Brexit: Competition and State Aid (EUC Report)

Lord Wigley Excerpts

Thursday 24th May 2018 Lords Chamber

[Lord Wigley (PC)]

My Lords, I am glad to have an opportunity to take part in this debate. I do so as a member of the sub-committee, although the report before us today is based on an investigation which had commenced before I joined it late last year. I was happy to put my name to the report, albeit based on the limited information I had gleaned after joining the committee. I thank the noble Lord, Lord Whitty, for the inclusive and helpful way in which he chairs the committee meetings and for his focused introduction to today’s debate. I also pay tribute to the work of the excellent staff who serve that committee.

I want to address briefly just one aspect of the report. That relates to the vexed issue of state aid—as we have heard from many contributors today—and how it bears in the context of devolution, and specifically to the challenges that it poses for the Welsh Government and the National Assembly. I identify with the comments made by the noble Lord, Lord German. We tried to put the JMC on a statutory basis as an amendment to the EU withdrawal Bill, but that was not acceptable to the Government. I have no doubt that we will need to return to that matter.

I shall focus first on the background to this issue. Noble Lords will be aware that the Wales Act 2017 changed the model of devolution regarding which powers are devolved to the Welsh Government and the National Assembly for Wales from a conferred powers model, whereby all the devolved powers were listed, to a reserved powers model more similar to that of Scotland, by which all powers not listed in the Bill are considered devolved.

The powers reserved from Wales to Westminster number in the hundreds, but they do not include state aid. Whitehall departments were widely consulted in this process and were, effectively, given a veto, which inevitably meant that they sought to hold on to every conceivable power they could. Yet they did not specifically hold on to state aid as a reserved matter. So, whether by design or by accident, state aid was deemed by this Act to be a responsibility of the National Assembly.

However, it now transpires that the UK Government wish to extend the number of powers reserved to include such policy fields as food geographical indicators and the subject of today’s debate: state aid. This is the background to accusations from both Edinburgh and Cardiff—of which we have heard already today—of there being effectively a power grab. It has caused immense anger, for reasons I shall outline in a moment.

I turn to the body of the report. It states:

“The UK will have significant decisions to make with regard to future State aid policy … It will be important for the Government to involve, and secure the support of, the devolved administrations in determining the shape of this future State aid regime”.


The report emphasised this particularly forcefully in the context of any decision relating to how the state aid regulatory function should be undertaken. In the event, the Government opted for placing it in the hands of the Competition and Markets Authority, the CMA. The decision appears to have been taken in parallel with our committee’s investigation. That of course is totally understandable given the pressure to get post-Brexit structures into place in good time.

However, our report had recommended specifically, at paragraph 219, that the Government should,

“involve and secure the support of the devolved administrations in this process”—

that is, developing the regulatory framework—

“including in agreeing the terms of reference, remit and priorities of any new UK State aid authority”.

The report further warned of the dangers of the UK Government being perceived to be both rule-maker and rule-taker in this matter.

The Government, in their response of 29 March, glaringly failed to accept this point, merely stating:

“The Government … recognises that the regulation of State aid is a UK-wide issue”.


I ask noble Lords to please note that it does not say that they have the power; they just rest their case on a bland assertion that they “recognise” it. So we have no securing of the support of the devolved Administrations, as recommended by the committee; we have no mutual agreement of the terms of reference; and we have no agreement of the regulatory body’s remit and priorities. The Government have flagrantly ignored the central point of this report in this matter and have not even deemed it worth while explaining why they have done so. It is little wonder that this has caused such acrimony in Cardiff and Edinburgh.

This glaring failure of the Government to respect and involve the devolved Administrations is central to the stand-off that has developed between London, Cardiff and Edinburgh between last December and this month and led to the Scottish Parliament refusing a legislative consent order for the EU withdrawal Bill. This area of controversy is over and above the 24 areas listed where agreement was not forthcoming, and perhaps I should remind the House that the refusal of the LCO by Scotland’s Parliament is supported by Labour and Liberal Democrat MSPs as well as SNP Members. The failure of the Government to recognise the sensitivity of this issue, flying in the face of the committee’s warnings, is what has turned the whole issue sour—quite unnecessarily so. It has been a ham-fisted botch job which will echo for many years to come, and I will explain why.

There are important reasons why powers over state aid should reside in Wales following Brexit. The Welsh Government have responsibility for economic development in Wales; they have subsumed into them the work of the former Welsh Development Agency. The economic damage that leaving the European single market and customs union would do to Wales is potentially tremendous. Export-driven industries, of which we have a high proportion in the manufacturing sector in Wales and on which so many jobs rely, would face serious difficulties if tariff and non-tariff barriers were placed on them. The Tata Steel crisis last year showed that Wales cannot expect Westminster to offer support to our industries in that context; or even facilitate interventions used in other EU steel-producing countries to safeguard their industries. Jobs were eventually saved when the Welsh Government themselves committed to supporting the plant in Port Talbot with a package of support worth tens of millions of pounds, a demonstration that the Welsh Government were in charge of the state aid aspect of their work.

The fundamental truth is that the UK Government’s priorities for state aid are not aligned with the predictable needs of the Welsh economy. State support is used only rarely by the UK Government, in circumstances such as the banking bailout that followed the 2008 financial crash. London’s free market economy model is at variance with the social priorities so highly valued in both Cardiff and Edinburgh. Furthermore, the recent transfer of tax powers to Wales, which will take another step next year when income tax is partly devolved, means that for the first time my country will be responsible for raising some of the money that it spends. It is only morally and politically right that it is allowed to spend this money in ways it deems appropriate, including to use a proportionate state aid vehicle where that is necessary and where it does not unduly distort the UK single market.

I am simply making the point that the priorities of government in Wales and Westminster are different, and therefore it is only common sense that relevant powers should lie with the appropriate Executive. If they do not, every time there is a threat to a strategically important industry in Wales, such as a steelworks, and the Welsh Government are prevented from intervening by the CMA, the whole sorry saga will flare up again. Every time a car or aircraft factory threatens, post Brexit, to move production to a European mainland location and the Welsh Government seek to save the jobs, if the CMA blocks it on the basis of state aid considerations, it is the CMA that will face the political odium.

The Government’s failure to follow or even to acknowledge our committee’s recommendations in this regard will make life totally impossible for the CMA. I wonder whether Ministers warned the CMA chairman of this likelihood when they discussed the matter with him. This culpable failure to think through the issue will stoke up resentment between the devolved Administrations and Westminster—a resentment that could have been avoided—and ultimately could well provide the backdrop to a second Scottish independence referendum. The Government are playing with fire without realising it—in the midst of a post-Brexit powder keg which could blow us all to kingdom come.

In conclusion, I draw to the attention of the House the recently reported survey which is highly relevant to this report and which may make less than comfortable reading for both sides of the Brexit debate. The survey draws on the findings of the Legatum/Populus report of last autumn and shows that while opinion is still closely balanced—depending on the questions asked—on most aspects of the Brexit issue, the one aspect on which there is a clear-cut majority relates to the widely shared hope that Brexit will enable government to intervene to safeguard jobs that are at risk in a way that has been impossible in recent years because of EU state aid regulations.

It is clear by now that the vote to quit the EU, which was particularly high in old industrial areas such as the south Wales valleys and north-east England, was most emphatically not a vote to re-establish a UK single market on the same free market principles as have underpinned the EU single market. This is something Mr Corbyn has clearly understood, and it is a central factor in the Scottish refusal to give the withdrawal Bill legislative consent—and why Mr Corbyn personally backed that stance. It reflects a fundamental refusal to see Brexit as merely replacing Brussels with London and for everything otherwise to continue as was, which is the central tenet of the withdrawal Bill. This all comes into focus with the state aid issue, which Westminster will ignore at its peril.