Northern Ireland Protocol Bill

Debate between Lord Leigh of Hurley and Baroness McIntosh of Pickering

Committee stage
Wednesday 2nd November 2022 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, in the spirit of trying to help the Government, I will repeat what I said in relation to an earlier group of amendments: it would help the Committee, as well as the other place, if the Government could give us an indication of the type of regulations that they have in mind, so that we do not have this blanket provision before us today. There is still time to do that.

I will also ask a question of information. I understand that the “provision” to which the noble Lord, Lord Purvis, refers in removing it from this particular clause does not apply to agricultural subsidies. So, if it is the case that agricultural subsidies are still going to apply, who is in a position at the moment to decide on that, and within what timeframe would that be?

[Lord Leigh of Hurley (Con)]

My Lords, I have been looking at Clause 12 through a particular prism. As my entry in the register of interests discloses, I have a particular interest in financial services. I am also an investor in various enterprise investment and seed enterprise investment companies, which I will refer to as EIS and SEIS companies, and venture capital trusts. For those who are not aware, EIS schemes are those which allow UK investors to invest in UK companies and deduct the amount invested in those companies against their income tax at prescribed rates to encourage investment in private companies.

For some time, I have been frustrated that these truly excellent schemes have been hampered by restrictions. The schemes are hugely popular. EIS has helped some 66,000 companies in the UK in total, with some 3,755 companies raising over £1.5 billion last year alone. Since 2018, VCTs have made some 1,000 investments, raising £1.7 billion, of which 45% were less than £1 million. So I am very concerned by anything that threatens the existence of these schemes and am keen to find ways of enhancing their effectiveness. There are, however, restrictions and regulations reducing the opportunity for UK businesses to raise this vital small equity for essentially risky enterprises, and I have been concerned that these restrictions have in part been due to the requirements of EU state aid rules.

The enormous success of the EIS and VCT schemes is very much a British phenomenon and probably viewed with some mistrust by the EU, given our tremendous track record in starting and growing new UK businesses. In fact, most businessmen and investors I have spoken to are amazed to discover that it is governed by EU state aid rules. Fortunately, at the moment we have EU approval for the design of the EIS and VCT schemes under Article 107 of the Treaty on the Functioning of the European Union, and the smaller SEI schemes, due to their size, fall within Article 21 of the general block exemption regulation. However, as we decide how to plough our own path post Brexit, it is important that we are entirely free to create our own rules concerning subsidies that might amount to state aid—within, of course, the constraints of WTO and other commitments.

As mentioned by the noble Lord, Lord Purvis of Tweed, we now have our own Subsidy Control Act but, under the protocol, some EU state aid rules still apply. I can see the issue, namely that the EU is worried that a company based in Belfast has cheaper finance than a competitor in Dublin—but, frankly, that should be our choice and the choice of other countries to offer incentives to finance their businesses.

Why do we have this problem? As Andrew Harper helpfully wrote in the British Tax Review in autumn 2020, the two sides promote opposing perspectives: the EU very much promulgating its state aid regime on the basis of the level playing field and the UK adopting the subsidy language of the World Trade Organization. This is much more than a semantic or linguistic distinction. It is one of substance, both in the scope and the enforceability of the rules.

In these circumstances it appears sensible to point out the key issues that could arise. Without Clause 12 —and I am aware that there is a stand part debate following—first, the EIS and VCT schemes as they operate in Northern Ireland will presumably have to remain fully EU state aid compliant because of EIS companies and VCT investees based in the Province trading with the Irish Republic or the wider EU. Secondly, following from that, barring the UK Government being prepared to countenance two separate systems within the UK, the EIS and VCT schemes as they apply to England, Wales and Scotland will be difficult to modify.

Thirdly, if, post transition, these schemes were to diverge as between Northern Ireland and the rest of the UK, what is the position in the case of, say, an English EIS company raising scheme funding that would be in excess of that sanctioned by EU state aid rules? If that English company then sends its goods to Northern Ireland, where potentially they can be traded with the south or the rest of the EU, how will that be allowed to happen? It simply cannot make sense to exclude Clause 12.