State Aid (EU Exit) Regulations 2019

Baroness McIntosh of Pickering Excerpts

Thursday 14th March 2019 Lords Chamber

Finally, who has the power to set the framework under which the state aid is to operate? I have already mentioned that variable limits exist across the EU at the moment. There is no absolute limit on what you can spend. There are general rules. These are all matters which should surely have political rather than administrative control. Where will that lie? As I understand it, Parliament will not have a role in this. This matter is being devolved solely to the Secretary of State, who can issue guidance on what is or is not state aid. That surely needs some further check. I beg to move.

[Baroness McIntosh of Pickering (Con)]

My Lords, I welcome the opportunity to discuss these two statutory instruments and I welcome the opportunity of the amendments that have been tabled to press the Government. I shall take each in turn. I remind the House that as a very young person I spent six months working as a stagiaire in DG IV, as it then was—it is now DG COMP—of the European Commission, where we looked at measures to prevent the distortion of competition, such as state aid.

I shall press my noble friend on whether and at what stage the Government will come forward with their policy on state aid post Brexit. We do not yet know what our own destination will be. It is quite possible that we will end up remaining or applying to join the EEA and EFTA, which have a competition regime very similar to that of the European Union. If that were the case and we ended up with a sort of Norway-plus EEA/EFTA-style arrangement, would the House have to revisit the statutory instrument in that regard, and would other changes have to be made?

I cannot remember which Government were in power at the time but it is worthy of note that the United Kingdom was effectively the author of the original Articles 85, 86 and, I think, 92, which relate specifically to state aid. The noble Lord, Lord Stevenson, raised in particular the question of the Irish border. Obviously, that will have an impact, particularly in relation to the block exemption on agriculture but also to any subsidies for other products that may be deemed to be a distortion of trade. A no-deal Brexit is still a potential prospect, so what consideration has been given to the World Trade Organization rules that will apply to subsidies? If the answer is in this rather long SI, perhaps the Minister could refer us to it. That would be immensely helpful.

I now turn to the European structural and investment funds regulations. Yesterday we had a debate on the rural development agricultural fund and a short debate on the maritime and fisheries fund, and this debate on structural funds is not dissimilar. I do not know whether the investment funds cover Horizon 2020. Perhaps the Minister could confirm my understanding that it is the Government’s desire to continue to participate in projects such as Horizon 2020. It would be immensely helpful to know that.

I should like to place on record—I know that the noble Baroness, Lady Crawley, will remember this only too well from her time in the European Parliament— that we have benefited from a European Social Fund programme targeted at new opportunities for women returning to work, and there are other specific projects as well. This is something that for some reason the UK Conservative Government would never embrace: targeting and giving assistance, through funding, to workers in their 50s or older who perhaps need training before they feel confident enough to return to the employment market. I see the noble Baroness, Lady Quin, in her place. She too will remember that great training schemes were made available for youth employment, although obviously they were not that helpful. When one sees the level of youth unemployment in countries such as Spain, it is clear that these projects are never as well funded as they could be.

Therefore, can the Minister say what criteria will be used, what projects and beneficiaries might be identified, and what sums will be made available? My specific question relates to paragraph 7.5 of the Explanatory Memorandum to the structural funds regulations, which says:

“To this end, HM Government funding guarantee ensures that, in the event of a No Deal, HM Treasury will underwrite sums that would have otherwise been received from the European Commission”.


I would like to pin the Minister down. Am I correct in understanding that we will have matched funding replaced by additional government funds, and am I right in assuming that HM Treasury’s largesse will know no limits? That is a very big ask because, if we have been allocated £8.4 billion of funding under structural funds for 2014 to 2020, there will be a remaining period until the end of that time is reached. So I should like clarification that the matched funding will be made good by Her Majesty’s Treasury for the projects that are outstanding for that period.

Finally, I will follow up on a point raised by my noble friend the Minister in his introduction, when he said that this was something to which we might return. The point was highlighted by the House of Lords Secondary Legislation Scrutiny Committee Sub-Committee B, in paragraph 42 of its report. The Government have decided not to replicate the current power granted by the European Council, which the Secretary of State could assume in the right circumstances. Will my noble friend set out the circumstances in which the Government might seek to appropriate those powers? Would it be a statutory instrument that he would intend to assume? Will he explain to the House and satisfy Sub-Committee B that there is sufficient flexibility in the statutory instrument to override any need for the Secretary of State to have the final say?

[Lord Fox (LD)]

My Lords, in the event that the proposition put prior to this debate by the noble Lord, Lord Adonis, comes to pass, and this SI is not needed, my time will not have been wasted: a more cogent seminar on state aid I could not have asked for than the one I have just received from the noble Lord, Lord Stevenson. I am grateful to him for placing these amendments before your Lordships’ House as this is an issue that requires greater clarity; I associate myself with the questions put by the noble Baroness, Lady McIntosh.

My remarks will be less structured than those of the noble Lord, Lord Stevenson. Regarding the question he posed of what qualifies as state aid, I put before your Lordships my experience of working in the United States and where, for example, a company might be looking to establish a new facility. When considering where that facility might be located, the company speaks to the administrations of various states—this is literally state aid. It asks about the tax structure it would receive in that state, the training regimes that universities might deliver, the buildings and planning regulations that might be needed. All these things qualify as aid which may be offered to companies to locate in a particular place.

The United States would talk about not being a country that distorts the market. Yet the local market is heavily distorted by literally billions of dollars that different US states put in to attract businesses to their location. How does this future regime of state aid fit into that pattern? We have unitary authorities. My noble friend Lord Purvis is going to ask about the role of devolved authorities, but we already have a degree of devolution to unitary authorities in England. They are required to deliver local or regional industrial strategies; LEPs are being granted money to deliver them. How does this fit into a structured state aid programme?

We talked recently about Nissan, which received a secret letter from the Government reassuring the company that it should keep one of its models in the north of England—a large sum of money was secretly committed by the Government in that letter. I contend that that was state aid; whether it would be recognised internationally as state aid is another matter. But we have a dichotomy: there is aid that the state—through a central, local or devolved budget—can give to companies or individuals to help them flourish or locate to particular areas, but it may or may not qualify in terms of whatever international agreements we are under. The noble Baroness, Lady McIntosh, is right to say that, whether we are operating under an EEA, WTO or any other regime, this will become an important distinction. What work are the Government doing on distinguishing between these various forms of state aid?

--- Later in debate ---

I intend to make two final points—

[Baroness McIntosh of Pickering]

Could my noble friend confirm the match-funding aspect of what would have been paid by Brussels, and that the UK Government will pay not just what they would have paid in match funding, but the whole amount the Commission would have paid—effectively both parts of the fund?

[Lord Henley]

The noble Baroness is too fast for me. I had two final points, one of which was to deal with concerns about match funding and whether that guarantee would underwrite it. The guarantee will underwrite the funding previously received by the EU. Match funding will continue to be provided by existing match-funding providers, such as the National Lottery.

My noble friend also asked about our future participation in Horizon. All I can say at the moment is that decisions on future such EU programmes will come as part of the spending review.

I appreciate I have not answered all the questions that have been put to me, but I believe I have answered most of those that are directly relevant to the statutory instruments before us. I appreciate that the noble Lord, Lord Fox, would like—and will receive—a letter. That letter will set out more about the possibilities for the future, and I will write to the noble Lord, Lord Purvis, in greater detail about our possible disagreement on where responsibility lies.