Wednesday 9th February 2022
(2 years, 10 months ago)
Grand CommitteeSubsidy Control Act 2022 View all Subsidy Control Act 2022 Debates Read Hansard Text Amendment Paper: HL Bill 84-IV(a) Amendment for Grand Committee (Supplementary to the Fourth Marshalled List) - (8 Feb 2022)
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I trust that it will be acceptable to your Lordships for me to pick up exactly where we were cut off in our prime on Monday, which noble Lords will be gratified to know was where I began speaking to Amendments 55A, 57A, 57B, 60A and 61.
Collectively, these amendments would allow the call-in powers currently provided to the Secretary of State to be exercised by the subsidy advice unit as well. Amendment 61 would create a new concept of a post-award investigation, which would be an extensive review by the SAU of the public authority’s decision-making process before giving a subsidy or making a scheme. I recognise the concerns of noble Lords that this system perhaps gives too great a responsibility to the Secretary of State. However, as I set out in response to the preceding group of amendments on Monday, it is appropriate that the Secretary of State is responsible for making these judgments in the interests of the entirety of the United Kingdom. In that function, they are answerable to this Parliament and to the interests of every citizen in the UK, and ultimately, as I keep stressing, for ensuring that the UK is compliant with its international commitments.
However, I would submit that there is a fundamental difference between a power to be exercised by the Secretary of State as a safety net, and a power to be exercised by a body such as the Competition and Markets Authority. There is very little possibility for the latter to exercise discretion and act only in situations that otherwise come to its attention. To carry out the functions envisaged by these amendments, the SAU would therefore have to scale up considerably. It would need a full market monitoring function to remain apprised of any potential new subsidies, including a public-facing arm to gather information and complaints, and it would need to develop clear criteria and decision-making processes for using these call-in powers.
Of course, ministerial decision-making must also be even-handed and evidence-based, but Ministers can and should have more discretion to make case-by- case judgments and will naturally be more aware of forthcoming distortive subsidies and where our international obligations are more likely to be impacted. The amendments tabled would require a very significant shift in the role of the SAU and would move it far closer to being a regulator of subsidies, which, to address the point made by the noble Lord, Lord McNicol, is not the Government’s intention, for the reasons that I have set out. This would of course create costs to the taxpayer, both in setting up this expanded subsidy advice unit and in the legal uncertainty and delays for legitimate subsidies that are placed under review or investigation.
I would also like to address the specific point that a government Minister will be unlikely to call in a subsidy that the Government themselves are giving. As I said in the previous sitting, Ministers will remain open-minded to referring a UK government subsidy to the SAU where it would be beneficial to have additional scrutiny of their own assessment. As with the regulations for automatic mandatory referral, there is no exemption for government subsidies. It is important to recognise that the SAU referral is a mechanism for scrutiny, transparency and advice which will support but not directly form part of the enforcement process, so there is no concern that the Government will be launching a legal challenge against themselves.
In summary, creating a function for the SAU to refer subsidies to itself or to initiate investigations would fundamentally change its role from one of oversight and monitoring to regulation and enforcement—a change which would be welcomed by the noble Lord, Lord Fox, but not by the Government, noble Lords will be shocked to know. I therefore hope that the noble Lord will withdraw the amendment.
Lord Purvis of Tweed (LD)
Before the Minister sits down, I have a question, which may pertain to debates on later groups of amendments. Do the Government consider a subsidy scheme to be a regulatory provision within the terms of the internal market Act?
Lord Callanan (Con)
The internal market Act is of course a separate piece of legislation from the Subsidy Control Bill. I will pass on the noble Lord’s question, think about it and respond later or in writing.
Lord Purvis of Tweed (LD)
I thank the Minister. I ask because my understanding is that a regulatory provision can be a subsidy; it has nothing to do with there being two separate pieces of legislation. As the Minister knows, the internal market Act takes into account any regulatory provision that will have an impact on the operation of the internal market. As the Minister has previously said, subsidy schemes will be considered as part of the operation of the internal market. So, if such a scheme is a regulatory provision under the terms of the internal market Act, any national authority would be empowered under that Act to ask the CMA for its view on whether that provision will distort the internal market. Is my understanding of that correct?
Lord Callanan (Con)
No, my understanding, on advice, is that it does not form a provision under the internal market Act.
Lord Lamont of Lerwick (Con)
Again, before the Minister sits down, I have a couple of questions. I apologise to him for this, but we have had the benefit of actually seeing his words written down in Hansard. Some of the phrases he came out with were quite dense and intricate, and I was rather puzzled by two points. The first was when he talked about the functions of the SAU. He said that it was intended
“to support public authorities in giving the subsidies that are most likely to be distortive.”—[Official Report, 7/2/22; col. GC 383.]
I am puzzled by the word “support”, and puzzled that we would want to support the ones that are most distortive. I am sure I am misunderstanding it, but I would like the Minister to explain.
Lord Callanan (Con)
I will have to look back at those remarks myself. It is possible that I was misinterpreted at the time, but I will have a look and come back to the noble Lord.
Lord Lamont of Lerwick (Con)
Let me also read out a second bit that I felt was particularly incomprehensible. If anybody in the Committee can understand it, I will be very impressed. I will read it slowly. The Minister said:
“I do not believe there is a contradiction in saying that a full assessment of compliance is light-touch regulation for the public authority but could prove arduous to replicate for the subsidy advice unit.”—[Official Report, 7/2/22; col. GC 383.]
Lord Callanan (Con)
I think that speaks for itself. I stand by those words.
Lord Fox (LD)
I thank the Minister for giving way. Perhaps that is why we asked him to stop—so that we could start again today. His answer to my noble friend Lord Purvis is intriguing. He seems to be saying that no matter how much a subsidy affects the UK internal market—I will wait for the Minister to finish his conversation—it can never be within the purview of the internal market Act. Is that what he just said?
Lord Callanan (Con)
Yes. Subsidy is not a regulated provision within the scope of the UK provisions. We are debating this in a future grouping, so we will no doubt be able to come back to it, but my advice is that it is not.
Lord Lamont of Lerwick (Con)
My Lords, I am very grateful to all those who spoke in the debate and supported my Amendments 55A, 57A and 57B. I am grateful in particular to the noble and learned Lord, Lord Thomas, who made a very powerful speech about the need for an independent evaluation of subsidies. The noble Lord, Lord Purvis, pointed out that, if we had an independent assessment, it would increase the possibility of consistency in the whole regime, which I thought was a very important point. The noble Lord, Lord McNicol, made the point that it was completely counterintuitive, after everything that had been said about the control of subsidies, not to have an independent evaluation. So I hope that there is quite a degree of support in the Committee for these amendments.
I do not think that the Minister today really explained why we could not have an independent regulator. He said that it would require a certain scaling up of resources. Well, obviously, it would. He said that it would become more like a regulator, rather than whatever else it is. Well, we want it to be a regulator—that is the whole point—with control of subsidies. But I really did not feel that he had made out a case against. He told us what the SAU does, but he did not explain why it would be wrong for it to do more things or to be scaled up and become a proper regulator.
The reason why I was particularly interested in the two passages that I put to the Minister—he is going to write to explain them to me—is that the more I listened to him, the more it became clear to me that the general line in this Bill is, “Public authorities know what they are doing, so let them, by and large, get on with it. Maybe somebody will object; they have 28 days. Don’t make it any longer because a lot of them might object; just give them 28 days. But by and large public authorities know what they are doing, so we want them just to get on with it”.
The Minister said that the SAU would not carry out its own assessment of compliance. Is that enough? It seems as though what it is going to do is extremely limited: it is just going to examine process. The Minister said:
“The SAU would be acting without the understanding and body of evidence that the public authority will have created in developing the subsidy”.
That is, the public authority will know more than the people who are checking the subsidy. Is that really the right way round? It seems to me a real Alice in Wonderland to call this control of subsidies, when those who have actually invented the subsidy and paid the money know more about it than the people who are regulating them—and this is admitted by the Minister at the same time. The Minister also said:
“There is no intention to build up an extensive monitoring function within my department or the CMA”.—[Official Report, 7/2/2022; cols. GC 383-4.]
Surely, that is exactly what we need. If we are talking about the control of subsidies, how can we have it without monitoring subsidies? That becomes even weaker when you consider what has been referred to again and again in Committee about the 28 days.
It seems to me that the SAU is far too weak for this really to be a Subsidy Control Bill; it ought to be renamed the “Support of Subsidies Bill”, because that is actually what it is. The reality of the Bill is that it is not attempting to control subsidies at all; it is just giving expression to the undertakings that the Government gave on Brexit in the TCA. I see the Minister smiling, although I shall not refer to that again. The Government gave assurances that were embodied in the TCA about not having subsidies that might distort competition with the European Union, so we have to have a control mechanism, and it is this Bill. But there is also a national interest in having proper competition and control of subsidies, and I do not think, frankly, that the Bill does that. It is far too weak. But having made my points and not persuaded the Minister, I look forward very much to the letter he is going to write to me explaining what he said. With that, I withdraw my amendment.
Baroness Bloomfield of Hinton Waldrist (Con)
On the specific point about agriculture, I do not know whether the letter addressing those points has been issued yet. I can say that 99.5% of subsidies given to the agriculture industry in the UK would not fall within the remit of the subsidy; they are lower. We do not have the data for Scotland or Wales, but it captures only the very largest subsidy given to the very largest farms. That may include some in Scotland with that sort of acreage—
Baroness Bloomfield of Hinton Waldrist (Con)
I hope that that addresses the noble Lord’s concerns.
Baroness Bloomfield of Hinton Waldrist (Con)
One of the noble Baroness’s concerns was that there was no overarching principle for the Government’s drive towards net zero. I think that the Environment Act provides the overarching context for whatever we are doing. As I say, the Office for Environmental Protection will also scrutinise the Government’s progress towards targets annually. I do not know what further level of granularity the noble Baroness wishes to apply.
Baroness Bloomfield of Hinton Waldrist (Con)
There is also the Climate Change Act, as my noble friend has just reminded me.
Lord Fox (LD)
My Lords, this is an interesting debate. I originally set out, as Committee stages are wont to do, to tease out some minor details and things from this legislation, but it is clear that there is a major philosophical point that needs to be established before the minor details can be filled in.
Perhaps the Minister can cast himself back to when he was at school. I am sure that he popped into the odd mathematics lesson. He may well have come across a thing called a Venn diagram. For those who missed that particular week, a Venn diagram is made up of a number of circles. The degree to which they intersect indicates the amount of common area that they have—and perhaps the Minister is beginning to understand the direction of travel.
The issue here is that the Minister is asserting that, when it comes to subsidies, essentially, the internal market Act and this Subsidy Control Bill are discrete circles—that is circles that barely intersect or do not do so at all. We have ministerial assertion, and then we have the words as written in Bills and Acts. My noble friend Lord Purvis carefully and usefully filleted the words from the internal market Act, which seem to indicate that there is a large element of common ground with respect to subsidies between these two circles—these two pieces of legislation. Therefore, it is not possible to unpick the words and aims of the internal market Act when talking about subsidies.
My noble friend set out some of the potential contradictions. I will be simpler, because I am a simpler person. Reading those two pieces of legislation, and looking at words rather than hearing the Minister’s assertions, it seems to me that the Scottish Government could design a subsidies scheme. The CMA and the SAU within it, using this Subsidy Control Bill as their guide, as my noble friend set out, would indicate that this scheme is allowable and that market distortions are only minimal, as the Bill allows. The scheme could therefore be launched. However, the OIM—the Office for the Internal Market—would then analyse that subsidies scheme and detect that there are indeed distortions, albeit minimal ones, in that market. This information would be passed to the Secretary of State, who could, quite properly, then withdraw that scheme or cause it to be withdrawn; that is what the words in that Act and this Bill say. So I am interested to understand from the Minister why this might not be the case.
A separate and slightly smaller issue is that, within the CMA, we have the OIM and the SAU. Will these two organisations be operated discretely? Will there be Chinese walls between them in that they will operate under different Acts? Will they operate off the same data, or will they have to get their data separately? Indeed, coming back to the question asked by the noble Lord, Lord German, will they share the same lawyers when push comes to shove?
We seem to have here two things that the Minister is trying to push apart but which the words bring closely together. The purpose of these amendments is to understand how the Minister can assert that these two worlds are separate when the words indicate quite the opposite.
Lord Callanan (Con)
First, I thank the noble Lords, Lord Purvis and Lord Fox, for their amendments. They seek to probe the interactions between the OIM and the Bill, as well as the functions of the CMA more generally; I will take them together. Seeing as we were all involved in the debate on the then internal market Bill, I am getting flashes of déjà vu with all the different acronyms, such as the OIM and the SAU. Perhaps it is a Venn diagram, as the noble Lord, Lord Fox, indicated, but I will set out the position and, hopefully, resolve it.
Lord Purvis of Tweed (LD)
I have been following the Minister’s line of argument, but I do not think that it comes to the same conclusion. Under UKIM, a provision that is a subsidy scheme is not permitted under the non-discrimination principle, taking into account
“the circumstances or manner in which the goods are sold … by whom, to whom, or the price or other terms on which they may be sold”.
It is prohibited under the market access principles on non-discrimination. The Minister is saying that it is permitted under this Bill, because a measure would absolutely affect the price of the goods under the principles in the schedule. I am just wondering why a subsidy is not considered as a provision under the internal market Act, because they are prohibited under the non-discrimination principles.
Lord Callanan (Con)
The United Kingdom Internal Market Act applies only to certain regulatory provisions, and a subsidy scheme would not meet the necessary conditions required. This is a complicated legal area, and I suspect that the best way in which to advise the noble Lord would be for me to write to him with appropriate details.
Lord Purvis of Tweed (LD)
With respect, we are in Committee on a Bill and we are making law, and simply to say that this is a complex legal area is not correct. We are making law—and it is not convincing to say that these schemes would not be under the Act when there is nothing under the Act that says that they are not. You cannot just assert when we are making law, because we also want to make sure that these provisions are protected from challenge. As to anybody who thinks that this is not going to be open to challenge, because it provides assistance for the certain price of certain goods in one area, it will be challenged under the internal market Act, because it is discriminatory. Unless there is clear legislative protection that this is excluded from these measures, I am afraid that it comes back to the fact that this area is absolutely ripe for legal confusion.
Lord Callanan (Con)
The reason why I made that point clear to the noble Lord—and I understand the point that he is making—is to explain to him the legal advice that I have received from the lawyers responsible for this Bill. Clearly, the noble Lord has a different interpretation, but I have set it out in great detail, and the advice that I have received is that UKIM applies only to certain regulatory provision and a subsidy control scheme would not meet those necessary conditions. Clearly, there are differing views, and there are lots of esteemed lawyers in this room; that is the advice that I have received, and I am happy to go away and speak to the lawyers to get the noble Lord more detailed advice, but I can go no further than to give him the advice that we have received on these provisions.
I turn to Amendment 72. I stress to noble Lords, particularly to address the concerns of the noble Lord, Lord Wigley, that the CMA was chosen as the home of the subsidy advice unit precisely because of both the former’s experience protecting UK competition and its credibility with domestic and international stakeholders. The CMA is independent in its function and will carry out its duties as such, with equal regard and even-handedness towards all four Governments of the United Kingdom. Earlier, my noble friend Lady Bloomfield went into more detail on the different territorial offices of the CMA that already exist and on the way it carries out its functions across all the parts of our nation.
While a similarly drafted clause is included in Section 31(4) of the UKIM Act, I question how appropriate it would be to replicate that provision here. The provision in Section 31(4) reflects the unique relationship between the UK Government and the devolved Governments in ensuring the proper functioning of the internal market and their responsibilities for delivering regulatory provisions for each part of the United Kingdom.
However, a great number of public authorities will be responsible for designing subsidies and schemes that are consistent with the subsidy control principles. Of course, the devolved Administrations have an important constitutional status and a unique role in working with the UK Government on ongoing policy development for subsidy control. But subsidy control is a reserved policy and is not an ongoing legislative architecture for co-ordination between the four parts of the UK. I appreciate the devolved Administrations do not agree with that fact, but it was legislated for under the UKIM Act. I therefore request that the noble Lord withdraws his amendment.
Lord Purvis of Tweed (LD)
I am grateful to the Minister for his reply, but I am also grateful to my noble friend Lord Fox, the noble Lord, Lord Wigley, and the noble Baroness, Lady Blake, for their contributions on this. I am quite happy that we have explored this further. The Minister took the point—I do not think this is legal pedantry—that when it comes to the reality of when subsidies start to be issued, for those seeking to challenge or those aggrieved, this must be watertight. Therefore, I am grateful to the Minister for offering further discussions on this. I understand that his office has been in touch in seeking to organise a meeting, and I am grateful for that. He fully knows now that he will need to be prepared and bring his lawyer along to that meeting to assuage some of the concerns.
I am not entirely convinced that the requirement to act even-handedly goes, because there will be more bodies to act even-handedly towards. I do not think acting even-handedly is a zero-sum thing, given that an even-handed nature is in the internal market Act but not in how it operates as a whole, because that Act and the subsidy control regime are both reserved issues. It jars that, when it comes to the CMA carrying out its functions, it has to act even-handedly in considering the operation of the internal market, but that requirement is absent when it is considering the distortion of competition.
In the meantime, and in looking forward to the meeting with the Minister to reflect on this further, I beg leave to withdraw Amendment 66.
Lord McNicol of West Kilbride (Lab)
We welcome the tabling of these two amendments, which move us on from the composition and core investigatory powers of the CMA towards enforcement or, to use the word of the noble and learned Lord, Lord Hope, “guidance” of subsidy decisions, via the Competition Appeal Tribunal. The two amendments in this group aim to achieve similar things but by different means.
In relation to Amendment 67 from the noble and learned Lord, Lord Thomas of Cwmgiedd, the CMA would have the option to refer matters to the CAT. That is a sensible proposition, and we are more than happy to support it. It seems counterintuitive to have a body tasked with investigating or looking at whether due process was followed when the subsidy was awarded, only for a separate person or entity to be left to initiate enforcement proceedings. Even if an interested party were to use the SAU’s output as a basis for referring the matter to the CAT, how much weight does the Minister think such a report would carry? As an entirely separate entity, would it be reasonable for the CAT to disregard or override any of the SAU’s findings?
Amendment 71 from the noble Lord, Lord Fox, takes a slightly different approach. It gives the CAT the powers to pre-emptively investigate subsidies if it believes that an award is not consistent with the principles of the Bill. I am more than happy to support this amendment. Whichever approach is taken, it is clear that all involved need greater clarity on how disputes will play out. I will not repeat the points made by the noble Lord, Lord Lamont, but independent enforcement will bring clearer and better oversight to the Bill.
Lord Callanan (Con)
I thank the noble and learned Lord, Lord Thomas, and my noble friend Lord Lamont for tabling Amendment 67. I also thank them and the noble Lord, Lord Fox, for Amendment 71. Before addressing the two amendments in turn, I will offer some context. We have discussed at length the conception of the new domestic control regime as envisaged by the Government. We have heard criticism to the effect that the regime is, in the view of the protagonists, lacking in robust enforcement.
Of course, international comparisons are somewhat beside the point for our UK-specific approach. It is worth while bearing in mind, though, that the mere fact of establishing a coherent regime for the purposes of subsidy control would place the UK somewhere near the top of the list of the most comprehensive subsidy control regimes. Outside the European Union, no other international partner or competitor will enjoy such a comprehensive and transparent approach to the regulation of subsidies.
Lord Lamont of Lerwick (Con)
Is the reason for that not that the EU insisted on it, and that is why the Bill is being brought forward—not to be effective but to strike agreement with the EU?
Lord Callanan (Con)
This legislation was predicated in the TCA, as my noble friend points out. We are of course meeting our obligations. One of the purposes of this legislation is to meet our international obligations, not just under the TCA but with other trade agreements that we might strike as well.
In our view, an interventionist regulatory role is not necessary for the effective scrutiny of subsidies and would be detrimental to the smooth development and deployment of subsidies where they are needed. I have confidence that public authorities will take their statutory obligations under this regime very seriously and, in fulfilling those obligations, public authorities will be supported by comprehensive guidance. As a result, I do not anticipate that breaches will be by any means a common occurrence. My noble friend referred to the EU state aid regime, which is a different system, but it is revealing of public authorities’ attitudes to their obligations that since 1999, the European Commission has ordered UK public authorities to recover aid on only four occasions.
Lord McNicol of West Kilbride (Lab)
That is because those systems are fundamentally different. The EU state aid system was a pre-authorisation, not a post-investigation or oversight. It is not comparing apples with apples, because of how the systems operate.
Lord Callanan (Con)
I said that it was a different regime but was pointing out the number of times that subsidy has been recovered since 1999. My point is that it is not a frequent occurrence. I totally accept that it is a different system and that they are different regimes, but it served as an example of the behaviour of UK public authorities.
In the event of such breaches occurring, a private person asking the court to review the legality of a public authority’s action is a well-established route for ensuring that those authorities do not exceed their powers or act irrationally, and for preserving the rights of the individual against the state. Indeed, it is the normal way for challenging the actions of public authorities, and that is why we have broadly replicated the judicial review process in this Bill, with some subsidy-specific adjustments and additions. I know that noble Lords sitting at the back will be much more familiar with that regime than I am.
Today and in other Committee sessions, your Lordships have asked, in the absence of an enforcer—I will not attempt to repeat my noble friend Lord Lamont’s Latin experience—who will challenge subsidies and how a potential interested party will know about a subsidy that may affect their interests.
The subsidy control requirements are not a regulatory abstraction; they are there to prevent unnecessary distortions of competition. Where a public authority has failed to assess a subsidy against the principles, there is likely to be harm. Anyone whose interests may be affected by the subsidy, be they individuals, businesses or other public authorities, including the devolved Administrations, they have standing to challenge it. The people best placed to decide whether to bring a challenge are those who are actually operating in the relevant sector and area.
Transparency declarations will provide enough information for people to assess whether their interests may be affected by a subsidy. I once again underline that every subsidy or scheme that is in scope of the main subsidy control requirements and that may be challenged in the Competition Appeal Tribunal is also subject to the subsidy control transparency requirements, with the exception of certain SPEI subsidies, as we debated the other day. For those subsidies that present a greater risk to the market, or where the public authority is less sure of its assessment, the CMA reports will provide further information still.
On the point made by the noble and learned Lord, Lord Thomas, about the costs of pursuing a challenge, in practice an interested party is likely to take legal advice before deciding to ask for a review of a subsidy, and of course that will incur costs. However, as with other kinds of legal proceedings, the CAT can award costs to whichever party is successful. The pre-action information request process will be an important opportunity for a potential interested party to find out more about a subsidy and make a decision about whether to proceed with a challenge, and then to make a decision informed by the likelihood of success, most likely following advice.
I turn to Amendment 67 from the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Lamont, and I return to some of the arguments that I made in respect of the grouping we finished at the beginning of this afternoon’s session. The subsidy advice unit is an advisory body; it is intended to advise public authorities on the most potentially distortive subsidies and, by doing so, to provide a measure of additional scrutiny and transparency to the benefit of interested parties and, ultimately, the public at large. Ultimately, the SAU will shine a light on the underlying assumptions that have led to the development of a subsidy or scheme. It is for the public authority to exercise its own judgment with respect to that information. I have confidence that public authorities will take their responsibilities under this regime seriously and, where the CMA has issued a report, the public authority will give appropriate weight to the CMA’s conclusions.
In response to the question from the noble Lord, Lord McNicol, about the purpose of SAU reports, they will provide a public indication of the quality of a public authority’s assessment. It is in a public authority’s best interests to demonstrate that they have properly considered the potential distortive impacts of a proposed subsidy or scheme, and that offering such a measure is justified and proportionate to the policy problem that they are trying to address. Should a public authority fail to take proper account of the CMA’s conclusions, the report means there will be a significant amount of information about the subsidy in the public domain, beyond what would already have been required by the transparency database. Interested parties will therefore be all the more able to assess whether the subsidy may affect their interests, and of course to mount a challenge if they so wish. There may be a difference of opinion on this, but I am afraid that I just do not agree that there should be a role for the CMA in this.
In response to the Latin question of the noble Lord, Lord Lamont, about who will guard the guards themselves, I repeat that, assisted by guidance, which will help public authorities to understand their obligation—I have cited the example of a number of repayments previously—I think we can expect a high level of compliance with the regime. As the noble and learned Lord, Lord Hope, observed, the Competition Appeal Tribunal will build up a body of case law which will then be an important additional source of guidance for public authorities.
As I said to the Committee on Monday, of course I hope that no UK government subsidies would require referral, but Ministers intend to be open-minded to calling in a UK government subsidy for SAU scrutiny where that is requested by another public authority or considered desirable for other reasons. Furthermore, where necessary, the Secretary of State has the ability to refer subsidies to the Competition Appeal Tribunal. However, I would be surprised and disappointed if he or she had to challenge a subsidy made by a UK government department, but he or she could certainly do so if they felt that a subsidy risked competition and investment within the UK or compliance with the UK’s international obligations.
I turn now to Amendment 71, tabled by the noble Lords, Lord Fox and Lord Lamont, and the noble and learned Lord, Lord Thomas. This would have the Competition Appeal Tribunal refer specific subsidies to itself for decision. I would submit that that is highly unusual and would potentially compromise the CAT’s neutrality. Of course, there are practical objections to this amendment as well. As with all courts, the tribunal’s expertise, resourcing and premises are equipped for hearing cases, not for gumshoe investigatory work. I do not think that the noble Lords are really suggesting that this should be the case.
Lord Thomas of Cwmgiedd (CB)
I have one question for the Minister on the hard economics of recovery of damages. Will there be recovery of damages against authorities that give subsidies wrongly? Secondly, has any estimate been made about the likely recoveries?
Lord Callanan (Con)
Yes, of course, they would be able to recover damages if a party had suffered a loss. I do not think that we have any estimates of likely figures at this stage but, if we have them, I shall certainly share them with the noble and learned Lord.
Lord Thomas of Cwmgiedd (CB)
My Lords, I thank all noble Lords who has taken part in this debate. If we are embarking on a new regime, we must make certain that it is effective—not because of whatever the EU says but for the good of our own nation and economy. Without an effective regime, this will not work.
We have taken different approaches—and I am extremely grateful to all who supported this amendment. The noble Lord, Lord Lamont, took the point of principle: who is going to look after those who make the decisions, particularly the Government? Who is going to refer them? Litigating against a Government, who have a bottomless pit, is very difficult—and, of course, there are political considerations against doing so.
The noble Lord, Lord Fox, asked what sort of regime this was, and whether there was a regulator. Whatever the Minister might say, the CMA is a kind of regulator in the market—unless the Minister is to say that there is no regulation at all. But this is law, so someone must have to enforce it.
Then there is the problem that I have referred to, of hard economic reality. Is it realistic to accept private enforcements? The benefits have been shown by the noble and learned Lord, Lord Hope: that we really need a body of case law to strengthen the regime, and the importance of that will become apparent later.
For all those reasons, I am afraid that I am one of those whom the Minister has not managed to persuade, but I do not think that he thought he had. But I beg leave to withdraw the amendment.
Lord McNicol of West Kilbride (Lab)
I have very little to add; it has been covered comprehensively. I was happy and pleased to add my name to Amendment 69.
We have talked a lot about equity and balance, and the final group of amendments probably has even more of the issues raised in it so, rather than repeat everything that has been said, I am more than happy to endorse it. We will then pick up the final issues around engagement and involvement with the devolved authorities and central government in the final group.
Lord Callanan (Con)
My Lords, before I speak to the detail of these amendments, this is perhaps a good opportunity to update the Committee on our progress in seeking legislative consent for the Bill, as we promised in our first Committee session on 31 January.
These amendments, and a number of others we have debated, touch on the UK-wide and devolved aspects of the Bill. As we have discussed on numerous occasions, subsidy control is reserved, but there are clauses in the Bill that alter the executive competence of the devolved Administrations. From the very beginning, the UK Government, at both ministerial and official level, have worked closely and extensively with the devolved Administrations in designing the new subsidy control regime. We have worked to secure their support for LCMs for the Bill. I pay tribute to my officials and those in the devolved Administrations for their ongoing efforts in this space.
Our strong preference remains to secure legislative consent, and we will keep all avenues open to achieve this and to remedy the significant concerns of the devolved Administrations. Of course, we also want to ensure the operability of the new regime. Negotiations are still in progress, but I assure noble Lords that I will keep the House updated at the earliest opportunity, without prejudicing the content of those negotiations. I also assure the Committee that, should any amendments be necessary to reflect the outcome of those negotiations, we will table them as soon as possible prior to Report to enable your Lordships’ House to consider and scrutinise them with sufficient time.
Lord Purvis of Tweed (LD)
I am grateful for that “no progress” update from the Minister. With regard to the current situation in Northern Ireland, including the suspension of the Assembly and the resignation of the FM/DFM, can the Minister state whether any of this legislation will be implemented in Northern Ireland during this suspension?
Lord Callanan (Con)
The legislation is UK-wide so it will apply in Northern Ireland but, clearly, the absence of the Assembly will make it extremely challenging to get the Executive’s consent. However, we certainly will continue to engage with officials.
I want to give some context on all the engagement we have done. Since July 2020, BEIS Ministers and officials have had 75 meetings in total with their counterparts in the devolved Administrations. These are not just talking shops, as has been implied, but sessions of meaningful engagement. For example, our engagement has included sharing draft objectives and building-blocks for the new subsidy control regime; sharing both the Government’s consultation and the consultation response ahead of publication; and sharing our illustrative guidance and regulations in advance of publication, as well as continued engagement as this Bill passes through Parliament. This engagement will need to continue as the regime is implemented. In fact, at this very moment, officials are working with their counterparts on a memorandum of understanding that formally sets out a mutually agreed process for engagement on the crucial next phase of policy development and implementation.
Moving back to the detail of the amendments before us, I will start with Amendment 69. Again, I thank the noble and learned Lord, Lord Thomas of Cwmgiedd, for moving the amendment, which is supported by a number of noble Lords. It would give the devolved Administrations the ability to challenge any subsidy in the Competition Appeal Tribunal, whether their interests have been affected or not. As was confirmed at the Dispatch Box in the other place, the devolved Administrations—or, indeed, any other public authority —will generally be able to apply to the CAT to review a subsidy decision where the interests of people in the areas in which they exercise their responsibilities may be affected by that subsidy. This would be a good opportunity to correct what I said on Monday: this is not exactly the same position as the Secretary of State.
The fact that the devolved Administrations are not named in this clause is by no means intended to exclude them or any other party whose interests may genuinely be affected by the granting of a subsidy. Clearly there will be limits, and the interests of the devolved Administration or local authority in a particular subsidy cannot be totally tenuous. However, the broad definition in the Bill gives the CAT maximum discretion so that, whatever the facts of the case might be, it can deem the right people as interested parties.
The reason why the Secretary of State has universal standing to challenge a subsidy, in contrast to the devolved Administrations and local authorities, is that he or she—whoever occupies that office—is responsible for the overall operation of the subsidy control regime and, as I keep saying, for the UK’s compliance with our international agreements in this reserved policy area. Neither of those reasons apply to the devolved Administrations or local authorities. It is wrong to suggest, as some noble Lords have suggested previously, that simply because the devolved Administrations exist, the Secretary of State’s horizons and duty of care are limited only to England.
It is also worth mentioning that the Government expect that the Secretary of State would use this ability only in exceptional circumstances where, in his or her view, a subsidy threatens the whole integrity of the subsidy control framework or our compliance with international agreements. It would be inappropriate to legislate that the devolved Administrations are an interested party in all cases, implying that the Secretary of State does not carry out his or her role as the responsible Minister for the subsidy control regime for everyone in all parts of the United Kingdom.
I turn now to Amendment 79, tabled by the noble Lords, Lord German and Lord Wigley. I am glad that the noble Lords referred to the recommendations of the Review of Intergovernmental Relations through the amendment. The UK Government take these co-operation mechanisms with the devolved Administrations, as set out under this review, very seriously, and we are always open to ways of strengthening these relationships. We are open to using the intergovernmental relations structures to resolve any disputes, in accordance with the IGR principles. That said, this amendment would in effect bypass a number of earlier stages in the dispute resolution process, which has already been agreed between the UK Government and all devolved Administrations. Escalation to the Council is the last resort. As I mentioned on Monday, we are also working closely with the DAs to establish a formal process for raising case-specific concerns with the department once the regime is up and running.
Let me also stress that there is no need to incorporate this provision into the Bill for disputes to be able to come under the IGR structures. Moreover, I do not anticipate that there will be any great need to refer matters of interpretation to those structures. It is important to bear in mind that there is of course a distinction between case-specific dispute, which is a matter of legality, and a public authority’s compliance with its legal obligations, for which the proper place to resolve such disputes is ultimately the CAT and a dispute or discussion between Governments on their roles and responsibilities.
There is little scope for that type of confusion over the roles and responsibilities of the UK Government on one hand and the devolved Administrations on the other in this regime. The Secretary of State for Business has responsibility for the overall operation of the regime and the UK’s compliance with its international agreements. The UK Government may also create streamlined routes to encourage subsidies that further their strategic priorities. In all other respects, UK government departments and the Secretary of State himself are in the same position as the devolved Administrations. They are public authorities within the scope of the Bill. UK government departments are treated in exactly the same way as any other public authority. All public authorities are similarly subject to the Bill and empowered by it.
As I said earlier, my officials continue to have a regular set of meetings with their DA counterparts on all subsidy control matters; these will continue, along with regular ministerial engagement. Where there is a need for dispute resolution, that dispute will come into the ambit of the agreed intergovernmental relations process.
I recognise the strength of feeling in relation to Amendment 69 in the name of the noble and learned, Lord Thomas, but I simply do not agree that either that amendment or the other would be a necessary or useful addition to the Bill. Therefore, with respect, I urge the noble and learned Lord to withdraw his amendment.
Lord Thomas of Cwmgiedd (CB)
I thank all noble Lords who have spoken in this short debate; I do not want to lengthen it with a long reply. I will say only one thing. The Minister has not really answered my noble and learned friend Lord Hope’s question as to the meaning of “aggrieved”. It seems to me that one area in which the devolved Administration may wish to get involved is where a decision is made that does not directly affect their interests but they feel that the decision is wrong in principle and may set a bad precedent. It is that reason—their interest as Governments in upholding the rule of law and the operation of this—that I do not believe was answered by the Minister’s statement, but I will read it carefully. In the meantime, I beg leave to withdraw my amendment.
Lord Berkeley (Lab)
I intervene briefly to strongly support my noble friend’s amendment and other noble Lords’ comments. One solution that the Minister might be tempted to suggest is to allow them to get it in within a month but add more documentation later. That would be easy.
I refer the Committee to the proposed new rule 98A(7) of the Competition Appeal Tribunal Rules:
“The Tribunal may not extend the time limits provided for in this rule unless it is satisfied that the circumstances are exceptional.”
Probably none of the things that noble Lords mentioned would be classed as exceptional, which confirms that one month is hopelessly short. I very much support three months or even longer, if anyone has a better idea.
Lord Callanan (Con)
My Lords, I thank the noble lord, Lord McNicol for this amendment, and the noble Baroness, Lady Blake, for speaking to it. I also thank the contributions of other noble Lords—and the noble Lords, Lord Fox and Lord Lamont, reflected on this issue during the Monday’s session.
An interested party, which is anyone whose interests are affected by the subsidy, may apply to the Competition Appeal Tribunal for a review of the subsidy within one month of the subsidy’s upload to the transparency database, if there has been a post-award referral to the CMA within one month of that report, or if a pre-action information request has been made within one month of the response to this request. The limit has been set at one month so that we can give legal certainty to public authorities and subsidy beneficiaries as swiftly as possible. It is important to avoid creating such prolonged uncertainty that it acts as a brake on legitimate subsidies.
We must also ensure that interested parties have sufficient time to consider a subsidy before asking the CAT to review it. That is just what this Bill does. An interested party, perhaps a competitor who is thinking of approaching the CAT to review a subsidy, can make a pre-action information request to a public authority. The limitation period is then extended until one month after the public authority has responded. Since the pre-action information request gives the public authority up to 28 days to respond, in practice, the limitation period can run for two or three months after the publication of the subsidy or scheme on this database.
Lord McNicol of West Kilbride (Lab)
If the argument is that we are only giving one month to raise a complaint or to look into this, why are the uploading timeframes six months and/or one year? If the Government want to create legal certainty for the organisation that is giving the subsidy, surely, as the noble Lord, Lord Lamont said on Monday, what is good for the goose is good for the gander. If they want that legal certainly, deliver that within the one month in terms of the upload to the database. Then there is parity and legal certainty.
Lord Callanan (Con)
As the noble Lord, Lord McNicol suggested, we explored this point fully last week. There are good reasons for it. If it is a tax subsidy, the full amount might not be clear. It might be variable, based on a number of different reasons, and the fact of giving a subsidy may well be published in other transparency obligations that local authorities or the devolved Administrations already have. However, I understand the noble Lord’s point.
In response to the noble Baroness, Lady Blake, Clause 71 also makes it clear that in exceptional circumstances, the tribunal may extend the time limits for bringing a challenge. This amendment would extend the general window for bringing a challenge from one month to three months, which is too long. It is longer than the challenge periods available in other areas where business decisions are dependent on the decisions of public bodies, such as procurement and planning decisions, where the limitation periods are 30 days and six weeks, respectively. In those areas, the harmful effects of prolonged uncertainty have been recognised through the shorter challenge periods available. The same reasoning applies in the subsidy control context. If the general limitation period for challenging subsidy decisions was extended to three months, as this amendment proposes, public authorities and subsidy beneficiaries could in practice have to wait as long as five months before having reasonable legal certainty about a subsidy that they have granted.
There is a risk that this could have a chilling effect, not only on the giving of subsidies but on the timely use of them by beneficiaries. For example, a subsidy could take the form of a loan guarantee for a capital investment, such as buying new machinery. Your Lordships will appreciate that some beneficiaries may be reluctant to go ahead with purchasing that machinery for as long as there is a possibility that the subsidy decision could be quashed and a recovery order made.
The noble Baroness, Lady Blake, and the noble Lord, Lord McNicol, asked how the Government can justify giving public authorities six months to fulfil their transparency obligations but providing interested parties only one month to challenge a subsidy. I recognise the strength of feeling on the length of time on the transparency deadline and how this compares with the limitation period. During Monday’s Committee, I set out the reasons why the deadline is set at six months: it allows for better-quality data where subsidies are based on an estimate, and it gives public authorities greater ability to upload their subsidies in bulk, and therefore to reduce administrative burden.
Lord Fox (LD)
I am interested in this concept of a chilling effect. What evidence is there for that, and what consultation has there been? There may or may not be a chilling effect. It seems like more of an idea than a practical reality. I have a suggestion that might help. The Bill could start out with a longer reporting time—perhaps 60 days, or something along those lines—and the evidence, or otherwise, of a chilling effect could be gathered. If necessary, and if the reality of a chilling effect actually emerges, the Government could come back and reduce that period by statutory instrument.
Lord Callanan (Con)
I think that is the first time the Liberal Democrats have proposed giving the Government more secondary legislation powers, but I understand the noble Lord’s point. As I said, I have heard the strength of opinion on both sides of the Committee and will reflect further on this matter.
Baroness Blake of Leeds (Lab)
I thank the Minister for those final comments, which I think are a measure of the contributions we have heard tonight and the strength of feeling on this issue around the Room. My noble friend Lord Chandos really put his finger on it. He is absolutely right that the unreasonableness of this time limit will lead to people putting in appeals just in case more information comes to light. That is a very real proposition.
The case against the one-month limit has been very well made. I thank the noble Baroness, Lady Randerson, for her insight into rural areas and the aspect of holidays, and the noble Baroness, Lady Altmann, for highlighting the real aspect of it being challenging and unachievable. There are so many elements in this that need to be taken away. I thank noble Lords for listening to the arguments that have been made with this amendment today and over a period of time. With those comments, I beg leave to withdraw the amendment.
Lord Callanan
(2) Nothing in this Act applies to the giving of any such assistance, or to the making of any such schemes, except so far as provided for by that Schedule.”Member’s explanatory statement
This amendment clarifies that the subsidy control requirements under the Bill apply in the case of financial assistance provided directly by primary legislation only so far as provided for by Schedule 3 to the Bill.
Lord McNicol of West Kilbride (Lab)
My Lords, I think we have a hard stop in 20 minutes, so I will be very brief. I am grateful to noble Lords who put down amendments in this group, including the Minister; I hope there will be lots more to come from the Minister. My Amendment 75 has been signed by the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord German and Lord Wigley, and I appreciate their support on this, as well as in the debates on many other devolution-focused amendments.
I was going to say, judging by the previous responses on the devolved authority amendments, that I did not think we would hear much change, but actually the Minister’s response to the last debate was heartening, so hopefully this amendment regarding the devolved authorities will receive the same response. I will leave it there. As we finish Committee, I note that the comments made in the DPRRC report were very telling, and I look forward to discussions with the Minister and officials between now and Report. I hope that we can address some of the DPRRC’s concerns.
Lord Callanan (Con)
My Lords, I am pleased to say that we are now on the final group of amendments. I have made it through thanks to the supply of copious quantities of cough lozenges, so I thank Ruth for those.
I first thank the noble Lord, Lord German, for tabling Amendment 74, the noble and learned Lord, Lord Thomas of Cwmgiedd—
Lord Callanan (Con)
I have had some expert advice from the Whips here. I thank the noble Lords for Amendments 73A, 74A and 74B, the noble Lord, Lord McNicol, for Amendment 75, and the noble Lord, Lord Berkeley, for his fascinating Amendment 80, which I will come to.
Amendment 73 is my amendment, the government amendment to Clause 78. This is a minor and technical amendment that will provide greater clarity in the Bill as drafted. It clarifies that the provisions in Schedule 3 to the Bill are to apply to subsidies in devolved primary legislation and primary legislation made by this Parliament. This is because the word “subsidy” is defined as something given by a public authority excluding a legislature. Nothing else is added into scope by this amendment; it simply makes absolutely clear how the provisions in Schedule 3 apply, for the avoidance of any doubt.
Secondly, the amendment makes it clear that it is only the provisions in Schedule 3 that apply to primary legislation made by this Parliament and devolved legislation, and not other provisions of the Bill. Again, this does not make any amendments to the substance of the Bill but just provides clarification.
Amendment 73A was tabled by the noble and learned Lord, Lord Thomas of Cwmgiedd, who wishes to probe the purposes of Schedule 3 with regard to the devolved Administrations. Clause 78 applies the provisions in the Bill to subsidies made by means of primary legislation, as set out in Schedule 3. Because of the specific nature of these subsidies, the obligations on those responsible for them need to be set out separately. To respond to the concerns of the noble and learned Lord, I will set out my belief that Schedule 3 as a whole ensures that the subsidy control regime will be comprehensive and robust, while at the same time taking into account the UK’s fairly unique constitutional make-up.
Lord Callanan (Con)
It’s interesting stuff, this. I suspect that the noble Lord, Lord Berkeley, is not going to get an invitation to an investiture.
Anyway, the ownership of the Duchy of Cornwall is a private matter. Where the Duchy operates on a commercial basis, depending on the specific facts at hand, it may meet the definition of an enterprise in Clause 7; lawyers have had fun drafting this. None the less, and importantly, the Duke’s relationship with the Duchy as its owner is not the exercise of functions of a public nature. It therefore falls outside the scope of the Bill.
To close, I hope that, with the explanations I have been able to provide, noble Lords will feel able not to move their amendments and to accept my Amendments 73 and 76. As we have now reached the end of the final grouping of amendments, marking the end of Committee, I express my sincere thanks to all noble Lords who have taken an interest for their thoughtful, insightful and probing discussions on this important Bill. Lastly, I thank the team of officials who have supported us in so doing. I can give an assurance that my department and I will of course reflect closely on all the points made by noble Lords, and I look forward to further engagement in advance of Report.
Lord Callanan
“(7) The requirement in subsection (5) may be met by consultation carried out before this section comes into force.”Member’s explanatory statement
This amendment ensures that the requirement in Clause 79(5) to consult on the guidance issued under Clause 79 may be met by consultation on the guidance carried out before the Act comes into force.
Lord Callanan
“(e) provision in regulations or schemes made under this Act.”Member’s explanatory statement
This amendment ensures that regulations made under Clause 82 may make provision about how the gross cash amount and the gross cash equivalent amount are to be determined for the purposes of regulations or schemes made under the Act.