Online Safety Bill

Debate between Paul Scully and Kirsty Blackman

Consideration of Lords amendments
Tuesday 12th September 2023 Commons Chamber

[Paul Scully]

The right hon. Lady raises some interesting points. We have conversed about harms, so I totally get her point about making sure that we tackle this issue in Parliament and be accountable in Parliament. As I have said, that will be done predominantly by monitoring the Bill through Ofcom’s reporting on what harms it is having to deal with. We have regular engagement with Ofcom, not only here and through the Select Committees, but through the Secretary of State.

On criminal liability, we conversed about that and made sure that we had a liability attached to something specific, rather than the general approach proposed at the beginning. It therefore means that we are not chilling innovation. People can understand, as they set up their approaches and systems, exactly what they are getting into in terms of risk for criminal liability, rather than having the general approach that was suggested at the beginning.

[Kirsty Blackman (Aberdeen North) (SNP)]

The review mechanism strikes me as one of the places where the Bill falls down and is weakest, because there is not a dedicated review mechanism. We have needed this legislation for more than 30 years, and we have now got to the point of legislating. Does the Minister understand why I have no faith that future legislation will happen in a timely fashion, when it has taken us so long even to get to this point? Can he give us some reassurance that a proper review will take place, rather than just having Ofcom reports that may or may not be read?

[Paul Scully]

I have talked about the fact that we have to keep this legislation under review, because the landscape is fast-moving. At every stage that I have been dealing with this Bill, I have said that inevitably we will have to come back. We can make the Bill as flexible, proportionate and tech-unspecific as we can, but things are moving quickly. With all our work on AI, for example, such as the AI summit, the work of the Global Partnership on Artificial Intelligence, the international response, the Hiroshima accord and all the other areas that my hon. Friend the Member for Weston-super-Mare (John Penrose) spoke about earlier, we will have to come back, review it and look at whether the legislation remains world-beating. It is not just about the findings of Ofcom as it reports back to us.

I need to make a bit of progress, because I hope to have time to sum up a little bit at the end. We have listened to concerns about ensuring that the Bill provides the most robust protections for children from pornography and on the use of age assurance mechanisms. We are now explicitly requiring relevant providers to use highly effective age verification or age estimation to protect children from pornography and other primary priority content that is harmful to children. The Bill will also ensure a clear privacy-preserving and future-proofed framework governing the use of age assurance, which will be overseen by Ofcom.

There has been coverage in the media about how the Bill relates to encryption, which has often not been accurate. I take the opportunity to set the record straight. Our stance on challenging sexual abuse online remains the same. Last week in the other place, my noble Friend Lord Parkinson, the Parliamentary Under-Secretary of State for Arts and Heritage, shared recent data from UK police forces that showed that 6,350 offences related to sexual communication with a child were recorded last year alone. Shockingly, 5,500 of those offences took place against primary school-age children. Those appalling statistics illustrate the urgent need for change. The Government are committed to taking action against the perpetrators and stamping out these horrific crimes. The information that social media companies currently give to UK law enforcement contributes to more than 800 arrests or voluntary attendances of suspected child sexual offenders on average every month. That results in an estimated 1,200 children being safeguarded from child sexual abuse.

There is no intention by the Government to weaken the encryption technology used by platforms. As a last resort, on a case-by-case basis, and only when stringent privacy safeguards have been met, Ofcom will have the power to direct companies to make best efforts to develop or source technology to identify and remove illegal child sexual abuse content. We know that this technology can be developed. Before it can be required by Ofcom, such technology must meet minimum standards of accuracy. If appropriate technology does not exist that meets these requirements, Ofcom cannot require its use. That is why the powers include the ability for Ofcom to require companies to make best endeavours to develop or source a new solution.

ONLINE SAFETY BILL (Third sitting)

Debate between Paul Scully and Kirsty Blackman

Committee stage (re-committed clauses and schedules)
Thursday 15th December 2022 Public Bill Committees

[Alex Davies-Jones (Pontypridd) (Lab)]

It will come as no surprise to Members to hear that we have serious concerns about the system of categorisation and the threshold conditions for platforms and service providers, given our long-standing view that the approach taken is far too inflexible.

In previous sittings, we raised the concern that the Government have not provided enough clarity about what will happen if a service is required to shift from one category to another, and how long that will take. We remain unclear about that, about how shifting categories will work in practice, and about how long Ofcom will have to preside over such changes and decisions.

I have been following this Bill closely for just over a year, and I recognise that the online space is constantly changing and evolving. New technologies are popping up that will make this categorisation process even more difficult. The Government must know that their approach does not capture smaller, high-harm platforms, which we know—we have debated this several times—can be at the root of some of the most dangerous and harmful content out there. Will the Minister clarify whether the Government amendments will allow Ofcom to consider adding such small, high-harm platforms to category 1, given the risk of harm?

More broadly, we are pleased that the Government tabled new clause 7, which will require Ofcom to prepare and update a list of regulated user-to-user services that have 75% of the number of users of a category 1 service, and at least one functionality of a category 1 service, or one required combination of a functionality and another characteristic or factor of a category 1 service. It is absolutely vital that Ofcom, as the regulator, is sufficiently prepared, and that there is monitoring of regulated user-to-user services so that this regime is as flexible as possible and able to cope with the rapid changes in the online space. That is why the Opposition support new clause 7 and have not sought to amend it. Moreover, we also support Government amendments 48 and 49, which are technical amendments to ensure that new clause 7 references user-to-user services and assessments of those services appropriately. I want to press the Minister on how he thinks these categories will work, and on Ofcom’s role in that.

[Kirsty Blackman (Aberdeen North) (SNP)]

I agree with everything that the hon. Lady said. New clause 7 is important. It was missing from the earlier iterations of the Bill, and it makes sense to have it here, but it raises further concerns about the number of people who are required to use a service before it is classed as category 1. We will come later to our amendment 104 to schedule 11, which is about adding high-risk platforms to the categorisation.

I am still concerned that the numbers are a pretty blunt instrument for categorising something as category 1. The number may end up being particularly high. I think it would be very easy for the number to be wrong—for it to be too high or too low, and probably too high rather than too low.

If Twitter were to disappear, which, given the changing nature of the online world, is not outside the realms of possibility, we could see a significant number of other platforms picking up the slack. A lot of them might have fewer users, but the same level of risk as platforms such as Twitter and Facebook. I am still concerned that choosing a number is a very difficult thing to get right, and I am not totally convinced that the Government’s way of going about this is right.

[Paul Scully]

Ofcom will assess services that are close to meeting the threshold conditions of category 1 services and will publish a publicly available list of those emerging high-risk services. A service would have to meet two conditions to be added to the emerging services list: it would need at least 75% of the number of user figures in any category 1 threshold condition, and at least one functionality of a category 1 threshold condition, or one specified combination of a functionality and a characteristic or factor of a category 1 threshold condition.

Ofcom will monitor the emergence of new services. If it becomes apparent that a service has grown sufficiently to meet the threshold of becoming a category 1 service, Ofcom will be required to add that service to the register. The new clause and the consequential amendments take into account the possibility of quick growth.

Following the removal of “legal but harmful” duties, category 1 services will be subject to new transparency, accountability and free speech duties, as well as duties relating to protection for journalists and democratic content. Requiring all companies to comply with that full range of category 1 duties would pose a disproportionate regulatory burden on smaller companies that do not exert the same influence on public discourse, and that would possibly divert those companies’ resources away from tackling vital tasks.

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[Kirsty Blackman]

My understanding is that only a very small number of platforms will reach the category 1 threshold. We are talking about the platforms that everybody has heard of—Facebook, Twitter and so on—and not about the slightly smaller platforms that lots of people have heard of and use. We are probably not talking about platforms such as Twitch, which has a much smaller user base than Facebook and Twitter but has a massive reach. My concern continues to be that the number threshold does not take into account the significant risks of harm from some of those platforms.

I have a specific question about amendment 76. I agree with my Labour Front-Bench colleague, the hon. Member for Pontypridd, that it shows that the Government are willing to take into account other factors. However, I am concerned that the Secretary of State is somehow being seen as the arbiter of knowledge—the person who is best placed to make the decisions—when much more flexibility could have been given to Ofcom instead. From all the evidence I have heard and all the people I have spoken to, Ofcom seems much more expert in dealing with what is happening today than any Secretary of State could ever hope to be. There is no suggestion about how the Secretary of State will consult, get information and make decisions on how to change the threshold conditions.

It is important that other characteristics that may not relate to functionalities are included if we discover that there is an issue with them. For example, I have mentioned livestreaming on a number of occasions in Committee, and we know that livestreaming is inherently incredibly risky. The Secretary of State could designate livestreaming as a high-risk functionality, and it could be included, for example, in category 1. I do not know whether it will be, but we know that there are risks there. How will the Secretary of State get that information?

There is no agreement to set up a user advocacy board. The requirement for Ofcom to consult the Children’s Commissioner will be brought in later, but organisations such as the National Society for the Prevention of Cruelty to Children, which deals with phone calls from children asking for help, are most aware of emerging threats. My concern is that the Secretary of State cannot possibly be close enough to the issue to make decisions, unless they are required to consult and listen to organisations that are at the coal face and that regularly support people. I shall go into more detail about high-harm platforms when we come to amendment 104.

[Paul Scully]

The amendments give the Secretary of State the flexibility to consider other characteristics of services as well as other relevant factors, which include functionalities, user base, business model, governance, and other systems and processes. They effectively introduce greater flexibility into the designation process, so that category 1 services are designated only if they have significant influence over public discourse. Although the Secretary of State will make the regulations, Ofcom will carry out the objective and evidence-based process, which will be subject to parliamentary scrutiny via statutory instruments. The Secretary of State will have due consultation with Ofcom at every stage, but to ensure flexibility and the ability to move fast, it is important that the Secretary of State has those powers.

Amendment 76 agreed to.

[Kirsty Blackman]

I beg to move amendment 104, in schedule 11, page 213, line 11, at end insert—

“(1A) Regulations made under sub-paragraph (1) must provide for any regulated user-to-user service which OFCOM assesses as posing a very high risk of harm to be included within Category 1, regardless of the number of users.”

This amendment allows Ofcom to impose Category 1 duties on user-to-user services which pose a very high risk of harm.

I would say this, but I think that this is the most important amendment. The key area that the Government are getting wrong is the way in which platforms, providers or services will be categorised. The threshold is based on the number of users. It is the number of users “and” one of those other things, not the number of users “or” one of those other things; even that would make a significant difference.

The Secretary of State talked about the places that have a significant influence over public discourse. It is perfectly possible to have a significant influence over public discourse with a small number of users, or with a number of users that does not number into the millions. We have seen the spread of conspiracy theories that have originated and been perpetuated on very small platforms—very small, shady places on the internet that none of us has experienced or even heard of. Those are the places that have a massive impact and effect.

We know that one person can have a significant impact on the world and on people’s lives. We have heard about the physical harm that people can be incited to cause by the platforms they access, and the radicalisation and extremism they find themselves subject to. That can cause massive, damaging effects to anybody they choose to take physical action against, and to some of the most marginalised communities and groups in society. We are seeing an increase in the amount of hate crime and the number of people who believe conspiracy theories, and not all of that is because of the spread of those things on Facebook and Twitter. It is because of the breadcrumbing and the spread that there can be on smaller platforms.

The most extreme views do not necessarily tip over into “illegal” or “incitement”; they do not actually say, “Please go out and kill everybody in this particular group.” They say, “This particular group is responsible for all of ills you feel and for every negative thing that is happening in your life”, and people are therefore driven to take extremist, terrorist action. That is a significant issue.

I want to talk about a couple of platforms. Kiwi Farms, which is no longer in existence and has been taken down, was a very small platform that dramatically damaged the lives of trans people in particular. It was a platform where people went to incite hatred and give out the addresses of folk who they knew were members of the trans community. Some of those people had to move to another continent to get away from the physical violence and attacks they faced as a result of the behaviour on that incredibly small platform, which very few people will have heard about.

Kiwi Farms has been taken down because the internet service providers decided that it was too extreme and they could not possibly host it any more. That was eventually recognised and change was made, but the influence that that small place had on lives—the difficulties and harm it caused—is untold. Some of that did tip over into illegality, but some did not.

I also want to talk about the places where there is a significant amount of pornography. I am not going to say that I have a problem with pornography online; the internet will always have pornography on it. It attracts a chunk of people to spend time online, and some of that pornography is on large mainstream sites. Searches for incest, underage girls, or black women being abused all get massive numbers of hits. There is a significant amount of pornography on these sites that is illegal, that pretends to be illegal or that acts against people with protected characteristics. Research has found that a significant proportion—significantly more than a half—of pornography on mainstream sites that involves black women also involves violence. That is completely and totally unacceptable, and has a massive negative impact on society, whereby it reinforces negativity and discrimination against groups that are already struggling with being discriminated against and that do not experience the privilege of a cis white man.

It is really grim that we are requiring a number of users to be specified, when we know the harm that caused by platforms that do not have 10 million or 20 million United Kingdom users. I do not know what the threshold will be, but I know it will be too high to include a lot of platforms that have a massive effect. The amendment is designed specifically to give Ofcom the power to designate as category 1 any service that it thinks has a very high risk of harm; I have not set the bar particularly low. Now that the Minister has increased the levels of transparency that will be required for category 1 platforms, it is even more important that we subject extremist sites and platforms—the radicalising ones, which are perpetuating discrimination—to a higher bar and require them to have the transparency that they need as a category 1 service. This is a place where the Bill could really make a difference and change lives, and I am really concerned that it is massively failing to do so.

The reason I have said that it should be Ofcom’s responsibility to designate category 1 services is on the basis that it has the experts who will be looking at all the risk assessments, dealing with companies on a day-to-day basis, and seeing the harms and transparencies that the rest of us will not be able to see. The reporting mechanisms will be public for only some of the category 1 platforms, and we will not be able to find out the level of information that Ofcom has, so it is right that it should be responsible for designating sites as having a very high risk of harm. That is why I tabled the amendment, which would make a massive difference to people who are the most discriminated against as it is and who are the most at risk of harm from extremism. I urge the Minister to think again.

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[Paul Scully]

As debated earlier, we are removing the adult safety duties from the Bill, which means that no company will face any duties related to legal but harmful content. In their place, the Government are introducing new transparency accountability, and free speech duties on category 1 services. They have been discussed in detail earlier this session.

It would not be proportionate to apply those new duties to smaller services, but, as we have heard from my hon. Friend the Member for Folkestone and Hythe, they will still have to comply with the illegal content and child safety duties if they are accessed by children. Those services have limited resources, and blanket applying additional duties on them would divert those resources away from complying with the illegal content and child safety duties. That would likely weaken the duties’ impact on tackling criminal activity and protecting children.

The new duties are about user choice and accountability on the largest platforms—if users do not want to use smaller harmful sites, they can choose not to—but, in recognition of the rapid pace with which companies can grow, I introduced an amendment earlier to create a watchlist of companies that are approaching the category 1 threshold, which will ensure that Ofcom can monitor rapidly scaling companies, reduce any delay in designating companies as category 1 services, and apply additional obligations on them.

The hon. Member for Aberdeen North talked about ISPs acting with respect to Kiwi Farms. I talked on Tuesday about the need for a holistic approach. There is not one silver bullet. It is important to look at Government, the platforms, parenting and ISPs, because that makes up a holistic view of how the internet works. It is the multi-stakeholder framework of governing the internet in its entirety, rather than the Government trying to do absolutely everything. We have talked a lot about illegality, and I think that a lot of the areas in that case were illegal; the hon. Lady described some very distasteful things. None the less, with the introduction of the watchlist, I do not believe amendment 104 is required.

[Kirsty Blackman]

The hon. Member for Folkestone and Hythe made a good point. I do not disagree that Ofcom will have a significant role in policing platforms that are below the category 1 threshold. I am sure it will be very hands on, particularly with platforms that have the highest risk and are causing the most harm.

I still do not think that is enough. I do not think that the Minister’s change with regard to emerging platforms should be based on user numbers. It is reasonable for us to require platforms that encourage extremism, spread conspiracy theories and have the most horrific pornography on them to meet a higher bar of transparency. I do not really care if they only have a handful of people working there. I am not fussed if they say, “Sorry, we can’t do this.” If they cannot keep people safe on their platform, they should have to meet a higher transparency bar, provide more information on how they are meeting their terms of service and provide toggles—all those things. It does not matter how small these platforms are. What matters is that they have massive risks and cause massive amounts of harm. It is completely reasonable that we hold them to a higher regulatory bar. On that basis, I will push the amendment to a vote.

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[Kirsty Blackman]

I am glad that there is a review function in the Bill. I have been a member of a lot of Bill Committees and Delegated Legislation Committees that have considered legislation that has no review function and that says, “This will be looked at in the normal course of departmental reviews.” We know that not all Departments always do such reviews. In fact, some Departments do under 50% of the reviews that they are supposed to do, and whether reviews take place is not checked. We therefore we do not find out whether a piece of legislation has had the intended effect. I am sure some will have done, but some definitely will not.

If the Government do not internally review whether a Bill or piece of delegated legislation has had the effect it was supposed to have, they cannot say whether it has been a success and cannot make informed decisions about future legislation, so having a review function in this Bill is really good. However, that function is insufficient as it is not enough for the Secretary of State to do the review and we will not see enough outputs from Ofcom.

The Bill has dominated the lives of a significant number of parliamentarians for the past year—longer, in some cases—because it is so important and because it has required so much scrutiny, thinking and information gathering to get to this stage. That work will not go away once the Bill is enacted. Things will not change or move at once, and parts of the legislation will not work as effectively as they could, as is the case for any legislation, whether moved by my Government or somebody else’s. In every piece of legislation there will be things that do not pan out as intended, but a review by the Secretary of State and information from Ofcom about how things are working do not seem to be enough.

Committee members, including those on the Government Benches, have suggested having a committee to undertake the review or adding that function to the responsibilities of the Digital, Culture, Media and Sport Committee. We know that the DCMS Committee is busy and will be looking into a significant number of wide-ranging topics, so it would be difficult for it to keep a watching brief on the Online Safety Bill.

The previous Minister said that there will be some sort of reviewing mechanism, but I would like further commitment from the Government that the Bill will be kept under review and that the review process as set out will not be the only type of review that happens as things move and change and the internet develops. Many people talk about more widespread use of virtual reality, for example, but there could be other things that we have not even heard of yet. After the legislation is implemented, it will be years before every part of the Bill is in action and every requirement in the legislation is working. By the time we get to 2027-28—or whenever every part of the legislation is working—things could have changed again and be drastically different to today. Indeed, the legislation may not be fit for purpose when it first starts to work, so will the Minister provide more information about what the review process will look like on an ongoing basis? The Government say this is world-leading legislation, but how we will ensure that that is the case and that it makes a difference to the safety and experience of both children and adults online?

[Paul Scully]

I am glad that we are all in agreement on the need for a review. It is important that we have a comprehensive and timely review of the regulatory regime and how it is built into legislation. It is important that we understand that the legislation has the impact that we intend.

The legislation clearly sets out what the review must consider, how Ofcom is carrying out its role and if the legislation is effective in dealing with child protection, which as the hon. Lady rightly says is its core purpose. We have struck the balance of specifying two to five years after the regime comes into force, because it provides a degree of flexibility to future Ministers to judge when it should happen. None the less, I take the hon. Lady’s point that technology is developing. That is why this is a front-footed first move in this legislation, when other countries are looking at what we are doing; because of that less prescriptive approach to technologies, the legislation can be flexible and adapt to emerging new technologies. Inevitably, this will not be the last word. Some of the things in the Digital Economy Act 2017, for example, are already out of date, as is some of the other legislation that was put in place in the early 2000s. We will inevitably come back to this, but I think we have the right balance at the moment in terms of the timing.

I do not think we need to bed in whom we consult, but wider consultation will none the less be necessary to ascertain the effectiveness of the legislation.

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[Paul Scully]

We are setting out in schedule 17 how the existing video-sharing platform regime will be repealed in the transitional provisions that apply to these providers as they transition to the online safety framework. My understanding is that it does include livestreaming, but I will obviously write to the hon. Lady if I have got that wrong. I am not sure there is a significant legal effect here. To protect children and treat services fairly while avoiding unnecessary burdens on business, we are maintaining the current user protections in the VSP regime while the online safety framework is being implemented. That approach to transition avoids the duplication of regulation.

Question put and agreed to.

Schedule 17, as amended, accordingly agreed to.

Clause 203

Interpretation: general

[Kirsty Blackman]

I beg to move amendment 105, in clause 203, page 167, line 8, after “including” insert “but not limited to”.

This amendment makes clear that the definition provided for content is not exhaustive.

I am delighted that we have a new Minister, because I can make exactly the same speech as I made previously in Committee—don’t worry, I won’t—and he will not know.

I still have concerns about the definition of “content”. I appreciate that the Government have tried to include a number of things in the definition. It currently states:

“‘content’ means anything communicated by means of an internet service, whether publicly or privately, including written material or messages, oral communications, photographs, videos, visual images, music and data of any description”.

That is pretty wide-ranging, but I do not think it takes everything into account. I know that it uses the word “including”; it does not say “only limited to” or anything like that. If there is to be a list of stuff, it should be exhaustive. That is my idea of how the Bill should be.

I have suggested in amendment 105 that we add “not limited to” after “including” in order to be absolutely clear that the content that we are talking about includes anything. It may or may not be on this list. Something that is missing from the list is VR technology. If someone is using VR or immersive technology and is a character on the screen, they can see what the character is doing and move their body around as that character, and whatever they do is user-generated content. It is not explicitly included in the Bill, even though there is a list of things. I do not even know how that would be written down in any way that would make sense.

I have suggested adding “not limited to” to make it absolutely clear that this is not an exhaustive list of the things that could be considered to be user-generated content or content for the purposes of the Bill. It could be absolutely anything that is user-generated. If the Minister is able to make it absolutely clear that this is not an exhaustive list and that “content” could be anything that is user-generated, I will not press the amendment to a vote. I would be happy enough with that commitment.

[Paul Scully]

Indeed I can give that commitment. This is an indicative list, not an exhaustive list, for the reasons that the hon. Lady set out. Earlier, we discussed the fact that technology moves on, and she has come up with an interesting example. It is important to note that adding unnecessary words in legislation could lead to unforeseen outcomes when it is interpreted by courts, which is why we have taken this approach, but we think it does achieve the same thing.

[Kirsty Blackman]

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 58, in clause 203, page 167, leave out lines 26 to 31. —(Paul Scully.)

This amendment removes the definition of the “maximum summary term for either-way offences”, as that term has been replaced by references to the general limit in a magistrates’ court.

[Kirsty Blackman]

I would like to ask the Minister why this amendment has been tabled. I am not entirely clear. Could he give us some explanation of the intention behind the amendment? I am pretty sure it will be fine but, if he could just let us know what it is for, that would be helpful.

[Paul Scully]

I am happy to do so. Clause 203 sets out the interpretation of the terms used throughout the Bill. Amendment 58 removes a definition that is no longer required because the term is no longer in the Bill. It is as simple as that. The definition of relevant crime penalties under the Bill now uses a definition that has been updated in the light of changes to sentencing power in magistrates courts set out in the Judicial Review And Courts Act 2022. The new definition of

“general limit in a magistrates court”

is now included in the Interpretation Act 1978, so no definition is required in this Bill.

Question put and agreed to.

Amendment 58 accordingly agreed to.

Amendment made: 59, in clause 203, page 168, line 48, at end insert—

“and references to restrictions on access to a service or to content are to be read accordingly.” —(Paul Scully.)

NC2 states what is meant by restricting users’ access to content, and this amendment makes it clear that the propositions in clause 203 about access read across to references about restricting access.

Question proposed, That the clause, as amended, stand part of the Bill.

[Kirsty Blackman]

Once again, I will abuse the privilege of having a different Minister at the Dispatch Box and mention the fact that, in the definitions, “oral communications” is mentioned in line 9 that we already mentioned in terms of the definition of “content”. It is “oral communications” in this part of the Bill but “aural communications” in an earlier part of the Bill. I am still baffled as to why there is a difference. Perhaps we should have both included in both of these sections or perhaps there should be some level of consistency throughout the Bill.

The “aural communications” section that I mentioned earlier in clause 50 is the one of the parts that I am particularly concerned about because it could create a loophole. That is a different spelling of the word. I asked this last time. I am not convinced that the answer I got gave me any more clarity than I had previously. I would be keen to understand why there is a difference, if the difference is intentional and what the difference therefore is between “oral” and “aural” communications in terms of the Bill. My understanding is that oral communications are ones that are said and aural communications are ones that are heard. But, for the purposes of the Bill, those two things are really the same, unless user-generated content in which there is user-generated oral communication that no one can possibly hear is included. That surely does not fit into the definitions, because user-generated content is only considered if it is user-to-user—something that other people can see. Surely, oral communication would also be aural communication. In pretty much every instance that the Bill could possibly apply to, both definitions would mean the same thing. I understand the Minister may not have the answer to this at his fingertips, and I would be happy to hear from him later if that would suit him better.

[Paul Scully]

The clause provides legal certainty about the meaning of those terms as used in the Bill: things such as “content”, “encounter”, “taking down” and “terms of service”. That is what the clause is intended to do. It is intentional and is for the reasons the hon. Lady said. Oral means speech and speech only. Aural is speech and other sounds, which is what can be heard on voice calls. That includes music as well. One is speech. The other is the whole gamut.

[Paul Scully]

My knowledge is being tested, so I will write to the hon. Member for Aberdeen North and make that available to the Committee. Coming back to the point she made about oral and aural on Tuesday about another clause on the exclusions, as I said, we have a narrow exemption to ensure that traditional phone calls are not subject to regulation. But that does mean that if a service such as Fortnite, which she spoke about previously, enables adults and children to have one-to-one oral calls, companies will still need to address the surrounding functionality around how that happens, because to enable that might cause harm—for example if an adult can contact an unknown child. That is still captured within the Bill.

[Kirsty Blackman]

Platforms will have to address, for example, the ways in which users can communicate with people who are not on their friends list. Things like that and other ways in which communication can be set up will have to be looked at in the risk assessment. With Discord, for instance, where two people can speak to each other, Discord will have to look at the way those people got into contact with each other and the risks associated with that, rather than the conversation itself, even though the conversation might be the only bit that involves illegality.

[Paul Scully]

It is the functionalities around it that enable the voice conversation to happen.

Question put and agreed to.

Clause 203, as amended, accordingly ordered to stand part of the Bill.

Clause 206

Extent

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Alex Davies-Jones]

Labour is pleased to see the introduction of the new clause, which clarifies the role of Ofcom in delivering guidance to providers about their duties. Specifically, the new clause will require Ofcom to give guidance to providers on the kind of content that Ofcom considers to be harmful to children, or relevant to the user empowerment duty in clause 14. That is a very welcome addition indeed.

Labour remains concerned about exactly how these so-called user empowerment tools will work in practice—we have discussed that at length—and let us face it: we have had little assurance from the Minister on that point. We welcome the new clause, as it clarifies what guidance providers can expect to receive from Ofcom once the Bill is finally enacted. We can all recognise that Ofcom has a colossal task ahead of it—the Minister said so himself—so it is particularly welcome that the guidance will be subject to consultation with those that it deems appropriate. I can hope only that that will include the experts, and the many groups that provided expertise, support and guidance on internet regulation long before the Bill even received its First Reading, a long time ago. There are far too many of those experts and groups to list, but it is fundamental that the experts who often spot online harms before they properly emerge be consulted and included in this process if we are to truly capture the priority harms to children, as the new clause intends.

We also welcome the clarification in subsection (2) that Ofcom will be required to provide “examples of content” that would be considered to be—or not be—harmful. These examples will be key to ensuring that the platforms have nowhere to hide when it comes to deciding what is harmful; there will be no grey area. Ofcom will have the power to show them exact examples of what could be deemed harmful.

We recognise, however, that there is subjectivity to the work that Ofcom will have to do once the Bill passes. On priority content, it is most important that providers are clear about what is and is not acceptable; that is why we welcome the new clause, but we do of course wish that the Government applied the same logic to harm pertaining to adults online.

[Kirsty Blackman]

I am also happy to support new clause 1, but I have a couple of questions. It mentions that “replacement guidance” may be provided, which is important because, as we have said a number of times, things will change, and we will end up with a different online experience; that can happen quickly. I am glad that Ofcom has the ability to refresh and update the guidance.

My question is about timelines. There do not seem to be any timelines in the new clause for when the guidance is required to be published. It is key that the guidance be published before companies and organisations have to comply with it. My preference would be for it to be published as early as possible. There may well need to be more work, and updated versions of the guidance may therefore need to be published, but I would rather companies had an idea of the direction of travel, and what they must comply with, as soon as possible, knowing that it might be tweaked. That would be better than waiting until the guidance was absolutely perfect and definitely the final version, but releasing it just before people had to start complying with it. I would like an assurance that Ofcom will make publishing the guidance a priority, so that there is enough time to ensure compliance. We want the Bill to work; it will not work if people do not know what they have to comply with. Assurance on that would be helpful.

[Paul Scully]

I absolutely give that assurance to the hon. Lady; that is important. We all want the measures to be implemented, and the guidance to be out there, as soon as possible. Just now I talked about the platforms bringing in measures as soon as possible, without waiting for the implementation period. They can do that far better if they have the guidance. We are already working with Ofcom to ensure that the implementation period is as short as possible, and we will continue to do so.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

New Clause 2

Restricting users’ access to content

“(1) This section applies for the purposes of this Part.

(2) References to restricting users’ access to content, and related references, include any case where a provider takes or uses a measure which has the effect that—

(a) a user is unable to access content without taking a prior step (whether or not taking that step might result in access being denied), or

(b) content is temporarily hidden from a user.

(3) But such references do not include any case where—

(a) the effect mentioned in subsection (2) results from the use or application by a user of features, functionalities or settings which a provider includes in a service in compliance with the duty set out in section 14(2) (user empowerment), or

(b) access to content is controlled by another user, rather than the provider.

(4) See also section 203(5).”—(Paul Scully.)

This new clause deals with the meaning of references to restricting users’ access to content, in particular by excluding restrictions resulting from the use of user empowerment tools as described in clause 14.

Brought up, read the First and Second time, and added to the Bill.

New Clause 3

Duty not to act against users except in accordance with terms of service

“(1) A provider of a Category 1 service must operate the service using proportionate systems and processes designed to ensure that the provider does not—

(a) take down regulated user-generated content from the service,

(b) restrict users’ access to regulated user-generated content, or

(c) suspend or ban users from using the service,

except in accordance with the terms of service.

(2) Nothing in subsection (1) is to be read as preventing a provider from taking down content from a service or restricting users’ access to it, or suspending or banning a user, if such an action is taken—

(a) to comply with the duties set out in—

(i) section 9(2) or (3) (protecting individuals from illegal content), or

(ii) section 11(2) or (3) (protecting children from content that is harmful to children), or

(b) to avoid criminal or civil liability on the part of the provider that might reasonably be expected to arise if such an action were not taken.

(3) In addition, nothing in subsection (1) is to be read as preventing a provider from—

(a) taking down content from a service or restricting users’ access to it on the basis that a user has committed an offence in generating, uploading or sharing it on the service, or

(b) suspending or banning a user on the basis that—

(i) the user has committed an offence in generating, uploading or sharing content on the service, or

(ii) the user is responsible for, or has facilitated, the presence or attempted placement of a fraudulent advertisement on the service.

(4) The duty set out in subsection (1) does not apply in relation to—

(a) consumer content (see section (Interpretation of this Chapter));

(b) terms of service which deal with the treatment of consumer content.

(5) If a person is the provider of more than one Category 1 service, the duty set out in subsection (1) applies in relation to each such service.

(6) The duty set out in subsection (1) extends only to the design, operation and use of a service in the United Kingdom, and references in this section to users are to United Kingdom users of a service.

(7) In this section—

‘criminal or civil liability’ includes such a liability under the law of a country outside the United Kingdom;

‘fraudulent advertisement’ has the meaning given by section 35;

‘offence’ includes an offence under the law of a country outside the United Kingdom.

(8) See also section 16 (duties to protect news publisher content).”—(Paul Scully.)

This new clause imposes a duty on providers of Category 1 services to ensure that they do not take down content or restrict users’ access to it, or suspend or ban users, except in accordance with the terms of service.

Brought up, read the First and Second time, and added to the Bill.

New Clause 4

Further duties about terms of service

All services

“(1) A provider of a regulated user-to-user service must include clear and accessible provisions in the terms of service informing users about their right to bring a claim for breach of contract if—

(a) regulated user-generated content which they generate, upload or share is taken down, or access to it is restricted, in breach of the terms of service, or

(b) they are suspended or banned from using the service in breach of the terms of service.

Category 1 services

(2) The duties set out in subsections (3) to (7) apply in relation to a Category 1 service, and references in subsections (3) to (9) to ‘provider’ and ‘service’ are to be read accordingly.

(3) A provider must operate a service using proportionate systems and processes designed to ensure that—

(a) if the terms of service state that the provider will take down a particular kind of regulated user-generated content from the service, the provider does take down such content;

(b) if the terms of service state that the provider will restrict users’ access to a particular kind of regulated user-generated content in a specified way, the provider does restrict users’ access to such content in that way;

(c) if the terms of service state cases in which the provider will suspend or ban a user from using the service, the provider does suspend or ban the user in those cases.

(4) A provider must ensure that—

(a) terms of service which make provision about the provider taking down regulated user-generated content from the service or restricting users’ access to such content, or suspending or banning a user from using the service, are—

(i) clear and accessible, and

(ii) written in sufficient detail to enable users to be reasonably certain whether the provider would be justified in taking the specified action in a particular case, and

(b) those terms of service are applied consistently.

(5) A provider must operate a service using systems and processes that allow users and affected persons to easily report—

(a) content which they consider to be relevant content (see section (Interpretation of this Chapter));

(b) a user who they consider should be suspended or banned from using the service in accordance with the terms of service.

(6) A provider must operate a complaints procedure in relation to a service that—

(a) allows for complaints of a kind mentioned in subsection (8) to be made,

(b) provides for appropriate action to be taken by the provider of the service in response to complaints of those kinds, and

(c) is easy to access, easy to use (including by children) and transparent.

(7) A provider must include in the terms of service provisions which are easily accessible (including to children) specifying the policies and processes that govern the handling and resolution of complaints of a kind mentioned in subsection (8).

(8) The kinds of complaints referred to in subsections (6) and (7) are—

(a) complaints by users and affected persons about content present on a service which they consider to be relevant content;

(b) complaints by users and affected persons if they consider that the provider is not complying with a duty set out in any of subsections (1) or (3) to (5);

(c) complaints by a user who has generated, uploaded or shared content on a service if that content is taken down, or access to it is restricted, on the basis that it is relevant content;

(d) complaints by users who have been suspended or banned from using a service.

(9) The duties set out in subsections (3) and (4) do not apply in relation to terms of service which—

(a) make provision of the kind mentioned in section 9(5) (protecting individuals from illegal content) or 11(5) (protecting children from content that is harmful to children), or

(b) deal with the treatment of consumer content.

Further provision

(10) If a person is the provider of more than one regulated user-to-user service or Category 1 service, the duties set out in this section apply in relation to each such service.

(11) The duties set out in this section extend only to the design, operation and use of a service in the United Kingdom, and references to users are to United Kingdom users of a service.

(12) See also section 16 (duties to protect news publisher content).”—(Paul Scully.)

Subsections (3) to (8) of this new clause impose new duties on providers of Category 1 services in relation to terms of service that allow a provider to take down content or restrict users’ access to it, or to suspend or ban users. Such terms of service must be clear and applied consistently. Subsection (1) of the clause contains a duty which, in part, was previously in clause 20 of the Bill.

Brought up, read the First and Second time, and added to the Bill.

New Clause 5

OFCOM’s guidance about duties set out in sections (Duty not to act against users except in accordance with terms of service) and (Further duties about terms of service)

“(1) OFCOM must produce guidance for providers of Category 1 services to assist them in complying with their duties set out in sections (Duty not to act against users except in accordance with terms of service) and (Further duties about terms of service)(3) to (7).

(2) OFCOM must publish the guidance (and any revised or replacement guidance).”—(Paul Scully.)

This new clause requires OFCOM to give guidance to providers about complying with the duties imposed by NC3 and NC4.

Brought up, read the First and Second time, and added to the Bill.

New Clause 6

Interpretation of this Chapter

“(1) This section applies for the purposes of this Chapter.

(2) “Regulated user-generated content” has the same meaning as in Part 3 (see section 50), and references to such content are to content that is regulated user-generated content in relation to the service in question.

(3) “Consumer content” means—

(a) regulated user-generated content that constitutes, or is directly connected with content that constitutes, an offer to sell goods or to supply services,

(b) regulated user-generated content that amounts to an offence under the Consumer Protection from Unfair Trading Regulations 2008 (S.I. 2008/1277) (construed in accordance with section 53: see subsections (3), (11) and (12) of that section), or

(c) any other regulated user-generated content in relation to which an enforcement authority has functions under those Regulations (see regulation 19 of those Regulations).

(4) References to restricting users’ access to content, and related references, are to be construed in accordance with sections (Restricting users’ access to content) and 203(5).

(5) Content of a particular kind is “relevant content” if—

(a) a term of service, other than a term of service mentioned in section (Further duties about terms of service)(9), states that a provider may or will take down content of that kind from the service or restrict users’ access to content of that kind, and

(b) it is regulated user-generated content.

References to relevant content are to content that is relevant content in relation to the service in question.

(6) “Affected person” means a person, other than a user of the service in question, who is in the United Kingdom and who is—

(a) the subject of the content,

(b) a member of a class or group of people with a certain characteristic targeted by the content,

(c) a parent of, or other adult with responsibility for, a child who is a user of the service or is the subject of the content, or

(d) an adult providing assistance in using the service to another adult who requires such assistance, where that other adult is a user of the service or is the subject of the content.

(7) In determining what is proportionate for the purposes of sections (Duty not to act against users except in accordance with terms of service) and (Further duties about terms of service), the size and capacity of the provider of a service is, in particular, relevant.

(8) For the meaning of “Category 1 service”, see section 83 (register of categories of services).”—(Paul Scully.)

This new clause gives the meaning of terms used in NC3 and NC4.

Brought up, read the First and Second time, and added to the Bill.

New Clause 7

List of emerging Category 1 services

“(1) As soon as reasonably practicable after the first regulations under paragraph 1(1) of Schedule 11 come into force (regulations specifying Category 1 threshold conditions), OFCOM must comply with subsections (2) and (3).

(2) OFCOM must assess each regulated user-to-user service which they consider is likely to meet each of the following conditions, to determine whether the service does, or does not, meet them—

(a) the first condition is that the number of United Kingdom users of the user-to-user part of the service is at least 75% of the figure specified in any of the Category 1 threshold conditions relating to number of users (calculating the number of users in accordance with the threshold condition in question);

(b) the second condition is that—

(i) at least one of the Category 1 threshold conditions relating to functionalities of the user-to-user part of the service is met, or

(ii) if the regulations under paragraph 1(1) of Schedule 11 specify that a Category 1 threshold condition relating to a functionality of the user-to-user part of the service must be met in combination with a Category 1 threshold condition relating to another characteristic of that part of the service or a factor relating to that part of the service (see paragraph 1(4) of Schedule 11), at least one of those combinations of conditions is met.

(3) OFCOM must prepare a list of regulated user-to-user services which meet the conditions in subsection (2).

(4) The list must contain the following details about a service included in it—

(a) the name of the service,

(b) a description of the service,

(c) the name of the provider of the service, and

(d) a description of the Category 1 threshold conditions by reference to which the conditions in subsection (2) are met.

(5) OFCOM must take appropriate steps to keep the list up to date, including by carrying out further assessments of regulated user-to-user services.

(6) OFCOM must publish the list when it is first prepared and each time it is revised.

(7) When assessing whether a service does, or does not, meet the conditions in subsection (2), OFCOM must take such steps as are reasonably practicable to obtain or generate information or evidence for the purposes of the assessment.

(8) An assessment for the purposes of this section may be included in an assessment under section 83 or 84 (as the case may be) or carried out separately.”—(Paul Scully.)

This new clause requires OFCOM to prepare and keep up to date a list of regulated user-to-user services that have 75% of the number of users of a Category 1 service, and at least one functionality of a Category 1 service or one required combination of a functionality and another characteristic or factor of a Category 1 service.

Brought up, read the First and Second time, and added to the Bill.

New Clause 8

Child user empowerment duties

“(1) This section sets out the duties to empower child users which apply in relation to Category 1 services.

(2) A duty to include in a service, to the extent that it is proportionate to do so, features which child users may use or apply if they wish to increase their control over harmful content.

(3) The features referred to in subsection (2) are those which, if used or applied by a user, result in the use by the service of systems or processes designed to—

(a) reduce the likelihood of the user encountering priority content that is harmful, or particular kinds of such content, by means of the service, or

(b) alert the user to the harmful nature of priority content that is harmful that the user may encounter by means of the service.

(4) A duty to ensure that all features included in a service in compliance with the duty set out in subsection (2) are made available to all child users.

(5) A duty to include clear and accessible provisions in the terms of service specifying which features are offered in compliance with the duty set out in subsection (2), and how users may take advantage of them.

(6) A duty to include in a service features which child users may use or apply if they wish to filter out non-verified users.

(7) The features referred to in subsection (6) are those which, if used or applied by a user, result in the use by the service of systems or processes designed to—

(a) prevent non-verified users from interacting with content which that user generates, uploads or shares on the service, and

(b) reduce the likelihood of that user encountering content which non-verified users generate, upload or share on the service.

(8) A duty to include in a service features which child users may use or apply if they wish to only encounter content by users they have approved.

(9) A duty to include in a service features which child users may use or apply if they wish to filter out private messages from—

(a) non-verified users, or

(b) adult users, or

(c) any user other than those on a list approved by the child user.

(10) In determining what is proportionate for the purposes of subsection (2), the following factors, in particular, are relevant—

(a) all the findings of the most recent child risk assessment (including as to levels of risk and as to nature, and severity, of potential harm), and

(b) the size and capacity of the provider of a service.

(11) In this section “non-verified user” means a user who has not verified their identity to the provider of a service (see section 58(1)).

(12) In this section references to features include references to functionalities and settings.”—(Kirsty Blackman.)

Brought up, and read the First time.

[Kirsty Blackman]

I beg to move, That the clause be read a Second time.

That was some stretch of procedure, Dame Angela, but we got there in the end. This new clause is about child user empowerment duties. I am really pleased that the Government have user empowerment duties in the Bill—they are a good thing—but I am confused as to why they apply only to adult users, and why children do not deserve the same empowerment rights over what they access online.

In writing the new clause, I pretty much copied clause 14, before there were any amendments to it, and added a couple of extra bits: subsections (8) and (9). In subsection (8), I have included:

“A duty to include in a service features which child users may use or apply if they wish to only encounter content by users they have approved.”

That would go a step further than the verification process and allow users to approve only people who are in their class at school, people with whom they are friends, or even certain people in their class at school, and to not have others on that list. I know that young people playing Fortnite—I have mentioned Fortnite a lot because people play it a lot—or Roblox are contacted by users whom they do not know, and there is no ability for young people to switch off some of the features while still being able to contact their friends. Users can either have no contact from anyone, or they can have a free-for-all. That is not the case for all platforms, but a chunk of them do not let users speak only to people on their friends list, or receive messages only from people on the list.

My proposed subsection (8) would ensure that children could have a “white list” of people who they believe are acceptable, and who they want to be contacted by, and could leave others off the list. That would help tackle not just online child exploitation, but the significant online bullying that teachers and children report. Children have spoken of the harms they experience as a result of people bullying them and causing trouble online; the perpetrators are mainly other children. Children would be able to remove such people from the list and so would not receive any content, messages or comments from those who make their lives more negative.

Subsection (9) is related to subsection (8); it would require a service to include

“features which child users may use or apply if they wish to filter out private messages from—

(a) non-verified users, or

(b) adult users, or

(c) any user other than those on a list approved by the child user.”

Adults looking to exploit children will use private messaging on platforms such as Instagram. Instagram has to know how old its users are, so anybody who is signed up to it will have had to provide it with their date of birth. It is completely reasonable for a child to say, “I want to filter out everything from an adult.” When we talk about children online, we are talking about anybody from zero to 18, which is a very wide age range. Some of those people will be working and paying bills, but will not have access to the empowerment features that adults have access to, because they have not yet reached that magical threshold. Some services may decide to give children access to user empowerment tools, but there is no requirement to. The only requirement in the Bill on user empowerment tools is for adults. That is not fair.

Children should have more control over the online environment. We know how many children feel sad as a result of their interactions online, and how many encounter content online that they wish they had never seen and cannot unsee. We should give them more power over that, and more power to say, “No, I don’t want to see that. I don’t want people I don’t know contacting me. I don’t want to get unsolicited messaged. I don’t want somebody messaging me, pretending that they are my friend or that they go to another school, when they are in fact an adult, and I won’t realise until it is far too late.”

The Bill applies to people of all ages. All of us make pretty crappy decisions sometimes. That includes teenagers, but they also make great decisions. If there was a requirement for them to have these tools, they could choose to make their online experience better. I do not think this was an intentional oversight, or that the Government set out to disadvantage children when they wrote the adult user empowerment clauses. I think they thought that it would be really good to have those clauses in the Bill, in order to give users a measure of autonomy over their time and interactions online. However, they have failed to include the same thing for children. It is a gap.

I appreciate that there are child safety duties, and that there is a much higher bar for platforms that have child users, but children are allowed a level of autonomy; look at the UN convention on the rights of the child. We give children choices and flexibilities; we do not force them to do every single thing they do, all day every day. We recognise that children should be empowered to make decisions where they can.

I know the Government will not accept the provision—I am not an idiot. I have never moved a new clause in Committee that has been accepted, and I am pretty sure that it will not happen today. However, if the Government were to say that they would consider, or even look at the possibility of, adding child user empowerment duties to the Bill, the internet would be a more pleasant place for children. They are going to use it anyway; let us try to improve their online experience even more than the Bill does already.

[Alex Davies-Jones]

The hon. Member for Aberdeen North has outlined the case for the new clause eloquently and powerfully. She may not press it to a Division, if the Minister can give her assurances, but if she did, she would have the wholehearted support of the Opposition.

We see new clause 8 as complementing the child safety duties in the legislation. We fully welcome provisions that provide children with greater power and autonomy in choosing to avoid exposure to certain types of content. We have concerns about how the provisions would work in practice, but that issue has more to do with the Government’s triple-shield protections than the new clause.

The Opposition support new clause 8 because it aims to provide further protections, in addition to the child safety duties, to fully protect children from harmful content and to empower them. It would empower and enable them to filter out private messages from adults or non-verified users. We also welcome the measures in the new clause that require platforms and service providers to design accessible terms of service. That is absolutely vital to best protect children online, which is why we are all here, and what the legislation was designed for.

[Paul Scully]

The aim of the user empowerment duty is to give adults more control over certain categories of legal content that some users will welcome greater choice over. Those duties also give adult users greater control over who they interact with online, but these provisions are not appropriate for children. As the hon. Member for Aberdeen North acknowledged, there are already separate duties on services likely to be accessed by children, in scope of part 3, to undertake comprehensive risk assessments and to comply with safety duties to protect children from harm. That includes requirements to assess how many specific functionalities may facilitate the spread of harmful content, as outlined in clause 10(6)(e), and to protect children from harmful content, including content that has been designated as priority harmful content, by putting in place age-appropriate protections.

As such, children will not need to be provided with tools to control any harmful content they see, as the platform will need to put in place age-appropriate protections. We do not want to give children an option to choose to see content that is harmful to them. The Bill also outlines in clause 11(4)(f) that, where it is proportionate to do so, service providers will be required to take measures in certain areas to meet the child-safety duties. That includes functionalities allowing for control over content that is encountered. It would not be appropriate to require providers to offer children the option to verify their identity, due to the safeguarding and data protection risks that that would pose. Although we expect companies to use technologies such as age assurance to protect children on their service, they would only be used to establish age, not identity.

The new clause would create provisions to enable children to filter out private messages from adults and users who are not on an approved list, but the Bill already contains provisions that address the risks of adults contacting children. There are also requirements on service providers to consider how their service could be used for grooming or child sexual exploitation and abuse, and to apply proportionate measures to mitigate those risks. The service providers already have to assess and mitigate the risks. They have to provide the risk assessment, and within it they could choose to mitigate risk by requiring services to prevent unknown users from contacting children.

For the reasons I have set out, the Bill already provides strong protections for children on services that they are likely to access. I am therefore not able to accept the new clause, and I hope that the hon. Member for Aberdeen North will withdraw it.

[Kirsty Blackman]

That was one of the more disappointing responses from the Minister, I am afraid. I would appreciate it if he could write to me to explain which part of the Bill provides protection to children from private messaging. I would be interested to have another look at that, so it would be helpful if he could provide details.

We do not want children to choose to see unsafe stuff, but the Bill is not strong enough on stuff like private messaging or the ability of unsolicited users to contact children, because it relies on the providers noticing that in their risk assessment, and putting in place mitigations after recognising the problem. It relies on the providers being willing to act to keep children safe in a way that they have not yet done.

When I am assisting my children online, and making rules about how they behave online, the thing I worry most about is unsolicited contact: what people might say to them online, and what they might hear from adults online. I am happy enough for them to talk to their friends online—I think that is grand—but I worry about what adults will say to them online, whether by private messaging through text or voice messages, or when they are playing a game online with the ability for a group of people working as a team together to broadcast their voices to the others and say whatever they want to say.

Lastly, one issue we have seen on Roblox, which is marketed as a children’s platform, is people creating games within it—people creating sex dungeons within a child’s game, or having conversations with children and asking the child to have their character take off their clothes. Those things have happened on that platform, and I am concerned that there is not enough protection in place, particularly to address that unsolicited contact. Given the disappointing response from the Minister, I am keen to push this clause to a vote.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Paul Scully]

The Government recognise that the intent behind the new clause is to create new criminal offences of non-compliance with selected duties. It would establish a framework for personal criminal offences punishable through fines or imprisonment. It would mean that providers committed a criminal offence if they did not comply with certain duties.

We all want this Bill to be effective. We want it to be on the statute book. It is a question of getting that fine balance right, so that we can properly hold companies to account for the safety of their users. The existing approach to enforcement and senior manager liability strikes the right balance between robust enforcement and deterrent, and ensuring that the UK remains an attractive place to do business. We are confident that the Bill as a whole will bring about the change necessary to ensure that users, especially younger users, are kept safe online.

This new clause tries to criminalise not complying with the Bill’s duties. Exactly what activity would be criminalised is not obvious from the new clause, so it could be difficult for individuals to foresee exactly what type of conduct would constitute an offence. That could lead to unintended consequences, with tech executives driving an over-zealous approach to content take-down for fear of imprisonment, and potentially removing large volumes of innocuous content and so affecting the ability for open debate to take place.

[Kirsty Blackman]

Does the Minister not think that the freedom of speech stuff and the requirement to stick to terms of service that he has put in as safeguards for that are strong enough, then?

[Paul Scully]

I come back to this point: I think that if people were threatened with personal legal liability, that would stifle innovation and make them over-cautious in their approach. That would remove the balance, disturb the balance, that we have tried to achieve in this iteration of the Bill. Trying to keep internet users, particularly children, safe has to be achieved alongside free speech and not at its expense.

Further, the threat of criminal prosecution for failing to comply with numerous duties also runs a real risk of damaging the attractiveness of the UK as a place to start up and grow a digital business. I want internet users in the future to be able to access all the benefits of the internet safely, but we cannot achieve that if businesses avoid the UK because our enforcement regime is so far out of kilter with international comparators. Instead, the most effective way to ensure that services act to protect people online is through the existing framework and the civil enforcement options that are already provided for in the Bill, overseen by an expert regulator.

ONLINE SAFETY BILL (Second sitting)

Debate between Paul Scully and Kirsty Blackman

Committee stage (re-committed clauses and schedules)
Tuesday 13th December 2022 Public Bill Committees

[Paul Scully]

The onus on adults is very much a safety net—very much a catch-all, after we have put the onus on the social media companies and the platforms to adhere to their own terms and conditions.

We have heard a lot about Twitter and the changes to Twitter. We can see the commercial imperative for mainstream platforms, certainly the category 1 platforms, to have a wide enough catch-all in their terms of service—anything that an advertiser, for example, would see as reasonably sensible—to be able to remain a viable platform in the first place. When Elon Musk first started making changes at Twitter, a comment did the rounds: “How do you build a multimillion-dollar company? You sell it to Elon Musk for £44 billion.” He made that change. He has seen the bottom falling out of his market and has lost a lot of the cash he put into Twitter. That is the commercial impetus that underpins a lot of the changes we are making.

[Kirsty Blackman (Aberdeen North) (SNP)]

Is the Minister really suggesting that it is reasonable for people to say, “Right, I am going to have to walk away from Facebook because I don’t agree with their terms of service,” to hold the platform to account? How does he expect people to keep in touch with each other if they have to walk away from social media platforms in order to try to hold them to account?

[Paul Scully]

I do not think the hon. Lady is seriously suggesting that people can communicate only via Facebook—via one platform. The point is that there are a variety of methods of communication, of which has been a major one, although it is not one of the biggest now, with its share value having dropped 71% in the last year. That is, again, another commercial impetus in terms of changing its platform in other, usability-related ways.

--- Later in debate ---

[Paul Scully]

The hon. Lady makes a good point. I talked about the offline world rather than the real world, but clearly that can happen. That is where the balance has to be struck, as we heard from my hon. Friend the Member for Don Valley. It is not black and white; it is a spectrum of greys. Any sensible person can soon see when they stray into areas that we have talked about such as holocaust denial and extremism, but we do not want to penalise people who invariably are testing their freedom of expression.

It is a fine balance, but I think that we have reached the right balance between protecting freedom of expression and protecting vulnerable adults by having three layers of checks. The first is illegality. The second is enforcing the terms of service, which provide a higher bar than we had in the original Bill for the vast majority of platforms, so that we can see right at the beginning how they will be enforced by the platforms. If they change them and do not adhere them, Ofcom can step in. Ofcom can step in at any point to ensure that they are being enforced. The third is a safety net.

[Kirsty Blackman]

On illegal content, is the Minister proposing that the Government will introduce new legislation to make, for example, holocaust denial and eating disorder content illegal, whether it is online or offline? If he is saying that the bar in the online and offline worlds should be the same, will the Government introduce more hate crime legislation?

[Paul Scully]

Hate crime legislation will always be considered by the Ministry of Justice, but I am not committing to any changes. That is beyond my reach, but the two shields that we talked about are underpinned by a safety net.

--- Later in debate ---

[Paul Scully]

The Government recognise the importance of giving adult users greater choice about what they see online and who they interact with, while upholding users’ rights to free expression online. That is why we have removed the “legal but harmful” provisions from the Bill in relation to adults and replaced it with a fairer, simpler approach: the triple shield.

As I said earlier, the first shield will require all companies in scope to take preventive measures to tackle illegal content or activity. The second shield will place new duties on category 1 services to improve transparency and accountability, and protect free speech, by requiring them to adhere to their terms of service when restricting access to content or suspending or banning users. As I said earlier, user empowerment is the key third shield, empowering adults with a greater control over their exposure to legal forms of abuse or hatred, or content that encourages, promotes or provides instructions for suicide, self-harm or eating disorders. That has been done while upholding and protecting freedom of expression.

Amendments 9 and 12 will strengthen the user empowerment duty, so that the largest companies are required to ensure that those tools are effective in reducing the likelihood of encountering the listed content or alerting users to it, and are easy for users to access. That will provide adult users with greater control over their online experience.

We are also setting out the categories of content that those user empowerment tools apply to in the Bill, through amendment 15. Adult users will be given the choice of whether they want to take advantage of those tools to have greater control over content that encourages, promotes or provides instructions for suicide, self-harm and eating disorders, and content that targets abuse or incites hate against people on the basis of race, religion, sex, sexual orientation, disability, or gender reassignment. This is a targeted approach, focused on areas where we know that adult users—particularly those who are vulnerable or disproportionately targeted by online hate and abuse—would benefit from having greater choice.

As I said, the Government remain committed to free speech, which is why we have made changes to the adult safety duties. By establishing high thresholds for inclusion in those content categories, we have ensured that legitimate debate online will not be affected by the user empowerment duties.

I want to emphasise that the user empowerment duties do not require companies to remove legal content from their services; they are about giving individual adult users the option to increase their control over those kinds of content. Platforms will still be required to provide users with the ability to filter out unverified users, if they so wish. That duty remains unchanged. For the reasons that I have set out, I hope that Members can support Government amendments 8 to 17.

I turn to the amendments in the name of the hon. Member for Pontypridd to Government amendments 15 and 16. As I have set out in relation to Government amendments 8 to 17, the Government recognise the intent behind the amendments—to apply the user empowerment tools in clause 14(2) to a greater range of content categories. As I have already set out, it is crucial that a tailored approach is taken, so that the user empowerment tools stay in balance with users’ rights to free expression online. I am sympathetic to the amendments, but they propose categories of content that risk being either unworkable for companies or duplicative to the approach already set out in amendment 15.

The category of

“content that is harmful to health”

sets an extremely broad scope. That risks requiring companies to apply the tools in clause 14(2) to an unfeasibly large volume of content. It is not a proportionate approach and would place an unreasonable burden on companies. It might also have concerning implications for freedom of expression, as it may capture important health advice. That risks, ultimately, undermining the intention behind the user empowerment tools in clause 14(2) by preventing users from accessing helpful content, and disincentivising users from using the features.

In addition, the category

“provides false information about climate change”

places a requirement on private companies to be the arbiters of truth on subjective and evolving issues. Those companies would be responsible for determining what types of legal content were considered false information, which poses a risk to freedom of expression and risks silencing genuine debate.

[Kirsty Blackman]

Did the Minister just say that climate change is subjective?

[Paul Scully]

No, not about whether climate change is happening, but we are talking about a wide range. “Provides false information”—how do the companies determine what is false? I am not talking about the binary question of whether climate change is happening, but climate change is a wide-ranging debate. “Provides false information” means that someone has to determine what is false and what is not. Basically, the amendment outsources that to the social media platforms. That is not appropriate.

--- Later in debate ---

[Alex Davies-Jones]

Again, I will keep my comments on clause 19 brief, as we broadly support the intentions behind the clause and the associated measures in the grouping. My hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) spoke at length about this important clause, which relates to the all-important complaints procedures available around social media platforms and companies, in the previous Bill Committee.

During the previous Committee, Labour tabled amendments that would have empowered more individuals to make a complaint about search content in the event of non-compliance. In addition, we wanted an external complaints option for individuals seeking redress. Sadly, all those amendments were voted down by the last Committee, but I must once again press the Minister on those points, particularly in the context of the new amendments that have been tabled.

Without redress for individual complaints, once internal mechanisms have been exhausted, victims of online abuse could be left with no further options. Consumer protections could be compromised and freedom of expression, with which the Government seem to be borderline obsessed, could be infringed for people who feel that their content has been unfairly removed.

Government new clause 2 deals with the meaning of references to

“restricting users’ access to content”,

in particular by excluding restrictions resulting from the use of user empowerment tools as described in clause 14. We see amendments 22 and 59 as important components of new clause 2, and are therefore more than happy to support them. However, I reiterate to the Minister and place on the record once again the importance of introducing an online safety ombudsman, which we feel is crucial to new clause 2. The Joint Committee recommended the introduction of such an ombudsman, who would consider complaints when internal routes of redress had not resulted in resolution, had failed to address risk and had led to significant and demonstrable harm. As new clause 2 relates to restricting users’ access to content, we must also ensure that there is an appropriate channel for complaints if there is an issue that users wish to take up around restrictions in accessing content.

By now, the Minister will be well versed in my thoughts on the Government’s approach, and on the reliance on the user empowerment tool approach more broadly. It is fundamentally an error to pursue a regime that is so content-focused. Despite those points, we see the merits in Government amendments 22 and 59, and in new clause 2, so have not sought to table any further amendments at this stage.

[Kirsty Blackman]

I am slightly confused, and would appreciate a little clarification from the Minister. I understand what new clause 2 means; if the hon. Member for Pontypridd says that she does not want to see content of a certain nature, and I put something of that nature online, I am not being unfairly discriminated against in any way because she has chosen to opt out of receiving that content. I am slightly confused about the downgrading bit.

I know that an awful lot of platforms use downgrading when there is content that they find problematic, or something that they feel is an issue. Rather than taking that content off the platform completely, they may just no longer put it in users’ feeds, for example; they may move it down the priority list, and that may be part of what they already do to keep people safe. I am not trying to criticise what the Government are doing, but I genuinely do not understand whether that downgrading would still be allowed, whether it would be an issue, and whether people could complain about their content being downgraded because the platform was a bit concerned about it, and needed to check it out and work out what was going on, or if it was taken off users’ feeds.

Some companies, if they think that videos have been uploaded by people who are too young to use the platform, or by a registered child user of the platform, will not serve that content to everybody’s feeds. I will not be able to see something in my TikTok feed that was published by a user who is 13, for example, because there are restrictions on how TikTok deals with and serves that content, in order to provide increased protection and the safety that they want on their services.

Will it still be acceptable for companies to have their own internal downgrading system, in order to keep people safe, when content does not necessarily meet an illegality bar or child safety duty bar? The Minister has not used the phrase “market forces”; I think he said “commercial imperative”, and he has talked a lot about that. Some companies and organisations use downgrading to improve the systems on their site and to improve the user experience on the platform. I would very much appreciate it if the Minister explained whether that will still be the case. If not, will we all have a worse online experience as a result?

[Paul Scully]

I will have a go at that, but I am happy to write to the hon. Lady if I do not respond as fully as she wants. Down-ranking content is a moderation action, as she says, but it is not always done just to restrict access to content; there are many reasons why people might want to do it. Through these changes, we are saying that the content is not actually being restricted; it can still be seen if it is searched for or otherwise encountered. That is consistent with the clarification.

--- Later in debate ---

[Kirsty Blackman]

Specifically on the issue that was just raised, there were two written ministerial statements on the Online Safety Bill. The first specifically said that an amendment would

“require the largest platforms to publish summaries of their risk assessments for illegal content and material that is harmful to children, to allow users and empower parents to clearly understand the risks presented by these services and the approach platforms are taking to children’s safety”.—[Official Report, 29 November 2022; Vol. 723, c. 31WS.]

Unless I have completely missed an amendment that has been tabled for this Committee, my impression is that that amendment will be tabled in the Lords and that details will be made available about how exactly the publishing will work and which platforms will be required to publish.

I would appreciate it if the Minister could provide more clarity about what that might look like, and about which platforms might have to publish their assessments. I appreciate that that will be scrutinised in the Lords but, to be fair, this is the second time that the Bill has been in Committee in the Commons. It would be helpful if we could be a bit more sighted on what exactly the Government intend to do—meaning more than the handful of lines in a written ministerial statement—because then we would know whether the proposal is adequate, or whether we would have to ask further questions in order to draw it out and ensure that it is published in a certain form. The more information the Minister can provide, the better.

[Paul Scully]

I think we all agree that written records are hugely important. They are important as evidence in cases where Ofcom is considering enforcement action, and a company’s compliance review should be done regularly, especially before they make changes to their service.

The Bill does not intend to place excessive burdens on small and low-risk businesses. As such, clause 21 provides Ofcom with the power to exempt certain types of service from the record-keeping and review duties. However, the details of any exemptions must be published.

To half-answer the point made by the hon. Member for Aberdeen North, the measures will be brought to the Lords, but I will endeavour to keep her up to date as best we can so that we can continue the conversation. We have served together on several Bill Committees, including on technical Bills that required us to spend several days in Committee—although they did not come back for re-committal—so I will endeavour to keep her and, indeed, the hon. Member for Pontypridd, up to date with developments.

Question put and agreed to. 

Clause 21, as amended, accordingly ordered to stand part of the Bill.

Clause 30

duties about freedom of expression and privacy

Amendments made: 36, in clause 30, page 31, line 31, after “have” insert “particular”.

This amendment has the result that providers of regulated search services must have particular regard to freedom of expression when deciding on and implementing safety measures and policies.

Amendment 37, in clause 30, page 31, line 34, after “have” insert “particular”.—(Paul Scully.)

This amendment has the result that providers of regulated search services must have particular regard to users’ privacy when deciding on and implementing safety measures and policies.

Clause 30, as amended, ordered to stand part of the Bill.

Clause 46

Relationship between duties and codes of practice

Amendments made: 38, in clause 46, page 44, line 27, after “have” insert “particular”.

This amendment has the result that providers of services who take measures other than those recommended in codes of practice in order to comply with safety duties must have particular regard to freedom of expression and users’ privacy.

Amendment 39, in clause 46, page 45, line 12, leave out paragraph (c).

This amendment is consequential on Amendment 7 (removal of clause 13).

Amendment 40, in clause 46, page 45, line 31, at end insert “, or

(ii) a duty set out in section 14 (user empowerment);”.—(Paul Scully.)

This amendment has the effect that measures recommended in codes of practice to comply with the duty in clause 14 are relevant to the question of whether a provider is complying with the duties in clause 20(2) and (3) (having regard to freedom of expression and users’ privacy).

Question proposed, That the clause, as amended, stand part of the Bill.

--- Later in debate ---

[Alex Davies-Jones]

I will keep my comments on this grouping brief, because I have already raised our concerns and our overarching priority in terms of transparency reports in the previous debate, which was good one, with all Members highlighting the need for transparency and reporting in the Bill. With the Chair’s permission, I will make some brief comments on Government amendment 72 before addressing Government amendments 73 and 75.

It will come as no surprise to the Minister that amendment 72, which defines relevant content for the purposes of schedule 8, has a key omission—specifying priority content harmful to adults. For reasons we have covered at length, we think that it is a gross mistake on the Government’s side to attempt to water down the Bill in this way. If the Minister is serious about keeping adults safe online, he must reconsider this approach. However, we are happy to see amendments 73 and 75, which define consumer content and regulated user-generated content. It is important for all of us—whether we are politicians, researchers, academics, civil society, stakeholders, platforms, users or anyone else—that these definitions are in the Bill so that, when it is passed, it can be applied properly and at pace. That is why we have not sought to amend this grouping.

I must press the Minister to respond on the issues around relevant content as outlined in amendment 72. We greatly feel that more needs to be done to address this type of content and its harm to adults, so I would be grateful to hear the Minister’s assessment of how exactly these transparency reports will report back on this type of harm, given its absence in this group of amendments and the lack of a definition.

[Kirsty Blackman]

I am pleased to see the list included and the number of things that Ofcom can ask for more information on. I have a specific question about amendment 75. Amendment 75 talks about regulated user-generated content and says it has the same meaning as it does in the interpretation of part 3 under clause 50. The Minister may or may not know that there are concerns about clause 50(5), which relates to

“One-to-one live aural communications”.

One-to-one live aural communications are exempted. I understand that that is because the Government do not believe that telephony services, for example, should be part of the Online Safety Bill—that is a pretty reasonable position for them to take. However, allowing one-to-one live aural communications not to be regulated means that if someone is using voice chat in Fortnite, for example, and there are only two people on the team that they are on, or if someone is using voice chat in Discord and there are only two people online on the channel at that time, that is completely unregulated and not taken into account by the Bill.

I know that that is not the intention of the Bill, which is intended to cover user-generated content online. The exemption is purely in place for telephony services, but it is far wider than the Government intend it to be. With the advent of more and more people using virtual reality technology, for example, we will have more and more aural communication between just two people, and that needs to be regulated by the Bill. We cannot just allow a free-for-all.

If we have child protection duties, for example, they need to apply to all user-generated content and not exempt it specifically because it is a live, one-to-one aural communication. Children are still at significant risk from this type of communication. The Government have put this exemption in because they consider such communication to be analogous to telephony services, but it is not. It is analogous to telephony services if we are talking about a voice call on Skype, WhatsApp or Signal—those are voice calls, just like telephone services—but we are talking about a voice chat that people can have with people who they do not know, whose phone number they do not know and who they have no sort of relationship with.

Some of the Discord servers are pretty horrendous, and some of the channels are created by social media influencers or people who have pretty extreme views in some cases. We could end up with a case where the Discord server and its chat functions are regulated, but if aural communication or a voice chat is happening on that server, and there are only two people online because it is 3 o’clock in the morning where most of the people live and lots of them are asleep, that would be exempted. That is not the intention of the Bill, but the Government have not yet fixed this. So I will make one more plea to the Government: will they please fix this unintended loophole, so that it does not exist? It is difficult to do, but it needs to be done, and I would appreciate it if the Minister could take that into consideration.

[Paul Scully]

I do not believe that the provisions in terms of Ofcom’s transparency powers have been watered down. It is really important that the Bill’s protection for adults strikes the right balance with its protections for free speech, which is why we have replaced the “legal but harmful” clause. I know we will not agree on that, but there are more new duties that will make platforms more accountable. Ofcom’s transparency powers will enable it to assess compliance with the new safety duties and hold platforms accountable for enforcing their terms of service to keep users safe. Companies will also have to report on the measures that they have in place to tackle illegal content or activity and content that is harmful for children, which includes proactive steps to address offences such as child sexual exploitation and abuse.

The legislation will set out high-level categories of information that companies may be required to include in their transparency reports, and Ofcom will then specify the information that service providers will need to include in those reports, in the form of a notice. Ofcom will consider companies’ resources and capacity, service type and audience in determining what information they will need to include. It is likely that the information that is most useful to the regulator and to users will vary between different services. To ensure that the transparency framework is proportionate and reflects the diversity of services in scope, the transparency reporting requirements set out in the Ofcom notice are likely to differ between those services, and the Secretary of State will have powers to update the list of information that Ofcom may require to reflect any changes of approach.

--- Later in debate ---

[Kirsty Blackman]

The in-game chat that children use is overwhelmingly voice chat. Children do not type if they can possibly avoid it. I am sure that that is not the case for all children, but it is for most children. Aural communication is used if someone is playing Fortnite duos, for example, with somebody they do not know. That is why that needs to be included.

[Paul Scully]

I very much get that point. It is not something that I do, but I have certainly seen it myself. I am happy to chat to the hon. Lady to ensure that we get it right.

Amendment 72 agreed to.

Amendments made: 73, in schedule 8, page 206, line 6, at end insert—

“‘consumer content’ has the same meaning as in Chapter 2A of Part 4 (see section (Interpretation of this Chapter)(3));”.

This amendment defines “consumer content” for the purposes of Schedule 8.

Amendment 74, in schedule 8, page 206, leave out lines 7 and 8.

This amendment is consequential on Amendment 41 (removal of clause 55).

Amendment 75, in schedule 8, page 206, line 12, at end insert—

“‘regulated user-generated content’ has the same meaning as in Part 3 (see section 50), and references to such content are to content that is regulated user-generated content in relation to the service in question;”.—(Paul Scully.)

This amendment defines “regulated user-generated content” for the purposes of Schedule 8.

Schedule 8, as amended, agreed to.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

ONLINE SAFETY BILL (First sitting)

Debate between Paul Scully and Kirsty Blackman

Committee stage (re-committed clauses and schedules)
Tuesday 13th December 2022 Public Bill Committees

[Paul Scully]

I do not think that a single number can be put on that, because it depends on the platform and the type of viewing. It is not easy to put a single number on that. An “appreciable number” is basically as identified by Ofcom, which will be the arbiter of all this. It comes back to what the hon. Member for Aberdeen North said about the direction that we, as she rightly said, want to give Ofcom. Ofcom has a range of powers already to help it assess whether companies are fulfilling their duties, including the power to require information about the operation of their algorithms. I would set the direction that the hon. Lady is looking for, to ensure that Ofcom uses those powers to the fullest and can look at the algorithms. We should bear in mind that social media platforms face criminal liability if they do not supply the information required by Ofcom to look under the bonnet.

[Kirsty Blackman]

If platforms do not recognise that they have an issue with habit-forming features, even though we know they have, will Ofcom say to them, “Your risk assessment is insufficient. We know that the habit-forming features are really causing a problem for children”?

[Paul Scully]

We do not want to wait for the Bill’s implementation to start those conversations with the platforms. We expect companies to be transparent about their design practices that encourage extended engagement and to engage with researchers to understand the impact of those practices on their users.

The child safety duties in clause 11 apply across all areas of a service, including the way it is operated and used by children and the content present on the service. Subsection (4)(b) specifically requires services to consider the

“design of functionalities, algorithms and other features”

when complying with the child safety duties. Given the direction I have suggested that Ofcom has, and the range of powers that it will already have under the Bill, I am unable to accept the hon. Member’s amendment, and I hope she will therefore withdraw it.

[Kirsty Blackman]

I would have preferred it had the Minister been slightly more explicit that habit-forming features are harmful. That would have been slightly more helpful.

[Paul Scully]

I will say that habit-forming features can be harmful.

[Kirsty Blackman]

I thank the Minister. Absolutely—they are not always harmful. With that clarification, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Paul Scully]

I beg to move amendment 1, in clause 11, page 10, line 22, leave out

“, or another means of age assurance”.

This amendment omits words which are no longer necessary in subsection (3)(a) of clause 11 because they are dealt with by the new subsection inserted by Amendment 3.

--- Later in debate ---

[Paul Scully]

I think we are all in agreement, and I hope that the Committee will accept the amendments.

Amendment 1 agreed to.

Amendments made: 2, in clause 11, page 10, line 25, leave out

“(for example, by using age assurance)”.

This amendment omits words which are no longer necessary in subsection (3)(b) of clause 11 because they are dealt with by the new subsection inserted by Amendment 3.

Amendment 3, in clause 11, page 10, line 26, at end insert—

“(3A) Age assurance to identify who is a child user or which age group a child user is in is an example of a measure which may be taken or used (among others) for the purpose of compliance with a duty set out in subsection (2) or (3).”—(Paul Scully.)

This amendment makes it clear that age assurance measures may be used to comply with duties in clause 11(2) as well as (3) (safety duties protecting children).

[Kirsty Blackman]

I beg to move amendment 99, in clause 11, page 10, line 34, leave out paragraph (d) and insert—

“(d) policies on user access to the service, parts of the service, or to particular content present on the service, including blocking users from accessing the service, parts of the service, or particular content,”.

This amendment is intended to make clear that if it is proportionate to do so, services should have policies that include blocking access to parts of a service, rather than just the entire service or particular content on the service.

--- Later in debate ---

[Kirsty Blackman]

If someone on a PlayStation wants to play online games, they must sign up to PlayStation Plus—that is how the model works. Once they pay that subscription, they can access online games and play Fortnite or Rocket League or whatever they want online. They then also have access to a suite of communication features; they can private message people. It would be disproportionate to ban somebody from playing any PlayStation game online in order to stop them from being able to private message inappropriate things. That would be a disproportionate step. I do not want PlayStation to be unable to act against somebody because it could not ban them, as that would be disproportionate, but was unable to switch off the direct messaging features because the clause does not allow it that flexibility. A person could continue to be in danger on the PlayStation platform as a result of private communications that they could receive. That is one example of how the provision would be key and important.

[Paul Scully]

Again, the Government recognise the intent behind amendment 99, which, as the hon. Member for Aberdeen North said, would require providers to be able to block children’s access to parts of a service, rather than the entire service. I very much get that. We recognise the nature and scale of the harm that can be caused to children through livestreaming and private messaging, as has been outlined, but the Bill already delivers what is intended by these amendments. Clause 11(4) sets out examples of areas in which providers will need to take measures, if proportionate, to meet the child safety duties. It is not an exhaustive list of every measure that a provider might be required to take. It would not be feasible or practical to list every type of measure that a provider could take to protect children from harm, because such a list could become out of date quickly as new technologies emerge, as the hon. Lady outlined with her PlayStation example.

[Kirsty Blackman]

I have a concern. The Minister’s phrasing was “to block children’s access”. Surely some of the issues would be around blocking adults’ access, because they are the ones causing risk to the children. From my reading of the clause, it does not suggest that the action could be taken only against child users; it could be taken against any user in order to protect children.

[Paul Scully]

I will come to that in a second. The hon. Member for Luton North talked about putting the onus on the victim. Any element of choice is there for adults; the children will be protected anyway, as I will outline in a second. We all agree that the primary purpose of the Bill is to be a children’s protection measure.

Ofcom will set out in codes of practice the specific steps that providers can take to protect children who are using their service, and the Government expect those to include steps relating to children’s access to high-risk features, such as livestreaming or private messaging. Clause 11(4)(d) sets out that that providers may be required to take measures in the following areas:

“policies on user access to the service or to particular content present on the service, including blocking users from accessing the service or particular content”.

The other areas listed are intentionally broad categories that allow for providers to take specific measures. For example, a measure in the area of blocking user access to particular content could include specific measures that restrict children’s access to parts of a service, if that is a proportionate way to stop users accessing that type of content. It can also apply to any of the features of a service that enable children to access particular content, and could therefore include children’s access to livestreaming and private messaging features. In addition, the child safety duties make it clear that providers need to use proportionate systems and processes that prevent children from encountering primary priority content that is harmful to them, and protect children and age groups at risk of harm from other content that is harmful to them.

While Ofcom will set out in codes of practice the steps that providers can take to meet these duties, we expect those steps, as we have heard, to include the use of age verification to prevent children accessing content that poses the greatest risk of harm to them. To meet that duty, providers may use measures that restrict children from accessing parts of the service. The Bill therefore allows Ofcom to require providers to take that step where it is proportionate. I hope that that satisfies the hon. Member for Aberdeen North, and gives her the direction that she asked for—that is, a direction to be more specific that Ofcom does indeed have the powers that she seeks.

[Paul Scully]

The ministerial direction that the various platforms are receiving from the Dispatch Box, from our conversations with them and from the Bill’s progress as it goes through the House of Lords will be helpful to them. We do not expect providers to wait until the very last minute to implement the measures. They are starting to do so now, but we want them to go them further, quicker.

Government amendment 4 will require providers who already have a minimum age requirement for access to their service, or parts of it, to give details of the measures that they use to restrict access in their terms of service and apply them consistently. Providers will also need to provide age-appropriate protections for children using their service. That includes protecting children from harmful content and activity on their service, as well as reviewing children’s use of higher-risk features, as I have said.

To meet the child safety risk assessment duties in clause 10, providers must assess: the risk of harm to children from functionalities that facilitate the presence or dissemination of harmful content; the level of risk from different kinds of harmful content, giving separate consideration to children in different age groups; the different ways in which the service is used, and the impact of such use on the level of risk of harm; and how the design and operation of the service may increase the risks identified.

The child safety duties in clause 11 apply across all areas of the service, including the way it is operated and used by children, as well as the content present on the service. For the reasons I have set out, I am not able to accept the amendments, but I hope that the hon. Member for Aberdeen North will take on board my assurances.

[Kirsty Blackman]

That was quite helpful. I am slightly concerned about the Minister’s focus on reducing children’s access to the service or to parts of it. I appreciate that is part of what the clause is intended to do, but I would also expect platforms to be able to reduce the ability of adults to access parts of the service or content in order to protect children. Rather than just blocking children, blocking adults from accessing some features—whether that is certain adults or adults as a group—would indeed protect children. My reading of clause 11(4) was that users could be prevented from accessing some of this stuff, rather than just child users. Although the Minister has given me more questions, I do not intend to push the amendment to a vote.

May I ask a question of you, Sir Roger? I have not spoken about clause stand part. Are we still planning to have a clause stand part debate?

--- Later in debate ---

[Paul Scully]

Although the previous version of the Bill already focused on protecting children, as I have said, the Government are clear that it must do more to achieve that and to ensure that requirements for providers are as clear as possible. That is why we are making changes to strengthen the Bill. Amendments 4 and 5 will require providers who already have a minimum age requirement for access to their service, or parts of it, to give details in their terms of services of the measures that they use to ensure that children below the minimum age are prevented access. Those terms must be applied consistently and be clear and accessible to users. The change will mean that providers can be held to account for what they say in their terms of service, and will no longer do nothing to prevent underage access.

The Government recognise the intent behind amendment 100, which is to ensure that terms of service are clear and accessible for child users, but the Bill as drafted sets an appropriate standard for terms of service. The duty in clause 11(8) sets an objective standard for terms of service to be clear and accessible, rather than requiring them to be clear for particular users. Ofcom will produce codes of practice setting out how providers can meet that duty, which may include provisions about how to tailor the terms of service to the user base where appropriate.

The amendment would have the unintended consequence of limiting to children the current accessibility requirement for terms of service. As a result, any complicated and detailed information that would not be accessible for children—for example, how the provider uses proactive technology—would probably need to be left out of the terms of service, which would clearly conflict with the duty in clause 11(7) and other duties relating to the terms of service. It is more appropriate to have an objective standard of “clear and accessible” so that the terms of service can be tailored to provide the necessary level of information and be useful to other users such as parents and guardians, who are most likely to be able to engage with the more detailed information included in the terms of service and are involved in monitoring children’s online activities.

Ofcom will set out steps that providers can take to meet the duty and will have a tough suite of enforcement powers to take action against companies that do not meet their child safety duties, including if their terms of service are not clear and accessible. For the reasons I have set out, I am not able to accept the amendment tabled by the hon. Member for Aberdeen North and I hope she will withdraw it.

[Kirsty Blackman]

As I said, I will also talk about clause 11. I can understand why the Government are moving their amendments. It makes sense, particularly with things like complying with the provisions. I have had concerns all the way along—particularly acute now as we are back in Committee with a slightly different Bill from the one that we were first presented with—about the reliance on terms of service. There is a major issue with choosing to go down that route, given that providers of services can choose what to put in their terms of service. They can choose to have very good terms of service that mean that they will take action on anything that is potentially an issue and that will be strong enough to allow them to take the actions they need to take to apply proportionate measures to ban users that are breaking the terms of service. Providers will have the ability to write terms of service like that, but not all providers will choose to do that. Not all providers will choose to write the gold standard terms of service that the Minister expects everybody will write.

We have to remember that these companies’ and organisations’ No. 1 aim is not to protect children. If their No. 1 aim was to protect children, we would not be here. We would not need an Online Safety Bill because they would be putting protection front and centre of every decision they make. Their No. 1 aim is to increase the number of users so that they can get more money. That is the aim. They are companies that have a duty to their shareholders. They are trying to make money. That is the intention. They will not therefore necessarily draw up the best possible terms of service.

I heard an argument on Report that market forces will mean that companies that do not have strong enough terms of service, companies that have inherent risks in their platforms, will just not be used by people. If that were true, we would not be in the current situation. Instead, the platforms that are damaging people and causing harm—4chan, KiwiFarms or any of those places that cause horrendous difficulties—would not be used by people because market forces would have intervened. That approach does not work; it does not happen that the market will regulate itself and people will stay away from places that cause them or others harm. That is not how it works. I am concerned about the reliance on terms of service and requiring companies to stick to their own terms of service. They might stick to their own terms of service, but those terms of service might be utterly rubbish and might not protect people. Companies might not have in place what we need to ensure that children and adults are protected online.

--- Later in debate ---

[Kirsty Blackman]

It is absolutely the case that those companies still have to do a risk assessment, and a child risk assessment if they meet the relevant criteria. The largest platforms, for example, will still have to do a significant amount of work on risk assessments. However, every time a Minister stands up and talks about what they are requiring platforms and companies to do, they say, “Companies must stick to their terms of service. They must ensure that they enforce things in line with their terms of service.” If a company is finding it too difficult, it will just take the tough things out of their terms of service. It will take out transphobia, it will take out abuse. Twitter does not ban anyone for abuse anyway, it seems, but it will be easier for Twitter to say, “Ofcom is going to try to hold us for account for the fact that we are not getting rid of people for abusive but not illegal messages, even though we say in our terms of service, ‘You must act with respect’, or ‘You must not abuse other users’. We will just take that out of our terms of service so that we are not held to account for the fact that we are not following our terms of service.” Then, because the abuse is not illegal—because it does not meet that bar—those places will end up being even less safe than they are right now.

For example, occasionally Twitter does act in line with its terms of service, which is quite nice: it does ban people who are behaving inappropriately, but not necessarily illegally, on its platform. However, if it is required to implement that across the board for everybody, it will be far easier for Twitter to say, “We’ve sacked all our moderators—we do not have enough people to be able to do this job—so we will just take it all out of the terms of service. The terms of service will say, ‘We will ban people for sharing illegal content, full stop.’” We will end up in a worse situation than we are currently in, so the reliance on terms of service causes me a big, big problem.

Turning to amendment 100, dealing specifically with the accessibility of this feature for child users, I appreciate the ministerial clarification, and agree that my amendment could have been better worded and potentially causes some problems. However, can the Minister talk more about the level of accessibility? I would like children to be able to see a version of the terms of service that is age-appropriate, so that they understand what is expected of them and others on the platform, and understand when and how they can make a report and how that report will be acted on. The kids who are using Discord, TikTok or YouTube are over 13—well, some of them are—so they are able to read and understand, and they want to know how to make reports and for the reporting functions to be there. One of the biggest complaints we hear from kids is that they do not know how to report things they see that are disturbing.

A requirement for children to have an understanding of how reporting functions work, particularly on social media platforms where people are interacting with each other, and of the behaviour that is expected of them, does not mean that there cannot be a more in-depth and detailed version of the terms of service, laying out potential punishments using language that children may not be able to understand. The amendment would specifically ensure that children have an understanding of that.

We want children to have a great time on the internet. There are so many ace things out there and wonderful places they can access. Lego has been in touch, for example; its website is really pretty cool. We want kids to be able to access that stuff and communicate with their friends, but we also want them to have access to features that allow them to make reports that will keep them safe. If children are making reports, then platforms will say, “Actually, there is real problem with this because we are getting loads of reports about it.” They will then be able to take action. They will be able to have proper risk assessments in place because they will be able to understand what is disturbing people and what is causing the problems.

I am glad to hear the Minister’s words. If he were even more clear about the fact that he would expect children to be able to understand and access information about keeping themselves safe on the platforms, then that would be even more helpful.

[Paul Scully]

On terms and conditions, it is clearly best practice to have a different level of explanation that ensures children can fully understand what they are getting into. The hon. Lady talked about the fact that children do not know how to report harm. Frankly, judging by a lot of conversations we have had in our debates, we do not know how to report harm because it is not transparent. On a number of platforms, how to do that is very opaque.

A wider aim of the Bill is to make sure that platforms have better reporting patterns. I encourage platforms to do exactly what the hon. Member for Aberdeen North says to engage children, and to engage parents. Parents are well placed to engage with reporting and it is important that we do not forget parenting in the equation of how Government and platforms are acting. I hope that is clear to the hon. Lady. We are mainly relying on terms and conditions for adults, but the Bill imposes a wider set of protections for children on the platforms.

Amendment 4 agreed to.

Amendment made: 5, in clause 11, page 11, line 15, after “(5)” insert “, (6A)”.—(Paul Scully.)

This amendment ensures that the duty in clause 11(8) to have clear and accessible terms of service applies to the terms of service mentioned in the new subsection inserted by Amendment 4.

Clause 11, as amended, ordered to stand part of the Bill.

Clause 12

Adults’ risk assessment duties

Question proposed, That the clause stand part of the Bill.

Subsidy Control Bill

Debate between Paul Scully and Kirsty Blackman

Consideration of Lords amendments
Wednesday 20th April 2022 Commons Chamber

[Kirsty Blackman]

I absolutely do. The Government cannot hide behind agricultural being in the trade and co-operation agreement, because the TCA specifically says that agricultural subsidies can and should be excluded from subsidy control regimes. The Government still have not given a good reason for including agriculture in the subsidy control regime. It works in the EU and in the state aid regime, so it is perfectly workable to exclude agriculture from the subsidy control regime. Including such subsidies will cause problems. The fact that NFUs across these islands have raised concerns shows that it is incredibly serious. I urge the Minister to think again about how the issue of agriculture is treated by the Bill.

The shadow Minister extensively addressed net zero. Granting authorities are required to consider the environmental and net zero impacts of energy-related subsidies, but that is not what net zero is about. This is not the only time we will be thinking about how to reduce our impact on climate change. If a granting authority decides to give a significant amount of money to a bus company, for example, it does not have to consider the climate impact. If it decides to scrap all the buses and replace them with diesel taxis, it does not have to consider the net zero impact, because it is not an energy-related subsidy. I am massively concerned that net zero is included only in schedule 2 and not in schedule 1. If the Government are serious about tackling climate change, they need to be looking at every piece of legislation that comes through this place and ensuring that it does not have a negative impact on our ability to meet net zero; and if it does, they should be ensuring that that is then balanced by further, more dramatic actions in order that we can meet net zero.

In summation, the Bill is better than it was, but it still falls far short. I am still concerned about transparency and massively concerned about agriculture. I am hugely concerned about the lack of importance this Government are giving to net zero—that should go through everything we do.

[Paul Scully]

I thank all hon. Members for their engagement throughout the passage of this Bill and for their contributions this afternoon. I am glad that there has been broad consensus, albeit with some questions, which I will try briefly to address. The importance of that new independent subsidy control regime has been clear throughout the passage of the Bill and it was evident again today, so I thank hon. Members for their broad support.

Let me respond to the question from the hon. Member for Feltham and Heston (Seema Malhotra) about P&O and that kind of example. Clearly, we are shocked by the action of P&O Ferries and angered by the lack of empathy and consideration it has demonstrated towards its employees. The Government are continuing to work to establish whether P&O Ferries or DP World are in breach of any requirements of them as partners in the Thames and Solent freeports. Speaking more generally, I can confirm that the Bill ensures that public authorities can recover a subsidy where it has been misused, but it is important to note that the purpose of a subsidy is to achieve specific change in behaviour to facilitate a specific policy objective; it is not to give the Government ongoing leverage over how a company conducts its affairs. It is for other areas of law to set out the limits of what is acceptable corporate behaviour. None the less, because the subsidy is there to have that specific policy objective, we will make sure that that policy objective is met as best we can. However, it is difficult to enforce—

[Paul Scully]

It is difficult to come up with the examples, but in essence a subsidy is there to determine a particular policy objective. We would want to partner with businesses and companies that are most likely to deliver those policy objectives: reliable partners. Clearly, ones that are in breach of the kind of examples that the hon. Lady mentions are less likely to be those reliable partners. Technically, she is correct, but this is about how we enforce something, probably after the event; similarly, had we given P&O Ferries a subsidy last year, we probably would not have been able to get that subsidy back. That is the difficulty with enforcement after the event. None the less, the sentiment is absolutely there: we do not want to be partnering with unreliable companies to achieve our policy objectives.

[Kirsty Blackman]

The issue with that is that if a company is given money to run a freeport and it runs a freeport with that money, it can sack all the staff it likes at P&O and still be eligible for the subsidy. The issue is that there is a gap, which has been well highlighted by the shadow Minister.

[Paul Scully]

We will work out how the subsidy control regime is working; it is part of what I will come back to in a moment about the CMA’s approach to reporting back how the regime is working. We have to make sure that this is watertight—excuse the pun—if we are going to go down the road of making sure that we can recover any subsidies. I suspect that other areas of law will be better suited to approaching that, rather than specifically dealing with it within this framework Bill.

--- Later in debate ---

[Paul Scully]

Again, that is up to the public authorities. The whole point about this regime is that it is a loose, permissive framework, rather than something more onerous which adds layer upon layer to recreate the EU state aid system. None the less, I would expect that, again, because of value for money and good governance, any public authority, whether national Government, local government or another public body, would expect to have exactly that kind of criteria—

[Kirsty Blackman]

The Scottish Government asked that the freeports that were going to be in Scotland had green stuff in them and fair work rules, but the UK Government said no. Now the Minister is saying, “Yes, we can totally do that. That definitely should be in it.” The UK Government refused to let us have that in the freeports planned for Scotland.

[Paul Scully]

I am not going to get involved in a wider discussion about freeports; I am talking about a framework Bill, which is exactly why I said that other areas of legislation and of governance will better frame this area, as opposed to having it within this framework Bill. I am going well over time on this issue, because I wanted to cover some of the other areas.

Net zero has been mentioned. Schedule 2 contains a lot of common-sense principles already, which support the UK’s priorities on net zero and protecting the environment. They require subsidies in relation to energy and the environment to meet one of the specified aims, such as increasing the level of environmental protection, and to ensure that subsidies do not undermine the polluter pays principle. We talked about the tax subsidies and the timings. Clearly, within the timings of the tax subsidies a longer period is still necessitated, because of the fact that tax returns and such things take longer to go through the process—as opposed to having the immediacy of sponsorship through a subsidy or more immediate cash assistance.

The hon. Member for Feltham and Heston talked about CMA thresholds and limitations, but ultimately that is what the CMA will be looking at in any case as part of its reporting back on the regime and its overall effectiveness. So we will always be able to look at how those thresholds and limitations are working in practice; we want to make sure that that can be put in place.

I wish to conclude by reaffirming what I set out in my opening remarks: this Bill creates a domestic subsidy control regime that will work for people and communities across the UK, creating a robust yet agile system that allows public authorities to provide subsidies where they are needed most. The rigorous debates in both Houses have resulted in the improved Bill we have before us, so I commend it to the House.

Lords amendment 1 agreed to.

Lords amendments 2 to 51 agreed to.

Building Safety Bill (Programme) (No. 3)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Building Safety Bill for the purpose of supplementing the Order of 21 July 2021 (Building Safety Bill (Programme)), as varied by the Order of 19 January 2022 (Building Safety Bill (Programme) (No. 2)):

Consideration of Lords Amendments

(1) Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion three hours after their commencement.

(2) The Lords Amendments shall be considered in the following order, namely: 93, 94, 98, 107 to 109, 145, 184, 6, 1 to 5, 7 to 92, 95 to 97, 99 to 106, 110 to 144, 146 to 183, 185 to 191.

Subsequent stages

(3) Any further Message from the Lords may be considered forthwith without any Question being put.

(4) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Alan Mak.)

Question agreed to.

Subsidy Control Bill (Eleventh sitting)

Debate between Paul Scully and Kirsty Blackman

Thursday 18th November 2021 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

As has been common throughout, I agree with almost everything that the hon. Lady has said, and I agree that we lack information on what this will look like. I get all the arguments that the Government have made about the structure being permissive, but we could do with more information on several of these things. That is why I have tabled amendment 24, which is a probing amendment to try to find out how the Government intend the guidance to be drafted.

Clause 79(5) states:

“Before issuing guidance under this section, the Secretary of State must consult such persons as the Secretary of State considers appropriate.”

It would have been helpful to have more information on that, and it would be useful to have that from the Minister. With subsection (1)(a), (b), (c) and (e), will the Secretary of State consider the devolved Administrations to be reasonable organisations to contact before issuing guidance around the subsidy control principles, the energy and environment principles, the subsidy control requirements and, crucially, the criteria for determining whether something is of interest or particular interest? That is a really important part of the Bill, and we do not have enough information on what interest and particular interest will mean.

The shadow Minister is absolutely correct that there is a hierarchy. In some areas, the Secretary of State must issue guidance because otherwise the scheme will not work, but in others it is more flexible. I probably would have included subsection (1)(e) among the areas on which the Secretary of State must issue guidance, because I do not think the scheme works if people do not know what interest and particular interest will mean. The Minister has spoken an awful lot about certainty for granting authorities and for organisations that will be receiving subsidies, and about trying to cut down the length of the period of uncertainty. In the absence of proper guidance that we have been able to scrutinise in any way, that uncertainty becomes much higher—definitely at this point, and I hope that will not be the case when the Act comes into force and begins to work.

I have one other question for the Minister. Clause 79 says that

“the Secretary of State must consult such persons as the Secretary of State considers appropriate.”

I have asked before—I have been reasonably happy with the answers—about how long in advance of the Act coming into play the guidance will be published. I think it is hugely important that the consultation period is long enough to ensure that that guidance is right, not just in lining up with the principles that have been set out and achieving the Government’s intentions, but in covering all the gaps that organisations foresee and answering the questions that granting authorities or enterprises might have. That length of time is needed to provide the right level of certainty and enable people to study what is a very big change.

We have had state aid rules in place for a long time, and that is why, in practice, an awful lot of the decisions that are being taken just now are based not on the interim regime but on state aid itself. A lot of people who are going to lawyers for advice are being told, “We will apply the state aid principles to this, because that is the easiest course of action just now.” We want to make sure that that does not continue to happen. For the new regime that the Government intend to be in force, we need to make sure that legal experts have the time to get up to speed on how they should advise people, because it is technical, and it is important that people get it right. It is important that subsidies are allowed to be made—that is the point of the Bill—but that regulation is in place to ensure that public money is spent wisely and properly, and that inappropriate distortion of competition is removed so far as possible.

Amendment 24 asks for that guidance to be made by the affirmative procedure, because I do not think that enough scrutiny will be brought to bear on the guidance that will be issued. If the Minister feels that there will be scrutiny, it will be helpful if he lays out how parliamentarians might interact with that guidance, either before or after—preferably before—it is issued. It is obvious that we have an interest, and it is obvious that we have concerns, but we also have ideas; a number of the amendments that we have tabled have been constructive and intended to improve the Bill. None of us suggests that there should not be a subsidy control regime. We are trying to make it the best subsidy control regime, in order that it works for our constituencies and the countries and people that we represent. Any information that the Minister could give on that would be incredibly useful.

[Paul Scully]

The power to issue statutory guidance, as is currently provided for in clause 79, will allow the Government to offer greater colour and detail to public authorities in how to comply with the subsidy control requirements. We plan to provide extensive guidance on the new regime, set out in clear, plain language and including useful explanatory material, case studies, practical explanations and additional matters that public authorities may wish to consider. For instance, it might be used to explain how subsidies could be given to support disadvantaged areas in a way that is consistent with the principles; among other things, it could describe characteristics or criteria that a public authority could use to identify a disadvantaged area, which would help to ensure that the subsidy is addressing an equity objective and is consistent with principle A.

The Secretary of State will consult such persons as appropriate before issuing the guidance. This may well include the devolved Administrations, businesses and public authorities. This will allow public authorities plenty of time to consider the guidance before the new regime comes into force. The hon. Member for Aberdeen North talked about the devolved Administrations. Clearly, the Government cannot do this in isolation. It is incumbent on us to make sure that we speak to the people who will use the guidance, to make sure that it is fit for purpose. I cannot give a precise list of stakeholders that we will engage and consult, but it is in our best interest to ensure that we have the widest, broadest range of stakeholders to make sure that guidance is useful, rigorous and fit for purpose.

On timing, I said earlier that, depending on parliamentary time, the commencement of the Bill will be next autumn, which gives us plenty of time. We have already started the process of engaging with officials, and we will make sure to continue our engagement with officials in the devolved Administrations, as well other public authorities, to make sure that we can publish this guidance in time for the Bill’s coming into force.

[Kirsty Blackman]

Will the Minister confirm that, should there be a requirement to update the guidance in the future, which there is likely to be, a consultation process will be undertaken in advance of that updating, and that there will be a reasonable length of time before changes are made to the guidance so that authorities can comply with it?

[Paul Scully]

It is incumbent on us to engage on any changes. How we engage and the timing of that will depend on the circumstances. However, if we are going to do this and make it work, clearly we need to engage as widely as possible to make sure that those changes are fit for purpose.

Amendment 24 would effectively remove the power to issue statutory guidance and replace it with one for the Secretary of State to make binding delegated legislation on the practical application of key elements of the domestic subsidy control regime. We do not believe that regulations are a suitable vehicle for setting out information and advice on the practical application of parts of the subsidy control regime. Regulations are restrictive in their content and must be drafted in a specific, technical way. Guidance, on the other hand, serves the purpose of explaining and clarifying the regime, in ordinary language, for the benefit of those who will need to use and understand the practical effect of the legislation. It can also be quickly updated should circumstances change.

I know that the right hon. Member for Aberdeen North—sorry, the hon. Member; that was another promotion for a colleague. I am sharing the love. I know that she wants to scrutinise future regulations made under the Bill, and it is right that there be additional parliamentary scrutiny of those regulations, as they impose new legal obligations that are additional to those in the Bill, but that is not true of any guidance that will need to be issued under clause 79. The guidance will need to be consistent with, and cannot change, the law to which it relates.

Amendments 80 and 81 would compel the Secretary of State to issue guidance under subsection 1(a) to (c)— that is, on the subsidy control requirements. I understand the intent behind the amendments, but in practice they are unnecessary. While the Secretary of State “may” issue such guidance, in practice he must do so for the regime to function effectively.

Going back to the Government response to the subsidy control public consultation, as we have consistently said, the foundation of the new regime is a clear, proportionate and transparent set of principles, supported by guidance that will ensure that public authorities fully understand their legal obligations and embed strong value-for-money and competition principles. The guidance will show how the assessment of compliance with the principles should be carried out, and how different benefits and distortive impacts should be assessed for different kinds of subsidies. I assure hon. Members that the Secretary of State certainly does not propose to commence the regime without first issuing clear guidance on the subsidy control requirements.

--- Later in debate ---

[Paul Scully]

The clause gives the Secretary of State the power to issue and update guidance on the practical application of the provisions in the Bill. It places a duty on public authorities to have regard to the guidance when designing a subsidy scheme or giving an individual subsidy. The Secretary of State is also required to publish the guidance and keep it under regular review, and may revise or replace that guidance. The Secretary of State must also consult persons they deem appropriate before issuing guidance.

[Kirsty Blackman]

I wonder whether the Minister would commit to ensuring that there are links to the guidance on the subsidy control database. People who are interested in the database are likely to be interested in the guidance, particularly if they are considering making a challenge. Will he ensure that the links are on the website, so that people can find them more easily? That would be helpful.

[Seema Malhotra]

The Minister has outlined the details of the clause. Notwithstanding the points we have already made, we support clause stand part.

--- Later in debate ---

[Paul Scully]

Clause 81 allows for limited amendments to be made to subsidies or schemes. A permitted modification will not be treated as a new subsidy or scheme as long as it meets the parameters set out in the clause. First, let me cover amendments 83 and 85. These amendments would remove from the list of permitted modifications an increase of up to 25% of the original budget of a subsidy or scheme. Instead, increases only up to the rate of inflation would be treated as permitted modifications. In doing so, the amendments would greatly reduce the flexibility afforded to public authorities to moderately increase the budget of a subsidy or scheme without facing additional administrative burdens.

The Government have committed to reducing administrative burdens on public authorities wherever possible. That includes giving them the flexibility to make limited amendments to a subsidy or scheme without having to jump through additional procedural hoops. An increase of up to 25% is appropriate, as this level of uplift is unlikely to greatly change the distortionary effects of a subsidy or scheme, which is what we are measuring.

[Kirsty Blackman]

Will the Minister write to me in advance of Report setting out what would happen if the increase of 25% takes the subsidy above a certain threshold, whether that is the de minimis threshold or the threshold for reporting? It strikes me that it would be possible to use the provision in a negative way to get round the system. I am sure that it is not the Government’s intention, so it would be useful to have advice on what might happen should that subsidy hit the threshold.

[Paul Scully]

To avoid the bureaucratic burden I talked about, the clause allows for a limited degree of modification without reassessment. That creates the right balance, and public authorities would need to determine whether the change is just administrative or not.

Permitted modifications do not have to be reassessed, and therefore it would not need to be considered whether they bump into subsidies of interest or subsidies of particular interest, for example, because those criteria apply only to new schemes. The public authority will have already carried out an assessment of compliance with the principles and other requirements for all the subsidies and schemes, so the increase in value is unlikely to meaningfully alter that. Clearly, if a public authority was attempting to mislead or exploit that as a loophole, it could be subject to judicial review on general public law grounds.

--- Later in debate ---

[Paul Scully]

Other tools exist to provide the transparency in public authority spending, such as the data published by local authorities under the local government transparency code. The regime is not intended to replace other mechanisms for ensuring that we have transparency and good management of public money.

I do not want to compare and contrast every single element of the regime against the EU, but on timescales, the Committee may find it useful to know that the EU state aid regime also allows for prolongation of an existing scheme by up to six years. The amendment would therefore make the UK’s rules around the modification of subsidies and schemes much stricter than those under the EU without bringing any corresponding benefit. I therefore request that the amendment be withdrawn.

[Kirsty Blackman]

I appreciate the Minister’s attempt to explain the 25% and what would happen should the subsidy increase above a certain threshold. However, I would very much appreciate it if he would write to us about what is likely to happen should that threshold be hit.

Subsection (3)(g) specifically relates to the length of time for subsidy scheme extensions. An enterprise could conceivably not have existed during the original term of the subsidy scheme but be later affected by the extension of the scheme, with no ability to challenge that scheme because the extension gives no opportunity for it to be challenged. This is not only about the length of time. We discussed the way in which individual subsidies made within a scheme cannot be challenged. It is distinctly possible that that could inadvertently distort competition for new enterprises that pop up during the period of a scheme and so have no ability to challenge it and no recourse to make their concerns known, because a system just does not exist for them to do so if they are outwith the period of being able to challenge the original scheme. If a scheme is not classed as new but extended, there is a bit of a problem.

I understand what the Minister says about the EU, and I assume—although he did not say this—that six years was likely chosen because that is analogous with the length of time the EU gives. However, because of the differences between this scheme and the EU state aid scheme, lifting the same number of years does not work as well as it could, because individual subsidies cannot be challenged. Only the scheme can be challenged, and there will be no ability for new enterprises to challenge the schemes, even though they may have a major distortive effect on competition.

--- Later in debate ---

[Kirsty Blackman]

Very unusually, although we are discussing two Opposition amendments, we disagree with one of them. I cannot support amendment 87. As I have said on a number of occasions, I am concerned about ensuring compliance with the regime. There will be compliance only if people have a good understanding of the regime before it kicks in. I do not have a problem with the period following Royal Assent being more than six months, because I would rather that organisations such as public authorities had the time to digest the guidance and regulations in order to be able to adequately comply. We do not want people to accidentally not comply.

I understand the Opposition’s desire to push forward, given the current interim regime, but it is important to get this right. I do not think any of us are comforted that we will be able to judge whether there is a high level of compliance with the regime. The Minister expects that that will be the case, but the lack of transparency data means that it will not be terribly easy to judge the situation.

Under amendment 25, which we have tabled, the Secretary of State would not be able to make regulations to bring the rest of the Bill into force until regulations under clauses 34 and 52 had been made and been in force for at least three months. Those clauses relate to mandatory Competition and Markets Authority referrals and the operation of the subsidy database. It is really important that both those measures are well understood in advance of the rest of the provisions coming into force, which is why the amendment seeks a three-month time period, so that everyone is able to comply.

The second condition that the amendment would require, where I am asking that guidance be in place for three months, is about guidance under clause 79. We spoke at some length during the debate on clause 79 about our concerns. It was useful to have the Minister confirm that the Secretary of State will be making guidance on a number of those things, despite the fact that the word “may” is in there. That is a helpful clarification for us, but it is important that that guidance is published.

I am pleased that the Minister plans to ensure that there is significant consultation and that the asks that come forward are considered. If somebody asks for specific guidance about a specific area because they know it is something they are likely to be dealing with on a regular basis and they are a regular granter, or likely to be a regular granter, of subsidies under this regime, I would like the Minister to have the opportunity to consider that. However, I would also like to ensure that there is a period of time, in advance of people being expected to comply with the regulations and guidance put forward, for them to digest them.

That is particularly important when we look at the operation of the subsidy control database and the method of challenging things on that database. People have only a short period of time—one month—to make those challenges and ask for pre-action information to be brought forward. The Minister’s stated aim is to reduce the length of the period of uncertainty, but the likelihood of there being uncertainty or challenges is increased if organisations do not properly understand the guidance. We all know that lawyers take a significant amount of time to digest things and to give the necessary advice to organisations.

As was stated during the witness sessions, the legal profession will have to do a huge amount of work to ensure that they are giving appropriate advice to organisations that are looking either to grant or to challenge subsidies. I do not think it would be appropriate for the regime to begin in the autumn, as the Minister has stated that the Government hope it will, without there being that period of time in advance.

All the indications the Minister has given are that it is likely that there will be a period of time in advance—that he is hoping that there will be and that consultation will happen. I tabled this amendment to try to ensure that that will definitely happen in the specific areas that are important for organisations to be able to properly understand the guidance in advance. I am not trying to cause us problems or to make the Bill take longer to come into force; I am just trying to ensure that people are able to act in the way the Government would like them to act with this Bill and that anybody whose interests are affected by the giving of a subsidy is able and understands how to adequately challenge those subsidies.

[Paul Scully]

Rightly, the hon. Member for Aberdeen North does not want to extend the Bill—she has extended the Committee, but that is fair enough—

[Kirsty Blackman]

Oh!

[Paul Scully]

She has raised some really important points and it is important that she gets them on the record, because we have a shared aim to ensure that we get this right and make it work for the entire UK.

Amendment 25 would amend clause 91 to require the regulations to have been made and been in force for at least three months ahead of commencement of the new regime. I thank the hon. Lady for the amendment and I recognise her desire to ensure that the guidance on the new regime alongside regulations on the subsidy database and mandatory referrals are in place in good time for public authorities to familiarise themselves with the content.

I share that desire for those regulations to be in place in good time, alongside the clear guidance for public authorities, but I do not agree that it is necessary to restrict when the regime can commence based on those regulations having been in place for a three-month period. Of course we will continue to support and advise public authorities after regulations are made, but we will also ensure that when the Act is commenced, public authorities have a clear understanding of what is required of them under the new regime. That will include having robust guidance and regulation in place.

Amendment 87 would require that the Act comes into force no later than six months following Royal Assent. We recognise the importance of ensuring that the regime is fully operational in a timely fashion, so that public authorities have certainty about how the regime operates and are appropriately supported in interpretating the regime with sufficient guidance. It is not in the interest of Government or public authorities to delay commencement of the regime unnecessarily.

We will ensure that the subsidy control regime is in place as soon as is feasible, while allowing sufficient time for regulations to be made with a proportionate amount of lead-in time for public authorities. Establishing a specific deadline for implementation would remove the flexibility to modify the commencement date if it were in everyone’s interest to do so—for example, if there were an emergency that significantly diverted Government resources or if the deadline fell during the Christmas or summer holidays.

Although seeking to place different restrictions on commencement of the new regime, these amendments serve to highlight the complexity of implementing the Bill and how important it is that the Government get it right. We will ensure that the regime is introduced in good time and that those who need to use it have time to prepare. However, placing these additional restrictions on when commencement can occur would be disproportionate and unnecessary. Therefore, I request that the hon. Member for Feltham and Heston withdraw amendment 87.

--- Later in debate ---

[Kirsty Blackman]

I beg to move, That the clause be read a Second time.

This new clause is not unlike ones I have tabled in previous Committees, including the customs Bill Committee. The idea behind the new clause is to ensure that there is more accountability from Governments at the opening of Parliament in the event that they will intend to make changes to the subsidy control principles.

We have been clear about the way in which the regime works. The principles are fundamental. Should there be changes to the subsidy control principles, that would be pretty significant and would fundamentally alter the operation of the regime. Should the Government or a future Government be keen to make changes to the principles contained in the Bill, it would be reasonable for as much notice as possible to be given to Parliament and those who are likely to be operating within the Act.

New clause 1 states:

“Within six months of the opening of a new Parliament, the Secretary of State must make a written statement to Parliament on the subsidy control principles.”

It must include details of:

“(a) any legislation the Government intends to bring forward to change the Subsidy Control Principles; and

(b) any changes the Government intends to make to guidance under section 79 of this Act.”

I would expect that if the Government were making drastic changes to subsidy control principles, they would want to give as much notice as possible. There is no doubt that if it was at the start of a new Parliament, any change would likely have been a manifesto commitment that they stood for in election, so it would be uppermost in their minds any way. I cannot imagine somebody wanting to alter drastically the operation of the subsidy control regime without mentioning it during an election campaign. That is not to suggest that people will necessarily want to make changes to the subsidy control principles; I do not know that they will want to. But we will not have this Government for ever—thank goodness—and different Governments will potentially make different decisions on subsidy control.

Chair, just before I end my remarks, I will just say thank you to everybody who has supported us through our consideration of the Bill and everybody who has spoken during our debates. Despite the fact that only three of us have dominated proceedings and spoken at length—as well, Chair, as your colleague, Mr Sharma; so, four of us perhaps—we are about to wrap up early and not go to the end of this day, which is surely testament to the excellent chairing.

[Paul Scully]

The subsidy control principles sit at the heart of the domestic regime. They will be underpinned by statutory guidance issued by the Government ahead of the regime’s commencement. I agree that there is no notion that this Government or indeed any Government in the foreseeable future would wish to modify the subsidy control principles; the principles should endure with Governments of any stripe or colour. They are common sense, they ensure good value for money and they help to protect the UK internal market, so I am confident that they will stand the test of time.

However, in the unlikely event that the Secretary of State wished to modify the principles, I do not believe that this amendment would strengthen the scrutiny function of the House. The provisions of the Bill do not confer delegated powers that would enable the Secretary of State to modify and/or remove any of the principles, so any future changes would require the Government to introduce amending legislation and to conform with the necessary parliamentary processes and scrutiny that that would entail.

Guidance issued under clause 79 may of course be updated and revised, and that guidance may need to change in the future to reflect different future practices, or additional information for public authorities, and it is also necessary that that guidance is quickly updated should circumstances change. I do not believe that a statement at the beginning of each new Parliament would necessarily be the right time to announce those changes.

For the reasons that I have set out, I ask the hon. Lady to withdraw the new clause.

[Kirsty Blackman]

I thank the Minister. I will not push the new clause to a vote, but I will just point out that there are problems with the ability to scrutinise delegated legislation; it is not the most robust procedure in Parliament, as anybody who has sat through Delegated Legislation Committees will know. It is very different from being on the Floor of the House, and something like a written statement would mean that all parliamentarians would have the ability to scrutinise, understand and consider any changes that are likely to come through.

Nevertheless, I appreciate the point that the Minister has made that it is unlikely that there will be changes to the subsidy control principles and that any currently foreseeable or potential future Governments are unlikely to make changes to those principles. So, as I say, I will not push the amendment to a vote.

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Subsidy Control Bill (Ninth sitting)

Debate between Paul Scully and Kirsty Blackman

Tuesday 16th November 2021 Public Bill Committees

[Kirsty Blackman]

I apologise—I did not make myself clear. When I talk about a lighter-touch report, I am talking not specifically about the amendments but about the fact that there should be a third approach in the Bill. If the Government are not going to move from five years—if the five-year reporting period for this deep dive report is going to remain—and we have the annual reports suggested in clause 66, which are too light touch and are just about the numbers, there is a case to be made for a middle step: a report that contains a little bit more than just the numbers, but not quite as much as that potentially costly review. That is not covered by the amendments; I am simply suggesting that the Minister consider it.

[Paul Scully]

I think the middle way that the hon. Member is talking about is actually what clause 66 does. The clause notes the bare minimum of what that the annual report should include. There is plenty more that the CMA can and should include—we are giving it the bare minimum.

[Kirsty Blackman]

That is a hugely helpful clarification. If parliamentarians or anyone else do not believe that the data included in the annual report is transparent enough, the Minister is open to us writing to the Secretary of State to request that it include more information.

The Minister has been clear throughout the course of our deliberations that a number of the changes made by the Bill are about ensuring that things can be done at speed. The tax measures and other things that were put in place because of covid had to be done very quickly—nobody is disagreeing with that—but such an approach can result in unforeseen circumstances. As such, if something started and finished during the course of a five-year period, we would not know anything about its efficacy. We would not know whether it had made a difference in the way intended until significantly after it had ended.

The Secretary of State has the ability to require those additional things. If specific funding is going to be put in place for natural disasters, for example, or any other issue we have discussed, it would be helpful if the Minister would consider asking the CMA to do an additional report, asking: “Did this work as intended? Did the funding subsidy for natural disasters achieve its aims? Could it have been done through means other than subsidies? Was there a requirement for it to comply with everything in these provisions? Would it have been easier if they had not had to jump through certain hoops in order for the subsidy to be given more quickly?”

I think that this provision does not go far enough. The Minister’s clarification about clause 66 is really helpful, and I am sure that both the Opposition and my party will continue to suggest areas where transparency could and should be improved. We will take our opportunity as parliamentarians to lobby the Government, and if there are specific concerns or issues that we believe require a report, we will request that such a report be undertaken. I wish to press amendment 29 to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

As we have already discussed, clause 65 sets out the requirement for the unit to produce a report on the overall effectiveness of the subsidy control regime and its impact on competition and investment. Outside the broad content of the report, the Bill provides that the unit can draw upon powers set out in sections 41 to 43 of the United Kingdom Internal Market Act 2020 to gather information from public authorities, businesses and other persons in the service of producing its monitoring report.

In addition to the information-gathering powers of the 2020 Act, the unit can draw on other existing provisions that the CMA has under the Enterprise Act 2002 to engage with a wide range of stakeholders, and even commission new research in order to meet its statutory duties. Outside of those specific provisions, it is intended that the subsidy advice unit will have discretion on how to approach its monitoring functions.

We have heard that amendment 63 would require the subsidy advice unit to specifically consult the Secretary of State, Scottish Ministers, Welsh Ministers and the Department for the Economy in Northern Ireland in preparing a report. In preparing its monitoring report, the subsidy advice unit will want to seek information from public authorities across the UK, both in their capacity as subsidy granters and in relation to their various policy-making roles. That will be necessary in order to develop a balanced view of the function of the regime and its impact on competition and investment.

Highlighting the role of the Secretary of State and their contemporaries in the Bill gives rise to the question why other parties have been omitted. Why not also specify, for example, that the subsidy advice unit should consult regulators, businesses or their representative groups, or any number of other specific persons? The reason we have not specified individuals with whom the subsidy advice unit must engage is so as to afford it the maximum flexibility to undertake its monitoring function appropriately and as it thinks fit. The unit can also draw on the wealth of institutional knowledge that the CMA has, specifically related to the protection of competition. It is therefore unnecessary to direct the unit’s subsidy monitoring functions in the way intended by the amendment.

Amendment 64 also concerns the subsidy advice unit’s relationship with devolved Administrations in the fulfilment of its duties, and would require that its regime monitoring reports be laid before the relevant legislatures in Northern Ireland, Scotland and Wales, in addition to the UK Parliament. Hon. Members will undoubtedly point to the example of the Office for the Internal Market’s reports on the functioning of the UK internal market, which are laid before all four UK Parliaments.

Although the Office for the Internal Market also falls under the umbrella of the CMA, it is a uniquely constituted body reflecting the specific role and relationships that it has with the Administrations in all four UK countries. We have consciously not followed the governance model established by the Office for the Internal Market for the subsidy advice unit. Subsidy control is and will remain a reserved policy matter. The subsidy advice unit will be formed as part of the CMA, a non-ministerial department that serves the whole of the UK. It is therefore appropriate that the CMA and, by extension, the subsidy advice unit reports to the whole UK Parliament.

[Kirsty Blackman]

May I ask the Minister—sorry if I missed it—to say explicitly whether he would expect the CMA to consult the devolved Administrations in the preparation of the five-year report?

[Paul Scully]

As an awarding body, I fully expect the CMA and subsidy advice unit to speak to all the devolved nations as well as public authorities. That does not specifically need to be in the Bill, for the reasons I have given about excluding others. Given that subsidy control is and will remain a reserved policy matter, it is right that the UK Parliament considers and scrutinises the report. I therefore request that the hon. Member for Feltham and Heston withdraw the amendment.

--- Later in debate ---

[Kirsty Blackman]

I have a couple of other comments and suggestions. The laying before Parliament is, as has been said, a limited way in which parliamentarians can interact with the report. It is great that it is being laid before Parliament, but a ministerial statement, whether written or oral, would help in not just raising the profile of the report published by the CMA, but making clear what the Government intend to do about any deficiencies that have been created. Alternatively, there could be a requirement in the legislation—I might think about this for Report—for the report to go before the Public Accounts Committee or the Business, Energy and Industrial Strategy Committee, whichever would be more relevant, in order that it could scrutinise the report and ensure that it was taking evidence and creating a report with recommendations to the Government on what needs to be changed.

If the reporting period is to be only every five years, I assume that there will not be immediate—as soon as the report comes through—change happening and that it is likely that there will be a mulling-over period once the report comes in, so that, as the Minister said, the medium-term changes and so on can be assessed and any changes can be made to the legislation. In that case, a written statement or an oral statement being made, whereby we could ask any questions that we needed to, or a more in-depth report by one of the parliamentary Select Committees, would mean that Parliament had a stake, Parliament was invested, and Parliament was assisting in making the changes that the CMA required or in suggesting how to make the changes.

I am sure that the Minister would be the first to admit that the Government do not have every one of the answers. They may have a lot of the answers, in his view, but they do not have every one of the answers, and that is why consultation is hugely important with external organisations but also with those of us who are elected to scrutinise legislation, to scrutinise what the Government are doing, and to try to make the most appropriate changes so that things work, in the interest of spending public money appropriately but also in the interests of our constituents and the people of the UK.

[Paul Scully]

The hon. Member for Aberdeen North is absolutely right to want to improve the system. That is exactly the incentive; we need to improve the system. A number of mechanisms are available already. The BEIS Committee and the Public Accounts Committee can indeed call the report in and consider it, and there are urgent questions and any number of other mechanisms. I understand and appreciate the suggestions. There are mechanisms there.

The main purpose of the function of reporting, as I have said, is to provide a measure of objective scrutiny for the regime. Parliamentarians can consider the report and feed into the process of monitoring and continuous improvement of the regime, as can Government themselves. That objective assessment, based on the information that has been gathered, will be a really valuable and transparent mechanism to demonstrate what is working and what may require improvement. It will of course fall to the Government to provide a suitable response to any issues identified by the report.

The amendment tabled by the hon. Member for Feltham and Heston would put in place an arbitrary and constraining time limit of 30 days within which the Secretary of State must assess the findings from the unit’s monitoring report and then provide details for addressing any potential issues. Without prejudicing what the content of any future monitoring report might be, it seems unlikely that this amendment would have the effect of promoting effective and well considered changes if they were required, because the amendment, by tying the Government’s hands in this way, would risk hurried and ineffective solutions to any issues identified by the SAU. The monitoring reports will represent the culmination of many months of work by the SAU, so it is right that the Government should respond appropriately. However, arbitrary, short deadlines are not likely to promote sensible changes, especially if there is a need for substantive change.

This amendment also offers little benefit in relation to improving the transparency of the regime. First, monitoring reports will already be published for all to see. Secondly, many of the tools provided by the Bill require further scrutiny by Parliament through the means of affirmative regulations, which require debate and, ultimately, the agreement of parliamentarians in both Houses before they can be enacted. Transparency is one of the cornerstones of the new subsidy regime, and continuous improvement is one of the essential principles of good governance. The amendment would do nothing to enhance either of those aims and may in fact prove detrimental to them by forcing an artificially rushed response to the SAU’s finding. I therefore request that the hon. Member for Feltham and Heston withdraw the amendment.

--- Later in debate ---

[Kirsty Blackman]

I have just a couple of points to make. We have already raised a number of concerns about the limitations of the transparency that will be provided, particularly on the subsidies that will be on the database and our inability to get any meaningful information from it, because so many of the subsidies that will be made will be excluded from being on the website by merit of their being below the de minimis threshold. We continue to have concerns about that.

The amendment simply asks for transparency data and for the CMA to produce in its annual report data that it has already. These are data that the CMA will have within its local key performance indicators—stuff that it will be considering anyway. It will know the number of extensions and voluntary referrals that have been made. This is not an additional piece of work that the CMA will need to do. It is simply ensuring that such information is added to the annual report, rather than putting an additional burden on the CMA. It is stuff that the CMA will be measuring anyway—if it is not doing so, it is not a public organisation that is working sensibly. This is basic, bread-and-butter stuff, and it means that we would be able to scrutinise properly and have an idea of what is happening.

The points made by the hon. Member for Feltham and Heston, particularly in relation to the resourcing of the CMA, are incredibly important. We want the CMA to be adequately resourced so that it can carry out its functions effectively, because the system does not work if the CMA is not adequately resourced. We will struggle to know whether the CMA has adequate resource if it is not producing data on the number of extensions that it has required. As I say, the amendment is eminently sensible, and I look forward to hearing what the Minister has to say in response to the speech made by the Opposition spokesperson.

[Paul Scully]

The Enterprise and Regulatory Reform Act 2013 requires the CMA to prepare an annual report of its activities and performance during the year. Clause 66 requires the CMA to include details within its annual report of any subsidies and schemes that have been referred to the subsidy advice unit in the previous year, including both mandatory and voluntary referrals. The purpose of including that information is to provide transparency on the number and types of cases being referred to the SAU each year.

Amendment 66 adds to the information that the CMA would be required to append to its annual report in ways that we believe are overly prescriptive. It would limit the CMA’s flexibility to determine what information to include in its annual report and the most effective way to deliver that. Some of the information that the amendment mandates would not be accessible or consistently available. For example, the requirement that the CMA publish the proportion of cases where the SAU found that a public authority’s assessment required improvement, or where it identified a risk to competition and investment, misunderstands the role of the SAU.

The SAU will evaluate the public authority’s assessment of whether the subsidy or scheme complies with the Bill’s requirements. It will also evaluate whether there are any effects of the subsidy or scheme on competition or investment in the UK. The SAU may include advice about how the public authority’s statement might be improved or modified to ensure compliance with the requirements of the Bill, but the SAU is not a regulator. It will not make its own independent assessment of potential risks to competition and investment, or make definitive judgements on the extent of them.

Other requirements of the amendment are similarly unnecessary, including the requirement to publish the number of requests made by the SAU under clause 53(6) to extend the reporting period for a mandatory referral. Clause 53(7) already requires that such requests are published. In addition, the low number of mandatory referrals that we estimate in any given year will mean that calculating the average number of days for extension is unlikely to offer much additional insight into the subsidy control regime. It therefore need not be mandated for inclusion in the annual report.

The amendment would also require the CMA to publish geographical allocations of all subsidies subject to mandatory and voluntary referrals. That would be a burdensome task for the CMA, and would be difficult to comply with consistently. First, the amendment asks for information to which the CMA would not have ready access, since not all subsidies eligible for voluntary referral will be referred to the SAU. Secondly, if a public authority referred a scheme instead of an individual subsidy to the SAU, it would not be possible for the CMA to determine the expected geographic allocation of subsidies not yet awarded under that scheme. The same issue may apply to the beneficiary of a single subsidy that operates in more than one location.

The right approach is to provide the CMA with a degree of flexibility to determine what information about subsidies and schemes referred to the SAU is presented in its annual report. For the reasons that I have provided, I request that the hon. Member for Feltham and Heston withdraw the amendment.

--- Later in debate ---

[Paul Scully]

The purpose of clause 68 is to require the Competition and Markets Authority to create the subsidy advice unit as a committee of its board, and to allow the SAU to carry out subsidy control functions under, or by virtue of, this Bill on behalf of the CMA. This type of governance has the advantage of not requiring large structural changes within the CMA, while providing appropriate administrative ring fencing to allow the subsidy advice unit to carry out the subsidy control functions, existing as a discrete unit with its own character and brand.

[Kirsty Blackman]

A couple of questions have been raised about this clause. I am not particularly happy with how it works: I think more could have been contained in it. The questions from the hon. Member for Feltham and Heston have shown that there is a lack of clarity on what the subsidy advice unit means and how it will differ from the Office for the Internal Market, for example. The Minister will probably laugh, but it would be incredibly helpful if we were provided with an organogram that explains the work of the CMA, the SAU sub-committee, and the Office for the Internal Market, so that we can understand how it all goes together.

The Minister has been clear that the SAU sub-committee of the CMA board is a different thing from the internal market one. I do not entirely understand how it all fits together. I know that the Enterprise and Regulatory Reform Act 2013 explains some of it, but all those pieces of legislation, in various different places, being mashed together still does not give a picture of how it will all work. If the Minister could agree to look at that, it would be incredibly helpful.

[Seema Malhotra]

I thank the Minister for his comments. Notwithstanding the debate we have had, the Labour party supports clause stand part, but some areas need to be reflected on, including how the Office for the Internal Market is working, and what we can learn for the CMA and this regime. Clarity ahead of Report would be very helpful to settle some of those questions.

--- Later in debate ---

[Paul Scully]

That is when the interested parties can approach the CAT on that basis.

[Kirsty Blackman]

rose—

--- Later in debate ---

[Kirsty Blackman]

If there is a subsidy that is given under a subsidy scheme, who decides that that subsidy was not eligible to be part of the subsidy scheme and is therefore applicable to challenge outside the scheme? I think that is part of the point that the Opposition spokesperson was getting at. There does not seem to be a mechanism for saying “That subsidy doesn’t fit within this scheme, and is therefore challengeable in its own right, rather than as part of the scheme”.

A subsidy is, by definition, one given under the scheme until somebody analyses that and decides that it is not applicable to be given under the scheme, but there does not seem to be a process for that subsidy to be categorised as something that should not have been given under the scheme. How does the challenge procedure work here?

[Paul Scully]

Essentially, if the public authority has wrongly given the subsidy as part of a scheme, it will be for the CAT to decide.

Subsidy Control Bill (Tenth sitting)

Debate between Paul Scully and Kirsty Blackman

Tuesday 16th November 2021 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is a pleasure to serve under your chairmanship, Ms Nokes. I appreciate the contributions of the hon. Members for Aberdeen North and for Feltham and Heston. As we have heard, the amendments are almost identical in effect, so I will discuss them together.

Who has standing to challenge subsidy decisions is an important question that we considered carefully when drafting the Bill. The definition of an interested party, which covers any person whose interests may be affected by the subsidy or scheme in question, is intentionally broad and in many instances could capture the devolved Administrations. As I said in relation to the previous amendment, the rule on standing in the clause is not intended to exclude any party whose interests may genuinely be affected by a subsidy.

None the less, I hope that hon. Members will agree that it is necessary to have some limit on who can bring a challenge, so that the CAT can dismiss various challenges, whether they are vexatious or not. That is necessary to ensure that useful subsidies are not held up without good reason. The absence of a list or further explanation is not intended to exclude any party whose interests may genuinely be affected by a subsidy. On the contrary, the broad definition gives the CAT the maximum discretion so that, whatever the facts of the case may be, it can deem the right people to be interested parties. Depending on the case, that could certainly include one of the devolved Administrations.

Opposition Members have suggested that because the Secretary of State has default standing to bring a challenge there is an unequal situation that prejudices the interests of Scotland, Wales and Northern Ireland. That is simply not right. The Secretary of State has not been designated an interested party to act in the interests of one part of the UK. It is therefore not necessary that there should be some sort of balance, with other actors also having default standing. This is a reserved policy area and, as such, the Secretary of State’s responsibilities and interests are UK wide.

The Secretary of State is always deemed an interested party so that they can challenge any subsidiary they feel would be incompatible with the subsidiary control framework and because, as a member of the UK Government, they are responsible for the compliance of subsidies granted in all parts of the UK with our international obligations. The Government expects that the Secretary of State would use this ability only in exceptional circumstances where, in their view, a subsidy would threaten the integrity of the subsidy control framework, which protects competition and investment within the UK and helps to meet our international obligations. It is just as likely that the Secretary of State would challenge a subsidy given by an English local authority that prejudiced a Scottish business, as it is that they would challenge a Welsh subsidy that prejudiced an English business.

The intention of the clause is to allow a default right to stand as an interested party to challenge subsidies, while reserving a specific role for the Secretary of State to oversee the whole system and ensure compliance with international agreements. It is not appropriate or necessary for any other public authority to have the same standing. I have talked a lot about devolved Administrations, but to cover the point made in the exchange between the hon. Member for Aberdeen North and my hon. Friend the Member for Thirsk and Malton, an interested party could be any of those public authorities, including local councils or any awarding body. As we discussed in the previous group of amendments, that interest is wider than direct financial interest. For that reason, I ask the hon. Lady to withdraw her amendment.

[Kirsty Blackman]

The Minister has not really answered the key question that would be helpful in order to ensure that interested parties are as broad as the hon. Member for Thirsk and Malton and I think it should be. Does a devolved Administration’s interests include indirect interests? Let us say that the Scottish Parliament was to come forward to the CAT and ask for something to be reviewed on the basis that it would affect seven businesses throughout Scotland. Is that included in the definition of persons of interest who may be affected? What if a number of organisations in their jurisdiction are potentially affected by a subsidy given? That subsidy may be given in Scotland; this is not necessarily an inter-nation argument. It could be that a local authority in Scotland gives a subsidy and the Scottish Government are not happy about it because it could negatively affect seven different businesses. Is that included? Is that covered by the definition of interested parties?

[Paul Scully]

Yes. I would say that is a direct interest rather than an indirect interest. Public authorities, including devolved Administrations, may be interested parties. That is why we are keeping the definition wide—because it includes their responsibilities as well as a direct interest for the public authority or the devolved Administration itself.

[Kirsty Blackman]

The Minister has made the clarification to say that it includes responsibilities. Obviously, the devolved Administrations have responsibilities for lots of things in various areas. That is incredibly helpful. I still would like to see amendment 23 in the Bill and I would like to press it to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

In addition to the ordinary judicial review remedies available under clauses 72 and 73, clause 74 gives the CAT the power to make a recovery order. It may order recovery of some or all of a subsidy if it finds that a subsidy or scheme was made in breach of the subsidy control principles, prohibitions and other requirements. The effect of the order will be to require the relevant public authority to recover the subsidy from the beneficiary. The method of recovery, the amount to be recovered and the timeframe for recovery will be for the CAT to determine.

As we have heard, amendment 76 would make it compulsory for the CMA’s annual report to include details of all recovery orders made in that year, including the names of the public authority, the beneficiary and the amount to be recovered. I support the objective of ensuring that the process of reporting and managing recovery orders is transparent and accountable; however, this intent is already met by the process as it stands in the Bill. Recovery orders, by their nature, will be made public, and enforcement mechanisms exist to ensure that they are followed. Accordingly, there is no need to give the CMA this additional reporting duty.

[Kirsty Blackman]

It would be useful if the Minister clarified how recovery orders are made public and how we can find that information.

[Paul Scully]

I will happily do so. Recovery orders are given during a hearing by the Competition Appeal Tribunal to a public authority if that public authority is found to have given a subsidy that breached the subsidy control principles, prohibitions and other requirements. The cases heard by the CAT are usually held in public, with any ruling later published on the tribunal website alongside a transcript of the hearing. The names of the public authority and the beneficiary, and the amount to be recovered, would ordinarily all be published within that for recovery orders.

I was at the CAT a couple of weeks ago, and I saw the virtual courtroom where a hearing about the takeover of Newcastle United was recently held. The hearing was viewed by 35,000 people—mainly Newcastle supporters, I suspect. According to the president of the CAT, more people watched it than attend, on average, the games of all but 15 of the premier league teams. There is a good degree of interest in the CAT’s decisions, which will be publicly available.

[Kirsty Blackman]

I am really glad that the CAT is so open and transparent. It should therefore not be that difficult for the CMA to put in its annual report the results of all the recovery orders that are published on the website.

--- Later in debate ---

[Paul Scully]

The clause confers on public authorities the right to recover a subsidy that has been used for a purpose that is different from the one for which it was given. Public authorities give subsidies with a specific purpose in mind. They will determine whether the subsidy complies with the subsidy control principles in the Bill. They will reference the purpose for which the subsidy has been given. Many public authorities award subsidies through a written contractual arrangement that sets out the terms and conditions under which the financial assistance is being given; this is likely to state the purpose for which the assistance is being given.

[Kirsty Blackman]

I am sorry to interrupt the prospective Secretary of State mid-flow, but I have a question. Does the clause apply to subsidies below the de minimis threshold?

[Paul Scully]

I will come to that in a second.

It is good practice for the contractual arrangements to contain a mechanism allowing public authorities to recover a subsidy if the terms and conditions are breached, including whether the subsidy is misused. However, not all subsidies are given through contractual arrangements, and those may not have a mechanism to recover the subsidy if it is used for a different purpose. Public authorities may have other private law rights that enable them to recover the subsidies in those circumstances. The clause is designed to avoid any uncertainty by conferring on public authorities a right to recover subsidies used for a purpose other than that for which they were given. The new right to recover is enforceable as if it were a contractual right and does not affect any other remedies that might be available to the public authority with respect to the award of the subsidy in question.

[Paul Scully]

May I write to the hon. Member for Aberdeen North on her question? I am not sure whether the clause will apply, but I will write to her.

[Kirsty Blackman]

Thank you.

Question put and agreed to.

Clause 77 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.—(Michael Tomlinson.)

Subsidy Control Bill (Seventh sitting)

Debate between Paul Scully and Kirsty Blackman

Thursday 4th November 2021 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

As always, it is a pleasure to serve under your chairmanship, Ms Nokes. Before I begin, I would like to make a general point about today’s debate and address a question raised during our discussions on Tuesday. Throughout the discussion of clauses in part 4 of the Bill, Members will hear me refer to the subsidy advice unit, which will be a new sub unit of the Competition and Markets Authority established by this Bill. Technically speaking, the provisions in part 4 confer various responsibilities on the CMA, and it is for the CMA to decide which of its responsibilities it will delegate to the SAU. The mechanics of that process will be discussed later when the Committee considers clause 67. While the decision on how to organise its work rests with the CMA, in practice it is likely that most if not all of the responsibilities under part 4 will be delegated to the SAU. Therefore, for consistency and ease, I will be referring to the SAU throughout these debates.

Clause 52 sets out that two categories of subsidy and scheme will be subject to referral to the CMA. The first is subsidies and schemes of particular interest, which we discussed in the context of clause 11 on Thursday 28 October, and the second is the subsidies and schemes that are referred by the Secretary of State under the provisions that we will shortly discuss under clause 55. Amendment 28, as we have heard, would add to that list of subsidies subject to mandatory referrals, requiring the Department responsible for the subsidy control regime to refer individual subsidies above £2 million and all subsidy schemes to the SAU. In practice, the BESI, my Department, is the Department with responsibility for subsidy control. I can reassure hon. Members that BEIS takes its subsidy control commitments very seriously. BEIS subsidies, like those of all other public authorities in the UK, will be subject to the “subsidies of particular interest” regime. There is no special treatment in this regime for my Department: indeed, BEIS can already ask advice of the CMA where necessary, using the powers in the Enterprise Act 2002.

The Bill establishes the two categories that we have talked about: subsidies and subsidy schemes of interest, which can be voluntarily referred to the SAU, and subsidies and schemes of particular interest, which must be referred to the SAU. The Government will set out in regulations definitions for both of those categories, and those regulations will be subject to the affirmative procedure, so there will be opportunity for parliamentary scrutiny of them. Those definitions will capture subsidies that are more likely to give rise to trade disputes, as well as subsidies that are more likely to distort UK competition and investment. BEIS subsidies and subsidy schemes will be subject to the same requirements and procedures as all other subsidies. I assure hon. Members that my Department really will not get any special treatment on this issue.

However, routinely requiring BEIS to be referred to the SAU when it offers subsidies and subsidy schemes would be a disproportionate approach to managing the risk of those highly distortive subsidies. It is important for the SAU to focus its attention and casework on genuinely distortive subsidies, not to focus unduly on subsidies and schemes made by BEIS in particular. The Government fully agree that subsidies and schemes of particular interest merit a proportionately higher level of scrutiny than other less distortive subsidies and subsidy schemes, but those subsidies are, in principle, better captured through a robust and well-evidenced set of thresholds and criteria. Those criteria will be set out in regulations defining the subsidies and schemes of particular interest, rather than placing a discrete requirement on a single public authority on the face of the Bill.

[Kirsty Blackman]

Specifically regarding the process, and what might happen in terms of subsidies of interest and subsidies of particular interest, does the Minister agree that this is going to be a movable feast? The regulations will be subject to the affirmative procedure, but things may change, and therefore there will need to be a change to the interests and particular interests. I am just asking the Minister to give me comfort that if the Government agree there is a particular issue with something, and it needs to be added to the group of “interest” or of “particular interest”, it will be added.

[Paul Scully]

Yes, I can give the hon. Lady that assurance. Those schemes will be set out rigidly and subject to the affirmative procedure, so we can have parliamentary scrutiny, but none the less—as she rightly says—we need to retain flexibility, which is exactly why those definitions are in regulations in the first place, rather than on the face of the Bill. Of course, we look to provide as much parliamentary scrutiny of those regulations as possible. I ask the hon. Lady to withdraw her amendment.

[Kirsty Blackman]

I will not press this amendment to a vote at this stage, but I might bring it back at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause requires that public authorities refer certain subsidies and subsidy schemes to the subsidy advice unit before they are given or made. Two types of subsidies or schemes must be referred: those defined as being of particular interest in clause 11 and those that are called in by the Secretary of State under clause 55.

--- Later in debate ---

[Kirsty Blackman]

I agree with the hon. Lady. My concern, which I mentioned briefly when talking about the amendment, is that subsection (1) is not flexible enough. It mentions particular interests and

“where directed to do so by the Secretary of State”,

but I would prefer to see an additional category that says, “other reasons”, with regulation to follow if that is what the Minister suggests. There are probably more reasons why things could be referred mandatorily to the CMA without having to go through the affirmative process of changing the particular interest subsidy section in clause 11. There could have been a little more flexibility in that clause, and it would be useful if the Minister agreed to think about that.

[Paul Scully]

I am always happy to think about flexibility.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Clause 53

CMA reporting period for mandatory referral

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kirsty Blackman]

I have spent years looking at education reports and care inspectorate reports. There are criteria for giving marks and a particular language is used—something is good, poor or dreadful. Is the Minister expecting that “serious deficiencies” will be used by the CMA in the report? Will it say, “We consider there to be serious deficiencies”, which the Secretary of State would consider to be a red flag, resulting in the potential extension of the cooling-off period? Does the Minister think the CMA will do that explicitly, or will the Secretary of State have to read between the lines and try to work out how bad things are? We do not know how the reports will be structured, so it would be helpful if the Minister could make clear whether the Secretary of State is going to understand the meaning of the reports and whether the SAU would seek an extension to the cooling-off period because it believed there were serious deficiencies.

[Paul Scully]

There is not going to be a rating, because the SAU is not a regulator or enforcer, but it is responsible for making sure that the situation is made as clear as possible so that people, not least the Secretary of State, can understand it. That is why we have left this matter to the CMA—its staff are experts and have great experience of doing exactly that.

--- Later in debate ---

[Paul Scully]

One of the problems is that, if we define it in the way I think the hon. Lady is after, we then lose some of the flexibility. I was just about to say that the exact situation will vary on a case-by-case basis. A serious deficiency could arise, for example, if the subsidy advice unit identified that the proposed subsidy or scheme might have significant negative effects on UK competition and investment but the public authority had not considered any of the options for mitigating those effects. Another example might be if the SAU identified significant technical flaws in or omissions from the public authority’s assessments of compliance with the requirements of chapters 1 and 2 of part 2, such as the analysis of how the subsidy incentivised a change in the beneficiary’s behaviour or the impact on international trade.

[Kirsty Blackman]

Does the Minister agree that it is likely that the SAU will have internal working definitions of what is “acceptable” or “deficient”, and that it is likely to say that to the Secretary of State in giving its recommendations and possibly asking for any extensions?

[Paul Scully]

Absolutely—that is exactly what I was going to come on to. The hon. Lady has obviously seen the next paragraph I was going to read. The Secretary of State would not be taking that view on his own. It would not be an arbitrary judgment; it would be acting on the basis of a published report by the SAU, which is obviously independent.

As the hon. Member for Feltham and Heston said on Second Reading and has reiterated this week,

“the new system will work only if it provides transparency, oversight and scrutiny”.—[Official Report, 22 September 2021; Vol. 701, c. 341.]

This amendment only serves to undermine those aims slightly—unintentionally, I am sure—by limiting the circumstances in which the Secretary of State can act to extend the cooling-off period and ensure that a public authority has more time to consider the SAU’s comments. I therefore request that she withdraw her amendment.

--- Later in debate ---

[Kirsty Blackman]

I stand as a proud representative of the nation of Scotland to make a brief speech on amendment 52. The powers that are suggested under clause 55 are limited powers. They are not unlimited powers to call in anything on a whim of the Secretary of State or of anybody else. They can only be called in in relation to subsidies or subsidy schemes of interest, or subsidies or subsidy schemes in which the Secretary of State considers there is a failure to comply with chapters 1 and 2 of part 2, or there is a risk of negative effects on competition or investment within the United Kingdom.

The amendment proposed by the Opposition does not affect that. It would still apply only in the case that the devolved Administrations wanted to call in something that was a scheme of particular interest, or something that the Secretary of State had presumably already called in that was against chapters 1 and 2 of part 2 or where the Secretary of State agreed there were negative effects on competition or investment within the United Kingdom. Those are not, as the Government members of the Committee have suggested, unlimited powers parallel to those of the Secretary of State; they are limited powers. The only time the power would be exercisable is if the schemes were of interest—rather than of particular interest, because they are mandatorily referred—and the three devolved Administrations would be able to call those schemes in. It would be a limited power that would only apply for schemes of interest. I absolutely support the amendment—it makes sense—and we would obviously like it to go further. We have a devolution settlement and this is a proportionate amendment that makes sense in the context.

[Paul Scully]

Under the powers in the Bill as drafted, when the Secretary of State decides to exercise the call-in power, that direction has to be published. In addition, the SAU has to provide annual reports on its caseload, including any subsidies and schemes that were called in by the Secretary of State. That transparency will help ensure that the powers are used appropriately and that Parliament has oversight of how and when the powers are being used. Amendment 52 would allow those referrals to the SAU under the terms of clause 55 to be made by devolved Administrations, whereas the Bill provides the power for the sole use of the Secretary of State.

In the majority of cases, the most potentially harmful subsidies will be those that meet the criteria for subsidies of particular interest, which will be set out in regulations, but it is inevitable that there will be some subsidies or schemes that fall outside those boundaries. They will still benefit from the additional scrutiny offered by the SAU.

The call-in power provides a mechanism to catch potentially highly distorted subsidies that may not be caught within the “subsidies of particular interest” definition. It will also provide a safety net where there is a risk of failure to comply with the subsidy control requirements or there is a risk of negative effects of competition and investment within the UK. This is a reserved power and as such the Secretary of State’s responsibilities and interests in making referrals are UK wide. As a member of the UK Government, they are responsible for subsidies granted in all parts of the UK being compliant with our international obligations.

--- Later in debate ---

[Kirsty Blackman]

I have two questions. I would have expected that “particular interest” would cover anything that does not meet chapters 1 and 2 of part 2 anyway, so it would be nice if the Minister could clarify that point. Secondly, if any of the devolved Administrations request a meeting with the Secretary of State because they are concerned and want the Secretary of State to call something in, would the Secretary of State grant that meeting?

[Paul Scully]

On meetings, I am not the Secretary of State, but effectively, yes—we want to engage with the devolved Administrations. We do that on a regular basis, and have done in the formulation of this Bill, as we have discussed many times, and we will continue to do so as we go through guidance and the working of the Bill.

In the event that one or more of the devolved Administrations has serious concerns about a subsidy given or a scheme made, of course they can request that the Secretary of State use that call-in power. The Secretary of State would carefully consider any request from their counterparts in the devolved Administrations, just as they would on any other policy matter. As I say, we have met the devolved Administrations a number of times since July 2020 on the formulation of this Bill. We continue to meet and engage with them regularly, and listen to their views as the Bill progresses through Parliament, and we will do so in the lead up to implementation. I request that the hon. Member for Sefton Central withdraws the amendment.

[Kirsty Blackman]

My other question was about the definition of “particular interest”, or “interest”. Subsidies of particular interest will be mandatorily referred, as we have already agreed, but subsides that risk to fail to comply with the requirements of chapter 1 and 2 of part 2 could be referred by the Secretary of State. It would concern me if compliance was not part of schemes of particular interest, or schemes of interest. I understand that some schemes of particular interest would be defined on the basis of the sector they are in and the specific details of the subsidy, but I would expect that lack of compliance with the rules would cause a scheme to be of particular interest anyway. I hope the Minister understands what I am trying to get at here. If a subsidy does not comply with the subsidy control principles, surely it is either not a subsidy—it is not allowed—or it is a scheme of particular interest that would need to be looked at mandatorily, or perhaps optionally, by the CMA.

[Paul Scully]

I think I get the general gist of where the hon. Lady is going with that point. That is why, rather than trying to define them as not complying, we are trying to define them specifically at the outset, hence the regulations that we will be putting forward, but there is plenty of opportunity to have that discussion.

--- Later in debate ---

[Paul Scully]

Clause 55 gives the Secretary of State the ability to direct a public authority to request a report from the subsidy advice unit on a proposed subsidy or subsidy scheme. That may be made in relation to a subsidy of interest or any other subsidy or scheme that the Secretary of State considers to be at risk of failing to comply with the subsidy control requirements or of negatively impacting competition or investment in the UK. It is not intended to be used routinely, but it is a necessary safeguard. It is there to ensure that an additional layer of scrutiny can be applied to subsidies that might risk creating market distortions but would otherwise not be subject to mandatory referral to the SAU.

[Kirsty Blackman]

I was going to ask a question about this clause, and the Minister has managed to make me even more confused. Subsection (1) states:

“A public authority may request a report from the CMA before giving a subsidy, or making a subsidy scheme, of interest.”

It does not state that, additionally, any other subsidy may be referred to the CMA under a voluntary referral. It might elsewhere in the legislation, but it does not at this point.

My concern was that it relates only to subsidies “of interest”—subsidies of particular interest are covered by mandatory referral, and that is fine—but for subsidies that fall outside the category of interest, perhaps because interest is narrowly drawn by the regulations when interest is set, there seems to be no way for those public authorities to refer them voluntarily to the CMA, as the legislation is drafted. It would be good if they could.

Let us say that “particular interests” and “interests” are defined by the Government, that goes through the affirmative procedure, we have a discussion, and the definitions are agreed. Accidentally, however, something is left out of the category of interest—because we do not think of everything—and a local or public authority discovers the anomaly and thinks to itself, “Do you know what, I should refer this to the CMA voluntarily, because I think it probably should be included in the schemes of interest, but in the way that the legislation is written, it does not fall under that”, so it tries to make a voluntary referral. It cannot, however, because it may make a voluntary referral only in the case of something that is of interest.

There is a bit of a gap. Authorities should be able to make that voluntary referral, whether it is a scheme of interest or not. There is a concern. As to what the Minister said, absolutely, if the Secretary of State has a concern additional to the interest section, that would be fair enough and make a difference, or if the authority itself decides that it should be referred to the CMA. I do not think that that will be a huge amount of extra work. Authorities will not refer themselves to the CMA for fun; they will do so when they feel that there is a reasonable chance that what they are considering doing is contentious.

I will not vote against the clause, because voluntary referrals are a good thing, but I do not think that it goes as far as the Minister suggested it goes—unless I have missed something.

--- Later in debate ---

[Kirsty Blackman]

It is no wonder that I was confused by what the Minister said. He was speaking to clause 55 and I was looking at clause 56. Apologies.

[Paul Scully]

We will hear the hon. Lady’s comments again.

Question put and agreed to.

Clause 55 accordingly ordered to stand part of the Bill.

Clause 56

Voluntary referral to CMA

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause—wait for it—allows public authorities voluntarily to refer certain subsidies or subsidy schemes to the subsidy advice unit before they are given or made. Those are known as subsidies or schemes of interest, and the criteria will be set in secondary legislation, as set out in clause 11.

To make that voluntary referral, the public authority has to provide certain information about the subsidy or the scheme that will be referred, including an assessment by the public authority of whether its proposed subsidy or scheme would meet the principles, the prohibitions and the other requirements set out in chapters 1 and 2 of part 2 of the Bill.

The Secretary of State is also given the power to make new regulations specifying the form in which that information must be provided to the SAU, as well as any additional information that must be provided beyond that which is already set out in the clause. That will enable the content and the form of the request to be adapted based on operational experience of whether the SAU is getting the information it needs to report back effectively.

Openness, transparency and a risk-based approach to scrutiny will ensure confidence in the new UK subsidy control regime. The voluntary referral process provides an additional avenue of scrutiny for public authorities seeking to grant some of the more potentially distortive subsidies and schemes. To answer the question from the hon. Member for Aberdeen North, who may want to ask it again, the process gets the balance right by ensuring a flexible system with enough information for the public authorities to get it right in the first place. A lot of that will be done through guidance, and the SAU is there to be helpful and give advice; it is not an enforcer or a regulator.

[Kirsty Blackman]

Let me just imagine that I made an excellent speech.

The concerns that I raised a few moments ago still stand. I think there should be more flexibility in the first part so that it is made clear to public authorities that they can refer something should it not fall under the specific definition of “schemes of interest”. I would appreciate it if the Minister considered tabling an amendment to that effect. I do not feel that that would make additional work.

I genuinely feel that public authorities would use that flexibility only in circumstances where they feel that “schemes of interest” has been defined too narrowly to cover the scheme that they would like to refer to the CMA. That flexibility would not be overused; nobody would be daft enough to overuse it. There seems to be no ability for public authorities to refer anything unless it is classed as a scheme of interest or particular interest, or is something deemed by the Secretary of State to meet various criteria. I would appreciate it if the Minister looked at that.

[Seema Malhotra]

The clause does indeed allow public authorities to

“request a report from the CMA before giving a subsidy, or making a subsidy scheme, of interest.”

We have had some interesting and helpful discussion so far, but our main concern remains the lack of clear definitions in the legislation, particularly the definition of “interest”. Such clarity would provide some necessary assurance to public authorities, the CMA and subsidy recipients about how the regime will work in practice.

We could have pre-empted this issue and had clearer definitions to ensure that more was done upstream by public authorities, meaning fewer referrals. More referrals will create more burden on the subsidy advice unit. Referrals will be made for good reason, however, so we absolutely need the provision. It is likely that there will be greater demand for referrals in the earlier stages of the regime’s implementation, but as people become familiar with the process and judgments become clearer, and the CMA gets some case studies to use, the system will improve.

It is important that there is clarity from Government. We may come back to some of this, but the referring public authority will also need clarity on what it will and will not get back. Guidance on that would be extremely helpful to make the legislation work effectively.

--- Later in debate ---

[Kirsty Blackman]

I have just a brief question. This clause lays out things that reports following mandatory or voluntary referrals “must” include and some things that the reports “may” include. Can the Minister confirm that the reports may also include things not mentioned here and that the additional things that would be included would be at the discretion of the CMA? If it can include only the musts and the mays in the clause, it will not be able to include anything else that the CMA considers would be relevant in the report. Given that the Minister has stressed the independence and expertise of the CMA, it would be sensible to confirm that it can include matters that it feels are relevant, whether or not they are explicitly mentioned in the Bill.

[Paul Scully]

The CMA is independent and will use its expertise. I think that we have crossed wires here, because actually the clause allows the Secretary of State to talk about the content of the report but not to textually amend an independent report. That is not what we are talking about here, which is what is within scope of the report—to ensure that it can actually do it. This is to be able to give additional transparency and scrutiny in the regime itself. The clause allows him to make provision about the content and form of the report, but, as I said, not to change the text of an independent report.

Any changes to the content of the report must be made by the affirmative procedure. That is core to the subsidy control regime, because if the Government believe that the process needs to be refined, it is only right to have parliamentary scrutiny of it. By contrast, any specification as to the form of the report would be a technical regulation, for which the negative procedure is appropriate. Amendments 53 and 54 remove that possibility, except by future primary legislation.

As I say, removing the mechanism for amending or enhancing the baseline for SAU reporting that is set out in clause 59 would unnecessarily tie the hands of the SAU and future Governments seeking to improve the referral process based on the experience and expertise that is gathered over time through the functioning of the new regime. As set out in clause 67, the power to change the content of the report may be exercised only for a period of one year following the publication of SAU’s first report under clause 65.

As I have set out, however, changing the form of the report is a technical matter, so it is appropriate for the regulations to be subject to the negative procedure. I therefore request that the hon. Member for Sefton Central withdraws the amendments.

Subsidy Control Bill (Eighth sitting)

Debate between Paul Scully and Kirsty Blackman

Thursday 4th November 2021 Public Bill Committees

[Kirsty Blackman]

Thank you for chairing this afternoon’s meeting, Mr Sharma. I have a brief comment about the omission of the power set out in amendment 56. I would appreciate it if the Minister could let us know what assessment he has made of its compatibility with the trade and co-operation agreement and the World Trade Organisation rules if the Bill does not contain the power that the Opposition are suggesting should be put in via amendment 56.

[Paul Scully]

Clause 60, as we have heard, provides a power for the Secretary of State to direct a public authority to refer a subsidy or scheme to the subsidy advice unit after it has been given or made. The power can be used where the Secretary of State judges that there is risk of failure to comply with the subsidy control requirements, or of negatively impacting on competition and investment within the UK. The purpose of the power is to ensure that there is an opportunity for the subsidy advice unit to provide independent scrutiny and evaluation of the public authority’s assessment of compliance with the subsidy control requirements in circumstances where the subsidy or scheme was not subject to mandatory referral before the subsidy was given or the scheme was made. That independent analysis will increase transparency and provide useful information to the Secretary of State and any potential interested parties, if they are considering a judicial review challenge to the subsidy or scheme. In circumstances whereby the subsidy is given in multiple instalments or further subsidies will be given under the scheme, it may also give the public authority advice that allows it to make adjustments for future instalments or subsidies.

Amendment 56 would add a further scenario that would permit the Secretary of State to direct a referral where they were concerned about a subsidy or scheme’s potential impact on competition and investment between the United Kingdom and other territories. Clause 60(2)(b) explicitly underlines that a referral may be made where

“there is a risk of negative effects on competition or investment within the United Kingdom.”

That is important, because it reflects the domestic character of the new subsidy control regime and emphasises our commitment to protecting our vibrant free market economy.

However, as we have heard, the subsidy control regime is also concerned with impacts on international trade and investment and, in order to comply with our international obligations, this is enshrined in the subsidy control principles. In particular, principle G requires that the benefits of a subsidy or scheme outweigh the negative effects, including those on international trade and investment.

[Kirsty Blackman]

The Minister is attempting to explain why the Government have explicitly included one of the principles, but not the other principle. It seems to me, if one principle is included, they all need to be included, or none of them. Giving extra importance to one principle suggests that the other principles are less important, and therefore amendment 56 makes a huge amount of sense to me.

[Paul Scully]

I will come back to that in a second, but let me finish talking about principle G. If the Secretary of State has concerns that a subsidy does not comply with principle G, or any other subsidy control requirement that is connected to international trade or our international obligations, then they may already direct a referral under subsection 2(a) of this clause, meaning that this amendment is redundant.

I also want to point out that the Bill deliberately refers to “trade or investment” between the UK and other territories, rather than “competition or investment”. The Secretary of State does not have any role in managing the balance of competition between nations. That is enshrined in those obligations.

Amendment 57 concerns the time limits for the referral power in clause 60. The Bill limits this power to within 20 working days from either the day in which the subsidy or scheme is entered onto the transparency database, or, where a subsidy or scheme is exempted from that requirement, 20 working days from the date the subsidy is given or made. These timeframes mean there is a significant window during which a post-award referral may be made. Most subsidies and schemes must be entered on to the database within six months of being given or made, while for tax measures, as we have discussed, the period is within a year.

Amendment 57 removes the ability to issue a post-award referral following entry on the transparency database, and would only allow a referral within 20 days of the subsidy being awarded or made. There is no loophole, as was suggested, but 20 days after the upload of the database is the end of the time period when the referral needs to be made. It does not start with the date of the upload on the database.

[Kirsty Blackman]

On the point the Minister made in relation to “competition or investment” and the disparity between that and “trade or investment”, if the Opposition amendment referred to “trade or investment”, would it be acceptable to the Minister?

[Paul Scully]

Again, the principles are enshrined, and it is the principle that complies with those international treaty obligations.

Going back to the timeframes, amendment 57 would have the effect of curtailing the power and reducing the opportunity to provide transparency on the most concerning subsidies. That would mean, in some circumstances, the deadline could have expired before the Secretary of State or any interested party had any news of the subsidy at all. The additional scrutiny and transparency offered by this measure will undoubtably be lost in some cases which may have benefited from the use of this power, and risks undermining confidence in the system as a whole. I therefore request that the hon. Member withdraw amendment 56.

--- Later in debate ---

[Paul Scully]

On the point made by the hon. Member for Aberdeen North, in the previous sitting we talked about UK competition and investment. It simply emphasises the point about UK competition and investment. It does not have any significant effect, because it is already captured in the guiding principles. We want to make sure that there is absolute clarity for businesses and public authorities with clause 62.

[Kirsty Blackman]

So the principle has been removed from clause 62 but is being kept under clause 60? Is that correct? There is no Government amendment to remove that provision from clause 60, but the Government felt it was so important that they need to remove it from clause 62, even though it is literally the same—whether it is post-award referrals or CMA reports following a post-award referral. I am just baffled by the inconsistency, to be honest.

[Paul Scully]

There is no Government amendment to clause 60.

Amendment 4 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

--- Later in debate ---

[Kirsty Blackman]

I want to raise specific concerns about the first part of this amendment—I am not concerned about the amendment, but I have concerns relating to the first part of it, which is about taking out paragraph (a). Paragraph (a) relates to streamlined subsidy schemes, which were discussed in clause 10. In clause 10, the streamlined subsidy schemes are allowed to be made only by a Minister of the Crown, rather than by anybody else. I understand the Minister’s desire for an ability to make streamlined subsidy schemes—that makes sense. Unfortunately, the amendments that were tabled to widen that out to allow the devolved Administrations to make streamlined subsidy schemes were not accepted.

The exemption of streamlined subsidy schemes from the whole of chapter 1 of part 4 bothers me. If the whole point of the streamlined subsidy schemes is in order for things to happen quickly, I understand that the Minister would not want the mandatory or voluntary referral process to apply in respect of them. However, I do not understand how he can justify the post-award referrals not taking place specifically for streamlined subsidy schemes. It is completely reasonable that, should a streamlined subsidy scheme be about a subject of interest or particular interest, a post-award referral should take place.

I understand completely that the subsidy scheme needs to go before Parliament in order to become a streamlined subsidy scheme, but Parliament is not always right. Sometimes Parliament is wrong, and sometimes it bears scrutiny from experts such as the CMA, which should have the ability to look at this as a post-award thing. I would probably not have gone quite as far as the Labour Front Bench, although I will support this amendment, but I have particular concerns about the lack of post-award scrutiny for streamlined subsidy schemes. If we have a parliamentary process, we are not getting the benefit of the CMA’s advice or its consideration.

It is the case that mistakes were made during the course of covid. Things were done too quickly, and errors were made as a result. An after-the-fact examination to find out what went wrong and whether it is possible to do better next time would be helpful, particularly around streamlined subsidy schemes. Once again, that is not about trying to remove the speed of the process—I understand why the Minister wants that speed—but about a post-award or post-subsidy scheme set-up check to ensure that things are going the way the Government intend them to go.

[Paul Scully]

Clause 64 provides for a limited number of exemptions from some or all of the provisions on the referral of subsidies and schemes to the SAU. The objective of subsections 1 and 2 is to list the types to which it is inappropriate for the SAU referral provisions to apply.

In some cases, the substantive subsidy control requirements do not apply, so it is not possible to evaluate a public authority’s compliance with those requirements. In other cases, the subsidy needs to be given so quickly, as we have heard, that it would not be appropriate to add an additional process that could delay the subsidy.

In the case of streamlined subsidy schemes, the subsidy or scheme will already be subject to additional scrutiny and transparency through other means. They will be developed by the Government through engagement with experts and other public authorities and, once made, they will be laid before Parliament. I take the point of view of the hon. Member for Aberdeen North, but it is the development beforehand that will provide the scrutiny, input and engagement that will then come to this place.

Amendment 59 would bring streamlined subsidy schemes and minimal financial assistance subsidies into the scope of part 4, chapter 1, and therefore make them subject to referrals to the CMA. Of course, the CMA’s role in this regime is to help public authorities to make assessments against the subsidy control requirements, so that subsidies do not unduly distort competition. It is not necessary for streamlined subsidy schemes or minimal financial assistance subsidies to be referred to the CMA, because these types of subsidy are those that are less likely to distort competition in the first place.

We as a Government intend to use streamlined subsidy schemes for low-risk and non-contentious subsidies, to ease the administrative burden for other public authorities of giving subsidies within those terms. The streamlined schemes are available for public authorities to use, if they choose to, when granting commonly used subsidies. As such, streamlined routes will be carefully designed to minimise distortive effects on competition. Streamlined subsidy schemes will be developed and publicised as part of the subsidy control regime. As I have already said, we will continue to engage with experts, public authorities and subsidy recipients as we prepare for implementation, and that engagement will cover streamlined subsidy schemes. If necessary, the Government will also be able to obtain advice from the experts in the subsidy advice unit in developing the schemes under existing powers. Once made, they will be laid before Parliament, so that Members will be able to examine the schemes for themselves. Finally, I should emphasise that the schemes are still subject to the subsidy control requirements. In the very unlikely event that there are grounds to think that they may not comply with the subsidy control principles, they can be challenged in the Competition Appeal Tribunal.

The subsidy control requirements do not apply to the exemption for minimal financial assistance, simply because small subsidies are not generally capable of causing serious distortions of competition. We have previously heard from the Opposition that MFA exemptions should not exist at all, but that position is fundamentally at odds with the Government’s intention that the new subsidy control regime should enable public authorities to award subsidies more quickly and easily in order to meet local needs and drive economic growth. Although the subsidy control requirements are not burdensome, they would still constitute an unnecessary barrier to giving small, less distortive subsidies, and I would draw the attention of the hon. Member for Sefton Central to the consultation, in which 92% of respondents agreed with the Government’s proposal that subsidies below the threshold of £325,000 special drawing rights, which approximates to £336,000, should be exempted from the subsidy control requirements. We have therefore proposed a threshold of £315,000 in the Bill, to account for exchange rate fluctuations.

I have already made the case for exempting minimal financial assistance from the subsidy control requirements. As I have said, the role of the subsidy advice unit is to advise public authorities in assessing subsidies against the subsidy control requirements. When those requirements do not apply, as in this case, it is illogical for there to be a possibility of referrals to the subsidy advice unit. As such, I believe it is unnecessary for streamlined subsidy schemes and minimal financial assistance to be subject to the referral provisions in part 4 of the Bill. For that reason, I urge the hon. Member for Sefton Central to withdraw the amendment.

[Kirsty Blackman]

I have a quick question for the Minister, which he does not have to answer now. I would appreciate it if he could consider when a streamlined subsidy scheme is being published and set before Parliament. He has made it clear that a number of people will be consulted and that it will be drawn up in parallel with thinking from experts and potential recipients of the subsidy scheme. That is fine, but when we are assessing those streamlined subsidy schemes, it would be helpful for Parliament to have that information, and particularly to have a view from the SAU, or from the CMA more generally, about the streamlined subsidy scheme. Even if the SAU just says, “We think this looks good,” that is at least more information for Parliament. It would give me more comfort to know that the scheme fulfils the principles, or at least that the SAU thinks the scheme fulfils the principles as they are laid out. Therefore, it would be much more reasonable for clause 64(1)(a) to be included if we were given that level of comfort.

Subsidy Control Bill (Sixth sitting)

Debate between Paul Scully and Kirsty Blackman

Tuesday 2nd November 2021 Public Bill Committees

[Kirsty Blackman]

Thank you for chairing the Committee, Ms Nokes. I came back thinking that I had notes, but I have just written two sentences on a bit of paper. Hopefully I will not ramble too much. I want to speak to amendment 19 and amendment 20, which is linked to amendment 19, and amendment 21. I think that is all, but I will speak to other amendments as we come to them.

The logic behind amendment 19 is, unsurprisingly, to try to give us a bit more certainty about what the Secretary of State will require to be included in the subsidy database. It changes “may, in particular” to “must” in subsection (2), to give us certainty that those things will definitely be included. That strengthens the clause and makes it clearer. Amendments 20 and 21 allow the Secretary of State to include anything else that they think is necessary, because if “may” is strengthened to “must”, we need to allow the Secretary of State to have a bit more flexibility to include anything else not listed.

Amendment 21 is about the purpose of the subsidy. We are concerned, having looked at the entry requirements for local authorities—sorry, I mean public authorities; I spent far too many years as a local authority councillor. This amendment has been included because I am not convinced that paragraph (b) on the policy objective of the subsidy scheme adequately covers what we would like to have in that database. People who put things in the subsidy control database need to say why they are giving the subsidy to the organisation. That is important not just for setting the policy objective, particularly in subsidy schemes, but for knowing the point of that individual subsidy—why it is given to that organisation. It will be very helpful if the Minister outlines whether he thinks additional things may be added to this list by the Secretary of State. I hope he can be clear with the Committee that this is not necessarily a prescriptive list and the Secretary of State may include other things in it. I am assuming that is why the language was chosen at the beginning of subsection (2), but if the Minister could state that, it would be helpful for us to understand.

We have discussed at some length the importance of the subsidy control database, and the fact that it is the only way enterprises or public authorities will be able to find out about subsidies that have been made that may distort competition. I agree with the shadow Minister, the hon. Member for Feltham and Heston, that it is very important that we get this right, and that we have as much information as possible, so that people can make pre-action requests and challenge a subsidy.

The subsidy control database is not a tick-box exercise, and I hope that subsidy control is not a tick-box exercise; subsidy control is necessary, and not just so that we can meet our international obligations. Presumably, the Government think that it is a good thing. It is good that we have regulations around subsidies; that is very important. If subsidy control is not to be a tick-box exercise enabling us to meet our obligations, and if we are not saying, “We’re just going to do the bare minimum,” it is key that the Government give some thought to the amendments tabled by Labour and the SNP, and consider whether it is important to strengthen the data on the subsidy control database, as well as the ability to search it and timelines, which we have talked about.

Amendment 21 would require the purpose of the subsidy to be put on the database. That is missing from the list in clause 34. It would be useful for organisations and public authorities to have information on why the subsidy was given. If the Minister believes that

“the policy objective of the subsidy or scheme”

adequately covers the purpose of the subsidy, it would be helpful if he could state that, and say that the Government will request authorities to include the purpose of the subsidy. That would give us comfort about the information that will be on the subsidy control website.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is, as ever, a pleasure to serve under your chairmanship, Ms Nokes. I thank hon. Members for their interest in clause 34 and the amendments to it. As we have heard, the clause concerns the technicalities of how we will require public authorities to upload details of subsidies to the database, and allows the Secretary of State to make regulations setting up the information requirements of the database. The regulations will be technical in nature, and Parliament will have the opportunity to review them through the negative procedure.

We have thought really carefully about this, and I would like briefly to take the Committee through our rationale for taking the power. The definitions, rules and processes at the core of the proposed new regime are set out in the Bill. Further technical detail and specificity will be needed on the exact transparency requirements. Our new regime needs to be responsive to market and technological changes and to reflect future trade deals and international obligations. It is also important that it can respond to unforeseen events and developments. We need to be able to act quickly, when necessary, to events such as financial crises, covid-19, and changes in world markets and the global capacity for the production of particular materials.

The list of information that must be uploaded on the database relates to the technical, administrative reporting requirements placed on public authorities, rather than the substantive subsidy control requirements that determine which subsidies are given. For these reasons—the need to change at pace, and the fact that these are simply reporting requirements, not rules about when subsidies can be given—we have provided for the Secretary of State to have the power to make these requirements by regulation, rather than putting them in the Bill.

We share the desire to be as transparent as possible. This is a crucial part of the regime, not a tick-box exercise; I assure the hon. Member for Aberdeen North that we take it very seriously. In order to give Parliament further information about what kind of information may be provided, subsections (2) and (3) provide illustrative lists.

Amendments 19, 20, 41 and 42 concern similar matters, so I will address them together. As I have said, the Government’s intention in providing the list of requirements in subsections (2) and (3) is to illustrate the kind of information requirements that may be included in the regulations. Those regulations are not yet prepared. More work is required to gather evidence and scope out the most appropriate way of setting out the database upload requirements in legislation. These requirements need to be clear and operationally viable, and must ensure appropriate transparency and value for those interested in subsidy award data.

Our intention is to make the regulations as straightforward and concise as possible and to avoid duplication. The amendments would mean that the Secretary of State must include in the regulations all the fields listed in clause 34(2).

Amendment 41 also covers the list in subsection (3)—the lists would no longer be illustrative but would be a minimum that could be added to. The regulations would be required to include information that, on the basis of the information gathered before drafting the regulations, might be surplus to requirements. We want to ensure that the exhaustive work is done beforehand, because we have tried to avoid creating additional, unnecessary reporting requirements for public authorities in the UK’s new subsidy control regime while still being as transparent as possible. Before setting out the requirements, the Government will carry out full analysis to ensure that data fields are useful and appropriate.

[Kirsty Blackman]

Can the Minister give me some comfort that public authorities updating the database and those searching the database will be involved in the consultation, and that the majority of the decisions taken by the Government are likely to be led by consultation responses, rather than if the consultation comes back and states, “We absolutely want paragraph (f); that absolutely has to be there” the Government would be unlikely to decide not to have paragraph (f)?

[Paul Scully]

We will engage with all those bodies—with the public authorities that will have to do the reporting; with the recipients of subsidies; and with people interested in subsidy data and transparency. We have already started that engagement, and it will continue because it is important that the database is as useful as possible and is balanced by a proportionate approach so that we do not duplicate effort. None the less, these will all be taken into account as we gather the evidence.

The data required for the database needs to be available to public authorities without creating large administrative burdens, either on those authorities or on subsidy recipients. It needs to be data that is relevant to all subsidies and schemes, or to be clear in which circumstances it is required, and where it is not. It needs to be presented so that those viewing it can easily access the data available and seek out the information they need. 

In addition to getting this right for commencement of the new regime, it is important to remember, as I mentioned earlier, that the requirements may need to change over time. For these reasons, I believe it is right that the lists in subsections (2) and (3) remain illustrative—that is to say, the regulations should not be required to include all types of information listed. The ability to tailor the regulations in future is essential for ensuring that the database does what it needs to do and can allow for different requirements for different types of subsidy. 

Amendments 21, 43 and 44 seek to add further categories of information to the illustrative lists. As I have already set out, these lists should be considered illustrative of the technical requirements that the Government expect to bring forward in secondary legislation. As such, any additions are unnecessary.  

The illustrative list provided clearly demonstrates that the regulations are intended to cover the information for interested parties to understand the key facts about a subsidy or subsidy scheme, and whether it is likely to harm their interests.

Amendment 40, which stands in the name of the hon. Member for Feltham and Heston, would make it compulsory for the Secretary of State to make regulations under this power. I assure members of the Committee that the Government intend to bring forward these regulations before the commencement of the subsidy control regime. However, I do not believe it is appropriate to consider these regulations essential to the operation of the new subsidy control regime as set out in the Bill, because the regulations are essentially technical.

[Kirsty Blackman]

The Minister says that the Government intend to bring forward the regulations before the subsidy regime starts. Can he give us an assurance that it will be not a few days before but long enough for public authorities to understand their obligations and include the correct data?

[Paul Scully]

I can reassure the hon. Lady on two things. First, we want to ensure that we develop this with public authorities—that we engage with them so that they are part of the process. They will be reporting, so we want them to understand what they have to do.

Secondly, as I said in answer to the hon. Lady during a previous sitting, we want to do this in good time and ensure that public authorities, beneficiaries and everyone involved have time to digest it. That is very much the aim ahead of commencement.

The regulations are essentially technical in character and do not fundamentally change the substantive subsidy control requirements. The current practice clearly demonstrates that there is no need to have such specific requirements in force for the database to be operational as it is already up and running, although we can and will improve it.

I therefore request that the amendment be withdrawn.

--- Later in debate ---

[Kirsty Blackman]

I beg to move amendment 22, in clause 34, page 18, line 35, leave out subsection (4) and insert—

“(4) Regulations to be made under this section for the first time are subject to the affirmative procedure. (5) Any subsequent regulations made under this section are subject to the negative procedure.”

This amendment would have the regulations be considered under the affirmative procedure, in the first instance, and the negative procedure for any future tweaks.

I like to think I am not an unreasonable person. We have debated at some length what needs to be on the subsidy control database, and it was also discussed during our evidence sessions. It is fundamental to the operation of the scheme that the subsidy control database is fit for purpose and that the information that is available on it is agreed in consultation with the public authorities and the enterprises that it will affect. That relates both to what goes on to the database and to the ability to challenge anything that is happening.

When the regulations are first made, there is likely to be some disagreement. We have had plenty of disagreement already about whether a provision should say “may” or “must” and members of the Committee have brought up good points that Ministers may not have heard before. The Minister’s characterisation of some of the consultation responses has been slightly challenged by the shadow Minister on the ground that some of those responses were not as clear as the Minister suggested. For that reason, when we consider for the first time the information to be included on the subsidy control database, it is important that we do so by the affirmative procedure. Any subsequent changes can be done by the negative procedure.

As the Minister has said, this is a framework Bill, but we have not seen this part of the framework. If the scheme is to work, we need to see what it will involve. The Minister said that this section was specifically about what was included on the database and not about the regulation of subsidy because there are rules on whether or not they are awarded. He is right about that, but we will not be able to understand whether subsidies are being given unless they are on the database. We simply will not know whether they exist. The only burden on public authorities is to provide a letter to the business; it does not involve any level of check or anything that enables us to scrutinise what has happened. The affirmative procedure, in the first instance, would be the best way forward, with the negative procedure for future iterations—tweaks to ensure it is operating correctly.

[Paul Scully]

Amendment 22 concerns the procedure by which the Secretary of State can make regulations to set out the information that public authorities must upload to the transparency database.  

As we have discussed in the context of other amendments, these regulations are highly technical. They do not change the substantive subsidy control requirements or the basis on which subsidies can be given. They are also not necessary for the database to function—as demonstrated by the fact that it is already operational. 

The negative procedure is most appropriate for a technical issue such as this.  As I mentioned this morning, the Bill proposes the right parliamentary procedure for different types of secondary legislation. I mentioned the powers to amend the exemption thresholds in clause 42(1) being subject to the affirmative procedure because they affect the substantive subsidy control requirements rather than the thresholds or entries on the database that we are discussing.

The regulations will be drafted and published in good time to ensure that public authorities understand what the regulations will require of them.  I therefore request that the amendment be withdrawn.

[Kirsty Blackman]

I thank the Minister for his statement. It will be interesting to see whether the regulations come forward in the negative or the affirmative.

I do not intend to press the amendment to a vote. I say simply that, although the website is operational, it is not very functional. The Minister has admitted that it has shortcomings, a number of which would have been sorted if the intention of the regulations had been made clearer in the Bill or if they would be discussed under the affirmative procedure.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause gives the Secretary of State the power to make regulations that stipulate what information must be provided by a public authority with respect to a subsidy scheme or subsidy award when it is recorded on the subsidy database.

The regulations will be subject to the negative procedure.

[Kirsty Blackman]

Subsection 2(g) of the clause mentions

“the amount of the subsidy or scheme or the amount budgeted for the subsidy or scheme.”

That directly contradicts what the Minister said in relation to tax measures. He said that tax measures could not be put on to the database in advance of knowing exactly how much the tax measures would be. I suggested that it would be possible to include the budgeted amount on the website. The Minister said that would not be possible—it would be important to have the final amount. This specifically states that in regulations the Government might ask for the budgeted amount—particularly for tax measures, where there is such a long time before a public authority has to upload the information, during which a business might, because of the distortive effects of the subsidy, be in serious financial difficulties and go under. It is bizarre that the argument that the Minister made is directly contradicted by subsection 2(g). It would be helpful to know why the provision is in the Bill if the Government would not even consider using it—which is what he suggested earlier.

--- Later in debate ---

[Paul Scully]

To answer the question from the hon. Member for Feltham and Heston, the criteria used to determine how the figures are arrived at are part of the purpose of the subsidy, which is why that information is in the Bill, but guidance will also be provided, as will regulations on gross cash equivalents.

On the point made by the hon. Member for Aberdeen North, that, effectively, is why this is an illustrative list. Budgeted amounts can vary significantly from the final subsidy, so it might not be appropriate for them to be used in all cases, including for tax. None the less, we want to work out these issues on an evidence-led basis, having engaged with the public authorities to see how the database will work in practice. It is important we work with the public authorities to come up with the guidance and final regulations in plenty of time before commencement.

[Kirsty Blackman]

It would be very helpful if when the consultation is carried out the Government were to ask enterprises whether they would prefer to see the data earlier, or the final figure. I think the Government have got it wrong on this one.

[Paul Scully]

As I said, we will engage with enterprises and public authorities, as well as academic and legal experts, to make sure we get the balance right. We think we have a balanced and proportionate response, but that will be developed in plenty of time before commencement.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Introductory

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Paul Scully]

The exemption allows public authorities to award low-value subsidies of up to £315,000 over three years with maximum flexibility and minimal administrative burden. Subsidies given through the minimal financial assistance exemption are very unlikely to have any appreciable distortive impact on international trade and investment, or UK competition and investment, so it is appropriate to exempt them from the substantive requirements of the regime, subject to the value threshold set out in the clause and the relevant procedural requirements set out in clause 37.

[Kirsty Blackman]

I continue to believe that subsection (2) of the clause is meaningless and unpoliceable because of the way that the subsidy control database is being put together. I would very much like it if the Minister would, either now or at some future point, in writing preferably, let us know how the Government intend to ensure that public authorities are able to find out whether an organisation has had a subsidy before, what its value was, and whether the subsidy that it will potentially award to that organisation will push it over the £315,000 limit.

There is no point in the clause if there is no way in which it can work because of the Government’s decisions on how the database is run. I am very pleased that a public authority will have to write a letter to an organisation to say, “We’re giving you a subsidy under the minimal financial assistance scheme,” but that does not go far enough. It may be helpful if it had to write a letter to all granting authorities, because then they would all be aware of the subsidy that had been given, and they could take decisions. This is an unfair and not sensible burden to put on granting authorities, because there is no way that they can ensure that they are abiding by the law, or get the transparency data to prove that they have done so.

[Seema Malhotra]

We will not support clause stand part. My contribution will build on the arguments made by the hon. Member for Aberdeen North. We debated amendment 33, which I think went part way to covering some of our concerns, but our concerns are broader, in questioning the exemptions from some of the control requirements.

The clause outlines subsidies that are exempt from the subsidy control principles, stating that the principles do not apply to subsidies worth less than £315,000 to one enterprise over three years. We believe that subsidy control principles exist for a reason; we are having these debates and setting up this regime for a reason. Subsidies should help to pursue a specific policy objective. They should be proportionate. They should encourage certain behaviours. They should not fund unnecessary costs. They should not be distortive or cause overwhelmingly negative effects. They should not affect competition and investment within the UK. Those principles should stand regardless of the size of the subsidy.

A subsidy being smaller does not mean that it cannot be disproportionate or bring about negative effects. All subsidies have the power potentially to harm the economy. They should be transparent and subject to scrutiny and the potential for challenge, and therefore all should be required to be in line with the subsidy control principles. I have not heard anything from the Minister, although he may yet persuade me otherwise, about why the clause is needed and why the Bill cannot require all subsidies to be transparent and in line with the subsidy control principles—it is the Subsidy Control Bill.

[Paul Scully]

Clause 37, as we will discuss in a second, states that the public authority has to confirm with the enterprise that the subsidy is still below the threshold. That is the right balance for a proper process to confirm that the threshold is respected without applying disproportionate burdens of oversight for small subsidies that are unlikely to be distortive in any way. Although the regime is light touch, it still imposes some obligations, and it is not proportionate to impose them on very small subsidies that are unlikely to have an impact on trade and competition. For that reason, we feel that the balance is right between the transparency required to make sure that the subsidies are made and reported, and that we can understand the effect and distortion they may have, and the administrative burden that will be put on public authorities and those smaller businesses.

[Kirsty Blackman]

I appreciate the case that the shadow Minister made. I am not entirely convinced at this point; I need to think about it a bit more. I will therefore abstain if clause stand part is pushed to a vote, but I reserve the right to change my mind on Report.

--- Later in debate ---

[Paul Scully]

It works both ways. If I were an enterprise receiving a subsidy, such as minimum financial assistance, I would want to make sure that I was doing my own due diligence, and public authorities do. Any businessman would know that there are legal implications and legal requirements of running a business. It should be the case that it works both ways.

There are interlocking elements within the framework that ensure that both public authorities and enterprises are doing their own due diligence. The procedural requirements will make sure that enterprises receive subsidies only through the MFA exemption when they are genuinely entitled to do so, while still minimising the administrative burden associated with awarding a subsidy. I commend the clause to the Committee.

[Kirsty Blackman]

I have a few questions about the clause. It would be helpful if the Minister could lay out what he expects the timeline to be for these requirements. The minimal financial assistance notification has to be given in advance of the subsidy being awarded. It is an intention letter that says the body intends to give the subsidy. Presumably that has to happen at any point in advance of the actual cash changing hands or the tax measure taking place.

My second question is about the minimal financial assistance confirmation, which is the written statement confirming that the subsidy has been given, the date it has been given and the gross value of the assistance. The Minister made clear earlier in the debate that it could be up to a year, or even longer, before an enterprise actually knows what the gross value of that assistance is if it is a tax measure. Are the bodies expected to give the confirmation as soon as they give the subsidy, or are they expected to give the confirmation as soon as they know the exact amount, particularly for tax measures? The provision does not seem to add up with the details we were given on the subsidy control database.

The other questions I have are about what “written” means. If a public authority emails these details to an organisation, does that count as written? Clause 37 says that

“the enterprise must keep a written record”.

Does it have to keep these details on a piece of paper in a filing cabinet, or can it be kept in an electronic form? What if the enterprise does not have much in the way of offices? What if it operates largely online? We have seen many enterprises move towards online working. Is an electronic version acceptable? Would the enterprise be fulfilling its duties by keeping an electronic record, or do we need that bit of paper, hanging about somewhere in someone’s house or office or wherever?

If the Minister cannot give exact answers to my specific questions, it would be handy if he could supply the answers at a later date—

[Paul Scully]

In writing?

[Kirsty Blackman]

In writing would be absolutely fine—if that is by email, I am happy to receive it electronically. It would be helpful if the Minister could write to us to confirm what “written” means. For people to be able to meet their obligations, he will probably have to make some sort of statement about what the Government intend, either today or at a later stage.

[Seema Malhotra]

It is a pleasure to speak to clause stand part. The Minister could have saved himself a whole debate had he supported our arguments on clause 36, because this clause sets out the procedural requirements attached to subsidies given under the clause 36 exemption.

The clause outlines how public authorities must provide the intended recipient with a notification, stating that they cannot award a subsidy until they have received confirmation from the intended recipient in a number of areas, including that the relevant threshold will not be breached. There are a whole set of debates to be had about what is considered a subsidy and what is not—we have had that on other aspects of the Bill—and about the lack of full clarity on the interface with the freeports policy or on taxation and subsidies. Clear guidance will be needed for interpretation by the enterprise of what it needs to consider when answering the question under subsection (2)(c). I hope that the Minister will set out in his remarks how he intends that to happen, to give surety to the enterprise and to the public authority.

As I said, Labour does not support clause 36. In my view, we have not heard a convincing case for such exemptions, which seem to be beyond what is needed. Our starting principle must be and must remain transparency. Confidence in this regime is all about transparency, to ensure that there is no cronyism or potential fraud. Once we have set up an agile, simple and robust system, which it is surely not beyond our wit to do, it should be straightforward to provide that information.

The Minister said earlier that the MFA notification would not need to be published. Will he clarify whether that is still the intention if an MFA notification goes to an enterprise? Local authorities and public authorities can simply publish on their websites, for example, when they have given some form of notification. That is a common thing to do, and publishing on a website what has been given to an enterprise does not in my view involve any issue of commercial confidentiality or of not being in the public interest; it would simply be transparent.

If we do not win the argument about changing the detail of the regime, there might be a middle way: at least the notifications ought to be published. Will the Minister tell us whether that has been given consideration and, if so, what the conclusion was and why? If it has not been given consideration, perhaps he will take it away and we can look at it as part of ongoing discussions with local authorities and other public authorities on other areas in the Bill, particularly clauses 32, 33 and 34.

Given that clause 36 remains part of the Bill, however, we recognise that the regulations listed under clause 37 will be necessary to bring some procedure to minimal financial assistance. We will therefore not vote against clause stand part.

--- Later in debate ---

[Paul Scully]

It is something that we will continue engaging with local authorities and public authorities on. For local authorities, there are already other spending databases, so subsidies over £500 will already appear on those databases. Again, we will work through that kind of engagement as we come on to the guidance.

[Kirsty Blackman]

The Minister said that the letters are allowed to be sent by electronic means. Can I clarify that the written records kept by enterprises are also allowed to be electronic?

[Paul Scully]

I believe that is the legal definition of what “written” means and therefore how those records are kept, but if it is not, I will clarify that later.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Clause 38

Services of public economic interest assistance

Question proposed, That the clause stand part of the Bill.

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[Paul Scully]

The devolved Administrations remain one of the key areas—perhaps the key area—where the subsidies will be given. We are not substantively changing the spending powers of the devolved Administrations, or indeed of any public authority.

[Kirsty Blackman]

The Minister specifically mentioned agricultural subsidies. Agriculture is devolved to the Scottish Parliament—it is a Scottish parliamentary competency—but he is suggesting that if Westminster intervenes in a devolved competency it is okay for it to not even run it by the Scottish Parliament in any formal way.

[Paul Scully]

We have not committed to changing the agricultural threshold. We intend to analyse carefully the full implications of lowering the threshold before making any final decision. Why would we want to do that? Because it may be desirable to effectively manage UK competition and investment as a whole. However, this was one area in which our analysis showed that there was no one single response to the consultation. I come back to the point that we will continue to engage closely with the devolved Administrations, as with all public authorities.

[Kirsty Blackman]

I disagree with the comments of the hon. Member for Aberavon. Clearly, I think that Scotland should be able to make its own decisions and have its own regime. In fact, I think it should be part of the EU and under the state aid regime, which has worked particularly well in an awful lot of areas.

I do not think that the amendment goes far enough. I am happy to support it if it is pushed to a vote, but I would have gone further in making sure that the Scottish Government, Scottish Ministers, the Welsh Senedd and Northern Irish Departments had even more of a say than that proposed by the amendment. If the amendment is pushed to a vote, I will support it on the basis of it being the minimum that I would expect, but I would prefer it to be even stronger.

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[Kirsty Blackman]

That is nothing to do with the subject of this amendment, which is specifically about the devolved Administrations being able to ask. If the Secretary of State wishes to declare a natural disaster, and Wales, Northern Ireland or Scotland does not want them to declare it, there is no mechanism for that—we do not have the powers to do that.

On the issue that was raised by the hon. Member for West Aberdeenshire and Kincardine, it is important that the devolved Administrations have this mechanism because, as has been stated earlier, trust is at an all-time low. We have been very clear that some of the relationships between the devolved Administrations and the UK Government are not in a particularly good place right now. Building this provision in means that there is an additional safeguard in place, so that those places that know their areas best and know the effect on those areas better than Westminster does, because they are closer, are able to make that request.

[Paul Scully]

Natural disasters such as floods, fires and other exceptional circumstances can arise that require subsidies to be given at pace, to compensate for the damages caused. The clause allows the Secretary of State to publish a notice to declare that exemptions from the subsidy control requirements apply in respect of a natural disaster or other exceptional occurrence. That will allow public authorities to give subsidies that compensate for the damage in a timely manner.

The hon. Member for Aberdeen North is right that not all such emergencies would apply across the whole of the United Kingdom. In many cases, the natural disaster in question would be localised to a specific place or region. Although it is the responsibility of the Secretary of State to declare that the exemption applies, subsidies using the exemption may be given by different public authorities, such as UK Government Departments, local authorities, agencies and, of course, the devolved Administrations. Public authorities are empowered to design subsidies in the most appropriate way to address the damage caused for their specific local needs. The Secretary of State does not need to approve the subsidies given under the exemption, once the natural disaster or other exceptional occurrence has been declared. The existing processes in the Bill already ensure that this type of subsidy can be given across the UK, by the devolved Administrations or other devolved authorities.

If a natural disaster or other exceptional circumstance occurred within the area of any of the devolved Administrations, it would of course be open to that Administration to request that the Secretary of State trigger the exemption, if the Secretary of State has not already done so. If the conditions for the exemption were fulfilled, the Secretary of State could then seek to publish a notice as soon as possible.

The clause is limited to very narrow circumstances to avoid creating an over-broad exemption to the domestic subsidy control regime that could damage UK competition and investment, and our ability to fulfil our international obligations. It is therefore appropriate that the Secretary of State has sole responsibility for determining when the criteria for triggering the exemption have been met. The Secretary of State must publish and lay in Parliament a notice to trigger the use of the exemption. That will ensure that the Secretary of State exercises the power in a transparent and accountable way. I request that the hon. Member for Sefton Central withdraws the amendment.

[Paul Scully]

Clause 43 enables public authorities to award subsidies to compensate for the damage caused by a specified natural disaster or other exceptional occurrence without having to apply the majority of the subsidy control requirements. The subsidies awarded under the clause would be exempt from the principles, prohibitions and requirements, but the transparency requirements would still apply. Before the exemption can be used, the Secretary of State must publish a notice declaring that a natural disaster or other exceptional occurrence has happened and that this exemption applies, and that notice must be laid in Parliament.

[Kirsty Blackman]

It would be useful to know where the notice is likely to be published. Will the Minister commit to considering whether the notice could be on the subsidy control database in some way? Perhaps on the database people could see a wee link that says, “This is where natural disasters have been declared”—hopefully it will not happen very often. If would be helpful if people could see all that information.

[Paul Scully]

Clearly, the notice has to be laid in Parliament, and I hope that I explained in my letter to the hon. Member exactly what that means. Clearly, we will also publish that on the gov.uk website and in other areas. I have forgotten the second part of her question.

[Kirsty Blackman]

It was about whether that information would be on the subsidy control database website.

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[Bill Esterson]

I beg to move amendment 47, in clause 48, page 27, line 6, at end insert—

“(2A) On the date on which the Act is passed, the Secretary of State must make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

This amendment would require the Secretary of State to make a statement to the House of Commons regarding the applicability of Article 10 of the NI Protocol on the date on which the Act is passed.

The amendment would require the Secretary of State to make a statement to the House of Commons on the applicability of article 10 of the Northern Ireland protocol on the date on which the Act is passed. Clause 48 provides that the requirements of the subsidy control regime do not apply to subsidy schemes that are subject to the Northern Ireland protocol. The Minister will suggest, I imagine, that this gives comfort to public authorities and avoids the double jeopardy of both regimes applying to a subsidy scheme—I take that from what he and the Secretary of State said on Second Reading.

If the Minister were to say that, he would be assuming that there is clarity on which subsidies and schemes are subject to the protocol. On this vital question that public authorities will need to interpret, there is no agreement between the UK Government and the European Commission. There is significant uncertainty about the extent of the reach back—that is, where EU state aid rules will continue to apply across the UK. Where a subsidy is applied in Wales, Scotland or England has consequences in Northern Ireland. George Peretz told us in last Tuesday’s evidence session,

“if I am advising a client such as a local authority or a subsidy recipient, my immediate problem is that I have to look at two sets of guidance—one issued by the European Commission and one by the Department for Business, Energy and Industrial Strategy—that in some important respects tell me very different things.”—[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 46, Q64.]

His final assessment was:

“It is all a bit of a mess.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 48, Q67.]

We should all note that the European Union published proposals to address problems with the Northern Ireland protocol a fortnight ago. That is a step in the right direction, although the proposals it put forward do not address the state aid subsidy issue. In contrast, on Second Reading on 22 September, the Secretary of State suggested

“we have proposed the change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime.”—[Official Report, 22 September 2021; Vol. 701, c. 338.]

Here we are six weeks later, and we are no clearer about the status of the negotiations with the EU. I hope the Minister will set my mind at ease and tell us what the UK proposals are to solve the problem that George Peretz set out so well in evidence last week.

Let us remind ourselves: the Government negotiated the Northern Ireland protocol and signed it, so they now have a duty to make the protocol work, just as they have a duty to make Brexit work. It is no good threatening to rip up an agreement that the Prime Minister himself signed just two years ago, and certainly not without something to put in its place. Perhaps the Minister can confirm when he last discussed these issues with his European counterparts, and the timeline on which he expects there to be clarity on article 10 of the protocol and its impact on the Bill.

The purpose of the amendment is to require the Secretary of State to provide a statement on

“the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

Public authorities and recipients need and deserve certainty on this issue.

[Kirsty Blackman]

The hon. Member for Sefton Central used the quote I was going to use from the Secretary of State, who was really pretty clear that the new subsidy control regime that we are discussing is the one that will apply across the United Kingdom. That was the point the Secretary of State was making—that this is the only subsidy control regime that will apply across the United Kingdom. That seems pretty factually incorrect, not least for Northern Ireland but, as the Opposition Front Bench spokesperson pointed out, for other parts of the UK where that trade will end up going to the EU.

The very least the Government could do is to ensure that a formal statement is made, because if we are relying on what Government Ministers have said in the course of either debates in the House or statements, we do not know the answer. We have been told a number of different conflicting things. I get that this is a movable feast and that there is no final decision on exactly how it will work. That is why the amendment is so reasonable. It specifically says that the applicability statement will need to be made on

“the date on which the Act is passed”.

Presumably, by the date on which the Act is passed we will have some idea of which regimes will apply in Northern Ireland. We have spoken very little about Northern Ireland specifically during the course of this Committee but, when the Minister talks about giving certainty to enterprises and public authorities, it seems to me that Northern Ireland is in a unique position where there is no certainty at all. People literally do not know which regime will apply.

It is all well and good to say, “We will consult with people and ensure that they see the guidelines in advance of having to put them in the subsidy control database,” but the fundamental issue of which regime they are complying with has not yet been answered in a way that would stand up to any kind of scrutiny. The amendment is completely reasonable and, if the Minister does not want to accept it, he should be clear with us and with the organisations concerned, particularly in Northern Ireland, about how he and the Secretary of State will explain to them which regime they will be operating under.

[Paul Scully]

As we have heard, amendment 47 to clause 48 would require the Secretary of State to

“make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom”,

on

“the date on which the Act is passed.”

Clause 48 excludes subsidies in the scope of article 10 of the Northern Ireland protocol from the domestic subsidy control regime, which, as the hon. Member for Sefton Central says, is to avoid double regulation of subsidies. Subsidies that are subject to the protocol and comply with the EU state aid laws will be exempt from the requirements of the new domestic regime.

I should remind hon. Members that the Secretary of State is already required, as a statutory duty, to publish guidance on the practical application of article 10 of the Northern Ireland protocol under section 48 of the United Kingdom Internal Market Act 2020. BEIS published that guidance on 31 December 2020. That is intended to help public authorities reach a view on whether article 10 applies to subsidies granted in Northern Ireland and the rest of the UK, to which they must have regard.

The guidance is based on the EU Commission’s unilateral declaration of 18 December 2020, which made it clear that article 10 would apply in Great Britain if there was a genuine and direct link back to a company in Northern Ireland. That is most likely the case of a subsidised company in Great Britain with a subsidiary in Northern Ireland. The Command Paper on the Northern Ireland protocol published on 21 July 2021 set out the Government’s position that comprehensive and robust commitments are in place on subsidy control in the trade and co-operation agreement, and that those are being further strengthened through the UK’s Subsidy Control Bill, making the existing provisions in article 10 redundant in their current form.

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[Paul Scully]

I disagree. This framework, which is a bare-bones framework, as I have said, has to work with whatever is in the Northern Ireland protocol, whatever is negotiated. That is why, for the reasons I have said, I talked about the reach-back provisions, which are never perfect. We know that the Northern Ireland protocol is not perfect, but it is a negotiated view. That is why, in those intensive discussions, we are looking at delivering significant changes and trying to improve an imperfect situation.

[Kirsty Blackman]

If an enterprise in Northern Ireland is given a subsidy, and that enterprise has competition in or trades with both Scotland and Ireland, which regime does it need to comply with if it gets that subsidy? Does it need to comply with the state aid or subsidy control regime, or both?

[Paul Scully]

It would first depend on what it trades in, and then on what its service is, because those are dealt with in different ways. It would then depend on the framework of the company and what structure it has in GB and Northern Ireland, because it must have genuine reach-back to Northern Ireland to be able to apply to that.

[Kirsty Blackman]

I appreciate the Minister being so indulgent in giving way. Are there any circumstances in which an organisation—an enterprise that is given a subsidy or a public authority giving out a subsidy—will have to comply with both the subsidy control and state aid regimes?

[Paul Scully]

The regime has been specifically worked through so that there is no double jeopardy, as the hon. Member for Sefton Central described at the beginning. They have to deal with one or the other. Clearly, as I said, the one they would deal with depends on the framework of the company, the ownership of the company, and whether it deals in electricity or services, because different rules clearly apply. None the less, as the negotiated provision is constituted, they would only have to apply to apply to one or the other. If it is state aid, they do not then need to worry about domestic subsidy control, and vice versa. The Command Paper clearly stated that we believe that we can bring it under domestic subsidy control, although that is not being negotiated yet, so that is clearly not the situation at this moment in time.

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[Paul Scully]

This clause establishes that subsidies and subsidy schemes for nuclear projects are not required to be assessed against the additional principles for energy and environmental subsidies that are set out in schedule 2.

[Kirsty Blackman]

I would just like to ask why.

Subsidy Control Bill (Fifth sitting)

Debate between Paul Scully and Kirsty Blackman

Tuesday 2nd November 2021 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

It is nice to be here again, Mr Sharma. Thank you for chairing the Committee.

This is an important part of the Bill. It is vital that the database is as full as possible and that people can find the information that they need. The points that were made in the evidence sessions about searching through the database were also incredibly important. There need to be search terms that people can use so that they can look through the database to find the information that they need. The regime will work only if people can find subsidies that are relevant. Improvements to the search function need to be among the other improvements.

I got the Library to put together some figures. As of 26 October, there were 501 subsidies on the database, but 245 of them—nearly half—did not have an amount specified. I know that this is a precursor system and it is not yet fit, but that shows how important it is that we have a framework and the details in place so that public authorities know what information they need to provide and that anyone wanting to challenge the information is able to find that information on the site. So 245 entries did not specify an amount, but about £1.6 billion is currently registered on the database. In addition, 138 entries did not specify where they are from—whether that is England, Scotland, Wales or Northern Ireland—but given the way challenges are likely to work, and given principle F in schedule 1 about competition within the United Kingdom, it is incredibly important that the entries make it clear where they are from and where the subsidy has been given. The principles include a requirement that a subsidy does not affect competition between the regions. It is therefore important that that is one of the criteria that the Secretary of State specifies.

The links on the database are an absolute nightmare. If we go to any of the subsidies, it says, “Click here for more information”. Some of the links take us just to gov.uk, but other links take us to a local authority landing page. That is not right. It does not give us the details of the scheme. It would be more helpful if people were required to upload the details on to the website for the database rather than having the freedom to upload the details on to their own website. They could put them on their website and then take them down the next day. Even if there were a checking process when the information first went up, they could immediately remove it. Having the backroom systems in place so that there is enough space and server capacity on the website to store all the information would be incredibly helpful and probably provide better transparency.

I just want to pull out a couple of further things from the statistics that the Library provided. Of the subsidies recorded on the database that specify the region they are from, 30% are from England. I refuse to believe that only 30% of the subsidies that have been given in the UK since the system was started were in England. Some 21% were from Scotland, and I also refuse to believe that 21% of the subsidies that were given in the UK were given in Scotland. That just cannot be possible.

I completely agree with the amendments that have been proposed. I am not looking to argue with the Minister about the requirements set out and the strength of the database; I am just looking to ensure that the guidance that authorities have to abide by is very strong. I would rather there be too much information on the website than not enough to enable people to mount their challenges. We will come to this later, but there will be very little time for people to make a challenge. They should therefore not have to spend quite a while rummaging around trying to find the details that would enable them to make an informed challenge. I would be keen to hear the Minister make it clear that he intends a significant amount of information that is as accessible as possible to be on the website. People should be able to search the website and, if possible, a system should be in place to ensure that authorities that do not upload full information face a slap on the wrist. They should face some sort of sanction or negative consequence for failing to do their duty.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is a pleasure to serve under your chairmanship, Mr Sharma.

Clause 32 sets out the obligation for the Secretary of State to provide a database for subsidies and subsidy schemes, so that public authorities can adhere to the transparency requirements set out in the Bill, including those in clause 33. We have discussed the operational subsidy database. That was put in place to ensure the UK would be able to meet its international subsidy reporting obligations from 1 January 2021. It will continue to be adapted over the coming months to ensure it is fit for purpose for the future subsidy control regime. 

The Government are committed to digital best practice in the monitoring and development of this database and all the databases that we oversee. The database uses the service standard specified by the Government Digital Service. The contract we have with our supplier is flexible—both to implement this Bill and to ensure that we can make improvements as we monitor and evaluate how it is being used.

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[Kirsty Blackman]

Who decides whether the information is complete and that the clock has started, or does that happen only in the event of a challenge? How does somebody who is challenging know that, even though they are outside a month, it does not matter because the clock has not started?

[Paul Scully]

Effectively, it is for the challenge. It is a loose framework. It is not like the state aid regime, where permission has to be sought and waited for before going ahead with a subsidy. It looks back at the subsidies and schemes that have been made. I shall return to the database and the issues raised about its integrity and accuracy, which I hope will illustrate some of the points.

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[Kirsty Blackman]

I will speak to not only amendment 35, but amendments 32 and 33. I want to address the logic behind the amendments. It is impossible to overstate the importance of the transparency database. It is the key place—the only place—where organisations and local authorities will be able to find information about the subsidies being granted. I imagine that a lot of organisations will be poring over the information on a fairly regular basis to work out whether the subsidies made meet the principles put forward by the Government. It is absolutely, desperately important that we get this right, and I am keen for us to do that from the beginning as far as possible, rather than having to make changes to the legislation afterwards.

I am concerned by what the Minister said earlier about the timing of pre-action information requests; it feels to me that organisations will just make those requests all over the place, no matter when the subsidy was actually registered. If there is no requirement to have full information on the subsidy database and there is no sanction for public authorities that do not do that, people may as well try their hand with the pre-action information request. This encourages the action process to happen, rather than providing people with the information in the first place so that they know that they do not need to make the request.

The logic behind amendment 32 is that subsidy schemes should be easier to implement than subsidies. It should be easier for public authorities to give them out: presumably, the schemes will have been agreed. They will be set up in a certain way, so the process of giving awards under them should be easier—that is literally the point of having subsidy schemes.

I turn to the logic of changing the figure from £500,000 to £100,000 and keeping a floor. If something under £100,000 has been approved as part of a scheme, it is probably going to be not that bad—it will probably be fine. But £500,000 is far too high, which is why we suggest £100,000. As was said in the evidence sessions, the figures are arbitrary—the figures are always arbitrary no matter which one is chosen. However, that was the logic behind having a differential system in place between subsidy schemes and subsidies on the subsidy database.

I like Labour’s amendment 35 and get where they are coming from, but I am more comfortable than them with the more streamlined process of the subsidy scheme.

I move on to our amendment 33, on minimal financial assistance. It would actually amend a future clause—clause 36 —but it makes sense to debate it at this point, as it is specifically on the amount that needs to be provided on the database. My suggestion is that all subsidies not made under a scheme should be part of the database. I am not suggesting that they should have to meet the other minimal financial assistance requirements, but I am suggesting that—this was pretty clear from our evidence sessions on Tuesday—all the subsidies not made under schemes should be registered on that database. They would not necessarily have to jump through the other hoops, but all the public authorities that we are dealing with will have done a huge amount of due diligence before giving a subsidy of any sort. They will have the information and it would not cost them much in the way of time to ensure that it is uploaded. That would increase drastically the amount of transparency and our oversight. As drafted, we will not know whether the system is working, because we will not have access to transparency data on any subsidies under £315,000 or any made in a scheme under £500,000. That is not good enough.

A new system is being set up and the Government have been clear that it is a free-market and permissive system, but neither I nor anyone else will know whether it works if we are not able to see the data and whether public authorities are making far fewer—or far more—subsidies than expected under the scheme. We will be unable to assess the adequacy of the system unless the Minister is willing to make changes to the thresholds for schemes and for general subsidies. Once again, I am not suggesting that we put other duties in place for minimal financial assistance or a requirement that other hoops have to be jumped through; I am suggesting that details are uploaded to the database so that we may scrutinise the data.

[Paul Scully]

There has been a great deal of interest in the thresholds at which the transparency obligations apply, so I will explain some of the detail and logic of those thresholds. Transparency is an important part of the subsidy control regime and key to the enforcement provisions.

As we have heard, interested parties must be able to see subsidies in order to determine whether they may be affected and whether they wish to challenge the subsidy award or subsidy scheme. Any challenge will be made in the Competition Appeal Tribunal through that judicial review. The database is a vital tool in that. To serve its purpose, the aim of the database should always be to enable interested parties to see the subsidies that they may wish to challenge. It is not designed to be a general database of public authority spending; other tools are already available elsewhere for greater financial transparency in that regard and are not limited to subsidies. The transparency requirements in the Bill have therefore been designed to focus solely on those subsidies and schemes that can be challenged on subsidy control grounds.

The Bill provides for various reasons why a subsidy or scheme cannot be challenged on subsidy control grounds, such as a subsidy award given under a published scheme not being able to be judicially reviewed in the CAT on subsidy control grounds. That is because the scheme itself is assessed against the subsidy control principles and is challengeable, rather than the award under the scheme. Another example is minimal financial assistance subsidies, which are considered too small to cause undue distortions. They therefore do not have to adhere to the subsidy control principles and other requirements. Those subsidies do not need to be on the subsidy control database.

The transparency of subsidy awards has costs as well as benefits. Providing the data would create an administrative burden for public authorities, including small local authorities, in addition to the imposed costs for those using the database if excessive, irrelevant or potentially poor-quality data is provided that interested parties have to sift through. Another thing about the impact on public authorities is the cumulative impact. We find that transparency requirements in general tend to fall on a small number of people in local authorities and other public bodies. That is why there is a relatively high bar or threshold—because of that cumulative burden on a few people in local authorities.

--- Later in debate ---

[Paul Scully]

I shall come back to that, if I may. Let me deal first with consultation.

The Government’s proposed approach to transparency was set out in the consultation on subsidy control, including the proposal to exempt minimal financial assistance and subsidies given under schemes of less than £500,000. We asked whether respondents agreed with the proposed rules on transparency, and 81% agreed. We also asked specifically whether respondents agreed that minimal financial assistance subsidies should be exempt from transparency requirements, and 65% agreed that they should be exempt. Respondents pointed to the administrative burden as a reason for not lowering the thresholds. It is clear, therefore, that the approach taken in the Bill reflects the views of those who responded to the consultation.

There is no theoretical limit to the number of subsidies of any value that may be given under the specific scheme. None the less, it will be the scheme itself that will have to be applied under the principles of the subsidy control framework.

Amendment 32 would require all subsidy awards, given under published schemes, of £100,000 or more to be uploaded to the database, lowering the threshold from £500,000. Amendment 35 would remove this threshold altogether so that a subsidy of £1 given under a scheme would need to be uploaded on to the database.

The database will already include information about the scheme under which these subsidies are given. This information will be sufficient for others to understand whether their interests will be affected by any subsidy given under that scheme and whether they should seek to challenge the scheme itself.  As such, and as I have said, the Bill does not provide for the possibility to challenge subsidies given under schemes. 

Further, the Bill provides for an exemption from the transparency requirements for small subsidies given as minimal financial assistance, which is found in clause 36. Amendment 33 would remove this exemption. It would require information about all subsidies of any size to be uploaded to the database, except for those given under a scheme or subject to another exemption. 

I believe that the costs entailed in all three amendments clearly outweigh the benefits.

[Kirsty Blackman]

Does the Minister feel that his rejection of amendment 33 renders the cumulative provisions of clause 36 unworkable? How will anyone know that somebody has received cumulative subsidies if there is no requirement for those subsidies to be registered anywhere? What is the point of those provisions if we are not going to be able to police them?

[Paul Scully]

The challenge will be to the scheme itself, not to the subsidies within it.

[Kirsty Blackman]

I was talking specifically about minimal financial assistance and the cumulative impact. An organisation cannot have more than £315,000 over a three-year period before it has to be registered, but if there is no requirement to register the 20 subsidies received —or 200,000—how is anyone ever going to know?

[Paul Scully]

A public authority awarding something that it believes will be a subsidy below that will have to publish a letter demonstrating that it is adhering to minimal financial assistance. That is therefore for businesses or the recipients of the subsidy to double-check. Although it is the public authorities that will be awarding the subsidies and they will be analysed by people checking the database, if I ran a business that was reliant on a subsidy, I would, to be frank, make sure of it. I would not want to leave it to the awarding authority to do all the paperwork. I would want to make sure that my business interests were looked after. So there is that risk of task duplication.

[Kirsty Blackman]

One more point: the duty is on the public authority to ensure that it is complying with the regime. It is the public authority’s duty to do that. The Minister made it clear earlier that the public authority has a statutory duty. However, the public authority is then having to rely on that organisation telling them that it has had a subsidy. The public authority will know that that will push the organisation over the £315,000, that it will not be eligible for minimal financial assistance and that it will have to be registered on the scheme. A duty has been placed on the public authority for something over which it has no control and because the Government refuse to put that on the subsidy database it will not be able to find out whether the law is being broken.

[Paul Scully]

All I will say is that if the public authority is issuing something that it believes to be a subsidy, albeit under MFA, it will publish a letter to explain to the recipient why that MFA exemption appears.

[Kirsty Blackman]

Who is going to get the letter? Just the business? Where does it say in the Bill that the public authority has to publish a letter when providing a subsidy? Let us say Aberdeen City Council gives a subsidy to somebody and Aberdeenshire Council gives a subsidy to that same business. How are they going to know that the other authority has done it when the only paper trail is a letter that Aberdeen City Council has given to the business?

[Paul Scully]

It is not published as such, but is sent to the recipient. That is in clause 37. I hope hon. Members agree that we have taken a proportionate, sensible and balanced approach here, first, to make sure that we can exempt small subsidies from the requirement to apply the principles of subsidy control, and secondly, to enable public authorities to assess the subsidy schemes against their principles, rather than duplicating the analysis for every individual subsidy awarded within those schemes. Publishing additional information about small subsidies would have limited value for those concerned about potentially distortive subsidies and would detract from the core purpose of the database. The requirements would lead to additional red tape for public authorities, well beyond the requirements they had to fulfil under the EU state aid regime. In a great many cases, the information would simply duplicate what those authorities already publish in appropriate formats elsewhere.

I do not doubt that, overall, both local and national Government need to make databases interoperable so they can talk to each other, data can be scraped from them and they can be read more easily alongside each other. However, I do not believe that that is for the Bill to address. The exemption from minimal financial assistance subsidies and the £500,000 threshold for subsidies given under schemes finds the right balance between the administrative burden of uploading subsidies and the transparency that the regime needs.

--- Later in debate ---

[Paul Scully]

Let me start by explaining the intention behind the process of uploading the subsidies to the database. As with other aspects of the transparency requirement, we have sought to balance the objectives of minimising unnecessary bureaucratic requirements on public authorities while ensuring transparency for those interested in subsidy awards, and most importantly for those that may be subject to challenge under the Bill’s provisions. As such, we have set the deadline for uploading subsidies on to the database at six months—the deadline for most subsidies—which is the time limit that existed under the EU’s state aid system.

Special provision is made for tax subsidies, as calculating their exact value is more complex and cannot be done until tax declarations have been received and finalised. I will come back to the time limit and the definition of tax declarations.

We expect public authorities to upload subsidies promptly because they have a strong incentive to do so. Generally, the date of uploading a subsidy on the database will determine the end of the limitation period to challenge it. The sooner a subsidy is uploaded to the database, the sooner the clock for the limitation period will start running, and therefore the sooner the public authority will gain certainty that the subsidy will not be subject to a challenge. Public authorities will therefore seek to upload subsidies as soon as possible.

Amendments 18 and 38 would shorten the upload deadline for subsidy awards and subsidy schemes not given in the form of tax measures. Amendment 18 would shorten the deadline to one month and amendment 38 would oblige public authorities to upload the subsidy award or scheme as soon as possible, and within one month at the latest.

As I said, we expect public authorities to upload as soon as the relevant data are available, and to use the whole period of six months only if there is good reason. An upload deadline as short as one month would likely result in more public authorities needing to amend their entries at a later date. Although they can do so as a permitted notification within the meaning of clause 81, that creates an unnecessary administrative burden for those authorities. It also means that the information on the database is more likely to contain minor inaccuracies.

I am sure that hon. Members will agree, as their earlier amendments suggested, that accuracy is really important, so a longer deadline for uploading is not only justified but sensible. I again emphasise that the approach taken in the Bill reflects the views of those who responded to the public consultation on the approach to subsidy control earlier in the year. The consultation set out the details of the proposed approach that we are now discussing, including the six-month deadline for uploading general subsidies. Of those who responded to the question, 74% agreed with the Government’s proposed approach.

Amendments 26 and 37 seek to shorten the deadline for uploading subsidies in tax measures on to the database. Subsidies in the form of tax measures can be an effective tool for achieving policy objectives, but they are generally a more complex way of giving subsidies. They are more likely to have performance-related conditions, which means that it can take longer to determine the exact amount of the subsidy. Of course, a public authority will have an estimated value for the subsidy when it is granted for the purpose of assessing compliance with the principles, as well as for costing the measure for the purpose of managing public money. However, a final amount may not be known until the tax declaration has been completed. Even once that declaration has been submitted, further discussion between the beneficiaries of the subsidy and the public authority might be necessary, to confirm that the calculations in the tax declaration are correct.

[Kirsty Blackman]

Points were made earlier on the specific length of time. Why is the final amount required to be on there at the beginning, because they could presumably just put in how much they expect it to be? That would be much better for those organisations that may be looking to challenge it.

[Paul Scully]

They will clearly have that estimated calculation, but the database will function most effectively if the public authority uploads a subsidy when it can be confident of its accurate value. That will enable an interested party to determine whether to challenge the subsidy through a judicial review. It is important that public authorities are not then coming back and correcting those figures. It is a balance between ensuring that we get the entries in a timely fashion and in an accurate fashion. That is admittedly a difficult balance to strike, but the majority of people in the consultation agreed with our approach, which is set similarly to the EU state aid scheme.

The result of what we have set out is that a public authority will require sufficient time between the date of the tax declaration and the obligation to upload that subsidy to the database. We have determined that 12 months from the date of the tax declaration is sufficient time for public authorities and beneficiaries to calculate the exact subsidy amount. Amendment 26 would reduce that period from 12 months to just three months, and amendment 37 would reduce it to one month. That would mean a significant reduction in the time available for a public authority to make those final calculations and upload the subsidy.

As with non-tax subsidies, an upload deadline of one or three months will increase the likelihood of error. Again, I am sure that is something we want to avoid. We expect public authorities to upload subsidies in the form of tax measures as soon as they can and, as I mentioned, they will have a strong incentive to do so. That is why 12 months is an appropriate deadline to reduce the risk of inaccurate information being uploaded. Shortening the deadline would not improve subsidy transparency in our view, nor help interested persons who may wish to challenge a subsidy in the form of a tax measure.

[Kirsty Blackman]

If I had an enterprise that was being harmed by either a tax subsidy or any other kind of subsidy, I would rather know that the subsidy had been given and not know the exact amount than have no information at all until my business had gone under.

[Paul Scully]

I come back to our earlier discussions about the onus that is put on public authorities, and the impact that it will have on them, not only to put the amount on the various databases but possibly to go back and correct them. I appreciate that it is a difficult balance to strike, but none the less the balance is based on the EU state aid rules. It has gone through the public consultation and the majority agreed with it.

Amendment 27 would add a requirement to define a tax declaration in regulations before the subsidy control regime came into force. I can reassure hon. Members that, in the vast majority of cases, I would expect that the relevant tax declaration would indeed be a tax return. There are other examples: duty and certain other types of taxation treatment. That is why it is called a tax declaration rather than a tax return. But most of the time it would indeed be a tax return. The precise details would vary, depending on the specific tax and the mechanics of the measure in question.

As I have said, the Government will provide thorough guidance—I come back to the guidance that we have spoken about on a number of occasions—to ensure that public authorities are aware of their subsidy control obligations, including how to report subsidies in the form of tax measures. If it would be helpful to public authorities, subsidy beneficiaries and interested parties, that guidance will provide further explanation as to what should be considered a tax declaration. As that does not affect the substance of the law, I do not think it would be appropriate for secondary legislation. I therefore request that hon. Members withdraw or not press these amendments.

--- Later in debate ---

[Kirsty Blackman]

I have a wee comment to make on this. The Government increasing the minimum threshold required on the subsidy database is a very contentious issue that we have discussed at length, including with witnesses. A significant number of respondents to the consultation answered on the basis of the numbers put before them. It is important enough that lots of people responded to the consultation. It is important enough that we have had a length of time debating the numbers. The negative procedure does not make sense, given the Bill’s possible impact. Unless the Bill is amended, the Government could, at a stroke, change the threshold to £2 million under the negative procedure. In terms of transparency, accountability and ensuring that this makes sense and works for everybody, it would be sensible for the amendment to be accepted.

[Paul Scully]

Clause 33 sets out that the Secretary of State may change the threshold above which subsidies given under schemes are required to be uploaded to the transparency database. Amendment 36 seeks to change the procedure for these regulations from negative to affirmative. 

The regulations can be used to change the thresholds for all subsidies given under schemes, or for those matching a specific description, such as those given to a specific sector. The regulations cannot be used to make changes beyond this—for example, to change the requirement to upload all subsidy schemes to the database—and nor do they change the substantive subsidy control requirements, which are assessed at scheme level, rather than for each individual subsidy given under a scheme. As such, these regulations should be considered technical.

The Bill proposes the right parliamentary procedure for different types of secondary legislation. For example, the powers to amend the exemption thresholds in clause 42(1) are subject to the affirmative procedure because they affect the substantive subsidy control requirements rather than simply the threshold for uploading information to the database.

[Kirsty Blackman]

Does the Minister agree that if the Government were to change the threshold from £500,000 to £20 million, that would require some scrutiny?

[Paul Scully]

As I have set out, the figure of £500,000 strikes the right balance between transparency and minimising undue and unnecessary administrative requirements. We currently have no intention of changing the overall threshold. The Secretary of State has power to change the threshold if necessary—for example, because of changing market conditions or international obligations.

Subsidy Control Bill (Fourth sitting)

Debate between Paul Scully and Kirsty Blackman

Thursday 28th October 2021 Public Bill Committees

[Paul Scully]

The streamlined subsidy schemes will be worked up as we come up to the commencement of the Bill, so I will not set out a list of streamlined moots as yet, but they are there for something that is common and not necessarily devolved in particular areas that needs to be rolled out at speed with minimum interruption to the public authorities. The obvious example––it is not necessarily a streamlined moot––in recent years is the grant scheme that we have had in covid, which came under a lot of pressure from having to ask for exemptions within the European Union to get the framework available there, which meant that we could not roll it out to the extent that we wanted to, as quickly as we wanted to.

[Kirsty Blackman]

Does the Minister think it possible that some of the streamlined subsidy schemes that will be made are likely to encroach on devolved areas, even though they are being made for the whole UK? If so, does he believe that when a streamlined subsidy scheme is laid before Parliament it should talk about the consultation that has been held with the devolved Administrations responsible and explain why, if they disagree with the scheme, the Government are going ahead anyway?

[Paul Scully]

Rather than a streamlined scheme encroaching on the devolution settlement, it is important to stress that any public authority in the UK will be free under the Bill to create a subsidy scheme for its own purposes. Schemes have many of the same attributes that streamlined subsidy schemes have in that only the scheme, and not the individual subsidies awarded under it, needs to be assessed under those principles. Schemes offer a similar administratively light touch means of awarding many subsidies that are also open to any and all public authorities, including the devolved Administrations. What we are saying is that the streamlined subsidies are best used when they are available across the UK but schemes are available to the devolved Administrations, to the public authorities and indeed to the UK Government to award. They are more bespoke and tailored. Because of that, I ask the hon. Lady to withdraw the amendment.

--- Later in debate ---

[Kirsty Blackman]

Just to come back on what the hon. Member for Thirsk and Malton said, business rates are already devolved in Scotland. We already have a more generous system of allowances. People at the lower end of income, pay or value of properties pay less than they would in England anyway. So we already have that in place. It does not have to come in as part of a subsidy scheme or streamlined subsidy scheme, as far as I am aware.

The hon. Member for Feltham and Heston is correct. The Minister seems to be saying that the schemes will apply across the UK, but nothing in the Bill says that this will apply across the UK for any of the streamlined subsidy schemes that come through. The Government could create a streamlined subsidy scheme that applied only in Blackpool, for example. The fact that it is a streamlined subsidy scheme does not mean that it has to apply across the UK.

I did not get a straight answer from the Minister about devolved competencies. Is it intended that the UK Government will make streamlined subsidy schemes that trespass on areas of devolved competency and apply those across the UK? If that is the case, I am even more concerned about this than I already was. If they are going to do that only in reserved areas, that makes sense, but given the Government’s tendency to reduce the power of the Scottish Parliament and the other devolved Administrations, I am not sure that I have a huge amount of trust in the fact that the streamlined subsidy schemes will not trespass on the devolved areas.

[Paul Scully]

The streamlined schemes are not effectively the most commonly used ones. They are few and far between. The schemes will be far more tailored. They do very similar things and provide similar freedoms in terms of ease of access. A scheme, whether streamlined or not, needs to be assessed against the principles. Every streamlined subsidy scheme will be laid in Parliament after it is made. Any streamlined subsidy scheme that is amended will be laid in Parliament. That will ensure transparency for those schemes. We will publish a number of schemes and lay them before Parliament before the regime is commenced. Public authorities will therefore have sufficient time to understand the parameters of streamlined subsidy schemes before the subsidy control regime commences.

Question put, That the amendment be made.

--- Later in debate ---

[Kirsty Blackman]

To flip that on its head, if the Minister expects and hopes that the regime will be implemented in autumn 2022, will he confirm that he also expects and hopes that the regulations under this clause will be made in advance of the summer recess in 2022 to allow authorities the time to look at them properly and digest them in advance of the scheme coming in?

[Paul Scully]

Clearly, we want to make sure that the regulations go through due parliamentary process and that colleagues have plenty of time to see them, discuss them and scrutinise them. That is absolutely appropriate. We also want to give businesses time to see what is on the horizon, and to give public authorities—those awarding authorities—time to adjust to the new framework.

--- Later in debate ---

[Kirsty Blackman]

I have a couple of points on this amendment, and I want to give it my wholehearted backing. I agree that the devolved Administrations should be consulted on these regulations. I would probably go further and have them not proceed if the devolved Administrations did not agree, but we are where we are.

I am a serving member of the Procedure Committee, and we have discussed this at huge length recently in our report and our look at how the territorial constitution works, and how the devolved Administrations relate. One thing that is brought up regularly is that if the UK Government proceed with something in the absence of legislative consent, there is no clear mechanism for the UK Government to explain to Parliament why the process has happened in advance of legislative consent. For me, it seems like the very least that the UK Government should do if something proceeds without consent.

That is important in relation to legislative consent motions for primary legislation where something trips over into devolved competencies, as we have seen a number of times in recent years. When it comes to these regulations, I think it is really important that the devolved Administrations are in agreement with what happens, because, in the main, they will be guaranteed authorities implementing subsidy schemes in the devolved areas. The Scottish Parliament has authority over the local authorities in Scotland so it will oversee some of their work, particularly when it comes to directing them how to best improve their local areas. If the UK Government are to proceed without the consent of the devolved Administrations, they must come and explain to us why.

I note that the UK Government and Scottish Government, as well as the other Administrations, have regular conversations about how things could go forward, but I feel there is a significant amount of disagreement at the moment in many areas. It would be very good if we could all come to an agreement about what “particular interest” means. If we cannot, I believe that this House should know why the UK Government think that agreement has not been reached, and why they intend to proceed anyway.

[Paul Scully]

Obviously, the Government welcome the devolved Administrations’ ongoing interest in the Bill, and we continue to engage with them on a regular basis. In coming up with this framework, I think we have had at least 34 official-to-official engagements and 10 or so ministerial-to-ministerial engagements with the devolved Administrations. It is important that we continue that spirit of discussion, because we have to set the right definitions for the subsidies of schemes of interest or particular interest.

Having those appropriate definitions is really important to ensure that the subsidy advice unit is focused on the subsidies and schemes that are most likely significantly to distort competition and investment in the UK, or that may do the same to our trade with other countries. It also means, as we have heard, that regulations made under clause 11 may need to be amended quickly in the event that economic conditions change rapidly, for example. A requirement to seek the consent of the devolved Administrations each time the power is used risks introducing significant delays into the process.

--- Later in debate ---

[Paul Scully]

Absolutely. I was going to say that the interested party can, obviously, make a challenge—commence a judicial review of the decision. The duty to consider and act consistently with the principles does leave room for legitimate judgment by public authorities.

On the question of what standard will be applied when looking at that, should it be judicially reviewed, the Competition Appeal Tribunal will apply the judicial review standard when hearing challenges. None the less, the guidance that is going to be published will provide advice on the practical application of provisions, including the duty to consider and act consistently with the subsidy control principles. That guidance will be published in good time for public authorities and other stakeholders to understand the key requirements of the new regime before it commences.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Application of the energy and environment principles

[Kirsty Blackman]

I beg to move amendment 17, in clause 13, page 7, line 30, leave out

“in relation to energy and environment”.

This amendment would require public authorities to consider energy and environment principles when giving any subsidies, not just those related to energy and environment.

The reason I tabled the amendment is something that we covered earlier today in relation particularly to net zero and thinking about the obligations that we all have to ensure the protection of the environment. I think it is really important, as the Minister agreed earlier today, that in every policy decision that is being made by every authority, whether it is granting a subsidy or doing anything else, those authorities are considering the environmental principles of that decision.

This proposal would ensure that consideration was given to the energy and environment principles in schedule 2 in relation to every subsidy that was given. That is not too much for us to ask of granting authorities. They are giving subsidies, and we have to remember that the subsidies they are giving represent significant amounts of money. We are talking about hundreds of thousands of pounds; we are not talking about when a local authority gives a grant of 100 quid to a small community council to put up Christmas lights. As we are talking about big sums of money, it is totally reasonable that we expect these public authorities—which do anyway a huge amount of audit, and a huge amount of sense checking of any spend that they do and consideration of any spend that they do— to think about all that spend. They should do so not just in relation to subsidies, but in relation to the energy and environment principles.

I probably would have written schedule 2 slightly differently. I maybe would have had slightly different energy and environment principles, including the Opposition’s suggestions around net zero, but given that those are in the Bill and that schedule 2 is in the Bill, it is totally reasonable for us to say that those authorities should consider the energy and environment in everything they do. That is not explicit or even implicit in schedule 1, in terms of the concerns that authorities have to look at with regard to the principles there. This is hugely important.

--- Later in debate ---

[Kirsty Blackman]

I thank the Minister, the Opposition and the hon. Member for Thirsk and Malton for their comments. I agree that this amendment is not the best possible way of achieving our aim, and that other amendments moved this morning—particularly the amendment to schedule 1—would be a better way to go about embedding net zero in our commitments. Unfortunately, the will of the Committee was tested this morning, and schedule 1 went unamended. Hopefully it will be amended on Report, or the Government may choose to change it to include net zero commitments in the principles, but this is where we are in the absence of them doing so.

If we are talking about subsidies to get young people into employment, every local authority, or whoever is granting the subsidy, should ensure that they do so in a way that does not take us away from our net zero targets. That should be part of the decision-making process for every decision we make, whether it is about training young people or building an offshore wind farm. My concern, which was raised by the Opposition this morning, is that that is not embedded in everything the UK Government are doing, and it should be. I tabled this amendment because net zero should run through everything that everybody does, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes that public authorities granting energy and environment subsidies, or establishing schemes to award such subsidies, must assess them against the additional principles in schedule 2.

--- Later in debate ---

[Paul Scully]

We are back to old-fashioned analogue for this part of the Bill Committee. The clause prohibits subsidies that are contingent, whether in law or in fact, on export performance. It permits two types of subsidies to be given for export credit support, including short-term export credit insurance for non-marketable risks, and an export credit, an export credit guarantee or an insurance programme as permitted by the agreement on subsidies and countervailing measures. It also defines key terms and specifies a list of marketable risk countries.

[Kirsty Blackman]

I have a quick question on subsection (7), which says that a direction given under subsections (4) or (6) must “be laid before Parliament” and

“be published in whatever manner the Secretary of State considers appropriate.”

It makes sense that it is laid before Parliament. I am not sure what that means, although I probably should. Does it mean that a written statement on the changes is laid before Parliament? Do the words

“be published in whatever manner the Secretary of State considers appropriate”

mean that it will be published for the public or for granting authorities to see? What method does the Minister think might be considered appropriate? Are we talking about putting it on gov.uk, for example, or about writing to organisations to let them know why the changes have happened?

--- Later in debate ---

[Paul Scully]

The clause basically allows the Secretary of State to give a direction to amend the list in order to respond to any changes in market conditions. That direction must be laid before Parliament and published.

[Kirsty Blackman]

Specifically on that point, if the Minister does not mind, does “laid before Parliament” mean a written statement or does it mean regulation? I am confused. If he does not have an answer, I would be happy to speak to him later.

[Paul Scully]

I will write to the hon. Lady.

[Kirsty Blackman]

Specifically on the words “must be published”, I would be keen to know how the Government might publish the direction. I am not asking the Minister to tie himself down, but I want clarity that it will be published in such a way that those who are affected by it are likely to see it, rather than it being hidden away somewhere in the back of gov.uk, where they would not trip across it unless by accident.

[Paul Scully]

I will clarify that, but there is no purpose in hiding it. We want to give certainty to businesses and the public authorities.

--- Later in debate ---

[Kirsty Blackman]

The concerns I raised on principle F of schedule 1 are very similar to the ones being raised here. The Government have an intention here, but the clause will not achieve that intention; it is also too restrictive.

I love this amendment; it feels hugely cheeky. I know it is very serious, but I love the way it is drafted—how sad is that?—and I quite like the way both issues are put together in the same amendment. It makes sense that this measure is included alongside the amendments moved earlier by the Opposition on areas of deprivation. There is also the freeport element. The clause basically rules out freeports and the way the Government have explained they are intended to work, which is massively concerning if that is the Government’s plan.

If, for example, a Government Department was to relocate from Whitehall to Salford—I cannot think which Department might be doing that—and if there is going to be some sort of incentive for them to do that, that relocation would be prohibited. Surely that is something that the Government want; if they did not want it, they would not be doing it. They want Government Departments to be able to relocate to places outside Whitehall and to bring jobs to those areas. I am glad they are doing that, but it now would not be able to provide any subsidies for that to happen. That does not make sense.

If the Government’s stated aim and objective is to try to level up places to ensure more jobs, there is going to have to be some level of relocation. That is going to have to happen. We are going to end up in a situation where the Department for Business, Energy and Industrial Strategy does not have 400 staff here and has 400 staff in Salford instead. Surely that is a good thing, rather than a bad one. It would be helpful if the Government could clarify what is meant here.

I agree with the amendment. I agree with the report. We covered areas of deprivation this morning. The freeport thing, however, is unsolvable unless the Government provide us with more information, whether by the Minister explaining, changes being tabled for future iterations of the Bill—perhaps on Report—or the report asked for by the Opposition being provided.

[Paul Scully]

I shall cover a few of the points raised. To take the example of a local authority wanting to incentivise a business to move back to its high street or something like that, the Bill would not prevent local authorities from offering subsidies to support regeneration.

As for what constitutes an “area” in the relocation prohibition, it is not a defined term in the Bill. Public authorities will therefore have to apply common sense in their interpretation. The objective is to prevent the relocation of all, or part of, existing economic activity between different areas of the UK, but there will be circumstances in which relocation within an area may occur. For example, where a business has an existing presence in a region and moves within that region, it is unlikely to engage the prohibition. Again, that will come in guidance.

--- Later in debate ---

[Paul Scully]

The regenerative example that I gave would fit, but it will be fleshed out in guidance. Let me come to freeports quickly, because that issue complies with the principles and prohibitions set out in the Bill, including in the clause.

When designating freeports, bidders are required to explain how their choice of tax site locations minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. The focus of freeports, however, is to encourage new investment and to create new businesses and jobs, rather than harmful displacement, so tax sites will be designated only once the mitigation of displacement and other factors have been demonstrated by the successful bidder in its tax site. We are confident that the risk of harmful displacement has been minimised.

In summary, the subsidies will not be conditional on the relocation of existing economic activities.

[Kirsty Blackman]

The Minister has made a good case on subsidies for the purpose of regeneration, but that is not stated in the clause. At no point is it stated that the regenerative ideals or decisions to produce regeneration in an area trump the clause.

[Paul Scully]

I said that the clause does not prevent local authorities from offering subsidies to support regeneration. None the less, we will supply more support through guidance, because we want to give public authorities the confidence to apply subsidies in that scenario and similar ones.

The purpose of the clause overall is to prohibit wasteful subsidies that serve only to poach economic activity from one area to another. I must say, the ears of the good people of Guildford must be burning after their third mention in a couple of days—

Subsidy Control Bill (Third sitting)

Debate between Paul Scully and Kirsty Blackman

Thursday 28th October 2021 Public Bill Committees

[Seema Malhotra]

I thank the Minister for his remarks on clause 6. We have no further issues in relation to it.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to be part of this Committee. I wonder whether the Minister could explain a little more the logic behind the exclusions. I have read the explanatory notes, and the intention is still not entirely clear to me. I do not think that I have a problem with it—I think it makes sense— but if he could explain it a little more that would be really helpful.

[Paul Scully]

I am very happy to respond. The provisions for subsidies given by Parliament, the Scottish Parliament, the Welsh Senedd and the Northern Ireland Assembly are set out in clause 78 and schedule 3, which provide for the giving of subsidies by means of primary legislation. They are covered separately to reflect the unique legal and constitutional position of Acts of Parliament. The legislature is considered to have given a subsidy when it is given under a duty imposed by primary legislation. Those subsidies are captured by schedule 3, but if a subsidy is given under a power in primary legislation, the relevant public authority will be the Minister exercising that power.

--- Later in debate ---

[Kirsty Blackman]

Just to clarify, is the logic that the devolved Administrations and the Houses of Parliament can continue to give subsidies in primary legislation, and that is why an exclusion, or a separate provision, is in place relating to them? Is it partly to do with not being able to bind future Parliaments, or is that totally separate from what we are discussing?

[Paul Scully]

It is more to do with the fact that public authorities have been added as an extra, whereas state aid did not go down that far. The public authority definition at the beginning widens the definition of who can give subsidy control, whereas it is established that the UK Government and the devolved Administrations, including the Scottish Parliament, can continue to give as they do now.

--- Later in debate ---

[Paul Scully]

If a person is not engaged in economic activity, they will not be defined as an enterprise. Generally speaking, a charity or community group is unlikely to carry out economic activity. However, we are not explicitly excluding anyone from the definition of enterprise just because of their legal form. The hon. Lady talks about social enterprises, which are obviously different from charities, because some can be normal companies but do not make profits or have shareholders. However, that is economic activity, so those would be included within the definition.

The test looks at the activity that is proposed to be subsidised, rather than the legal form of the subsidy recipient. One organisation may be considered an enterprise in some contexts and for some activities but not others. One example might be a medical research charity that has a retail arm. Support given to the medical research activity is not a subsidy, because the research is not economic activity, even though the charity’s retail operation may be considered an enterprise.

[Kirsty Blackman]

I have a couple of questions. I am aware of social enterprises in Aberdeen that make and sell frames or make bread and run cafés and things like that. It sounds as if that would be included within the definition of economic activity, because they are selling things to the general public, even though their main purpose is to ensure that people who are disadvantaged in society are given the opportunity to get work experience and things like that. It would be helpful if the Minister could say whether he intends the clause to cover all economic activity, regardless of who is doing it, but that the subsidy relates only to the arms of those organisations that are undertaking the economic activity; and that the clause applies across the board to charitable organisations and social enterprises as well as normal businesses, so long as the thing they are doing is classed as economic activity. Have I got that right?

[Paul Scully]

The hon. Lady has got that right. Some charities have a commercial retail arm that are taxed and approached in different ways. For example, Help for Heroes has a retail arm as well as the main fundraising arm. There is clearly no intention for subsidies of cake sales or anything like that—money may be handed over, but that is fundraising—whereas retail involves the selling of things. I am not saying that that specific example will involve in any subsidy, but such an example, where a separate business is aligned to the charity, is where the enterprise comes in that covers the economic activity that we are describing.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8

Persons under common control

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Kirsty Blackman]

May I ask the Minister for some clarity on that? He says that he expects that more information about principle A will come out in guidance. Does he expect that that will encourage granting bodies to look at reducing inequality in some of the subsidies that they make?

[Paul Scully]

It will set that out in guidance. The hon. Member for Feltham and Heston talked about the evidence session, and Guildford got quite a bad rap, having come up a couple of times as the example. None the less, we want to ensure that we directly address issues of inequality and disparity through the levelling-up agenda. That will come out through guidance and ensure that we address exactly what the hon. Member for Aberdeen North was saying.

[Kirsty Blackman]

One more try on this. Does the Minister expect that the Government’s levelling-up agenda will be part of the direction of travel in the guidance, so that the guidance will encourage granting authorities to line up with the Government’s levelling-up agenda?

[Paul Scully]

In terms of levelling up, it has been designed to provide a bespoke and dynamic framework. It allows public authorities to deliver bespoke subsidies that are tailored to their local needs, which will indeed address the UK Government’s priorities, such as levelling up, but within their own areas. Public authorities are best placed to work out how to address the inequality and disadvantage within regions, as well as between regions, so we have developed an approach that ensures that disadvantaged areas have the maximum freedom and reassurance to receive the levelling-up subsidies and best meet the characteristics of the area.

--- Later in debate ---

[Kirsty Blackman]

I got so carried away with my attempts to convince the Government to get to net zero as soon as possible that I forgot to ask questions when I stood up previously. It would be useful if the Minister could clarify why there are two schedules. Why does the treatment differ between the two areas? There is a difference in the treatment of subsidies in relation to energy and the environment compared with subsidies relating to any other area, and I do not quite understand the logic of having two different things. One set of principles could have covered everything, including moving toward net zero. If the Minister will explain why there are two separate schedules and why the two areas are being treated differently, that would be incredibly helpful.

[Paul Scully]

Let me answer that point before I speak to amendment 7. The two schedules and the additional principles are there literally just to adhere to our international obligations.

Hon. Members can rest assured that our new subsidy control regime will support the UK in meeting our net zero target by 2050, first by facilitating strategic and appropriate subsidy interventions with minimal bureaucracy and delay and secondly by ensuring that energy and environment subsidies are assessed against additional principles that promote carbon neutrality and sustainability.

The hon. Member for Sefton Central said that he could not see net zero in the Budget, but the spending review backs up the net zero strategy published the week before. The Budget will fund our strategy, which will then leverage private money and create jobs and opportunities in markets that will drive towards net zero.

Turning to amendment 7 itself, it is unnecessary explicitly to require public authorities on the face of the Bill to consider the negative effects of subsidies on the UK’s net zero commitment as part of their compliance with principle G. Public authorities will clearly need to consider the effects of subsidies in the round before awarding them, but the amendment would give undue prominence to net zero considerations with respect to subsidies that may have entirely unrelated objectives, such as high street regeneration or providing training opportunities for young people.

[Kirsty Blackman]

Does the Minister agree that this is the most important thing for every single one of us? Whether people are regenerating high streets or doing anything else, they should be ensuring that they are also moving towards net zero.

[Paul Scully]

I agree that we should be doing so, but what I am saying is that we do not need to do it in a process-driven way. It should be done, in the first place, in the devising and implementation of policy. I do not want to create two separate processes, because that might lead to public authority having to make assessments for every single subsidy that is awarded or made, even when there is no meaningful impact—just look at that bureaucracy. What we need to do is ensure that we enmesh net zero thinking in our policy development at every layer of government, rather than just listening for signals. Clearly, we need to take that leadership at COP26. We realise that this is the time to lead and to act, for all international Governments.

Unfortunately, the Bill will not have completed its parliamentary process by the time everyone leaves Glasgow. None the less, we need to ensure that we set out the strong work that we are doing. We have already announced policies that involve subsidies in some sectors, such as the clean heat grant and the contracts for difference scheme, announced by the Chancellor in the March 2020 Budget, providing up-front capital grants for the installation of low-carbon heat pumps and, in limited circumstances, biomass boilers. Those schemes will help consumers to overcome the higher up-front costs of low-carbon heat and will build the supply chains for it ahead of the introduction of regulations for existing buildings off the gas grid later in the decade. Those schemes—all schemes—will have to meet the terms of the domestic principles, which should also ensure that the money is well targeted and achieves good value for the taxpayer.

We have established the green jobs taskforce, which advises on how Government, industry and the education sector can work alongside other stakeholders to realise the opportunities of a green industrial revolution, supporting green jobs and skills, and ensuring that those opportunities are open to all. The evidence collected by that taskforce and its recommendations are being considered by Government as part of the development of the ongoing net zero strategy, which was published last week. We will develop that.

Those are the clear leadership principles that we should be promoting and pushing out to international colleagues from Governments around the world, who are coming to Glasgow this week and next, ahead of COP26. However, we do not need just this one principle, understandable as it is, in the Bill. Principle G already singles out negative effects on competition or investment within the UK and on international trade and investment. That is appropriate, as such distortions go to the very heart of what the subsidy control regime is for. By definition, a subsidy must have effect on competition, investment and trade, and distortion is common to all subsidies, regardless of what they seek to achieve.

Net zero considerations, however, are not inherent to all subsidies. Some subsidies will of course help businesses to reduce their emissions, but a great number will not have any meaningful or, importantly, measurable impact on the UK’s greenhouse gas emissions.

Amendment 8 would add to schedule 2 a requirement for energy and environment subsidies and subsidy schemes to deliver, or to incentivise the beneficiary in delivering, the UK’s net zero commitments. The intended effect is that a public authority planning to grant an energy or environment subsidy or scheme would not be able to proceed unless it was satisfied that that subsidy or scheme contributed towards net zero commitments.

It may be useful to recap that energy and environment subsidies must be assessed against a number of additional principles, which are set out in schedule 2. Those common-sense principles are designed to ensure, for example, that public authorities consider the need for energy and environmental subsidies to achieve reductions in emissions or otherwise increase the environmental protection relative to the level achieved without subsidy. They also ensure compliance with the UK’s international obligations under the trade and co-operation agreement with the European Union.

We share the commitment to the net zero agenda, as I expressed. We believe that subsidies correctly designed and targeted can be a powerful means to achieve that.

[Kirsty Blackman]

The Minister is doing a good job of explaining what is intended by some of this, putting some meat on it, which is helpful. Will he explain what environmental protection means?

[Paul Scully]

There is a wide definition of environmental protection beyond net zero, as big and important as that is. The principles in schedule 2 fully support the UK’s priorities on net zero and the wider protection of the environment. The additional requirement to assess the subsidy or scheme against the net zero priorities is therefore unnecessary and may actually discourage public authorities from granting energy and environmental subsidies designed to achieve other valuable aims, such as an affordable energy system or increasing biodiversity. I humbly ask the hon. Member for Feltham and Heston to withdraw the amendment.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his remarks. Notwithstanding the debate that we have just had and our ongoing concerns, which we want to return to later in the consideration of the Bill, we support schedule 1.

[Kirsty Blackman]

I would like to ask a few questions, particularly about principle F in schedule 1, which says:

“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.”

If someone was looking to invest in the United Kingdom, create jobs, start a business or bring a specific arm of a business to a certain place, and Aberdeen were to subsidise that, which would therefore have a negative effect on Cardiff, because Cardiff was not getting the jobs and Aberdeen was, is that excluded as a result of principle F? It concerns me that pretty much every subsidy that could be given will have a potential negative effect on another part of the UK because it would be incentivising investment, or whatever, in one part of the UK.

I am concerned that principle F can be read either as not meaning anything or as something that is too restrictive for what the Government are trying to achieve with what they are doing. I am thinking about what the Government are trying to achieve because a number of Government Back Benchers stood up on Second Reading and said, “This is great, because it means we will be able to get lots more investment and put lots of subsidies into our area.” If that is the Government’s intention, which I think it probably is, I worry that the risk-averse nature of granting authorities means that they will be concerned about doing that, in case they fall foul of the principle. If the Minister gave us a bit more clarity on how the principle is intended to work, that would help granting authorities to make the right decisions in order to subsidise economic development in their areas.

[Paul Scully]

I thank the hon. Lady for that important question. The answer to her first question is no. It is more about fitting in with the levelling-up agenda, which is what hon. Members talked about on Second Reading—attracting subsidies to an area. For example, we have seen a lot of renewables investment, including offshore wind and the manufacture of equipment, in Teesside and Humber. We have seen the setting up of gigafactories in the north-east and other areas, and such inward investments provide stimulus in those areas. There are natural clusters of businesses in those areas, but it is more in this regard—the distortive effects of, say, moving companies from one area of the UK to another, and adhering to the United Kingdom Internal Market Bill, which we debated last year. It is about ensuring that that works, rather than being in some sort of race between the devolved Administrations of the nations, or between regions, to attract inward investment.

[Kirsty Blackman]

If, for example, an offshore wind farm is built off the coast of Teesside, rather than off the coast of Aberdeenshire, because of the subsidy regime that is in place, that is, by its very nature, disadvantageous to Aberdeenshire. That is what I am trying to work out here.

I think I get what the Government are intending: they are trying to stop a subsidy race. That is the intention behind the schedule, but I feel that the schedule does not achieve it. I am concerned about how the provision is worded, because any subsidy will be advantageous to one region and not to another, which is the intention behind subsidies. There could be more clarity on that principle so that it achieves what the Government want and does not preclude local authorities, or any other granting authority, from making decisions that will advantage their areas.

[Paul Scully]

Essentially, the framework and the clause minimise, but cannot eliminate, distortion. That is the purpose of the Bill.

[Paul Scully]

My hon. Friend makes a good point. The Bill weighs up the benefits versus the disadvantages, and minimises rather than eliminates distortion—we cannot eliminate distortion. We have talked about this a number of times, and we will continue to, but the upcoming guidance will start to flesh out some of the specifics, which it is probably not appropriate to get into now.

[Kirsty Blackman]

Principle G absolutely does help, but it does not fix the problem. Ensuring that the positive effects outweigh the negative effects is good and grand, but comparing a windfarm in Teesside and a windfarm in Aberdeenshire relates to balance rather than the positive effects outweighing the negative. That just encourages the same investment and the same number of jobs in one place in the United Kingdom rather than in another. That is why I am concerned that G does not exactly fix that issue.

Question put and agreed to.

Schedule 1 accordingly agreed to.

Schedule 2

The energy and environment principles

Amendment proposed: 8, in schedule 2, page 52, line 15, at end insert—

“(c) delivering the UK’s net-zero commitments.”—(Seema Malhotra.)

This amendment would ensure that subsidies related to energy and the environment incentivise the beneficiary to help deliver the UK’s net-zero targets.

Question put, That the amendment be made.

Subsidy Control Bill (Second sitting)

Debate between Paul Scully and Kirsty Blackman

Tuesday 26th October 2021 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I am happy to let Ms Blackman go first.

[Kirsty Blackman (Aberdeen North) (SNP)]

Q Thank you, Ms Nokes, and thank you, Minister. Dr Barker, you seemed to say that pretty much all of the subsidies should be declared—that there should be transparency about all subsidies. Can I check that was what you said there?

Dr Barker: That is what I said, yes.

--- Later in debate ---

[Kirsty Blackman]

Q Okay. Perfect. You are in the unusual position where you represent both those people who may receive subsidies and those who may challenge subsidies. Do you feel that the balance is right? Do you feel that, given how the Bill works, your members are likely to be able to challenge subsidies that they feel are disadvantaging them or their organisations?

Dr Barker: This is why I was arguing for transparency. Transparency is an important part of that. A lot will depend on how quickly and effectively the system operates and how much trust there is in the system. If you are potentially a competitor and you can see that there is a clear justification, based on widely understood principles, for a subsidy—it is something that is not being covered up and that is openly stated—and if you have trust in the decision-making process, the system is going to work well, and there is probably going to be less legal challenge from competitors. But as soon as that trust is lost—because things are taking too long, because there is a lack of transparency, because decisions are being made on a very unsafe basis, or because officials do not understand how to apply the principles—that is going to build mistrust and that will then lead to more legal challenge and more problems from the system. It is very important that all the components of the system have the right resources and the right clarity in terms of guidance, and that there is transparency.

[Paul Scully]

Q Dr Barker, you rightly mention guidance—that you want to give certainty, but not be too prescriptive. I take your point about that, and we need to make sure it works for the whole of the UK. We have a more permissive approach, with the seven principles. Assuming that we set and define subsidies that are of particular interest to your satisfaction—perhaps just the most distorting, rather than the wider definition you were worried about—will that give enough certainty to businesses and the flexibility that they need to be able to prosper in the UK without the more prescriptive system of EU state aid?

Dr Barker: Yes. For us, it is very much about finding the balance. We absolutely do not want a highly prescriptive, bureaucratic regime. We really do see the benefits to our members of nimbleness. It is finding that balance between being nimble and not too nimble, such that decisions are made that then subsequently fall through. It is finding that sweet spot that we need to search for.