Subsidy Control Bill

Lord Purvis of Tweed Excerpts

2nd reading
Wednesday 19th January 2022 Lords Chamber

[Lord Purvis of Tweed (LD)]

My Lords, we on these Benches support a legal system of state aid subsidy support, built on the principles of a sound industrial strategy, where there are identified areas of need and deprivation. The system should be transparent and linked with addressing the structural problems of our economy and the regions within it.

Between 2014 and 2020, the UK as a whole was allocated £4.3 billion a year of structural funds, ERDF funds and ESF funds. The Government’s Budget has stated that we will reach only £1.5 billion a year for the UK shared prosperity funds in 2024-25. Can the Minister say how that shortfall will be met? It is not as if we were renowned for having an expansive subsidy approach. The impact assessment had highlighted the fact that the UK was one of the lowest in expenditure on subsidies within the former 28. The impact assessment used the data from the EU scorecard. In the most recent year, the UK spent £8 billion—0.4% of GDP—compared to France, £16 billion or 0.8% of GDP, and Germany, £49 billion or 1.5% of GDP. Clearly, Germany, spending five times as much as we did, did not consider us a major straitjacket, burdensome and prescriptive, so why were we so low if it was not the fact that it was simply a government policy choice to be so low?

Interestingly, the Government’s impact assessment also said that, for the purposes of us scrutinising the Bill and for the purposes of costing impact, historic data on the volume and value of subsidies awarded in the UK has been used. So the Government, even as they present their Bill to us, are saying that there will not be any change of direction from that anyway. So what is their intention as far as the way forward is concerned? After the Internal Market Act, the Professional Qualifications Bill and now this Bill, we are legislating in limbo, with so many decisions deferred for future regulation and guidance and with a lack of clear information on how it will support structural investment. It simply is not good enough.

It is interesting that five years after the referendum, the Johnson Government are so uncertain what to do with their new powers that they do not even bring forward any schemes that accompany legislation. The noble Lord, Lord Frost, and I seem to have this confusion in common.

The deficiencies of this Bill were rather cruelly exposed within the first three minutes of the Secretary of State’s introduction at Second Reading in the Commons. A rather plaintive intervention by a Conservative Back-Bencher, on behalf of her constituency, which has a tradition in steel manufacturing, asked whether the coal and steel research fund worth €111 million, and from which the UK would have been able to benefit, would be ring-fenced equivalent for state aid support for research on decarbonisation in the UK. No guarantee was forthcoming. That is the essence of the point. The fact that we now have uncertainty and are reliant on the lack of clarity will be a concern for businesses.

The Minister gave us a number of assertions of the benefits of this new scheme, which are not backed up in the Government’s impact assessment. For example, paragraph 468 on the positive impacts for competition that the Minister mentioned, states:

“It is not possible or appropriate to produce a full competition assessment on such a broad policy change—potentially affecting a large number of subsidies and therefore markets.”


So it is not possible to work out the benefits. The Minister also referenced the Government’s impact assessment on trade, paragraph 474 of which states:

“It is not possible or appropriate to produce a full trade assessment”.


Paragraph 478 states:

“As there is still policy detail—yet to be decided—to follow in secondary legislation and guidance it is not possible or appropriate to provide further analysis on the potential trade impacts”.


On monitoring and evaluation, to get away from the approach that the Minister says is harming us so much, paragraph 481 states:

“As the final details of the policy are yet to be decided, or will follow in secondary legislation and guidance, it is not possible or appropriate to provide specific details on the plan for monitoring and evaluation at this stage”.


At what stage will we get this information? Is it the Government’s intention to bring another impact assessment forward, as they have done on market, competition, trade, monitoring and evaluation? These are fundamental for any new schemes.

Finally, Northern Ireland is an area of considerable concern. The Government have indicated, as the Minister said, that it is their intent that no part of this Bill will apply to Northern Ireland, but that is not in the Command Paper. Paragraph 68 of the Command Paper fully anticipates that European Union law will still apply to Northern Ireland. There will still be a situation where there is double jeopardy, where businesses trading in the UK will still have to comply with British-based schemes and EU schemes, especially when businesses are at risk. The Government’s guidance has told them that they should start having two sets of accounts, one for their business operations in Britain and one for their business operations in Northern Ireland. If they trade in Northern Ireland with a parent company in Britain, they will have to comply with both sets of rules. That is not what the Minister indicated.

Liz Truss, in her article in the Telegraph, said that it would no longer be appropriate to have any schemes where Britain would have to notify the European Union for any support for British businesses in Northern Ireland. That is still going to be the case, even if the Government succeed in getting everything they want in the Command Paper.

There are many other concerns of devolution and the fact that the Minister made no reference to agriculture or fisheries at all, which my noble friends will pick up in this debate. If anything is clear, even so far, it is that there are so many holes in this legislation that need to be filled during this scrutiny that we will have a long task ahead of us, especially for our colleagues in Northern Ireland, who will be faced with a continuing system of confusion, lack of clarity and uncertainty—the very things that the Minister promised we were moving away from.

--- Later in debate ---

[Lord Callanan (Con)]

I do not have a regional breakdown of the responses to the consultation, but this is a UK-wide system and regime. If there is a regional breakdown, I will certainly provide it to the noble Lord.

I will move on to answering the point made by the noble Lord, Lord McNicol, and the noble and learned Lord, Lord Thomas, about the DPRRC report. I am grateful to the committee for the production of the report; I read it with interest. Of course, I recognise the strength of feeling in this House; it has come across today and been conveyed to me by a number of noble Lords, especially with regard to Clause 47. There is a lot to consider there in terms of striking the right balance on this and the other issues raised in the report, but I can commit to reading it very carefully and considering what policy steps we may take in response.

The noble and learned Lord, Lord Thomas, also referred to the Treasury’s powers. Measures implemented by central banks in pursuit of monetary policy have always been considered outside the scope of EU state aid regimes and rules—just as well given the massive amount of subsidies that it has imposed in recent years. In the joint declaration on monetary policies and subsidy control, the EU and the UK confirmed their mutual understanding that activities conducted by a central bank in pursuit of monetary policy are outside the scope of the subsidy control requirements in the trade and co-operation agreement. One of the Bank of England’s independent statutory functions is to maintain UK price stability and, subject to that, support the Government’s economic policy. It is both appropriate and necessary that the domestic subsidy control regime exempts monetary policy subsidies and schemes in pursuit of these objectives.

I assure my noble friends Lord Lamont and Lord Trenchard, and the noble Viscount, Lord Chandos, that this Government do not intend to return to the policies of the past, such as the failed 1970s approach of attempting to run the economy by bailing out fundamentally unsustainable companies. I suspect that this will probably not be the subject of a new agreement between the noble Lord, Lord Forsyth, and the noble Baroness, Lady Jones, but, nevertheless, that is our policy.

The principles in this Bill make it clear that subsidies need to address either identified market failure or an equity rationale as a legitimate objective in order to be awarded. It is important to note that not every example of government spending is a subsidy, of course. The Bill sets out a detailed definition: if a public authority purchases goods or services on market terms, that is public procurement and not a subsidy. Parliamentary oversight of spending and managing public money, as well as the Green Book requirements, will continue to apply and are important protections against bad government spending decisions.

[Lord Purvis of Tweed (LD)]

The Minister is being generous in giving way this evening. For the record, will the Minister say—it was hard to discern from the comments on the processes—what the geographical area of a market is? The Bill refers to market failure, and the Minister has referred to it. He also referred to many public bodies that will be local authorities. When I emailed the subsidy control email inquiry, asking, as a resident of the Scottish Borders, whether Northumberland is a market, in order to discern whether it will be a market failure, I was told that there is no Northumberland market. So, what are the geographical areas of a market? The Government are not going to have the geographical indices for deprivation, whereas previously, we knew what the markets were in respect of state aid support.

[Lord Callanan (Con)]

I will reflect on that, speak to officials and write to the noble Lord about the appropriate definition, is that is okay with him.

I will respond to the question from my noble friend Lord Trenchard, the noble Lord, Lord Fox, and others about transparency thresholds. Regarding thresholds at which subsidies are uploaded to the database, I listened carefully to the debate in the other place and the comments from noble Lords this evening. In our view, the current transparency provisions seek to strike a balance between reducing the administrative burdens and costs to public authorities and ensuring that the necessary information on subsidies is available. In our view, this is vital to ensure that interested parties are able to challenge potentially harmful subsidies. However, I accept that there is a legitimate debate about the level at which those thresholds are placed.

Let me conclude by reaffirming what I said in my opening remarks. In our view this Bill creates a robust yet agile system that allows public authorities to provide subsidies where they are needed most. At the same time, it will allow us to maintain a competitive free-market economy as we build back better from the pandemic, and to chart a new course as an independent trading nation. I look forward to discussing many of these points further in Committee, but in the meantime, I commend this Bill to the House.