it is the Scottish Government for Scotland or the council area that the noble Lord, Lord Bruce, referred to in north-east Scotland. They would be the areas of the authority combined. If the Scottish Government, for instance, wanted to offer a direct subsidy for a company to move, or the British Government offered a subsidy for a company to relocate, even within their own area, it would not be permitted.
As I said, indirect attractiveness in enhancing training provisions, for example, would be permitted. This is to prohibit a particular small class of actions. The example that we used was in the United States. We have all seen examples of companies moving from one state to another. They literally close down one operation and move to another because of the enormous subsidies offered. That is what we want to prohibit. We certainly do not want to prohibit areas—indeed, it would be contrary to our policy aims—from making themselves more attractive by offering indirect subsidies, as this would help the levelling-up agenda. I hope I have clarified that.
Amendment 34 was tabled by the noble Lord, Lord McNicol. First, I will say a few words about the purpose and effect of Clause 29, which this amendment seeks to change. The clause sets out the specific provisions for giving subsidies for services of public economic interest, which are services provided to carry out particular tasks in the public interest. These are services where, without a public subsidy, a vital public service would not be supplied in an appropriate way by the market—or, in some cases, would not be supplied at all. These could include, for example, ferry links between Scottish islands—no doubt the noble Lord, Lord Berkeley, would want to quote the example of the Scilly Isles—and a rural bus service.
The provisions in Clause 29 facilitate the subsidies being given while ensuring that this is done transparently, that they are reviewed regularly by the public authority, and that they avoid overcompensating the beneficiary. The Government’s aim in drafting Clause 29 was to provide a simple yet effective framework within which public authorities could confidently provide SPEI subsidies that would allow the continued provision of important services and, in doing so, ensure that the subsidy is limited to what is necessary to deliver that service.
In response to the question from the noble Lord, Lord German, about whether a leisure centre would be considered an SPEI, I do not want to comment on that specific scenario. There is no reason in principle why it should not be, but the Bill would absolutely allow a subsidy to a leisure centre, whether it is an SPEI or not—we could probably have lots of debates about the degree to which leisure centres are SPEIs—if the public authority was assured that there was a market failure or equity rationale and the other relevant requirements were met. I will purposefully not comment on his proposition that the residents of London should not benefit from public leisure centres. I am sure that is not what he was trying to imply.
The amendment tabled by the noble Lord, Lord McNicol, seeks to add a further requirement on public authorities when considering the cost of delivering the SPEI. They would need to consider the social and economic welfare of users of the service and of those engaged in its delivery. These will be important factors for many, if not all, SPEIs, and I expect that public authorities would regularly take account of these considerations when reviewing these types of services on a case-by-case basis. For example, service providers of rural transport services may be required, by the terms of their contract, to consult service users through annual customer surveys or regular engagement with local stakeholders to show that the service in fact meets local needs.
However, the inclusion of this amendment in the Bill would introduce additional complication and a degree of uncertainty for public authorities in how they undertake this assessment. The defining factor for SPEIs must be the type of service that is provided and the fact that it would not be adequately provided by the market. The provisions in Clause 29 are designed to ensure that those services are designed appropriately and with minimal market distortion. As important as the social and economic welfare of service users and providers is, I do not believe it is at the core of this assessment and of the subsidy control provisions.
More broadly, it is important to emphasise that the subsidy control regime does not sit in isolation, nor should it determine every element of spending decisions taken by public authorities in the UK. They must continue to take into account spending rules and to ensure value for taxpayers’ money. They must also make evidence-based, democratically accountable policy decisions about how and where to intervene, in a way that takes into account the specific characteristics and needs of the geographical area and the subject matter for which they are responsible. It may therefore be appropriate for public authorities to include reference to the social and economic welfare of service users and providers in their own guidance on specific SPEIs.
With respect to the social and economic welfare of those engaged in delivering the services, I remind the noble Lord that the UK has one of the best employment rights records in the world. We continue to build on this record, ensuring that our workers have access to the rights and protections they deserve. I therefore do not believe that it is desirable for the subsidy control regime that we are debating to prescribe how public authorities must account for the social and economic welfare of service users and those engaged in delivering the service.
Finally, I will comment on Amendment 36. I am also grateful to the noble Lord, Lord McNicol, for tabling this especially thought-provoking amendment. I understand that the noble Lord intends it to be a probing amendment and I will treat it as such. It raises some interesting questions about subsidies and the nature of the relationship they create between a public authority and a subsidy beneficiary.
The social value Act, from which I assume his amendment takes its inspiration, requires a public authority that is procuring the provision of services, goods or works to give weight to social value factors in what would otherwise have to be a strict value-for-money calculation. Authorities within the scope of that Act should consider whether it applies where a subsidised contract is awarded. In contrast, and perhaps paradoxically, the giving of public money in the form of a subsidy is not primarily a market-based or economic calculation. Of course there are economic duties, within this regime and in public spending controls, to ensure that a subsidy is efficient and effective.
However, the first requirement of this regime—the first condition that a public authority must satisfy before giving a subsidy—is, in essence, one of social value: what is the equity rationale? Is there a market failure and what is the benefit to wider society in providing this subsidy? I hope this answers the question of the noble Baroness, Lady Jones, on the same subject. Moreover, public authorities must conclude their assessment against the principles with the balancing test in principle G: that the beneficial effects of the subsidy should outweigh any negative effects. Of course, these duties fall on the public authority and not the beneficiary directly but, in considering the first and last principles, the public authority must consider the effect of the subsidy in the round.
If it were reasonably foreseeable that, in the actual purchasing of a good or service funded by subsidy, the beneficiary would be undermining the equity rationale for giving the subsidy or that it would somehow worsen another equity objective, then it is hard to see that the subsidy could satisfy either principle A or G. None of this is to say that a public authority cannot impose secondary requirements on a beneficiary, where the size and nature of a subsidy might lead it to do so. Many public authorities award subsidies through a written contractual arrangement that sets out the terms and conditions under which the financial assistance is given, and this would be the way to impose such conditions. But it would be disproportionate to require public authorities to impose social value conditions in all cases, particularly as the questions of equity are already built into the fabric of the regime.
As an aside, the noble Lord has also proposed that public authorities should be able to impose penalties if the use of the subsidy does not deliver the chosen social value purposes. As I have explained, it is not proportionate to require public authorities to impose these secondary requirements. However, let me reassure him that Clause 77 provides that if a subsidy is not used for its intended purpose, it can of course be recovered.
I am grateful to all noble Lords for putting forward their amendments and for the long subsequent discussion that has taken place, but I hope I have set out the reasons why I am unable to accept these amendments on behalf of the Government. In the light of the fulsome explanations I have provided, I hope that noble Lords will feel able to withdraw or not press their amendments.
Baroness Blake of Leeds (Lab)
I thank everyone. Given the nature of the earlier discussion, particularly about the cultural venues, perhaps I should declare my interest as a vice-president of the LGA at this point, with apologies for not doing so earlier. I wonder if noble Lords are all sitting feeling relieved that they are not standing here trying to pull all this together. On behalf of the Committee, I thank everyone who has contributed; it has been a very helpful debate. I also thank the Minister for his fulsome response.
However, the nature of the amendments we are considering in this group and their probing nature is such that noble Lords have been seeking reassurance. Although the Minister has attempted to give us reassurance, without looking through the detailed responses that the Committee has given this afternoon I am not convinced that on the matters raised we can all put our hands up and say that that reassurance has been received on all points. I hope there will be opportunities to come back and look at the continuing areas of concern.
I am also struck by the fact that we have not had the opportunity to discuss in detail the evidence submitted by experts during the House of Commons proceedings, including the very serious arguments by Professor Fothergill and Dr Pazos-Vidal about the benefit of defining areas. I confess that I am at a loss as to how the Government can bring this down to the point where the interested parties can make sense of the opportunities available to them, and how we can move this forward in a simple way that would enable areas and businesses to benefit, without the excess bureaucracy that the Minister assured us would not get in the way. I remain to be convinced on some of these points.
Lord Callanan (Con)
My Lords, this group of amendments contains a number of amendments tabled in relation to the Delegated Powers and Regulatory Reform Committee’s report on the Bill, which I received and, like all noble Lords, read with great interest. I thank the noble Lords, Lord Fox and Lord McNicol, for their amendments. I was also going to thank the noble Baroness, Lady Bennett, but sadly she is unable to join us today, which of course is a real tragedy for us all. Nevertheless, we have the benefit of the noble Baroness, Lady Jones, in her stead, which is wonderful for us.
I wholly echo the sentiments expressed by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Judge, on the vital role that the DPRRC plays in supporting the work of your Lordships’ House. I am grateful to my noble friend Lord McLoughlin and his committee for their scrutiny of the Bill.
As I stated at Second Reading, I am very well aware of the strength of feeling across the House on the provisions in the Bill highlighted today. I was expecting many of the speeches that were given. I am sure that noble Lords are aware that my right honourable friend the Lord President of the Council, Jacob Rees-Mogg, has also taken an interest. He recently wrote on this issue to my noble friend Lord McLoughlin and the previous chair of the committee, my noble friend Lord Blencathra, noting that the Government are taking its findings into consideration. While at this stage I cannot commit to changing anything in the Bill, I will take away the comments of noble Lords for due consideration. It is important that we get this legislation right and that the powers are proportionate and measured, as well as conducive to effective subsidy control.
Let me start with some thoughts on Amendment 15 to Clause 10. I previously noted that Clause 10 concerns the creation of subsidy schemes and streamlined subsidy schemes. A streamlined subsidy scheme must be laid before Parliament before it is made, or modified, by a Minister of the Crown. Streamlined subsidy schemes offer public authorities a swifter route to demonstrating compliance for categories of subsidies at especially low risk of causing market distortions, that promote UK strategic policy objectives and which the Government judge to be compliant with the subsidy control principles.
This amendment would require streamlined subsidy schemes to be made or modified by regulations subject to the negative procedure. Indeed, the noble Lord’s amendment is in line with the recommendation made by the DPRRC in its report. The Government believe that Clause 10 sets out a proportionate level of parliamentary scrutiny for streamlined subsidy schemes. The regulations will be laid before Parliament both when they are made and when they are amended. I also intend to engage with the devolved Administrations, other public authorities, and the experts in the subsidy advice unit on the development of these schemes.
Lord Purvis of Tweed (LD)
Is it the view of the Minister that the powers under subsection (6) allow for delayed disclosure?
Lord Callanan (Con)
Yes, that is the subsection which provides the ability to publicise that fact—it is in subsection (6).
Lord Purvis of Tweed (LD)
So the point the Minister is making, which is to have the legal ability to delay disclosure, is afforded under subsection (6). The deletion of subsection (7) then does not affect that power. It would mean only the removal of the ability for there to be no disclosure at all, because the power to delay disclosure would be under Clause 47(6). Is that correct?
Lord Callanan (Con)
We think that subsection (7) is important for financial stability and legal certainty but, as I have said on the other amendments in this group, I am happy to take this away and look at the matter further.
This is the very effect that assistance, and the direction that facilitates that assistance, would be deployed to avoid. Northern Rock serves as a clear example, where the revelation that the firm was in receipt of emergency liquidity assistance led to a run on the bank. That exacerbated its problems and, in the end, hastened its failure. Consequently, if disclosure of financial stability directions cannot be deferred, it would effectively render them unusable in situations where it is necessary to provide lending on a covert basis. Making a direction unusable in this way would be especially problematic if the success of the financial assistance was dependent on the use of a financial stability direction to disapply any of the requirements.
In relation to the specific statement being referenced in paragraph 16 of the report, as mentioned by the noble Lords, Lord Purvis and Lord Fox, that statement makes it clear that the concern is not about the risk of parliamentary defeat. The concern surfaced in the statement is the perception of stakeholders of a risk that non-approval could result in the rejection or undermining of the proposed subsidy. In that circumstance, the primary concern would not be in relation to a defeat in Parliament but that, as a result of that risk perception among stakeholders, the subsidy would be ineffective in the short term or even rejected by the proposed recipient. This would mean that the use of the power would not even get to the point of a vote.
The current drafting of Clause 47(7) provides a clear mechanism in law for delaying publication and a basis on which the Treasury can make the decision that the publication would undermine the purposes for which the direction was given. When the Treasury considers that publication would no longer undermine the purpose of the direction, it would at that time—this comes to the point made by the noble and learned Lord, Lord Hope—be required to publish that direction in accordance with the duty in Clause 47(6). Therefore, subsection (7) simply makes explicit the ability to delay publication where that publication would undermine the purpose for which the direction was given. It does not provide a means for the Government to avoid scrutiny indefinitely.
Lord Judge (CB)
What is the point of Clause 47(7) if the object is to allow, in appropriate circumstances, a deferral or a delay in the publication of the information?
Lord Hope of Craighead (CB)
Might I add to my noble and learned friend’s question? To whom is the information to be given? Who needs to know about this direction? It is rather important to understand how the scheme is supposed to work. Presumably, the publication is to serve a purpose; one needs to know to whom it will be disseminated.
Lord Callanan (Con)
Ultimately, the purpose is to provide transparency so that, after the fact, the public and Parliament are informed on the subsidy that has been given. However, we maintain that it is important to keep the subsidy under the radar unless it would undermine the purpose for which it was given in the first place if it were publicised. The example of Northern Rock is the one that we quote, as it would potentially cause a run. I recognise the strength of feeling from the DPRRC and among noble Lords on these clauses. As I have said, I will look at them further before we get to Report—[Interruption.] I am happy to have satisfied the noble Baroness, Lady Jones, for a change.
Turning to some of the comments on why Clause 11 should stand part of the Bill, this clause enables the Secretary of State to make secondary legislation to define subsidies or subsidy schemes of interest or of particular interest. Again, I recognise that the power set out was criticised in the DPRRC’s report, and that it recommended that these definitions be on the face of the Bill. If I may briefly summarise the purpose of this clause, Part 4 of the Bill establishes the mechanisms for the referral of these subsidies and schemes to the subsidy advice unit. Voluntary referral will be available for subsidies or schemes of interest, while subsidies that are classified as subsidies of particular interest will be subject to mandatory referral. After referral, the public authority’s assessment of compliance with the subsidy control requirements will be evaluated by the unit, and a report containing its findings will be published. This is a pragmatic way of ensuring that additional scrutiny is given to potentially distortive subsidies. The clause therefore allows the Government to define these types of subsidies and schemes.
The noble Lord sought clarity on why the Government intend to set relevant criteria and thresholds in regulations, rather than in the Bill. Let me point out the illustrative regulations that the Government published last week, as well as the accompanying policy statement. I welcome any comments that noble Lords may have on these documents, of course, and stress that the Government will take careful note of the views expressed when developing these draft regulations. I hope that this provides further clarity and assurance on how the Government intend to use these powers.
The reason why the Bill takes a power to define these categories is because it is important that the Government are able to modify the criteria over time in response to market conditions, or the periodic reviews that will be carried out by the subsidy advice unit, to ascertain how the domestic control regime is working in practice. Both Houses will of course have an opportunity to debate any regulations in draft to ensure that the criteria for what constitutes “of interest” or “of particular interest” are robust and capture the right subsidies and schemes for additional scrutiny.
Lord Callanan
“(7) A subsidy scheme or streamlined subsidy scheme may provide for the value of a subsidy to be determined by reference to its gross cash amount or the gross cash equivalent.”Member’s explanatory statement
This amendment ensures that subsidy schemes and streamlined subsidy schemes can refer to the gross cash amount or gross cash equivalent amount of the subsidy, as determined by regulations made under Clause 82.
Lord Callanan (Con)
My Lords, the amendments in this group are technical amendments that would update the Bill to permit regulations made on gross cash equivalent to apply to all parts of the Bill to which they are relevant. These amendments have the same basic purpose so I will take them together.
Subsidies can come in many different forms, from cash grants to discounted contributions in kind. It is important to establish a common methodology for calculating the value of the latter kind of subsidy as this will avoid public authorities taking different, and difficult to compare, approaches to this issue. Clause 82 enables the Secretary of State to make provisions by regulations, which will be subject to the negative procedure, for how the gross cash amount and the gross cash equivalent amount are to be determined for four different clauses that are listed in the Bill. These regulations will set out a methodology for calculating the value of any subsidy or scheme for use by public authorities. This will avoid public authorities using to calculate gross cash equivalent a range of methodologies that may not be wholly or easily comparable with each other.
Clauses 10 and 11 concern the creation of subsidy schemes and streamlined subsidy schemes, and enable the Secretary of State to make regulations defining the meaning of subsidies or subsidy schemes of interest or of particular interest. The amendment to Clause 82 would ensure that regulations made under it, which make provisions about how the gross cash amount and the gross cash equivalent are to be determined, are applicable to all regulations and schemes made under the terms of the Bill.
The other amendments to Clauses 10 and 11 would enable the values of subsidies of interest or of particular interest, subsidy schemes and streamlined subsidy schemes to be defined by reference to the gross cash amount or gross cash equivalent amount of the subsidy or scheme. I hope noble Lords will agree that these are minor and technical amendments that will avoid any need for complex cross-referencing in the regulations and reduce any confusion for public authorities; I therefore ask that they be accepted. I beg to move.
Baroness Jones of Moulsecoomb (GP)
I would like to raise a small, technical point; I think that the Minister skimmed over it in the debate on Amendment 33 in my name, possibly because I did not explain it properly. Subsidies for fossil fuels should be calculated using the IMF definition of financial assistance for fuel consumption multiplied by the difference between existing and efficient prices. In his reply, the Minister explained that he would not want to ban subsidies for fossils fuels, but he did not say anything about the merits of the IMF definition of fossil fuel subsidies. This is an important issue because it factors in the negative impacts of environmental and social costs, which are otherwise ignored. When we look at fossil fuel subsidies holistically, we realise just how much more expensive fossil fuels are than renewables. I do not expect an answer today, but it would be good to have an answer in writing whenever possible because the Minister did not mention it.
Lord Callanan (Con)
That issue is not covered by these amendments, but I will come back to the noble Baroness in writing.
Lord Fox (LD)
My Lords, those on this side welcome these three amendments. It is always hard to get those first government amendments out; after then, you can keep them coming, Minister. We have one or two suggestions about what you might like to put in them.
It is good to have a consistent approach; indeed, a consistent approach to how you value a subsidy is a good starting point. Perhaps we can then have a consistent approach to how local authorities evaluate the need for a subsidy, and to how they are regulated and managed within areas. Consistency is what we are calling for. This is clearly the first baby step towards having a control system operated from a level playing field.
Lord McNicol of West Kilbride (Lab)
I echo the points of the noble Lord, Lord Fox: it is interesting to see government amendments at this early stage, even though none of these issues was raised at Second Reading. Likewise, we are not going to oppose any of these amendments.
Similarly, not just on consistency but on transparency, a good number of amendments were tabled in Committee on which we are more than happy to work with the department and the Minister to bring them back on Report. This will hopefully deal with a number of issues on which we have concerns, so that we do not object to them at that point.
Lord Callanan (Con)
I am happy to see that the Liberal Democrats believe in consistency and to work with the opposition parties when amendments are required, as appropriate.
Lord Callanan
“(2A) Provision under subsection (2)(a) may provide for the value of a subsidy to be determined by reference to its gross cash amount or the gross cash equivalent.”Member’s explanatory statement
This amendment ensures that subsidies of interest and subsidies of particular interest can be defined by reference to gross cash amount or gross cash equivalent amount, as determined by regulations made under Clause 82.
Lord Fox (LD)
My Lords, it is a great pleasure to follow that speech by the noble Baroness, Lady Blake. I was reassured by some of things she said about how the Nolan principles are being applied at the local level—that that is her experience is reassuring. Of course, it brings this Bill into focus again.
To some extent the amendment is idealistic, but look at it the other way round. What is the converse of this amendment? It is that we allow a Bill to go through that will be subjected to huge political manipulation and little transparency. We have already seen that the Government are not averse to using political direction to spend literally billions of pounds. I ask the Minister to put himself in the boots of the Opposition, because the Bill that he is creating is one that future Governments will have to use. If the Minister, if he were listening, were to put himself—
Lord Fox (LD)
Sorry; I withdraw that. If the Minister were sitting in the opposition seat and opposing this Bill—or, indeed, opposing its use—he would, I am sure, find it very difficult. That is why it is to the enormous credit of Her Majesty’s loyal Opposition that they are standing hard against this Bill. I am sure that they harbour a view that, in time, they will find themselves in government and the temptation for them—indeed, for any Government—to use these powers would be quite high. It is therefore to the Opposition’s credit that, together, we are seeking to put some transparency into this.
At Second Reading, I said that the more flexibility and opacity there is in the subsidy system, the more opportunity there will be for subsidies to be directed for political purposes. I did not use the phrase “pork barrel” but I should have, because there is no other way of explaining how almost seven-eighths of the £1-billion English towns fund goes to Conservative-held seats. There is no way to explain how that money goes there other than political direction. I am sure that the Minister will tell me that there is a formula. There is a formula for almost anything; if you know what you want to create, you build the formula to achieve it. We are already seeing that. I assume that schemes like that will be rolled into a subsidy scheme so that we never see the granularity by seat. This is perhaps our last chance to point to that evidence before it all gets rolled up and aggregated so that we cannot disassemble it.
As we look at this Bill, we should look at the future of subsidies in this country, not the short-term gain for a political party. That is what we are seeing at the moment: a short-term gaming, or potential gaming, of the subsidy system. That is why this amendment was moved and why we have had an interesting short debate on it. I will be interested to see whether the Minister decides to engage at all, because sometimes he just does not. If he does decide to engage, I will be very interested to hear what he has to say.
Lord Callanan (Con)
It is very unfair of the noble Lord, Lord Fox, to suggest that I would not engage with his amendment. In this debate, I particularly enjoyed the noble Baroness, Lady Blake, using exactly the same argument that I will deploy against the amendment to argue somehow that she is in favour of it.
Anyway, let us explore the amendment as it was tabled, because I think we will all agree that it is a particularly ridiculous amendment. However, I thank the noble Lords, Lord Purvis and Lord Fox, for putting it forward. Essentially, the amendment seeks to prevent subsidies being given where there is a political motivation or influence. I will not engage with some of the broader points noble Lords made about transparency and things like that because we will come on to those points later in the debate, but I will take the amendment as it is printed. I suspect that what both noble Lords actually meant to say is that they seek to prevent improper political influence over subsidy decision-making. On that, we completely agree, of course. However, as I will argue, I do not believe that this amendment is necessary to achieve that.
First, there are already a number of safety nets in the Bill which will help to prevent improper political influence over subsidy decision-making. Any subsidy, unless exempted, must meet the subsidy control principles, including remedying an identified market failure or addressing an equity rationale. In addition, the subsidy must be limited to what is necessary to achieve it. A subsidy which had improper political influence would struggle to meet those principles.
Secondly, Clause 77 prevents the misuse of subsidies, and a public authority may recover a subsidy from the beneficiary where it has been used for a purpose other than the purpose for which it was given. Even outside the subsidy control requirements, a subsidy must meet value-for-money tests, which help to ensure that public spending is being made appropriately. For UK government spending, this is governed by the Treasury Green Book—all those in government who have to engage with the Treasury will know how rigorous it is in implementing that—and, of course, all the principles set out in Managing Public Money. They will be generally applicable to all public authorities in the UK, although the devolved Governments have their own detailed rulebooks, as is right. Finally, a subsidy granted for an improper purpose may give rise to judicial review on public law grounds.
More broadly—this comes back to the point that the noble Baroness, Lady Blake, made, even though, bizarrely, she was arguing in favour of the amendment—it is unclear how a public authority might avoid any political motivation whatever. I do not think that that would be desirable. When the noble Baroness, Lady Blake, was in a position of authority on Leeds City Council, her authority, or a devolved Government, for example, was or would have been democratically elected. I assume that when she stood for election with her party she set out her political priorities. She might have said that where a subsidy was appropriate she wanted to stand for election on that basis. It is right and proper that she should have been able to do that where the subsidy met the subsidy control principles. It would be almost impossible for any democratically elected local authority or a devolved Government to avoid any political influence. We are all politicians, some of whom were democratically elected. This applies to central and local government.
All subsidies have a degree of political motivation or influence because they are desired to achieve a public policy objective on which people stand for election and which will have been set by a public authority with democratic accountability. Let us pursue the example from the noble Baroness, Lady Blake. If she stood for election on Leeds City Council with a commitment to, for instance, provide subsidised transport in rural parts of Leeds—I think Leeds has some rural areas—it might have been appropriate to provide a subsidy to a bus operator. That commitment will have been made at a political level as the result of her manifesto in a political election. That would have been a politically motivated subsidy, but I think we would all agree that, in the circumstances, that would have been wholly appropriate and presumably useful for that particular area.
I hope that I have demonstrated that the amendment is unnecessary. The wording is clearly seriously flawed. I therefore hope the noble Lord will be able to withdraw it.
Lord Purvis of Tweed (LD)
I am grateful to the Minister and to my noble friend Lord Fox and the noble Baroness, Lady Blake. This very short debate has been illustrative because, some of the flippancy aside, it addressed the vulnerabilities that could arise from a lack of transparency in certain areas of subsidy schemes. There is absolutely no intention to prevent anybody standing to represent people in their area and to argue the case for their area. That is absolutely fundamental and a positive. I did it. I fought hard to keep structural funds in the south of Scotland. I will fight the fact that that money is now being taken away by the Minister’s Bill. That is something I will fight for. I will be very passionate for it, and I will hold the Conservatives to account for taking those funds away from the Scottish borders.
Lord Fox (LD)
My Lords, I rise to speak to Amendments 44, 45 and 46, to all of which I have added my name. It is a pleasure to follow the noble Lord, Lord McNicol. Amendment 44 requires the date a subsidy scheme is entered into to be put into the database, Amendment 45 is about domestically sourced content and Amendment 46 is about other areas of specifying the date. All three of these amendments come together to play to the word that we have been using in these groups, which is “transparency”.
I shall briefly focus on Amendment 45 because it is an interesting point. The nature of what we are talking about hinges around Clause 17(1), which I assume is a WTO-driven point that we cannot favour domestic content over external content. I accept that we need to follow WTO rules. However, as the noble Lord, Lord McNicol, said, that does not stop us collecting the data. Why collect the data if you do not have an actionable need to use it? Therefore—never mind the subsidy that is running, for which we are collecting the data—if it turns out that all that subsidy leads to imports only rather than domestic benefit to the supply chain, when we come to extending or repeating that subsidy or using it in a similar way in another sector, I assume that it is perfectly legal within WTO for the Government to take the benefit and the learnings of that data, having of course given themselves the power to collect it through Amendment 45, to modify future schemes which would still be legal within WI and benefit the domestic supply chain. WI? Jam for all. I meant WTO.
It is a legal question. The Minister may not have the answer straightaway. That data having been collected, I assume, and I would like confirmation, that it is perfectly legal to use that data to design repeat or future schemes so that the UK economy benefits more from that subsidy. That is my main question on these amendments.
Lord Callanan (Con)
I am grateful to the noble Lord, Lord McNicol, for these amendments. I think we have much more consensus on the principles. I shall start with Amendment 37. I think we agree that the database should be as accurate as possible. There was an extensive debate in the other place about the quality of the database and the requirements on public authorities when uploading to the database. As was set out there, the database is relatively new and, as the noble Lord acknowledged, it continues to be developed. My department has been working on a range of improvements and we continue to review how it operates. I genuinely welcome any feedback that noble Lords have now or in future on how it can be improved.
Since Report in the other place, our officials have launched an initiative to follow up with public authorities where the information on the database is vague or the links provided go to a landing page rather than providing the necessary detail about a subsidy. In addition, where the subsidy control team receives information about schemes that have been made, that information is now cross-referenced with what is on the database to ensure that it is correct. More broadly, the Government are committed to best practice when it comes to public data, and the subsidy database uses the service standards specified by the Government Digital Service.
Lord 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.