Subsidy Control Bill

(Limited Text - Ministerial Extracts only)

Committee stage
Monday 7th February 2022 Grand Committee

[Lord Purvis of Tweed (LD)]

My Lords, further to that point, I wish to ask a couple of questions. First, on a factual issue—I have been struggling to find this—what has the typical award been for relatively small schemes that will operate under the Bill? I am familiar with schemes in my former constituency, either under LEADER+ or a number of other schemes, where there was not a single award over £500,000 but there was transparency as to who received it, because that is basically along the principles on which local authorities operate. So my question, really, is: what piece of legislation will trump the duty that the noble Baroness, Lady Blake, referred to? If a local authority has a duty to publish, then ordinarily if it receives a grant through, for example, the levelling-up fund—on which the Minister wrote to me; I thank him for his letter and look forward to the answer to the question on a separate occasion, as I have replied to his office to highlight an omission from it—what will be the primary duty on the local authority as far as making that information public is concerned? Will it be under the duty on the local authority to publish subsidies greater than £500,000, or, if it is defined as a subsidy scheme, will it not be under such a duty?

However, my specific question is: how will this Bill interact with the Freedom of Information Act? The only way that any enterprise or anybody would be able to find out what the award is if it is under £500,000 would be to submit a freedom of information request. I have not seen anything in this legislation which excludes elements of the Freedom of Information Act, and I therefore assume that all elements of the Freedom of Information Act will apply. If that is the case, it is rather pointless having a £500,000 limit for publication if you can get all this information by issuing an FoI request. If the Minister’s response is, as I expect, that the whole thrust is to have less burden on our public bodies for the administration of this scheme, I wonder which is less burdensome: simply publishing what is already used under the e-claims scheme—I understand that most applicants under these schemes will be through the e-claims schemes, and therefore it is a press of a button to publish the information for an award—or responding to an FoI request. If I were a member of a public body, I know which one would be far less burdensome for me. I wonder whether the Minister agrees.

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

I am grateful to the noble Lord, Lord McNicol, for his amendment, which was moved so ably by the noble Baroness, Lady Blake. I am delighted that the noble Lord, Lord Fox, received my letter before the Committee this time. I will have to learn the lesson that it prompts more questions from him during the debate. It is obviously better if the noble Lord receives the letter after the debate has taken place—I am joking, of course. We always endeavour to get him the information he has looked for as early as possible.

The amendments, taken together, seek to introduce a common threshold for transparency for subsides that are not challengeable on subsidy control grounds because they are not subject to the main requirements in the Bill. They include subsidies given under schemes, minimal financial assistance and subsidies for services of public economic interest.

I say at the start that I am well aware of the debates that occurred in the other place on this important issue, which were alluded to by a number of speakers, and I recognise the strength of feeling behind the calls for greater transparency. I am sure noble Lords are aware that my colleague Minister Paul Scully committed the Government to review the evidence collected as part of the consultation alongside that provided by witnesses to the Committee about the transparency provisions. Officials continue to review the available evidence base and I commit to updating the noble Lord, Lord Fox, and all other Members of the Committee before Report about where we have got to in that review, and I will update Members on the cost impact of the different options as soon as possible.

Transparency of subsidy awards is an important part of this control regime and is a key tool to support the enforcement provisions. It is essential that interested parties are able to see subsidies to determine whether they may be affected and whether they wish to challenge the subsidy award or subsidy scheme to which the noble Lord, Lord Purvis, referred. Of course, the database is a vital tool in providing this transparency. The aim of the database should always be to enable interested parties to see those subsidies that they may wish to challenge. However, it has not been, and should not be, designed to be a general database of public authority spending. Other tools for general public authority financial transparency exist elsewhere, and I think the noble Lord, Lord Purvis, would accept that uploading additional data represents a cost to public authorities, and of course that is ultimately borne by taxpayers.

It is important that the database requirements find the right balance to ensure that appropriate, accurate and timely information is available to the public on the database about subsidies that they may wish to challenge. To respond directly to the concerns of the noble Lord, Lord Fox, I am happy to clarify and confirm that the subsidies on the database are primarily those that are subject to challenge under this regime. I apologise if there was any ambiguity in my letter.

I turn to the amendments put forward by the noble Lord, Lord McNicol—

[Lord McNicol of West Kilbride (Lab)]

I thank the Minister for giving way. Just on the point about challenge and that if a subsidy is below the £500,000 it will be part of a scheme, I think he said before that if it was given as part of the subsidy scheme, it would have to meet the seven principles; it would be good if that could be clarified. Probably more importantly, however, is whether a one-off subsidy that is less than the individual subsidy limit—the £315,000—has to meet the principles. My understanding from some of the earlier discussions in the other place is that that was not confirmed or clarified. Can the Minister clarify whether a subsidy that is less than £315,000 has to meet the seven principles or the other energy principles?

[Lord Callanan (Con)]

Yes, of course. All subsidies need to meet the principles—this discussion is about what parts of those are published. If a subsidy is awarded under the scheme, then the scheme principles would also need to comply with the subsidy control principles.

[Lord McNicol of West Kilbride (Lab)]

So, just to be absolutely clear, if a subsidy is awarded that is less than £315,000 as an individual subsidy, it says in the Bill that it needs to meet the seven principles and possibly the energy principles.

[Lord Callanan (Con)]

My understanding is that, yes, that is the case. If that is not correct I will certainly clarify that to the noble Lord, but my understanding is that that would be the case.

[Baroness Altmann (Con)]

I apologise to my noble friend, but may I ask for clarification from him as well? He mentioned a cost to implementing this; can he confirm that the Government’s estimate of the cost is £20,000 and that local authorities already have such databases right now?

[Lord Callanan (Con)]

Just to clarify the points from the noble Lord, Lord McNicol, yes, it would need to meet the scheme requirements if it was given under a scheme. If the subsidy is not minimal financial assistance —so it exceeds £315,000 accumulated over three years—it does have to meet the principles; if it is MFA, it does not need to meet the principles. Reviewing the cost as an impact assessment does not necessarily cover all those options.

[Lord McNicol of West Kilbride (Lab)]

So, if it is under the £315,000—sorry, forget the scheme, I confused things by talking about the £500,000 for the scheme. If an individual subsidy is less than £315,000—this is quite important for transparency—it does not have to meet the principles that are laid out in the Bill?

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[Lord Callanan (Con)]

I will come back to the noble Lord in writing. It is a complicated area to clarify the exact legal position on that. Sorry, can my noble friend Lady Altmann remind me of her question?

[Baroness Altmann (Con)]

Can my noble friend confirm that the Government’s estimate of the cost in relation to the subsidy scheme—which he referred to as a potential reason why the Government might not accept these amendments—is £20,000 and that local authorities do already have databases that could be used?

[Lord Callanan (Con)]

That returns to the point that I made earlier. The commitment given by Minister Scully in the other place is that we will review the costs; I committed to return to the Committee with the relevant cost provisions, which I will do before Report.

Amendment 38 would remove, for the purposes of transparency, the distinction between a subsidy awarded under a scheme and a stand-alone subsidy. The amendment seeks to have one, uniform threshold for all subsidies. Taken together with Amendment 39, this new uniform threshold would be just £500.

Subsidies given under a published scheme are currently required to be uploaded to the database if they are more than £500,000. This threshold is set at that level because the database will already include information about the scheme under which these subsidies are given. In our view, this information will be sufficient for others to understand whether their interests will be affected by any subsidy given under that scheme and whether they should therefore seek to challenge the scheme.

The Bill provides for various reasons why a subsidy or scheme cannot be challenged on subsidy control grounds. For example, a subsidy award given under a published scheme cannot be judicially reviewed in the Competition Appeal Tribunal on subsidy control grounds. This is because it is the scheme that is assessed against the principles and is challengeable, rather than the individual award made under that scheme. As such, this Bill does not provide for the possibility to challenge subsidies given under schemes in the Competition Appeal Tribunal. The scheme itself should be challenged, not the individual awards.

Additional information about small subsidies would therefore have very limited value for those concerned about potentially distortive subsidies and would detract from the core purposes of the database. These requirements would lead to additional red tape for public authorities—well beyond the requirements they had to fulfil under the EU state aid regime—and in a great many cases, as I said earlier, the information would simply duplicate what those authorities already publish in appropriate formats elsewhere.

[Lord Purvis of Tweed (LD)]

I have been reviewing the code on the publications from local government; local authorities must publish on a quarterly basis any expenditure that exceeds £500, including grant payments, grants, grant-in-aid and credit notes over £500. Public bodies will publish this quarterly already, unless this Bill means they are excluded from doing so if the payment is through a subsidy scheme. If this completely takes away the duty to publish that the public body already has, it makes no sense whatever. I do not understand where the additional burden comes in, given that the local authority publication code is already there for quarterly publication.

[Lord Callanan (Con)]

Nothing in this Bill affects the existing duties of local authorities and others to publish any financial information that they already do. This Bill concerns the information that needs to be published on the subsidy database. The same point applies to the earlier question from the noble Lord, Lord Purvis, about freedom of information. I hesitate, given the trouble I got into last time, to return to the FoI principles, but nothing in this Bill affects the original FoI legislation or the principles contained in it.

I turn to Amendment 47, which seeks to introduce a transparency threshold of £500, above which subsidies granted as minimal financial assistance would need to be uploaded to the database. As noble Lords will be aware, the MFA exemption allows public authorities to award low-value subsidies of up to £315,000 per recipient over three years, with no requirement to consider the subsidy control principles or other requirements, and no need to upload on to the subsidy control database. I think that clarifies what the noble Lord, Lord McNicol, asked about—what I said earlier on this was probably incorrect, so my apologies for that. The Government have taken this approach to ensure that public authorities can deliver smaller subsidies quickly and easily without undue administrative burden, since they are very unlikely to have any appreciable distortive effects.

This amendment, by seeking to require the addition of low-cost subsidies to the subsidy control database, would certainly introduce an additional burden for public authorities. Introducing a low-value transparency threshold for such low-value subsidies would require additional staff time and costs as the volume of entries would be expected to increase significantly—for what gain, bearing in mind that these subsidies are those that, by their very nature, are unlikely to have any appreciable distortive effects?

On this basis, I do not believe that the amendment would introduce the appropriate balance between sufficient transparency to allow for meaningful scrutiny and an efficient allocation of resource to identify those subsidies that are most likely to harm our economy, either locally or nationally.

Turning to Amendments 48 and 49, as we have discussed before, the Committee will be aware that services of public economic interest—SPEI—are vital services that, without public subsidy, would not be supplied in the appropriate way by the market or, in some cases, would not be supplied at all. This clause exempts certain SPEI subsidies from the transparency requirement in Clause 33 to upload the subsidy on to the database. There are two categories of exemption: first, for subsidies of less than £14.5 million; and, secondly, subsidies for one of the activities listed in subsection (1)(b). In response to the question posed by the noble Baroness, Lady Blake, the reason for the difference is that, in our view, subsidies in the second group are even less likely to distort competition.

These amendments would mean that all SPEI subsidies of £500 or more would need to be uploaded on to the database. I submit that this would represent a significant burden on public authorities, yet it is generally agreed in the Committee, I think, that these subsidies, granted for public services, are unlikely to be unduly distortive.

The same arguments put forward for not setting a transparency threshold of £500 for MFA apply equally here, in that doing so would not represent a balanced or proportionate outcome for our domestic regime. Although noble Lords are right to challenge the Government on the issue of transparency, I would like to set out why reducing the exemption from transparency requirements for SPEI subsidies to £500 would not result in a stronger regime.

First, by its nature, granting subsidies for public services is unlikely to be unduly distortive. This is because the very reason they are needed is that other providers are unable or unwilling to provide the necessary service at a reasonable cost. This goes back to the example we discussed last time, when the noble Baroness, Lady Blake, referred to bus services in rural areas: granting a public subsidy there is unlikely to be distortive because the reason why the public authorities have to provide that service is because nobody else in the market does so. The lower risk of distortion therefore justifies a higher transparency threshold.

Secondly, Clause 29 sets out that the award of a SPEI subsidy must be given in a transparent manner, which means that the subsidy must be being given through a written contract or other written legally enforceable arrangement. As the noble Lord, Lord Purvis, noted, public authorities normally publish these contracts, and it is good practice to do so.

Thirdly, a public authority providing SPEI subsidies must be satisfied that the subsidies are limited to what is strictly necessary in providing that service, with regard to costs and reasonable profit, and must keep that under review. This means that the SPEI enterprise should not gain an unfair advantage over other enterprises; consequently, again, there is unlikely to be undue distortion to competition.

The Government do not share the view that requiring public authorities to upload SPEI subsidies with a value as low as £500 would contribute to a more robust regime. SPEI subsidies are, and will continue to be, subject to appropriate safeguards where public authorities actively ensure that this is the case so that contracts deliver value for money for the citizens in that particular area.

Although I understand the objectives of the noble Lord, for the reasons I have set out, I cannot accept this amendment. I hope, therefore, that he will feel able to withdraw it.

[Lord Fox (LD)]

I have a brief question because £14.5 million is a curious number. There is no reason why it should be a round number in millions, but it is strange. Can the Minister explain the genesis of that particular number? Also, could I be cc’d into the Minister’s reply to the important question asked by the noble Lord, Lord McNicol, on the subject of what is in and what is out?

[Lord Callanan (Con)]

Indeed. The noble Lord, Lord Fox is clearly not tired of receiving letters from me, so I will happily copy him into the letter that I send to the noble Lord, Lord McNicol. I will have to come back to him on his question about the £14.5 million. I will include that in yet another letter—or maybe even the same one.

[Baroness Blake of Leeds (Lab)]

I thank the Minister for his very full response, as always. The level of detail means that we will indeed require letters. Maybe the simplest way forward is for us all to receive the same response on the issues that we have all raised in Committee, so we are all on the same page.

I do not want to prolong this debate too much. I note that the Minister in the other place, Mr Scully, undertook to review the consultation, including the debates that we have had in this House. I go back to the spirit of hopefulness that I mentioned earlier—or maybe naivety perhaps, but we are all allowed to be naive for a little while, I hope—because this is a serious issue, and it is fairly unusual for such issues to get such cross-party and cross-sector support.

I have a question. When we talk about burdens and costs, I am always intrigued. Could the Minister perhaps write to us with an estimate of the costs if things go wrong—that is, when there is a challenge and it ends up in court in arbitration? That sort of thing happens regularly if you do not have a robust system that is clear and transparent. Burdens work both ways.

There is already a system in place that is tried and tested. Public authorities, whether local authorities, combined authorities, LEPs or devolved Governments, have been working on these matters for a long time, and there is established good practice out there. It troubles me that some of the provisions in the Bill could undermine an enormous amount of work.

Going back to the principles, we are talking about the need for consistency and clarity and, most of all, the fact that we should do everything we can to ensure that every pound of public money is accounted for and accountable and can be followed as it goes through.

[Lord Callanan (Con)]

If I may interrupt the noble Baroness, I am trying to save my letter writing to the noble Lord, Lord Fox, who was concerned that my workload would be unduly increased: for his information, apparently the £14.5 million figure comes from the TCA.

[Baroness Blake of Leeds (Lab)]

It only remains for me to beg leave to withdraw the amendment.

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[Lord Fox (LD)]

My Lords, during the debate on the previous group, the noble Baroness, Lady Altmann, asked, “How will they know?” This amendment seeks the answer to the question: how will they know in time? As the noble Lord, Lord McNicol, said, because of the limits of reporting, we are talking about very sizeable subsidies that could exist with a competitor company for up to a year before a person is able to find out what their company is competing against. I am sure that the Minister would understand that that is not a fair situation, and it is within the gift of the Government to make it fairer.

Both noble Lords spoke about the imbalance; that is, a long time to report it and a short time to appeal it. One would almost think that the Government were seeking to discourage the process of challenging subsidies. I am sure that that is not the Minister’s aim and therefore the best way of expressing that aim is to redress that balance.

Reflecting on the last debate and this one, I think that we are in a bit of a mess around reporting—or, indeed, we are not but the Government are. On the one hand, we have the database with the six-month time limit and a very high ceiling; on the other hand, we have local authority websites with a three-month time statute and a much lower ceiling, and potentially we have FoIs—although the problem is that you need to know something exists before you can FoI it. The Government have therefore knowingly or unknowingly set up a multiple market for information.

If I am a business and I need to know what is happening in my sector, the Minister will say that this information is freely available. It is freely available on a pull basis. I shall have to employ someone to go out there regularly to check whether the information exists, where it is and what is happening in my sector. If I am a small business in a market where the receipt of subsidy could affect my business, I shall have to employ an extra person or part of an extra person to do that. This does not seem a sensible way of dealing with the issue. A central database with a shorter time span and a lower value ceiling would be the best way to help businesses thrive.

[Lord Callanan (Con)]

I thank the noble Lord, Lord McNicol, and my noble friend Lord Lamont for these amendments, which seek to reduce the time available to public authorities to upload their subsidies to the database. I note the comments made by the noble Lord, Lord McNicol, on the limitation period, which I look forward to discussing in our next Committee session.

As is the case with the thresholds on transparency, our objective here in setting the upload deadlines has been guided by the fine balance between minimising bureaucratic burdens while ensuring that accurate information is available promptly for interested parties to enable them to consider whether to launch a challenge. We agree that subsidies should be available to be seen on the database as soon as is practical. However, there are good reasons why public authorities require longer than the one and three months put forward in these amendments.

First, let me note that public authorities have an incentive to upload subsidies as quickly as possible. The sooner a subsidy is uploaded to the database, the sooner the clock for the limitation period starts to run, and therefore the sooner the public authority and the beneficiary will gain certainty that the subsidy will not be challenged. Public authorities also have a strong incentive to upload subsidies accurately first time round to avoid the possibility of having to amend entries later on.

Upload deadlines as short as one and three months may result in more public authorities needing to amend their entries at a later date. Although this is of course possible on the database, it creates an unnecessary burden for those authorities. This means that the initial period where the subsidy has been uploaded is more likely to contain inaccuracies, which will not help an interested party to know whether they wish to challenge. Surely we agree that, although we all want prompt uploads to the database, upload speed should not come at the expense of accuracy.

[Lord Purvis of Tweed (LD)]

Can the Minister confirm that, as we discussed in the debate on the previous group, if this scheme is run by a local authority in England, its duty to publish in three months still stands under the code? If so, this will have to be published within three months anyway, but that is just in a local authority area, not on the national database. So there is this rather ridiculous period of between three months and six months in which it would be uploaded on to the subsidy database. If the Minister’s argument is that doing this in three months will mean having a lot of mistakes in it, he needs to go back to the local authority code, not make assertions here in Committee.

[Lord Callanan (Con)]

As I said, none of the provisions in this Bill change any of the requirements on local authorities, but the transparency requirements are different in each case depending on what the award is and whether it is under a scheme. Sometimes, if it is a generally approved scheme, there are literally thousands of small grants, for instance. Sometimes the recipients are not identified under local authority transparency but may need to be identified under a particular scheme, depending on the size of the award. The noble Lord is correct that none of the requirements in the Bill change the requirements on local authorities; we are talking about different information for different purposes.

I understand the point made by noble Lords that, in most cases, one month should be sufficient to avoid excessive mistakes that could cause confusion for interested parties. None the less, I note that public authorities face a great many administrative obligations. Therefore, there would be an increased risk of error, or an increased cost in avoiding error, resulting from a deadline of one month—particularly for authorities that give a large number of subsidies in possibly quite complex formats.

Furthermore, the inaccuracies may not result from avoidable human error. To take another example, many subsidy schemes, particularly but not only those in the form of tax measures, are created with estimates for the value of the budget or the individual awards, but the final amounts may vary from that estimate. Sometimes the subsidy award is variable—it could be a performance-related grant—and if the beneficiary exceeds its estimates for the subsidy objective, it may be entitled to a proportionately larger subsidy. In other cases, such as subsidies in the form of tax measures, which I am sure my noble friend would never have been responsible for when he was Chancellor, the variation may be a result of higher or lower than expected expenditure—for example, on research and development—which will in turn affect how much tax subsidy that beneficiary would be entitled to.

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[Lord McNicol of West Kilbride (Lab)]

Before the Minister sits down—I ask this as I genuinely do not know—he stated that 76%, or however much it was, of those who responded to the consultation supported the deadlines of six months and a year. Does he know what the consultation said about the other side of this, with regards to the timescales for challenge?

[Lord Callanan (Con)]

The figure I used was 74%, not 76%. I do not have that information, but I can certainly get it for the noble Lord—I will supply it in writing.

[Lord Lamont of Lerwick (Con)]

My Lords, the Minister was very persuasive about tax measures. I quite follow what he said about the uncertainties that would surround trying to calculate the cash value of tax subsidies, but he did not spend very much time talking about the one-month period, which is the one that seems a bit unreasonable. It seems as though they are paying more attention to the compliance costs of the public sector than to the costs of the challenger, which ought to be equally kept in mind. Surely one month is a very short period to challenge a subsidy which may have suddenly arrived out of the blue and may require a private sector company to take legal advice on whether it is challengeable. Four weeks to get legal advice, mount a challenge and go through all the formalities seems a very short period of time.

[Lord Callanan (Con)]

I understand the point that my noble friend is making. As I mentioned in my reply to the noble Lord, Lord McNicol, the limitation period is the subject of separate amendments, so we will have a further opportunity to discuss that in the next Committee session. Again, it is a balance between wanting to provide certainty so that the schemes can proceed and the beneficiary can proceed with some certainty, but I understand the point that my noble friend makes. The whole regime is designed to be as flexible as possible, and probably more permissive in many respects than the EU state aid regime. As I say, we will have a longer period to discuss the limitation period and the challenge on a future occasion.

[Lord Purvis of Tweed (LD)]

With regard to companies or interested parties, Clause 76 allows an interested party to make a request to a public authority for information about a subsidy or a subsidy scheme that the authority has given or made, and there has to be a response within 28 days. Presumably, that covers all the subsidies that are then issued under that subsidy scheme by the public authority, in advance of them being uploaded on to the database. Is that correct?

[Lord Callanan (Con)]

If the information is available, perhaps in other formats, my understanding is that they can start the challenge immediately, but the formal period for challenge starts after the subsidy is uploaded to the database.

[Lord Purvis of Tweed (LD)]

I am grateful, but that was not my question. Regardless of the period of challenge after the subsidy has been updated on the database, Clause 76 allows an interested party to make a request to a public authority for any information about a subsidy or a subsidy scheme that the authority has given or made. That does not state that it is uploaded on the database. It would basically require the interested party to make a request of the public authority for any subsidy issued under that scheme by that public body at any stage. They would have to do it blind, because it would not be on the database, but if they believe that there is a subsidy scheme that they have an interest in, within that certain local market, and they ask for information about that subsidy, that information would have to be provided by the public authority before it has been uploaded to the database. Any greater efficiency or lack of bureaucracy has completely gone if they are able to do that under Clause 76 anyway.

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[Lord Callanan (Con)]

The position in the clause is fairly transparent; they will be able to ask for information on the scheme and the authority would have a duty to provide it. That is separate from the provisions for uploading it to the database.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I thank the Minister for his response. As the noble Lord, Lord Lamont, picked up, he very much focused on Amendments 40 and 42, rather than Amendments 41 and 43. The Minister is absolutely right that there will need to be a balance between bureaucratic burden and proper transparency and oversight. As the Bill sits just now, I do not believe that the balance is in the right place. I am sure that we will come back to this—after the Division.

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[Lord Lamont of Lerwick (Con)]

My Lords, without endorsing what the noble Lord, Lord Purvis, said, I think this is a very important issue—without going into the wider Brexit questions to which he referred—and it is extremely worrying.

I would like the Minister to confirm whether the Government’s position as stated in this Bill, and which was reaffirmed by my noble friend last week when she replied to the debate, is the final interpretation or is an interpretation that is subject to change. As the noble Lord, Lord McNicol, said, there are different legal interpretations of the protocol, and there certainly seem to be different interpretations between the European Union and the UK Government. Does that not therefore affect the assurances that Ministers can give? What certainty can be attributed to the opinion of Ministers as to what is the meaning of subsidies under Article 10 or subsidies under Article 138, and which subsidies are subject to European Union law and which are not?

Last time, I raised with my noble friend Lady Bloomfield the question of reach-back and what would happen if a subsidy was being given to a company in the north of England that was exporting goods to Northern Ireland and whether that would come under the EU regime or the UK regime. She replied by saying:

“The Commission’s … declaration of December 2020 made it clear that Article 10 could affect a subsidy in GB only”—


I stress the word “only—

“if there was a genuine and direct link in Northern Ireland. This would be the case if, for example, the beneficiary had a subsidiary in Northern Ireland.”—[Official Report, 2/2/22; col. GC 244.]

Is that the only case? If there were no subsidiary, would that be a different outcome?

[Lord Callanan (Con)]

My Lords, let me first thank the noble Lord, Lord Dodds, and the noble Baroness, Lady Hoey, for this amendment. I know that the noble Lord has strong feelings on the protocol and he and I have discussed it many times before. I have also discussed it with the noble Lord, Lord Empey, throughout the progress of our various pieces of Brexit legislation. I know the issues that are involved, and I will hopefully be able to update the noble Lord on our interpretation of the provisions and where I think we have got to—although there is a limit, as I am sure the noble Lord will understand, on what I can say.

I start by emphasising that preventing undue distortion or economic disadvantage to any part of the United Kingdom is one fundamental objective of this regime. Subsidies are inherently distorting, but this Subsidy Control Bill exists to ensure that public authorities minimise those distortions and economic disadvantage, ensuring that the benefits of the subsidy outweigh any negative effects.

Public authorities will need to consider this in making their decisions about whether the subsidy should be given and how it should be designed. That particularly affects any negative effects in parts of the United Kingdom other than the target area of the subsidy, but it also includes the effects on international trade or investment where the public authority may have less incentive to take those disadvantages into account in its ordinary decision-making processes.

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[Lord Empey (UUP)]

Before the noble Lord sits down, the noble Lord, Lord Dodds, said that this is a probing amendment, so we all may have issues with the phraseology but that is not the point. Never mind subsidiaries, which I can understand; if a product is supplied to a company in Northern Ireland as part of creating another product which would then be sold into the European Union, whether or not it is supplied from a subsidiary should not really be relevant. It does not matter where it comes from, if it is subsidised in Great Britain. Surely that is how the European Union will look at it, rather than simply saying that it must be a subsidiary. The Minister might be underestimating the potential for reach back or for the subsidy to be challenged by a competitor within the European Union. The Government are taking too narrow a definition of what may be at risk.

[Lord Callanan (Con)]

I understand the point the noble Lord is making but, to return to the words I used, there must be a genuine, direct link to Northern Ireland—it cannot be hypothetical or presumed. We have issued detailed guidance on the subject, but we accept that the current situation is not good enough, which is why we are attempting to renegotiate the terms of the protocol, particularly Article 10.

[Lord Purvis of Tweed (LD)]

I have the text of the Command Paper in front of me. I heard the Minister say that the Government are negotiating for a single scheme to apply for all businesses across the UK. That is not what the Command Paper argues for in paragraphs 63 to 65. I have raised this before in the Chamber and in Committee. The Government are asking for a dual system, where there will be

“enhanced referral powers or consultation procedures for subsidies within scope, to enable EU concerns to be properly and swiftly addressed.”

The Government are not seeking a single system; they are seeking two systems with a streamlined approach for applicants to go to the EU system. Can the Minister clarify that?

[Lord Callanan (Con)]

We are seeking to have a single regime—the regime we are discussing now—that applies across the whole of the United Kingdom. As I said, this is the subject of negotiation. Intense discussions are going on. I and other Ministers will update the House as soon as we conclude those agreements.

[Lord Dodds of Duncairn (DUP)]

My Lords, I thank the Minister very much for his response to the debate and all noble Lords who have taken part in this short but important exploration of the issues surrounding subsidy control in Northern Ireland as a result of the application of Article 10 of the protocol. Sometimes people say that they are not being listened to, but I did not think that the technology would conspire to try to prevent us being heard. However, I am grateful for noble Lords’ consideration of these important matters.

The noble Lord, Lord Empey, was rightly pessimistic about the Minister’s ability to answer some of the questions raised, although he made a stab at it. However, while he was confident about the interpretation of Article 10—particularly in relation to the scope of its application, which remains to be seen—it will be tested in court. The trouble is that the uncertainty around all this will have a chilling effect. There is no doubt that reach back is a very important issue, but many businesses in Northern Ireland will say, “Yes, this is an important issue, but if you solve it, it will not particularly help us as Northern Ireland will still be subject to the EU regime. It may provide some help and certainty to companies in England, Scotland and Wales, but it does not resolve our difficulties.” There is a bit of danger in seeing reach back as the problem; it is a problem, but this does not resolve the issues in Northern Ireland. That is why I am grateful that the Minister has indicated that the Government’s purpose remains to negotiate changes.

The noble Lord, Lord Purvis, rightly pointed to the wording of the Command Paper. It merits very careful reading to compare what is stated to be the Government’s position and the actuality of the basis of the negotiations. It is something that I have pointed out on a number of occasions in Northern Ireland. I also agree with the noble Lord that, whatever the origins of how we got here, the problem remains to be sorted for Northern Ireland. This is a real predicament.

I therefore urge the Government to take this matter extremely seriously. I know that they do but this is a matter of urgency because, as was stated by the noble Lord, Lord Purvis, when he mentioned short, sharp negotiations—I recently reminded the Prime Minister of this fact—that this was supposed to be a three-week negotiation, beginning in September. Sadly, we have almost reached the middle of February and the inevitable crisis that some of us predicted has happened, in terms of the stability of the institutions in Northern Ireland. Time is in short supply.

I am grateful for this debate. It has been useful. With that, I beg leave to withdraw the amendment.

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[Lord Wigley (PC)]

My Lords, I cannot allow this debate to go without intervening very briefly. We have had arguments about the consultation with devolved authorities in previous deliberations of this Committee and I am not going to repeat those points. What I want to do, however, is to stress the need for equivalence, and for that equivalence to be perceived, between the role of the Secretary of State in the context of England and the devolved authorities in the context of Wales, Scotland and Northern Ireland because if we do not have that, we are building up a formula that is bound to cause problems.

I cannot possibly allow the comment about my friends in the SNP to go unchallenged, because they, of course, work very hard indeed in the interests of Scotland, as has been recognised by such a large majority of Scottish voters. However, the debate here is not about the relative strengths of the parties; it is about getting a system in this legislation that works. In the absence of a federal or confederal approach—and that, ultimately, will have to be the context in which these things are addressed—in the meantime, for goodness’ sake, let us get a formula that at least appears to be fair and does not have built within it the contradictions which this Bill has at present.

[Lord Callanan (Con)]

I was expecting more interventions before my reply—I offer my apologies.

These amendments relate to Clause 55, which provides, as has been stated, that the Secretary of State can direct a public authority to request a report from the subsidy advice unit for a proposed subsidy or subsidy scheme. This so-called call-in power will be used as a safety net where the Secretary of State considers that a subsidy or scheme is at risk of not complying with the subsidy control requirements or that it poses a risk of negative effects on competition or investment in the UK and therefore warrants further scrutiny.

In the majority of cases, the most potentially harmful subsidies will be those that meet the criteria for subsidies of particular interest. The Government’s proposal for how these criteria should be defined has been set out in illustrative regulations that have been made available to this Committee. However, it is inevitable that there will be some subsidies or schemes that fall outside those boundaries but would still benefit from the additional scrutiny offered by the SAU. The call-in power is a safety net. It provides a mechanism to catch potentially concerning subsidies that are not caught within the “subsidies of particular interest” definition and have not otherwise been voluntarily referred to the subsidy advice unit. It is expected that such subsidies will be few and will reduce further as the regime settles in.

When the Secretary of State decides to exercise this call-in power, the direction must be published. In addition, the subsidy advice unit must provide annual reports on its caseload, including any subsidies or schemes called in by the Secretary of State. These annual reports will be laid before Parliament. This transparency will help to ensure that the power is being used appropriately and that Parliament has oversight of how and when the power is being used.

Amendments 54, 56, 58 and 60 would allow the devolved Administrations to refer a subsidy or subsidy scheme to the subsidy advice unit under the terms of Clause 55. Similarly, Amendments 55, 57 and 59 would extend the power to call in subsidies for review by the subsidy advice unit to all local authorities in the United Kingdom.

The Secretary of State’s responsibilities and interests in the subsidy control regime are UK-wide. The subsidy control regime is a reserved matter. The UK Government are responsible for the compliance of the UK subsidy control regime in all parts of the United Kingdom with our international obligations, including the trade and co-operation agreement with the European Union. It is therefore right that the UK Government have responsibility for the referral mechanism that deals with any subsidies that fall outside of the established criteria for further mandatory scrutiny. It is also right that the UK Government oversee the functioning of the regime as a whole, including the caseload of the subsidy advice unit.

In response to the specific concerns raised by the noble Lords, Lord Bruce and Lord Purvis, I believe it is important that the positions of the devolved Administrations and other public authorities are taken into account in the exercise of this function. I assure noble Lords that the Secretary of State would take it extremely seriously if he received a request from another public authority to call in a particular subsidy or scheme. Of course, he would engage with the substance of that request and consider it on its merits, but I hope it goes without saying that officials and Ministers in my department would discuss the matter appropriately with the public authority that raised the concern; this would apply even if it were a subsidy given by the UK Government.

[Baroness Randerson (LD)]

If the Secretary of State has acted as Minister for England and a devolved Government want to get the Secretary of State to call something in on the grounds that they are not happy with it perhaps being uneven or giving an unfair advantage to a company operating in England, what Chinese walls—that is, what process—will the UK Government put in place to ensure that the Secretary of State, who has just made a decision on England’s behalf, will not then judge himself or herself when the issue is called into question by a devolved Government?

[Lord Callanan (Con)]

The noble Baroness is approaching this issue in completely the wrong way. First, this is a UK-wide regime, so the Secretary of State is acting in his capacity as UK-wide Minister responsible for it. We have said that we will take it extremely seriously if a devolved Administration request a referral to the subsidy advice unit. We are currently in discussions with the devolved Administrations on how such a system could be codified. However, the key point is that this is just a referral to the subsidy advice unit. It is not rendering a subsidy illegal; it is not challenging it.

Directly relating to the point made earlier by the noble Lord, Lord Bruce, a devolved Administration have exactly the same rights as the Secretary of State or a local authority or anybody else to challenge the decision. The right for the Secretary of State to call in a proposal is just to refer it for advice from the subsidy advice unit; it is not to challenge the decision. The challenging of a decision takes place in the Competition Appeal Tribunal.

[Lord Purvis of Tweed (LD)]

The case that the Minister makes is a case against what he took through in the internal market Act. Under that Act, the Secretary of State is responsible for the economic impact on the whole of the United Kingdom, but a national authority can refer a regulation made by the Secretary of State to the CMA—in fact, one or more of them can refer. Why can they do that in the internal market Act but not in this Bill?

[Lord Callanan (Con)]

The internal market Act, which we debated at great length, reserved the application of a subsidy control regime to the UK Government. This is now the subsidy control regime that the United Kingdom Internal Market Act set up.

[Lord Purvis of Tweed (LD)]

I do not think that is relevant, because no one had any doubt about the fact that the internal market is a reserved power. They are both reserved powers; in the internal market Act, the Secretary of State acts on a reserved basis for the whole of the internal market, but it allows a national authority to refer a decision of the Secretary of State to the CMA if it has doubts about that measure. Subsidy control is a reserved matter—there is no doubt about that—but the subsidy Bill prevents a national authority referring a decision by the Secretary of State to the CMA. Why?

[Lord Callanan (Con)]

I think the noble Lord is getting confused between the subsidy advice unit and the Competition Appeal Tribunal. Exactly the same right exists for devolved Administrations, the Secretary of State or a local authority to challenge a decision in the Competition Appeal Tribunal. This call-in power is related strictly to the ability to request an opinion from the subsidy advice unit. That is where I think the noble Lord’s confusion comes in. The same right exists for authorities to challenge a subsidy, but there is an overall policing function which belongs to the UK Government to look after the international obligations of the UK under agreements such as the TCA.

[Lord Purvis of Tweed (LD)]

I am talking about a call-in that is exactly the same as in Section 36 of the internal market Act. I am not talking about tribunals; I am not talking about it being adjudicated. I am not confused; I am talking about referrals. The internal market Act allows referrals from a national authority; this Bill does not. All I am asking is why there is a difference between the two.

[Lord Callanan (Con)]

It is because the responsibilities are different. They might all rest within different parts of the CMA, but the responsibilities under the internal market Act are different to those under the Subsidy Control Bill that we are debating today. The policing of the Act is of course the responsibility of the UK Government; it is a reserved responsibility, but the same right to challenge a decision exists for the Secretary of State as it does for the devolved Administrations. Using the ability to refer a decision to the subsidy advice unit, we are saying that we will take a request from a public authority or devolved Administration very seriously under the Secretary of State’s call-in powers, but, in addition to that, we are currently in discussions with the devolved Administrations to see whether it is possible to reach an agreement on some sort of codifying mechanism to refer decisions to the subsidy advice unit.

We hope that no UK government subsidies would require referral, but I can tell the Committee that Ministers will be open-minded to calling in a UK government subsidy for SAU scrutiny where that is requested by another public authority or considered desirable for other reasons.

To respond to the concerns of the noble Baroness, Lady Blake, the Secretary of State would always take into account any urgent circumstances, whether in considering the use of the call-in powers or in the exemption from mandatory referral for subsidies of particular interest set out in Clause 64.

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[Lord Bruce of Bennachie (LD)]

I am glad that those conversations are taking place, but is not the danger that if the devolved Administrations do not have the opportunity to get that advice, they might as well move to a direct challenge? It makes the friction more extreme rather than less. I accept the point the Minister is making about not wanting lots of frivolous requests, but if the right to request at all is denied, the danger is that there will be more contentious challenges.

[Lord Callanan (Con)]

We are not denying the right to request, which is why we are currently in discussions with the devolved Administrations to try to codify the system, but we have to accept the reality that they have a fundamental objection to subsidy control being reserved to the UK Government. They do not believe that it should be a UK-wide function. While we can agree and discuss many of the details, it is a black or white situation whether it is reserved to the UK Government. We feel it should be. That was Parliament’s decision in the United Kingdom Internal Market Act. The devolved Administrations do not agree with that, but it is a fact, so while it is possible to agree with them on many of the details, and we have engaged extensively at ministerial and official levels, we cannot resolve the fundamental difference of opinion on the overall principle.

There is a risk that this amendment would overburden the subsidy advice unit with numerous and unnecessary directions for referrals. The noble Lord, Lord Bruce, talked about the ability of the current Scottish Administration to put friction in the relationship and to seek to cause division where there is perhaps no division at the moment, and that would require substantial and unpredictable additional resources. In contrast, given my department’s responsibility for and its relationship with the Competition and Markets Authority, the Secretary of State will be able to take referral decisions that factor in the overall workload and capacity of the subsidy advice unit and will work with others in government to ensure the unit is appropriately resourced to deliver its functions over the medium and long term.

We appreciate that the new regime represents a significant shift from the requirements of the previous EU state aid regime and that public authorities will need to familiarise themselves with the new requirements and processes. Public authorities will already be used to the interim arrangements under our international obligations, including in the trade and co-operation agreement, which require an assessment of a prospective subsidy or scheme against six principles. As always, my department stands ready to support further through guidance and advice to help to ensure that public authorities in all parts of the United Kingdom are prepared and feel comfortable making their own assessments and giving out subsidies, hopefully without the need to seek advice from the subsidy advice unit. Therefore, for the reasons I have stated, I am unable to accept the amendment and hope that, given the explanations I have provided, the noble Baroness will feel able to withdraw the amendment.

[Baroness Blake of Leeds (Lab)]

I am sure that it does not fall to me to remind the Minister that the Secretary of State might be a woman as well as a man.

I would be grateful if the clarification that the Minister gave to the noble Lord, Lord Purvis, could be given to all of us in writing, as it would be really helpful in trying to move this forward. I am slightly concerned that there is a bit of a patronising element creeping into this, and I think that we need to be very careful about that in terms of how we build the relationships going forward.

It really remains to be said now that we perhaps need to reserve our position on this as we move to the next stage, in the light of ongoing discussions and consultation as the Minister has outlined. I think that we would all like the opportunity to go back to base and to understand how these discussions are continuing. I am sure that we will then come together to make decisions on how to move this forward at the next stage. With those comments, I beg leave to withdraw the amendment.

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[Lord McNicol of West Kilbride (Lab)]

My Lords, I think we will have a hard stop at 7.45 pm, so I will try to be brief. Even then, though, I am not sure that we will get through everything. Obviously I am grateful to the noble Lord, Lord Lamont, for tabling his amendments in this group; they sit very nicely with my amendment.

There are some general concerns over whether the CMA is the appropriate body to undertake all this work but, putting that to one side just now, it seems counterintuitive not to give the responsible regulator the ability to initiate its own investigations—especially because, as the noble Lord, Lord Lamont, rightly said, this is a very permissive regime in terms of how it has been pulled together. It is fundamentally different from the European state aid regime and we expect it to be policed by competitors and citizens, and that is only if they have checked the database and if the subsidy has been of a high enough level to make it on to the database—more than £315,000, I think. Even then, they will be able to make those challenges only within a tight timeframe.

On the amendments, although my Amendment 61 is quite detailed, again, we really are not precious about the wording in it or who has oversight, whether it is someone from our own Benches or those of the noble Lord, Lord Lamont—or even if the Government themselves wish to bring an amendment to look to give the CMA, as an independent body, more powers to follow through and ensure that transparency is actually there. My amendment would give the CMA the power to conduct post-award investigations in cases where it believes, God forbid, that a public authority has failed to comply with the requirement. With that, I end my remarks and look forward to the Minister’s response.

[Lord Callanan (Con)]

I am grateful to noble Lords. I know that time is getting on; hopefully I will have a chance to get through my remarks in the time we have available. This is an important debate and I recognise that, if it were not for the time, other noble Lords might also have wanted to intervene on the role of the Competition and Markets Authority in this new subsidy control regime.

I listened with particular interest to my noble friend Lord Lamont’s reflections on subsidy. In response, I would say that it is important to emphasise that the Bill does not, of course, replace our gold-standard mechanisms—my noble friend may have been responsible for many of them—for managing public money and for the transparency and scrutiny accorded to the UK Government’s spending decisions. I also note that we addressed the concept of market failure in the illustrative guidance we sent round; we believe that it is a fundamental part of the guidance that will be published before the regime comes into force.

Before I address the amendments, let me take this opportunity to lay out why we have taken the approach we have in the Bill as it stands; I hope that this will address the concerns of the noble Lord, Lord Purvis. We start from the knowledge that public authorities, in my view, take their statutory obligations seriously. The subsidy control principles and other requirements are straightforward and sensible, and we expect the vast majority of public authorities to comply with these requirements in giving the overwhelming majority of their subsidies. This regime empowers public authorities to make subsidy control decisions without excessive bureaucracy or regulation of the kind that I think most people accept is found in the EU state aid system and nowhere else in the world.

With this in mind, we proposed the functions of the subsidy advice unit set out in the Bill for two closely related reasons: first, to support public authorities in giving the subsidies that are most likely to be distortive; and, secondly, to ensure that those subsidies are subject to additional scrutiny and transparency before they are given. As the noble and learned Lord, Lord Thomas, set out, we think that this is an extremely important role. Once a subsidy or scheme has been referred, the subsidy advice unit will not attempt to replicate the role of the public authority in giving that subsidy in the first place or deciding whether or not to give a subsidy. Of course, it will also not replicate the role of the Competition Appeal Tribunal in applying the law to every aspect of the case. The subsidy advice unit will not carry out its own independent evaluation of the impacts of the subsidy; nor will it come to a definitive judgment on the public authority’s legal assessment of whether the measure is a subsidy, to answer the question from the noble and learned Lord, Lord Thomas.

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[Lord McNicol of West Kilbride (Lab)]

My Lords, rather than rush through, let us finish here. I am sure there are some issues that we would go into if there were not one minute remaining.

[Lord Callanan (Con)]

Do we have time to finish?

[Lord Fox (LD)]

I think we are comfortable starting again on Wednesday and giving this proper time.

[Lord McNicol of West Kilbride (Lab)]

The noble Lord, Lord Lamont, has yet to respond as well. It will not take long on Wednesday.

[Lord Callanan (Con)]

So shall we finish at this point and start again on Wednesday. Is my noble friend Lord Lamont available for the next Committee session on Wednesday afternoon? We are talking about suspending at this point, because we have run out of time, and returning to this group of amendments then.

[Lord Lamont of Lerwick (Con)]

Yes.