Subsidy Control Bill (Eleventh sitting)

Debate between Seema Malhotra and Kirsty Blackman

Thursday 18th November 2021 Public Bill Committees

[Seema Malhotra]

This is again about devolution. There is some overlap with the debate we just had. I would have hoped that we were in a position where by the end of this Committee we were not having debates similar to the ones that I feel we had at the start. However, it is important to keep coming back to where engagement with the devolved Administrations matters in particular parts of the Bill, and to say why.

Devolution gives all nations of the UK the chance to make more decisions locally. We have respect for our devolved Administrations and their respective powers, and their input into our economic and social development and our UK-wide democracy. That is why we feel that, if there are ways in which that very important role in our constitutional settlement may be diminished by the way this legislation is crafted and then implemented, it is important for us to consider that issue and also what should be made more explicit in the Bill.

I believe, and I am sure that the Minister believes it too, that all four nations of the UK are stronger together. This Bill is an example of post-Brexit legislation and we are looking at elements of how what was done previously via our membership of the EU will be implemented in a way that will stand the test of time and retain the confidence of all the devolved Administrations. So we must consider how we act in line with those intentions to ensure the importance of devolution and the framework that we have, and how inevitably there will need to be some adjustment, as what happened through the EU is absorbed within our constitution. We must consider some of those roles, responsibilities and judgments about where there needs to be some tweaking of the way our constitution works, with the main principles of devolution—as they have been established and how they are working effectively—and the importance of ensuring that the voices of Scotland, Wales and Northern Ireland are put into legislation that affects all of our nations, and the UK as a whole.

The devolved Administrations will have perspectives that are closer to their own nations. As we have seen, perspectives is a theme running through this legislation, which will be an integral part of how the UK works as a whole, and it will be a more effective regime if those voices are loudly heard.

We agree that Westminster is primary in the way that the legislation is implemented. However, we call on the Minister to consider amendments 82 and 86 seriously. Amendment 82 would mandate the Secretary of State to seek the consent of the devolved Administrations, with a fair backstop, before issuing guidance under clause 79. Amendment 86 stipulates that the Secretary of State must also seek the consent of the devolved Administrations before making the regulations under clause 87.

We have said throughout the debates on the Bill that we want to ensure that there is a settlement that will stand the test of time, that will be flexible in terms of how we all work together, and will be successful for the UK as a whole. It is not just the Labour party or indeed the SNP that thinks along those lines; we have heard evidence from a number of our witnesses alluding to it. I quote Dr Pazos-Vidal, who is head of the Brussels office at the Convention of Scottish Local Authorities, who outlined that the Bill currently is,

“too general and not reflective of the territorial constitution of the UK as it stands. There should be a provision that the Secretary of State must consult the devolved Administrations in a dedicated system that should also involve local law. There should be a duty to make sure that different parts of the UK have full ownership of the final outcome—it is true that the Secretary of State will issue the guidance—but also the intelligence and the local know-how about these ideas.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 8, Q4.]

I ask the Minister, for the final time, to support amendments 82 and 86, which in our view give the devolved Administrations the role they should have and that is appropriate in the Bill. The guidance that the Secretary of State issues on the new regime and the regulations that will be put in place will have just as large an effect on Wales, Scotland and Northern Ireland as on England. Therefore, guaranteeing that the devolved Administrations are involved in the decisions that affect them too will only improve the way in which the guidance is developed and confidence in how it will be implemented.

[Kirsty Blackman]

As I have said, I largely agree with everything the hon. Member for Feltham and Heston has said and I would be happy to back these amendments, should they be pushed to a vote, but I want to make it clear that I do not agree that the four nations are stronger together, and I look forward to the day—not that far off—when we will prove how much more successful we can be when we are out of this political Union.

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[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.

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[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.

[Seema Malhotra]

I thank the hon. Lady for her comments. We are extremely concerned about the Government’s lines on this. I do not think there has been any clear explanation, nor any proper assessment of what this could mean and how it could create quite a significant loophole. We will push amendment 83 to a vote.

Question put, That the amendment be made.

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[Seema Malhotra]

We broadly support clause 91, which sets out which parts of the Bill will come into effect and when. We recognise the need to establish when and how various parts of the Bill will come into force. However, at the same time, we want to ensure that this important new regime is not implemented unnecessarily slowly, because the implementation of legislation can sometimes get delayed when it is not at the forefront of Parliament’s attention. The Bill is fundamental to supporting the levelling-up agenda, which is of great concern to us all, and net zero implementation. That is still a disappointment—I am sure we will come back to the need for net zero to be more explicit in the principles. It is important that we move forward as quickly as possible to ensure certainty in the subsidy control regime, and that we support research and investment. All of those measures are necessary. In this low-growth environment, it is important to get investment, and the necessary incentives for it, as soon as possible.

An interim subsidy regime is in now place, but it does not provide the guidance or reassurance necessary for the long-term effectiveness of subsidies, nor does it take advantage of the potential opportunities provided by designing and scoping a new regime now that we have left the European Union. Amendment 87 would mandate that the Bill comes into force no later than six months following Royal Assent, reflecting the important need to make quick progress on introducing the regime, the guidance and the regulations. There should be no avoidable delays. It is important that the guidance is introduced in good time so as to ensure that the Bill receives proper scrutiny as it continues its passage through Parliament.

I expect that the hon. Member for Aberdeen North will speak to amendment 25. We want to make sure that the process moves more quickly, and there is a discussion to be had about the best way to make that happen. I would be grateful if the Minister could outline the Government’s planned timetable for bringing the Bill into force and the important and necessary steps they will take as part of that road map.

[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.

Subsidy Control Bill (Ninth sitting)

Debate between Seema Malhotra and Kirsty Blackman

Tuesday 16th November 2021 Public Bill Committees

[Kirsty Blackman]

Thank you, Mr Sharma, for your dedication in chairing the Committee, no matter how much we talk. It is appreciated that you continue to show up.

Amendment 29 would work in conjunction with amendment 30 on Competition and Markets Authority monitoring. The measures on subsidy control are new, and we do not know how they are going to work. We do not know how well subsidy control is going to work. It is therefore really important that the CMA reports on a regular basis.

I have had various arguments with Treasury Ministers about tax measures. Treasury Ministers have generally made it clear to me that tax measures are reviewed on a regular basis. Unfortunately, it is impossible to find what “regular” means. It is impossible to pin it down. It is impossible to work out when tax measures are actually reviewed and to see, in any sensible way, any evidence of that. I have previously asked Ministers on Delegated Legislation Committees, for example, to commit to writing to the members of a Committee in the future, when the tax measure under discussion is reviewed, but the Government continue to fail to do so.

I am concerned that the Government’s ability to be transparent on subsidy control measures needs to be in the Bill. The amendment addresses the CMA monitoring report, rather than the Government report, but the CMA will deal with the monitoring and reporting of subsidy control. I hope that the Government will also be reviewing measures, in addition to the CMA’s monitoring and reporting, and will be checking to see how subsidy control is working and whether the Bill is working as intended. As we have previously said though, we have significant concerns about the lack of data that will be provided and the fact that we cannot effectively monitor all the subsidies that are given because of the lack of requirement for granting authorities to register all of those subsidies, or even subsidies over a sensible threshold—the threshold as set is too high.

Amendment 29 would ensure that the CMA’s first report occurs two years, rather than five years, after subsidy control begins. Given the newness of the regime—it is being created and implemented for the first time in autumn next year—we need to know how things are going and we need to know that more quickly than in two or even three Parliaments, depending on how quickly elections are called. Five years is about three parliamentary terms, if we go by recent times. Some people would even say that five years is a generation.

Five years is too long for the initial report. Following that, five years for the subsequent report is also too long. Amendment 30 suggests that the report should be pulled together annually, rather than every five years. That would greatly improve transparency. The Government have been clear that this is a permissive structure that will encourage people to act in the best interests of economic development and improving their areas. I do not think we can properly assess that if we get a report on this from the CMA only every five years rather than more regularly. The Opposition’s amendments to the clause would similarly reduce the length of time between reports; they have been slightly more flexible than I have, but I support the aim of their amendments—to reduce the term from five years.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr Sharma. I thank you for continuing to turn up to our ongoing and extensive deliberations. I thank the hon. Member for Aberdeen North for her comments. She is right that we have tabled a coincidentally similar amendment to hers. I support all the arguments she made. She is right that the Opposition amendment suggested slightly greater flexibility than the SNP amendment, partly because of our thinking on how long it might take to actually get the information to be able to add more meaningful assessments and recommendations to the monitoring of and reporting on subsidy control.

The clause rightly requires the CMA to undertake a periodic review of the effectiveness of the Bill’s operation and its impact on competition and investment in the UK. The Secretary of State may also direct the CMA to prepare a report in respect of a specified period. I am not fully sure whether that allows for some flexibility if issues are identified; perhaps the Minister can respond to that point. However, the review is important because the new regime contains many significant differences from the EU state aid rules in the processes that we will follow. Those processes, which I think have the support of the House, require safeguards to be in place, because they are not in place in a system in which some of the review and scrutiny is done up front. We cannot embark on this without making sure that there are safeguards on the use of public funds, adequate scrutiny measures and a system for learning what works well and what may not. For example, there may be a learning curve for public authorities, businesses and the Government alike, so it is important that the regime is subject to this regular review. It is good practice and it is important for value for money, for accountability to the taxpayer and to assess the effectiveness of the regime and make any necessary changes.

It is important that the regime is subject to regular review. I think we are joined here in the view that five years is not regular enough, particularly given the very good example of having three elections in five years. Politics is not always certain, yet we want that certainty to be in place. We want the learning to be fast cycle; it is good practice to learn in a more fast-cycle way. Perhaps the Minister could clarify why this time period was selected. Five years would effectively provide for one report per Parliament, assuming that we have a five-year Parliament.

What is more, five years is a significant amount of time to have passed before the first review of the effectiveness of the operation of the regime. There could be significant inefficiencies that cause substantive negative effects within that timeframe, and Parliament would be none the wiser without that informed view and assessment from the CMA. Labour tabled amendments 61 and 62 to reduce the reporting period laid out in clause 65 to every three years, which would allow for enough data to come through and for a cycle of meaningful reports that could take into account recommendations for change and assess how effectively the intended outcomes had been delivered. As a minimum, that is a more appropriate timeframe for reviewing the new regime. I would be grateful to know whether deciding on five years followed discussions with the CMA. If those discussions did happen, what was the CMA’s feedback? Engaging with the CMA is important, and there may be the need for challenge if Parliament has a different view.

As well as giving Governments more opportunity to make changes to the regime, including legislative changes and process improvements, any problems with the regime would be resolved considerably earlier because, let’s face it, if we have five years to do something, it may be left until the last minute. We want to ensure that Parliament is also responsive to any changes and plays its part in ensuring that the regime, and any changes, can be reviewed effectively every three years.

I hope the Minister recognises why five years is too long a reporting period, takes on board the comments of the hon. Member for Aberdeen North and her party and those from Labour, and perhaps offers some feedback to the Committee on why five years was suggested. Does the Minister recognise our arguments, and would he be prepared to include a review in the later stages of the Bill?

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[Seema Malhotra]

We return to a familiar theme, which is the absence of any clear role for the devolved Administrations and the failure to recognise the need for a truly four-nation approach. Yet again, the clause fails to provide a role for the devolved Administrations in the CMA consultations and report.

The Government seem not to have quite grasped the fact that the new subsidy regime will affect not just England, but Wales, Scotland and Northern Ireland. All nations should contribute to the review of the effectiveness of the regime and its impact on competition and investment within the UK, as all four nations will be affected. In fact, given that Scotland, Wales and Northern Ireland will have to implement not just what is in the Bill, but the many future regulations to be made by the Secretary of State, it is equally important that all voices are heard. Already, the devolved Administrations will not be included in defining many regulations; will not be able to call in subsidies or make post-award referrals; will not have automatic standing to challenge subsidies before the Competition Appeal Tribunal; and may not even be represented on the body that oversees the new regime—unless the Government are enlightened by discussion in Committee and the main Chamber, and with what is happening with the Office for the Internal Market.

Will the Minister explain what role he sees the devolved Administrations playing in the new regime and in the monitoring and review? Daniel Greenberg, Parliamentary Counsel for Domestic Legislation, said in the evidence session that

“when you are dealing with international obligations of the UK, that has to be dealt with by central Government but, again, doesn’t that have to be done in consultation with the devolved Administrations? Of course it does. With co-ordination with the devolved Administrations? Of course it does. With mechanisms for encoding that co-ordination and consultation into the way the Bill operates? Of course.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 61, Q80.]

The Labour party agrees completely with that, which is why we have consistently sought to amend the Bill to increase the role and voice of the devolved Administrations.

There have been fewer occasions on which Labour has wanted to increase the voice of the Secretary of State under the legislation, but clause 65 is one place where we think that might be important. The amendment would therefore require the CMA to consult both the Secretary of State and the devolved Administrations before issuing a periodic review of the regime. In particular, the CMA would find the inclusion of their voices helpful as it deliberates the impact of the regime on competition and investment across the UK.

[Kirsty Blackman]

I thank the hon. Member for her indulgence. There is no need for me to speak to the amendments, but I wholeheartedly support them. The Scottish National party will back them should they be pressed to a vote.

[Seema Malhotra]

I thank the hon. Member for her support.

Speaking to amendment 64, once the CMA has prepared its report, clause 65(7) requires the CMA to arrange for a copy of it to be laid before Parliament. We welcome the opportunity that that will provide for the UK Parliament to scrutinise the reports. Given the impact of the regime on the devolved Administrations, however, why will the report not also be laid before the devolved Administrations of Scotland, Wales and Northern Ireland, thereby giving them the opportunity to undertake detailed scrutiny? There might be a technical reason for that, but certainly the feedback that we have received is that laying reports before the Administrations would enable more formal scrutiny of them. I would be grateful for the Minister’s comments on that.

Amendment 64 would require the CMA to put a copy of its report before the Scottish Parliament, the Welsh Senedd and the Northern Ireland Assembly, which would provide each of the legislatures with a clear ability to scrutinise the CMA report and therefore the effectiveness and impact of the regime.

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[Seema Malhotra]

I beg to move amendment 65, in clause 65, page 37, line 27, at end insert—

“(7A) Within 30 working days of a report being laid under subsection (7), the Secretary of State must make a statement to the House of Commons explaining what action will be taken to remedy any deficiencies in the effectiveness of the operation of the Act or impact of the operation of the Act on competition and investment within the United Kingdom identified by the CMA.”

This amendment would require the Secretary of State to make a statement to the House of Commons on the CMA’s findings and any remedial action required.

I will keep my comments brief. This amendment would require the Secretary of State to make a statement to the House of Commons on the CMA’s findings and any remedial action required. It does not take a genius to recognise that reviews alone are not enough; they need to be acted on. Yet there are no provisions in the Bill that we have seen that require the Secretary of State to act in response to the findings of the CMA’s reports, or even to consider whether action is necessary to remediate any deficiencies in the regime identified by the CMA. Does the Minister agree that this seems to be a significant gap?

If the report and reviews under clause 65 do not trigger at the very least an obligation for the Secretary of State to consider and have due regard to its findings, are we not missing quite an important step in the overall process of review and improvement of the regime? That is why we have tabled amendment 65, which states that within 30 days of the report being laid under clause 65, the Secretary of State must make a statement to the House explaining what their response is and what action may be taken to address any deficiencies highlighted in the report. That would ensure that any issues with the new regime were not only raised, but actively considered. As the regulation currently stands, problems identified by the CMA may continue undebated and unaddressed.

[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.

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[Seema Malhotra]

I beg to move amendment 66, in clause 66, page 37, line 40, at end insert—

“(d) the proportion of subsidies and schemes in each of paragraphs (a), (b) and (c) in relation to which the CMA found that the public authority’s assessment under section 52(2)(d) or 56(2)(d) required improvement;

(e) the proportion of subsidies and schemes in each of paragraphs (a), (b) and (c) in relation to which the CMA identified a risk of negative effects on competition or investment within the United Kingdom;

(f) information on the geographical allocation of subsidies, including the total value of subsidies subject to mandatory and voluntary notification in the preceding 12 months that have been awarded to enterprises in each nation, region and local authority within the United Kingdom;

(g) the number of extensions to the reporting period made under section 53(6) at the request of the CMA and the average number of days of those extensions;

(h) the number of voluntary referrals made under section 56(1);and

(i) the number of those voluntary referrals in relation to which the CMA has given notice under section 57(2) that it has decided not to prepare a report.”.

This amendment would require the CMA to include the additional specified information in its annual report.

Clause 66 sets out the information that the CMA must include in its annual reports. It is connected in some regards to the debate that we have just had. Although we support the mandating of specific information to be included in the annual reports, the information required feels too high-level and not sufficiently detailed or useful. The clause envisages the CMA simply listing the subsidies and schemes in relation to which it has prepared reports. The Minister may explain what he expects in the annual report.

We believe that, first, the annual report should include information on the number of subsidies and schemes in relation to which the CMA found that public authority assessments required improvements. In doing so, the review would provide an assessment of how successfully public authorities are meeting their statutory obligations under the legislation.

Secondly, the report should include information on the subsidies and schemes that the CMA reviewed and found risked having a negative effect on competition and investment within the UK’s internal market. That would ensure that not only the House but the taxpayer and the devolved Administrations are made aware of what, where and how subsidies are putting pressure on the UK’s internal market, if that is happening.

Thirdly, the report should include information on the geographical spread of subsidies that the CMA considered in the last reporting period, as well as information on the value of subsidies that have been awarded to enterprises in each region, nation and local authority in the UK. We are used to statistics and information being available at a fairly granular level. This is important and significant, given that, despite our best attempts, the Bill currently provides no information or regulation on how subsidies and schemes will work to reduce economic inequality across the United Kingdom.

If the Government really believe in levelling up, they need to take action to match what they say. The new regime, and subsidies generally, can provide an important opportunity for channelling resources to deprived areas and reducing regional and intra-regional inequality. As the Bill currently stands, however, there are no regulations in place that actively allow for that. As Professor Fothergill, the national director of the Industrial Communities Alliance, explained:

“In certain places, if we really are serious about levelling up, we have to put more resources into that effort, and we have to use state aid as one of the tools for delivering new jobs.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 11, Q7.]

Does the Minister recognise that the contents of the Bill do not currently match up with the levelling-up rhetoric? Does he agree that subsidies can be used and could make a significant impact by supporting and aiding deprived areas? Including information on the geographical spread of subsidies could be quite an effective and efficient way of providing some insight about whether the resources under the regime are working to reduce inequality, which would surely be of help to the Government in achieving their stated goals.

We believe that the CMA’s annual report should include information that would allow the CMA’s resourcing, capacity and effectiveness to be evaluated. We have proposed that the annual report should set out

“the number of extensions to the reporting period”

for mandatory notifications that the CMA has made, the duration of those extensions,

“the number of voluntary referrals made”,

and how many of those the CMA has and has not prepared a report on. The CMA has a key role in ensuring that subsidies and schemes meet the principles and do not distort the market. If it is unable to carry out its responsibilities effectively, there will be a real risk that damaging subsidies continue without challenge or review.

[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 ---

[Kirsty Blackman]

I am a bit confused by the Minister’s comments on paragraph (d). He seemed to suggest that the CMA’s report may not talk about where local authorities’ assessments require improvement. That is slightly concerning because, if a local authority is making an assessment on a subsidy and the assessment requires improvement, who is going to tell it? Who is going to say the assessment requires improvement if the CMA does not have the ability to say, “Excuse me. You have done this a bit wrong. Could you do it better?”

It would be helpful if the Minister contacted us, by letter if possible, to say what he expects will be in the CMA’s reports. At the moment, I do not understand what will be in those reports, specifically in relation to the mandatory referrals. What will be in the CMA’s report on the mandatory referrals that come forward? What does the Minister expect will be in the report? It does not have to be prescriptive; it could be ideas of the kind of things that would be in there, because at the moment I do not understand what that report is going to be.

[Seema Malhotra]

It would be helpful, in the light of our conversation, if we could start with the Minister’s expectation. He may well have reflected on the discussion we have had today. That may a good and efficient way for us to come back with suggestions of what else might occur, or perhaps there will be full, total agreement on what we want to see in the CMA’s annual report; we do not know. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

--- Later in debate ---

[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.

Subsidy Control Bill (Tenth sitting)

Debate between Seema Malhotra and Kirsty Blackman

Tuesday 16th November 2021 Public Bill Committees

[Kirsty Blackman]

The Bill states:

“a person whose interests may be affected by the giving of the subsidy”.

The hon. Member’s interests would not be affected by the giving of the subsidy, his constituents’ interests would be. If the Minister, when he speaks, confirms that a Member’s interests cover all the interests of his constituents, can define the interests of the Scottish Government, Welsh Ministers and the Northern Ireland Department or can say absolutely that, for example, a Northern Ireland Department’s interests cover the interests of businesses and constituents within its jurisdiction, I will be delighted that the hon. Member for Thirsk and Malton is correct. That is what I would like it to say but, as drafted, that is not what the Bill says.

There is therefore a gap, an issue with not enough people being able to make that challenge and in those democratic institutions not having that right. As the Minister said, it is not a foregone conclusion that such things would go through, that the CAT would look at the subsidy decision and say, “Oh, the Secretary of State has referred this, so they are definitely correct and the subsidy is definitely wrong.” That is not how it would work. The CAT is an independent organisation and it will be making those decisions.

On the specific point about people who have the ability to refer subsidy decisions, however, I think that those people with indirect interests on behalf of their constituents or the areas that they represent should have the right to make that referral—and for the CAT to make the decision after that. Again, that will not lead to a significant increase in the number of challenges to come forward, but if the Government are committed to levelling up and to the Subsidy Control Bill regime working as it is intended to work, changes have to be made to the clause. Amendment 23 was the best way that I could see of making the changes to ensure that those interested parties with indirect parties would be able to fulfil adequately their roles to work on behalf of the people who elected them.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Ms Nokes. I thank the hon. Member for Aberdeen North, who laid out some very strong arguments for amendment 23. I will speak briefly to amendment 71, which is very similar.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his comments. I was intending to press the amendment to a vote, but there is a wider question about how we improve the balance regarding how this amount of time is used within the framework of the Bill. Should public authorities be given a shorter time in which to upload, to allow more time for a challenge to be brought? The same amount of time would have elapsed, but that could be a far better framework for the regime.

In the light of the comments made and the consideration that we need to look at this as a whole, I will not press the amendment to a vote today, but we intend to return to this. It will be important for the certainty that we want to see and the transparency we need. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Kirsty Blackman]

I rise to speak to amendment 31 in clause 71, page 40, line 36, leave out ‘one month’ and insert ‘6 months’.

This amendment allows CAT referrals a longer period to be made.

This is a pretty similar amendment, as it is about extending the length of time in which a challenge can be brought before the CAT. I wholeheartedly agree with what the shadow Minister has just said. If the Minister’s greatest concern is ensuring that the period of uncertainty is not increased, there remains an issue about the balance. We could ensure that that level of uncertainty existed for the same length of time but the balance was correct, so public authorities could upload these things very quickly, making the total challenge period shorter. That balance needs to be changed.

On amendment 31, the Opposition have made pretty much all the arguments I was going to make, so I will not take up too much of the Committee’s time. More than one amendment has been tabled on the matter, as well as on the database and its timings, and a number of comments were made in the witness sessions about the balance in the Bill not being right. I hope that the Minister will take on board the strength of feeling and give consideration to changing that balance by reducing the amount of time available for people to put things on the database and increasing the amount of time allowed for organisations to challenge. I therefore have no wish to move the amendment.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his comments. He is right that recovery orders are published alongside hearings, but they are not collated, and it is not possible to see them easily in one place in order to understand collectively what is going on. If we want to know where things are not going well and what is happening across the regime from an end-to-end point of view, it is important to have that information not just publicly available, but easily accessible.

[Kirsty Blackman]

Does the hon. Member agree that it is very difficult for us to know what is coming up in the CAT unless we are looking at its website on a regular basis, so the transparency that we need as parliamentarians to see that the Bill is working effectively is not adequately fulfilled by the CAT’s current reporting duties?

[Seema Malhotra]

I thank the hon. Member for her comment, and she is right. When we develop legislation and introduce a regime, it has to stand the test of time and last beyond the time we spend in our individual roles. In five or 10 years, the Minister might have become Prime Minister.

[Seema Malhotra]

Others are starting their campaigns, so perhaps the Minister also will do so.

We need to think about making such information more easily accessible. We thought about whether the CMA should publish it simply because if we have data on the regime as a whole, it should not be too onerous to find a way of reporting some of it, perhaps in partnership with the Competition Appeal Tribunal. To enable us to see what is going on and where there are recovery orders, that would be useful alongside other information that we talked about, such as geographical information, so that we have an end-to-end view.

[Kirsty Blackman]

I have just one more thing to add on this. Clause 65 covered monitoring and reporting on subsidy control, and the five-year report that will be published. Does the hon. Member agree that if the annual report will not cover instances of recovery orders because they are not the responsibility of the CMA, the CMA’s review of the efficacy of the subsidy control regime would be an appropriate alternative place to report on them?

Subsidy Control Bill (Eighth sitting)

Debate between Seema Malhotra and Kirsty Blackman

Thursday 4th November 2021 Public Bill Committees

[Seema Malhotra]

I thank the hon. Member for his contribution. He will see from the contributions of Opposition Members that we are not saying that exactly the same powers should be given in all circumstances to the devolved Administrations, but that there are areas in which arguments for the devolved Administrations having similar powers make sense within the context of how the regime may operate. With a view to how issues could be raised and dealt with, there may be very good reason for doing that. We propose this not for political purposes but because we seek a regime that will work effectively and with some symmetry of powers relating to the opportunity, where it would be helpful, to challenge subsidies. I will lay out a couple of reasons why.

The clause gives the Secretary of State the power to make post-award referrals to the CMA but does not extend this power to the devolved Administrations. The specific purpose of the amendment is to extend the post-award referral powers in the clause to the devolved Administrations. As it stands, the Secretary of State can refer to the CMA subsidies granted in Scotland, Wales and Northern Ireland that may be perceived to damage the interests of enterprises in England. However, the devolved Administrations cannot bring forward an argument. They may in time have good reason to refer subsidies—English or others—to the CMA that they may perceive damage interests within the devolved Administration areas.

[Kirsty Blackman (Aberdeen North) (SNP)]

I do not intent to speak to the amendment, but I want the Opposition spokesperson to know that she has my full backing for it.

[Seema Malhotra]

I thank the hon. Member for her contribution in response to the challenge to us from the Government side, which I do not think is at all fair, because we have not at any point argued against this being a reserved power or the overall structure of the Bill. We have genuinely sought to amend the Bill to make sure that there is a fair and sustainable settlement that commands the confidence of all our nations.

Powers on subsidies and the regime overall should reside in Westminster, and we understand that it is crucial that subsidies under the regime do not distort the UK’s internal market—we would raise little concern on that, and we think it is vital that that is the case—but as such, devolved Administrations, such as the Scottish Parliament or Welsh Senedd, should have the opportunity to receive the CMA’s advice on subsidies that they consider could damage their national interest. It is not only Labour that thinks that. During the evidence session on 26 October, George Peretz QC, a barrister specialising in state aid, said:

“In a situation where an English local authority, the Secretary of State or another UK Government body acting as an English Department does something that is designed to benefit England but causes serious concern in Scotland or Wales, why should the Welsh or Scottish Ministers not be able to do the same thing if the concern is with competition or investment within the United Kingdom? I find it slightly hard to see what the argument against that is.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 44, Q63.]

Could the Minister share his reflections on those comments? Perhaps he will offer a robust argument for not allowing the devolved Administrations to make post-award referrals, because we fail to see a valid argument for that exclusion. Instead, it feels more like a lack of a fair distribution of powers, and something we should consider as the Bill makes progress. We therefore propose the amendment.

We hope that the Committee sees its importance in ensuring that Scotland, Wales and Northern Ireland feel that they have a fair role in the subsidy regime. I will await the Minister’s remarks before deciding what we shall do on this amendment.

--- Later in debate ---

[Seema Malhotra]

It is my pleasure to move amendment 56 and to speak to amendment 57. We would like to address some further important gaps that we think exist in clause 60. First, as the clause stands, the Secretary of State cannot make a post-award referral on the basis that a subsidy may distort competition between the UK and a third country. In an article on 5 July entitled “UK Subsidy Control Bill—a brief summary”, George Peretz QC said that

“oddly, the Secretary of State does not appear to have that power if the possible subsidy only affects foreign countries, though such subsidies could well cause difficulty at international level.”

Labour is therefore proposing amendment 56, which would allow the Secretary of State to make post-award referrals on the basis that a subsidy or scheme is distorting international competition. We hope the Committee can understand why this is an important amendment. If the Government choose not to support it, will the Minister outline what the reason is and why the Government do not feel the need to refer subsidies that distort international competition to the CMA?

Secondly, we are proposing amendment 57, which would change the Secretary of State’s time to refer a subsidy or scheme to the CMA from 20 days after it is published on the database to 20 days after it is granted. The amendment is not intended to be used as a tool for reducing the time for post-award referrals; rather, it is intended to ensure that the Secretary of State can refer to the CMA grants that public authorities have incorrectly not categorised as a subsidy and that have therefore not been posted on the database. We hope the Minister recognises that, as the Bill currently stands, there is a loophole whereby subsidies incorrectly not identified can escape scrutiny and transparency. Amendment 57 is an attempt to close the loophole, and I therefore hope that the Government will work with us and support it.

[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.

Subsidy Control Bill (Seventh sitting)

Debate between Seema Malhotra and Kirsty Blackman

Thursday 4th November 2021 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I beg to move amendment 28, in clause 52, page 28, line 10, at end insert—

“(c) where the granting authority for a subsidy scheme is the Government department responsible for the operation of the subsidy control regime, or

(d) where the granting authority for a subsidy is the Government department responsible for the operation of the subsidy control regime and the subsidy value is over £2 million.”

This amendment makes provision for situations for mandatory referrals in cases where the department responsible for the operation of the subsidy control regime is a granter of subsidies or subsidy schemes.

Thank you for chairing the Committee today, Chair; we very much appreciate it. I am pleased that the hon. Member for Mid Dorset and North Poole is delighted to see me here. He made very clear this morning that he was worried that the debate might be truncated without my presence. I am here to oblige by standing up and making my first speech of the day.

The amendment is about mandatory referrals to the Competition and Markets Authority. Clause 52 specifically focuses on those mandatory referrals and the criteria under which a subsidy would mandatorily be referred and therefore given an additional level of scrutiny. The mandatory referral considerations in subsection (1) of the clause say that a public authority must request a report from the CMA if it is giving a subsidy or a subsidy scheme “of particular interest” or if it is

“directed to do so by the Secretary of State”.

It goes on to say in subsection (3) that the Secretary of State may

“specify further information that must be included in a request”,

and

“make provision as to the form of a request.”

That is all well and good, but it seems to me that every single criterion for mandatory referral to the CMA relies on the decisions being made by the Secretary of State. The Secretary of State will decide what is a subsidy or subsidy scheme of particular interest and what class it falls into. That is a decision that will be made, but those details are not in the Bill.

If a subsidy is only mandatorily referred if it is of particular interest, which is defined by the Secretary of State, or if the Secretary of State chooses to refer it, there is a gap in terms of a conflict of interest, where the subsidy may be given by the Secretary of State’s Department and, given the limited criteria we have for interested parties, for example, which have not yet been expanded on—we will discuss them later on in the Bill—it would make sense for large grants made by the Secretary of State’s Department to mandatorily be referred to the CMA for a report. That would not cause a huge amount of additional work for the CMA, but it will provide an additional check and balance to the system. We do not want the Government marking their own homework on that; we would rather there was an additional level of scrutiny here.

Amendment 28 says that

“where the granting authority for a subsidy scheme is the Government department responsible for the operation of the subsidy control regime, or”—

that should be “and”, not “or”—

“where the granting authority for a subsidy is the Government department responsible for the operation of the subsidy control regime and the subsidy value is over £2 million.”

Once again, I do not feel I am being unreasonable. I am not asking for a mandatory referral every time. Sorry—I just reread the amendment, and it is right, it should be “or”. It is about a subsidy scheme that is made by the Secretary of State’s Department, so scrutinising all the subsidy schemes made by the Secretary of State’s Department, or the scrutiny of an individual subsidy where that is more than £2 million. I apologise to the Clerks for doubting them; this is how I intended the amendment to be.

This is not an unreasonable ask, but it is an extra check and balance, ensuring that the Government are appropriately scrutinised and that there is a look at all those subsidies. It is just an additional look; it will not delay the granting of the subsidy or mean that it will take longer. The subsidy will still be able to be granted fairly quickly and subsidy schemes will be able to be set up fairly quickly. However, it means that the CMA will look at those with an inherent conflict of interest because the Secretary of State’s Department is granting or setting up the subsidy scheme.

Later in the clause is a provision for the Secretary of State to make changes by regulations, but that specifically relates to the form of the request and the further information that may be included in the request. It does not relate to further criteria as to which public authorities must request a report from the CMA. If there were such a provision, I would push for the Secretary of State to make regulations and ensure that the criteria were widened. As that has not been included in the clause, I feel that I have to move the amendment.

If the Minister could give me some level of comfort, that would be very helpful. I think that that check and balance needs to be there to get rid of the inherent conflict of interest.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Ms Nokes. I thank the hon. Member for Aberdeen North for her remarks. She raises a number of important and pertinent issues around scrutiny, in particular about subsidies introduced by the Secretary of State.

The clause deals with the mandatory pre-award referrals to the CMA. It outlines that:

“A public authority must request a report from the CMA…before giving a subsidy, or making a subsidy scheme, of particular interest, or…where directed to do so by the Secretary of State”.

We have highlighted our concerns about the definitions of subsidies “of particular interest”. It is a glaring gap in our debates on the detail of the legislation. We think that the definition should be included in primary legislation, and I hope the Minister has listened to our concerns. I am sure that the issue will come back at future stages and, at the very least, our expectation will be that the definition is published very soon after the Bill receives Royal Assent. Things that we could be dealing with now should not end up delaying the ability to make decisions and implement the regime.

Although we are concerned about the definition, we support the overall importance of the measures outlined in the clause and the function of mandatory referral to the CMA, in the interests of checking compliance with the principles, bringing assurance on value for money and confirming that there will be no distortion or harm to the economy.

On amendment 28, the hon. Member for Aberdeen North makes an important continuing reference to the Government marking their own homework. Although we recognise the intention and some of the arguments behind the amendment, we do not think that producing a report on a subsidy every time one is given by the Department for Business, Energy and Industrial Strategy—as a sort of blunt tool—would necessarily be the most effective use of the CMA’s time.

Rather, we have argued very strongly for all subsidies, regardless of whether they are below a particular amount or given to a certain recipient, to be posted on the database to ensure sufficient transparency. We will also seek to ensure that there are greater rights on call-in powers or that the CMA can investigate itself, if it deems that there a reason to do so. We think that any assurances, which are, in part, the intention behind the amendment, could be better delivered through the Bill in other ways. On that basis, we will abstain on amendment 28. We support clause 52 standing part of the Bill.

--- Later in debate ---

[Seema Malhotra]

We support clause 52. I am not concerned about the detail of the clause, but how it will be effective as part of the regime. This comes back to why the rules around what can be referred under the definition of a subsidy of particular interest and who has what call-in powers will be a fundamental question to come back to. It would be a shame to have a good clause and not use it to best effect to support the best outcomes of the regime.

[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.

--- Later in debate ---

[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.

Subsidy Control Bill (Sixth sitting)

Debate between Seema Malhotra and Kirsty Blackman

Tuesday 2nd November 2021 Public Bill Committees

[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.

[Seema Malhotra]

We wish to push clause stand part to a vote.

--- Later in debate ---

[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.

Subsidy Control Bill (Fifth sitting)

Debate between Seema Malhotra and Kirsty Blackman

Tuesday 2nd November 2021 Public Bill Committees

[Seema Malhotra]

It is a pleasure to serve under your chairship, Mr Sharma, and to debate amendments 34 and 39.

The clause provides that the

“the Secretary of State must make arrangements for the provision of a database of subsidies and subsidy schemes for the purposes”

of transparency as required by the trade and co-operation agreement—the TCA. The database must be accessible to the public free of charge, and public authorities who are obliged to upload details of subsidies or schemes should be enabled to do so. The Secretary of State may direct the Competition and Markets Authority to take on responsibilities for maintaining the database in the future.

Clause 32 mandates the Secretary of State to arrange for the database to be set up, and we support the creation of the database. We recognise that it is vital for there to be transparency over subsidies in the new regime. However, we are again concerned that key details are missing from the Bill. In order for it to function effectively, the legislation should require public authorities to make sure that their entries on to the database are accurate and complete. This is particularly important given that interested parties will use information on the database to assess whether subsidies meet the subsidy control principles and, if not, whether they should be challenged before the Competition Appeal Tribunal. Surprisingly, the Bill does not contain any obligations on local authorities or public authorities to make accurate and complete declarations. I hope the Minister will agree that that is a gap in the legislation and is one that we need to see addressed.

To resolve the problem, Labour has proposed amendment 39, which would establish an explicit duty on public authorities to ensure that their entries on the database are accurate and complete. That is the least we should expect, but I am afraid that the evidence suggests that not all entries entered even over the past 11 months have been accurate or complete. In many cases, they have not been either.

Secondly, the Bill does not place the database under any order or control mechanism. Whose responsibility is it to verify that the information on the database is accurate and complete? Again, given that the information entered on the database is crucial for effective transparency of the regime, does the Minister not agree that this is a significant gap? If the database does not have any regular audit function and if inaccurate or incomplete information entered on to it is not checked, this poor information may lead to misguided legal challenges or, indeed, to harmful subsidies failing to be addressed. The other consequence is that it reduces overall confidence in the database and the information in it. Over time, that would undermine the regime.

In the evidence given on Tuesday 26 October, Alexander Rose of DWF said that since 11 pm on 31 December 2020 only 501 subsidies had been entered on the database. He highlighted that

“of those 501, some 257 are recorded as having a zero or nil value. —[Official Report, Subsidy Control Bill Public Bill Committee, 26 October 2021; c. 52, Q73.]

He gave some frankly shocking examples of schemes that had not been accurately reported. He also questioned the database’s completeness and said that there was no way that only 501 subsidies had been awarded since the entries began.

The Minister may also remember the example of the Tees Valley Capital Grant Scheme. It was listed as having been posted on the website on 1 April 2020, but the website did not even exist on 1 April 2020. Given how vital subsidy entries will be to ensuring that subsidies meet the principles, it is clear that such complacency cannot be allowed to govern the new database under this regime. We need to get it right from the start. Expectations therefore need to be clear and they need to be defined in law. Let us remind ourselves that this is public money. Faith in the system requires good-quality information that is accurately reported, and we need to ensure that there will be a value for money check on the subsidies being proposed.

As the current database is clearly not working for those purposes, it is vital to address that point. Part of this may be about the design of the website for data entry itself, but the expectations of Parliament need to be clear on public authorities. It should be understood that there will then be real consequences if the database contains inaccurate information. We cannot control that if it is deliberate, but we need to put the safeguards in place so that the subsidies are used as intended.

Amendment 34 would ensure that the database was subject to routine auditing. We are open to discussions with the Government and stakeholders on which body is best placed to conduct such an audit. However, we believe that ultimately the responsibility lies with the Secretary of State to ensure that the database contains accurate information and is fit for purpose. I hope that the Government recognise the importance of both amendments in ensuring that the new regime is effective and transparent.

[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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[Seema Malhotra]

The clause details the specific obligations of a public authority in uploading subsidies and subsidy schemes on to the subsidy database, as it stands in the Bill. It is right that a public authority must ensure that an entry is made in respect of any subsidy scheme unless any agreed relevant exemption applies. The clause also states that a subsidy or scheme must be uploaded within six months of the confirmation of the decision to grant or make a subsidy or scheme, except for tax measures which must be uploaded within one year. Subsection (2) exempts a subsidy from the requirement to be uploaded when the individual award is less than £500,000.

As I said on Second Reading, Labour welcomes the subsidy regime, which will enable subsidies to be granted more speedily while requiring stronger checks to be in place. The Bill presents us with an opportunity to create a more responsive subsidy regime but, as we move away from the EU system of pre-notification, it is vital to ensure that the new regime, which grants subsidies first and then allows them to be challenged after, has appropriate mechanisms for oversight and transparency.

Clause 33, which outlines the obligations that public authorities have in respect of the subsidy database, demonstrates how the Bill seems to fail to provide the checks that we need for subsidies under the new regime. As the Bill stands, subsidies made under a scheme that are worth less than £500,000 do not have to be entered on to the database. I would like to understand the Minister’s justification for that and how the figure of £500,000 was decided on. Amendment 35 would leave out subsection (2) so that there is a requirement to be transparent.

The provision in the Bill is staggering. The sum of £500,000 is significant and could be given multiple times under a scheme without that being transparent. How are we then able to challenge what is being done and, as an interested party, make the possible case against? Does the Minister not agree with Professor Rickard, who said in our evidence sitting last week:

“Through transparency, we can get better compliance and better value for money”?––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 23, Q25.]

I am sure the Minister will agree that we always want to see value for money and that we can help to ensure that the subsidies that are being granted meet the goals that we are setting out to achieve.

I am sure the Minister will also agree that subsidies worth £500,000 or less can have a significant effect on the market. They can distort competition. As such, public authorities should be obliged to enter them on to the database to ensure that their aims and the subsidies can be fairly scrutinised. That is why Labour is proposing amendment 35, which would stipulate that all subsidies should be entered on to the database. We have not suggested setting a minimum threshold for publication; there are proposals on that from the hon. Member for Aberdeen North.

In the system of appeal rather than pre-notification, comprehensive transparency is vital. With the right system, entering subsidies on to the database need not be cumbersome or complicated for public authorities. It can be a straightforward task that is well worth completing for the transparency it provides in the context of every subsidy. We can search the database for the amounts that we might want to scrutinise, but every subsidy should be on the database. That is our starting point.

Amendment 35 would mandate that subsidies given under a scheme are individually also quoted under the scheme’s entry. There will be an amount associated with that subsidy under the scheme; there is no reason why that amount should not be able to be entered and should not be required to be entered.

The amendment would ensure full transparency of all subsidies under the regime and that interested parties had the relevant information needed to scrutinise any subsidy, whether given alone or under a scheme.

[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.

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[Seema Malhotra]

I thank the hon. Gentleman for his comment. If he thinks that there should be such a requirement or that that should be in the guidance, perhaps he might raise it with his own Front Bench. It is important to have some of those checks in place. However, where fraud might be taking place, or there is an impact of—perhaps genuine—cumulative subsidies, whose responsibility is it? If an enterprise has been in receipt of multiple subsidies and does not declare them, where are they declared? If feedback to the local authority or the public authority is incomplete, how do we find out, unless subsidies are on the database and it is then much easier to search and identify them?

There is a lot more to be taken away from this discussion in terms of inefficiency and higher risk of fraud—or, if not fraud, perhaps some forms of maladministration or error. A transparent and full database would reduce the risk of many of those issues arising, and would then reduce the cost of seeking pre-action information or judicial review. Why must we clog up our tribunals with matters that could have been avoided had we had better control systems in the first place? A transparent and full database would ensure the value for money not just of the subsidy but of what the system demands and who pays for checks and balances later in the process.

The complexity of some of those issues requires us to think them through in more detail. I will not be pushing amendment 35 today, but we certainly plan to return to it in later stages of the Bill.

[Kirsty Blackman]

On a point of order, Mr Sharma, if I wanted to push amendment 33 to a Division, would it happen now or during the debate on clause 36?

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[Seema Malhotra]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Kirsty Blackman]

I beg to move amendment 26, in clause 33, page 17, line 24, leave out “one year” and insert “three months”.

This amendment would reduce the length of time public authorities have to enter a subsidy in the database from one year to three months, with respect only to tax measure subsidies.

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[Kirsty Blackman]

This is one of the most important parts of the Bill that the Government have got wrong, and I am massively concerned. A number of witnesses raised concerns about the length of time. Some of those time lengths might have come from the trade and co-operation agreement, but my understanding is that those are minimum thresholds. It is entirely proper for us to put in stricter thresholds, should we desire to do so. It is important that those times be changed, for the sake of transparency and to protect organisations that might be harmed by subsidies being given to somebody else.

Amendment 26 would

“leave out ‘one year’ and insert ‘three months’”.

That is specifically about tax measures. The logic behind having a three-month period, rather than the one-month period I have suggested for normal measures, is that tax measures may be more complex, and it may take authorities longer to make that registration on the database. That should give them enough slack to be able to put that information on the database.

My big concern about tax subsidies is followed up in amendment 27 on the meaning of “tax declaration”. That meaning is not clear to me and, when I asked a tax professional, they did not know what “tax declaration” means in this case. It is important that the Government make clear what that means because, if “tax declaration” is the tax return, that return is made after the financial year in which that happens. It could possibly take up to two years for a requirement for that to be registered on the database. By that time, a competing organisation might have gone under. It was made clear to us in the evidence sessions that six months was a fairly long time; nearly two years is a very long time. It is completely unacceptable for the Government to choose to do that.

If the Minister says that “tax declaration” means the tax return, that would be helpful in making clear the meaning of “tax declaration”. My understanding, from the evidence given by Daniel Greenberg, is that that would be enough for everybody to understand the implementation of the legislation. The length of time is a massive concern for me. That is why I am proposing on tax measures that the length of time be changed from one year to three months, which is reasonable.

Where measures do not relate to tax, I am proposing that six months be changed to one month. That is again to protect businesses where the subsidy has distorted competition to the extent that they are in serious difficulties. I understand what the Minister said about time being paused if a subsidy has not been uploaded properly on the database, or if a pre-action request is made, but my concern is that people will make pre-action requests left, right and centre, no matter the date put in. It is also far too long a period of time.

The public authority that is granting money to an organisation has to go through a number of hoops in order to do so. It is completely reasonable to ask it to upload that as close to that point in time as possible, rather than let it potter about for six months, because it is already doing lots of paperwork. It is already jumping through hoops in relation to that subsidy, so it makes sense for us to reduce the time. It builds much more protection into the system, which is important. Surely that is the point of having a system. If we did not have international agreements and did not have to have any system in place, it would be different, but we do have to have a system. Therefore, the system that we have should make sense and should work.

I will just speak briefly about the Opposition amendments that have been put forward. They are along a similar line and try to do very similar things. Should the Opposition decide to push the amendments to a vote, I would be quite happy to back them, because it is really important to get this right.

[Seema Malhotra]

It is a pleasure to speak to our amendments 37 and 38, and to the other amendments in this group. I thank the hon. Member for Aberdeen North for the persuasive arguments that she has outlined. She has mentioned that our amendments are on similar lines. Ours perhaps go slightly further, and I will lay out our arguments as to why we have tabled the amendments in this way.

Amendments 37 and 38 would change the period that public authorities have to enter their subsidies on the database to one month, including for subsidies given in the form of a tax measure. Schedule 1 highlights the intention for subsidies to be proportionate, fair and targeted. However, the extensive time period described in clause 33 allows public authorities to have six months to publish on the database, or one year if the subsidy is given in the form of a tax measure. That is notwithstanding the important comment made by the hon. Member for Aberdeen North, which I think also came up in some of the evidence sessions, about what is intended by “tax declaration” within the context of the Bill and what time could elapse between the equivalent of the subsidy being made and that being public. An understanding of that would be very helpful for the purposes of scrutinising that aspect of the Bill and whether there needs to be a change.

Having one year to enter tax measures into the database means that subsidies that do not meet the regulations can still be granted and be spent over that significant amount of time. As subsidy details are not entered into the database, interested parties do not have the necessary information to scrutinise or challenge the subsidies. That means there could be a six-month period in which a highly damaging subsidy can be granted without any challenge. Does the Minister recognise the damage that extensive publication periods could have on the fairness and transparency of the regime, and the extra cost to the public purse of ceasing to recoup some of the subsidies that may be subject to a successful challenge but may already be spent by then? What are the Government’s reasons for making the publication period so long? In last Tuesday’s evidence session, Jonathan Branton, partner at DWF Group, said:

“I have yet to hear a really persuasive case for why you need that long to publish the fact that you have made a award. Why do you need six months to get yourself together to publish that something has been done?”––[Official Report, Subsidy Public Bill Committee, 26 October 2021; c. 58, Q79.]

That was a powerful point. Can the Minister enlighten us? We in Parliament have a responsibility to the public to try to ensure value for money and transparency in public expenditure. That question is at the heart of how we ensure that the proposed regime commands the confidence, credibility and trust of all four nations of the UK and our constituents.

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[Seema Malhotra]

I thank the Minister for his comments. There has been quite an important discussion and debate today. I want to highlight why this matter is complex and why more is needed on it. The Government quote from their consultation response, but on the specific point about the public authorities consultation question—should it be within six months?—I think it was actually quite a loaded question: “Do you agree that the obligation should be to upload information within six months of the commitment to award a subsidy?” That is hard to disagree with, even if people think that it should be one month or less. As with many of the questions, we had 15% of respondents answering this, and a majority did agree with the proposal. I do not think people would necessarily disagree with it. But even those who then did think a bit further and disagreed commented that six months was too generous and could be shorter, and apparently suggested a range of alternatives.

What is important is to get this right. The Minister made a couple of points in relation to where there may be some information that is not fully available—I do not know what specifically that would be—that would result in edits to correct some information, which could be after a month or two. I would like the Committee to have an opportunity to reflect on that and perhaps to talk to local government and other public authorities about what difficulties they might perceive if the period was to be greater than one month, or whether they did think that one month could be workable in the context of an easy-to-enter database. I think that, rather than pushing this matter to a vote today, we should see some further work done on these issues, in order to have confidence about the deadline, and come back to this on Report, with some of that information and further research being clear.

[Kirsty Blackman]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Seema Malhotra]

I beg to move amendment 36, in clause 33, page 18, line 7, leave out “negative” and insert “affirmative”.

This amendment makes the regulations set out in Clause 33(8) subject to the affirmative procedure.

This amendment would ensure that any future changes made to the minimum threshold for publication were decided through the affirmative rather than the negative procedure. We have said throughout the passage of the Bill that too many aspects of it are set to be decided at a later date by the Secretary of State. Decisions that could and will have a significant impact on the new subsidy regime, such as those that would change authorities’ database obligations, should be afforded appropriate parliamentary scrutiny. The decision to change the minimum threshold for publication on the database is one example that would alter the transparency and clarity of the new regime. It is not right for it to be nodded through Parliament or go under the radar. It should be given parliamentary scrutiny and the vote that it demands.

Subsidy Control Bill (Fourth sitting)

Debate between Seema Malhotra and Kirsty Blackman

Thursday 28th October 2021 Public Bill Committees

[Seema Malhotra]

I am pleased to be able to move amendment 9 on behalf of myself and my hon. Friend the Member for Sefton Central. We have proposed the amendment because we recognise that the streamlined subsidy schemes play a significant role in this legislation. Clause 10 defines subsidy schemes and streamlined subsidy schemes: unlike subsidy schemes, streamlined subsidy schemes can be made only by a Minister of the Crown, but they do create a route for certain subsidies to be passed more easily and quickly, and on occasion have the potential to effectively contribute to key policy objectives and targets, which is their purpose.

The question is why the Government have allowed only the Secretary of State to create streamlined schemes. In our view, the restriction not only limits the potential of the Bill, but undermines the important role of the devolved Administrations. Those Administrations are more likely than the Secretary of State to understand what subsidies and schemes may be most beneficial for their respective nations or areas, and by preventing them from being able to create streamlined schemes, the Government are potentially hampering the effectiveness of subsidies in Scotland, Wales and Northern Ireland. As Daniel Greenberg explained in our evidence session on Tuesday,

“throughout the Bill, you see ‘Secretary of State, Secretary of State, Secretary of State’—all powers of HMG—and you think, “Hold on, the devolved institutions are also public authorities. They appear in the list of public authorities in clause 6, so why is it that they do not also share Secretary of State powers?”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 61, Q80.]

While Labour understand that power over UK subsidies should ultimately reside in Westminster, preventing the devolved Administrations from creating streamlined schemes undermines their important role in our democratic structure, as well as the responsibilities that they have in their respective nations. It should also be noted that any proposals for streamlined schemes must be laid before Parliament, as set out in subsection (5). Any streamlined subsidy schemes created by the devolved Administrations could be subject to ample parliamentary scrutiny. Labour is therefore seeking to amend the clause to allow Welsh Ministers, Scottish Ministers and Northern Ireland Departments to create streamlined subsidies. We believe that the amendment would help increase the effectiveness of subsidies across the UK while respecting the role of the devolved Administrations. We also support the SNP’s amendment, which I think would have a very similar effect.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to take part in the Committee’s proceedings with you in the Chair, Ms Nokes. I want to say a couple of things. I agree with almost everything that the hon. Member for Feltham and Heston said, apart from the idea that the Secretary of State should have powers over what happens in Scotland, because obviously I believe that Scotland should be independent—but that is probably an argument for another day.

The powers of the Scottish Parliament were voted for democratically in a referendum that showed the Scottish people’s will that a Scottish Parliament should be created. Those powers have been discussed on many occasions, including in subsequent Scotland Acts. The powers of the Scottish Parliament, having been agreed democratically, are part of our democracy, whereas the powers that Westminster has do not seem to have ever been discussed or voted on democratically.

As regards what the Opposition spokesperson said about upholding the democratic nature of the United Kingdom and the democratic powers of the Scottish Parliament, the Welsh Parliament and the Northern Ireland Assembly, I think it is really important that the ability to make streamlined subsidy schemes be included. If the Government are going to talk about levelling up, which I am sure they will—they generally do on such matters—they should consider that those devolved bodies, which are elected to represent those areas, have a huge amount of knowledge and are much closer to the places they represent. They should be able to make streamlined subsidy schemes too, because I believe, as many people do, that they would make them better than Westminster is likely to.

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[Seema Malhotra]

I am not sure I fully agree with that. Surely it would mean that it was incompatible with the principles in schedule 1. I think that the principles would preclude that. I come back to the point that at the moment we have an asymmetry of power. I cannot, in the circumstances of streamlined subsidy schemes as they are currently defined, see why that should not be a power that is there for the devolved Administrations. It is important to go further with the amendment, and I would like to put it to a vote.

[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.

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[Seema Malhotra]

I beg to move amendment 12, in clause 11, page 7, line 8, at end insert—

“(4) Before making regulations under this section, the Secretary of State must seek the consent of the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland.

(5) If consent to the making of the regulations is not given by any of those authorities within the period of one month beginning with the day on which it is sought from that authority, the Secretary of State may make the regulations without that consent.

(6) If regulations are made in reliance on subsection (5), the Secretary of State must make a statement to the House of Commons explaining why the Secretary of State decided to make the regulations without the consent of the authority or authorities concerned.”

This amendment would require the Secretary of State to seek the consent of the Devolved Administrations before making regulations under this section. Where such consent is not given within one month, the Secretary of State may make the regulations without that consent, but must make a statement to the House of Commons explaining their decision.

It is my pleasure to speak to this amendment. It would require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. As the Minister just mentioned, the Government may wish to bring forward further regulations to make changes under clause 11. We propose that if such consent is not given within one month, the Secretary of State may make the regulations without that consent, in line with other principles here and in the United Kingdom Internal Market Act 2020, but must make a statement to the House of Commons explaining that decision.

As I have outlined, we are very concerned that there needs to be a fair and equitable four-nations solution in how this legislation is developed and implemented. That will be an important part of its success and the confidence that people have in it over time. As I have said, the devolved Administrations have an important role to play in the implementation of subsidies, and they should play their part in defining and setting the significant terms in the legislation.

If the Secretary of State is unable to gain the devolved Administrations’ consent—I hope that it will be forthcoming on the basis of there being constructive dialogue between the nations, and those mechanisms being set up in good faith—it is important that that has the scrutiny of the House of Commons, and that the Secretary of State makes a statement to the House explaining what the issues were and why agreement was not reached.

As I have said, the regulations will have an important effect on the subsidy regime. It is bad enough that they are not included in primary legislation, but it is important that dialogue happens to ensure that the best regulations are made under this clause. I hope that the Minister will agree that the definitions need to be set in partnership and in discussion with the devolved Administrations, and that it would be a sign of confidence in the regime to seek that consent.

[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.

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[Seema Malhotra]

I thank the Minister for his comments. I also thank other hon. Members who have contributed, particularly the hon. Member for Aberdeen North, who brought her expertise and experience from the Procedure Committee to the discussion. That was quite helpful as it highlighted a wider issue about better defining how the House can more effectively support the goals of our devolved Administrations and of Westminster in a more coherent way.

This quite measured amendment would

“require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. Where such consent is not given within one month, the Secretary of State”

can go ahead. The amendment deals with making regulations under the clause, and would ensure that the process was working properly.

[Kirsty Blackman]

Does the shadow Minister agree that because the clause deals specifically with schemes of interest and of particular interest, it is pretty unlikely that a situation will arise whereby an economic failure needs to be addressed in the space of a month, but cannot be addressed because the Government cannot change the definition of “interest” or “particular interest”?

[Seema Malhotra]

I think the hon. Member is right on this—the definitions would not necessarily change in those circumstances, and some of that is more about the speed of being able to grant a subsidy—but I am not sure I followed the logic of the intervention, although I appreciate that there is a concern there and it is important that we iron out those scenarios. However, I am not sure the intervention is pertinent to the issue being debated now.

I will press the amendment to a vote.

Question put, That the amendment be made.

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[Kirsty Blackman]

I think that, actually, schedule 2 does provide some environmental protections; I am quite comfortable in saying that. It does not do everything I would have wanted it to do. It does not create a requirement to meet the carbon commitments and move towards net zero in the consideration of the principles. However, increasing the level of environmental protection is in there, and it is important that all authorities are thinking about increasing the level of environmental protection in whatever they are doing. Now is the time for the UK Government to make that explicit in relation to everything that everybody is doing, whether it is subsidies or something else. That is why the amendment has been tabled.

[Seema Malhotra]

I thank the hon. Lady for her explanation of the amendment. We certainly recognise the intention behind it, which was something we looked at and gave thought to. We share the view that climate and environmental considerations should be taken into account in assessing all subsidies, and ensuring that all subsidies are assessed in the context of the UK’s net zero commitments is important. That is a real gap in the Bill—for example, transport subsidies might sit outside the scope of schedule 2, and therefore a public authority might not be required to consider the environmental questions and impact relating to those.

Labour believes that hardwiring the net zero considerations into all subsidy decisions would be better achieved by amending schedule 1, as our amendment would have done. I hope that as we proceed with our debates in the House and the period of COP26, which is just ahead of us, we can return to how we embed that principle in the legislation. These are principles of general relevance, so that is where we see a general requirement to consider net zero sitting a little more comfortably. That is why, while we support the intention behind the amendment, we would prefer to reconsider how we look at embedding the general principle of net zero more widely in the legislation.

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[Seema Malhotra]

We support clause 17 standing part of the Bill.

[Kirsty Blackman]

This is one of the issues that has frustrated me most about the entire Brexit thing: a whole bunch of left-wing Brexiteers thought that these subsidies would be allowed in the event of our leaving the EU and coming out of its state aid system. They thought that we would be able to incentivise local content, and a lot of people in left-wing areas supported Brexit for that reason, but it is expressly prohibited by the WTO and the trade and co-operation agreement. I am just rising to vent my frustrations briefly; I am not going to vote against the clause.

Question put and agreed to.

Clause 17 accordingly ordered to stand part of the Bill.

Clause 18

Relocation of activities

[Seema Malhotra]

I beg to move amendment 13, in clause 18, page 10, line 13, at end insert—

“(3A) This section shall not come into force until the Secretary of State has laid before Parliament a report complying with subsection (3B).

(3B) The report must explain how the prohibition established in this section is consistent with—

(a) reducing deprivation across the United Kingdom; and

(b) the Government’s policy on the establishment of freeports in the United Kingdom”.

This amendment would mean that the prohibition in clause 18 does not come into force until the Secretary of State has laid before Parliament a report explaining how that prohibition is consistent with reducing deprivation across the UK and the Government’s freeports policy.

I am grateful for the opportunity to move this amendment, which would mean that the prohibition in clause 18 would not come into force

“until the Secretary of State has laid before Parliament a report explaining how that prohibition is consistent with reducing deprivation across the UK and the Government’s freeports policy.”

Clause 18 provides that a subsidy is prohibited if it is conditional on relocation from one part of the UK to another, and that the relocation would not occur but for the giving of the subsidy. Subsection (2) clarifies the meaning of an enterprise relocating existing activities: such a relocation occurs where the business carries on activities in one area of the UK before the subsidy is given, and it ceases to carry on those activities in that area after the subsidy has been given and instead carries them on in another area of the United Kingdom. Clause 18 is intended to protect the UK’s internal market and prevent subsidy races between parts of the UK.

The Government’s March 2021 consultation document anticipated clause 18, and suggested that measures could be introduced to prevent the uneconomic relocation of economic activity between England, Scotland, Wales and Northern Ireland. The important word there is “uneconomic”, which is notably missing from what appears to be a slightly blunter instrument in clause 18 as currently drafted. The Government’s consultation cautioned:

“Any additional measures here would need to recognise the value of subsidies which seek to address regional inequalities.”

However, clause 18 does not seem to do that. There is no acknowledgement of the value of subsidies that seek to address regional inequalities. Alexander Rose of DWF Group said on Tuesday that relocations can be highly beneficial to the economy.

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[Seema Malhotra]

My hon. Friend is absolutely right to put the amendment in those terms—it seeks to bring clarity. The Minister will probably appreciate that these are complicated questions for enterprises that may be in receipt of subsidies for positive reasons that meet the objectives of the regime and public policy goals. Clarity for public authorities in granting those subsidies is also important, ensuring that they are not subject to challenge when they genuinely want to achieve positive outcomes, but would be caught under the fairly blunt definition in clause 18. I look forward to the Minister’s response.

[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.

Subsidy Control Bill (Third sitting)

Debate between Seema Malhotra 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.

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[Seema Malhotra]

I thank the hon. Gentleman for his comments. My understanding is that the energy and environment principles would apply to subsidies in relation to energy and the environment. We are talking about a slightly broader principle here, which is that any subsidy granted under the regime should not have a harmful impact on achieving our net zero outcomes. That would seem to be a slightly perverse use of public money when net zero is such an explicit goal and when civil servants will need to be working towards it. Indeed, as Dr Barker outlined on Tuesday,

“the green industrial revolution that we are all seeking to work towards in order to achieve net zero is also something that will require…partnership between business and Government”,

and

“an effective subsidy system can be part of that.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 39, Q52.]

These amendments are simply saying that if we are serious about what achieving net zero will mean, we should not allow a system to be established, at the same time as COP26, that could work against that, and do so using public money.

[Kirsty Blackman]

For the avoidance of doubt, my colleague and I support amendments 7 and 8, which are both incredibly sensible. As is quite often the case in Bill Committees, I wish I had thought of them earlier and tabled them first.

I agree with the hon. Member for Feltham and Heston about COP26. This is happening now, and it is a moment that we can take advantage of to get towards net zero commitments. COP is coming up and there is a groundswell of public support for trying to make a difference. This is something on which my colleague and I also moved amendments during proceedings on the Advanced Research and Invention Agency Bill. We wanted ARIA’s No. 1 priority to be a focus on net zero. We also wanted a commitment from the Government that ARIA would itself operate on a net zero basis, because we are beyond the time for talking about this. In order to meet the UK Government and the Scottish Government’s commitments, we need to be taking action on this, rather than just talking about it.

It is all well and good to have in place the stuff that my neighbouring MP, the hon. Member for West Aberdeenshire and Kincardine, talked about for energy and environment subsidies, but we need that for all subsidies, whether they relate to energy and the environment or anything else. This should run through everything that the Government are doing. For every decision in the Budget, which is being discussed in the main Chamber, we should be asking, “How does this get us towards net zero and reducing our carbon output?”

I just do not think we are there yet. It does not feel like the Government are taking this seriously enough, and it is not just this Government. Governments around the world are not taking this seriously enough. We need to be there now and making that commitment. If the subsidy control regime is intended to work and to stand the test of time, and if we are looking towards those net zero targets, we need that to be in this Bill. At the very least, we need a strong commitment from the Minister that subsidies in relation to not just energy and the environment but other areas will be more favourably looked on, or less likely to be rejected out of hand, if they specifically work towards reaching the UK’s net zero targets, and particularly if they work towards something that is carbon negative. We are not doing enough of those things, so if more of the new policies that come through were carbon negative, it would be much easier for us to get to our net zero target. If the Minister could make some strong commitments on that, it would be hugely welcome, but I will be happy to support the amendments tabled in the name of the Opposition.

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[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.

Subsidy Control Bill (Second sitting)

Debate between Seema Malhotra and Kirsty Blackman

Tuesday 26th October 2021 Public Bill Committees

[Seema Malhotra]

Q We had some discussion about clause 70(7)(a), and there is some point of clarification about the definition of “interested party”, which I do not think is fully clear in relation to the devolved Administrations, but either we agree on the need for the Bill to be taken forward, I hope with some significant improvements, or there is a view that that cannot be achieved. I want to come back on a couple of points that you made, Mr McKee, that I was not fully clear on. The first is on being prepared to be involved in discussions, the question being what outcomes would be achieved. Do you feel clear at the moment on what specific changes, whether in relation to call-in powers, an obligation to consult or consent, you would want to see inserted in the Bill to meet some of those concerns? It would be very helpful to understand specifically what they were. Perhaps that could be in writing afterwards.

Secondly, I was not fully clear on what your view was in relation to local authorities. It seemed that it was more for the Scottish Parliament to decide what local authorities in Scotland may or may not do, rather than local authorities across the UK being able to make subsidies if they felt that they were in line with the subsidy control principles, and beneficial for their area. I was slightly confused on what your view was about local authorities being able to make subsidy decisions in Scotland. Perhaps you could come back on both those points, and put in writing what specific changes you want to see.

Ivan McKee: On the specifics of what our asks would be, I am very happy to put that in writing. In broad terms, it centres around, as I said, the requirement to not have the Secretary of State able to operate in devolved areas, as per the devolved settlement, and for the Scottish Government and Scottish Ministers to be able to do that. For us to have equivalent powers as it refers to devolved areas would be the ask, in broad terms. I have outlined some of that verbally, but I am very happy to come back to the Committee in writing with the details on specifically what that means.

Local authorities have always been able to grant aid within the rules that exist, so effectively nothing changes there. What changes with regard to the Bill is the authority that it gives the Secretary of State that it does not give in devolved areas to Ministers in the devolved Administrations. That is our concern.

[Kirsty Blackman]

Q Nice to see you, Ivan. My question is about the priorities and the fact that we are being asked to take on trust an awful lot of the stuff that is coming forward in regulation and guidance. Given the current track record of the UK Government and their relationship with Scotland, trampling over the Scottish Parliament, do you think that it is likely that the regulations and guidance that come through will be in any way suitable or tailored to the needs of Scotland, or do you think that they are likely to be done for the benefit of the UK?

Ivan McKee: Experience has shown us over recent years that the commodity of trust is in short supply. We would be very concerned if the issues that we are talking about were not dealt with in the Bill. I think we would be in a very difficult place if we were relying on guidance that might come out later to give us the comfort that we require that this was not a challenge to the devolution settlement, and the powers of the Scottish Government and Scottish Ministers.

Subsidy Control Bill (First sitting)

Debate between Seema Malhotra and Kirsty Blackman

Tuesday 26th October 2021 Public Bill Committees

[Seema Malhotra]

Q To clarify, that is the maximum amount.

Thomas Pope: We could make it shorter within our own legislation if we wanted to.

[Kirsty Blackman]

Q My questions focus particularly on chapter 3, which is about the subsidy database and transparency. Do you have any idea what the logic is behind the tax entries in the database? It seems to me that if something relates to a subsidy measure that is taxed, it may not need to be reported for almost two years—or even longer—because it is a year past the first declaration on the tax. Does that make sense, or would it be better to have something different?

I have two more questions. In the event of cumulative subsidies, where an organisation receives various subsidies from various organisations and it takes them over the threshold of the three-year period, who is responsible for ensuring that that is put on the subsidy database? I am not clear on that.

Lastly, EU state aid rules have a number of de minimis exemptions for agriculture and various other things. Does the fact that the Bill does not include them cause problems, or is it more of a tidying-up exercise?

Thomas Pope: On tax, again, that is a longer allowance that is in the TCA, and that is why it looks like that in the Bill. Of course, the bigger question is why it was permitted in the TCA in the first place. I think it is because tax measures tend to operate on a slightly different cycle—we have our financial years and budgets—and that is why there is a different time period, but I am not quite sure.

In terms of cumulative subsidies, I am not sure that they would end up on the database—I do not believe that is the case. In terms of monitoring that, and knowing whether subsidies have exceeded a de minimis limit, I think that is the responsibility of the recipient rather than the public body. However, I am afraid that is one where you would have to ask some lawyers.

Professor Rickard: I do not know the logic behind the 12 months, but as I said in my opening remarks, I think that is quite a long time. If a competitor is benefitting from a discriminatory tax break, then after 12 months I could be out of business. So it does seem like a very long time, and I would think about the potential benefits of shortening it.

The cumulative subsidies question is an excellent point, and it highlights the arbitrariness of having these thresholds. The monetary thresholds are potentially obscuring these cumulative subsidies, exactly as has been suggested. In my own research on procurements, not in the UK but elsewhere, I find that Governments break up their procurement contracts specifically to get them below the threshold so that they do not have to report them and they are not open to scrutiny. I am not suggesting that happens in terms of subsidies, but these cumulative subsidies could potentially take on that kind of logic where you are breaking up a subsidy or collaborating on providing subsidies below that threshold that actually end up going above the threshold.

Finally, in terms of exemptions, there are exemptions included in this Bill. Sometimes they may be legacy exemptions, but I think that the benefits of having this information surely outweigh the costs. If we understand where the subsidies are going and who is getting subsidised, we can have a better understanding of whether these subsidies are working and achieving their goals. If you are weighing up the costs and benefits, I think the benefits of having fewer exemptions would outweigh the costs.

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[Seema Malhotra]

Q May I ask one further follow-up question in relation to this? I am not saying that there would be, but there may be circumstances in which accurate information is not always reported. What mechanisms do you see in the Bill—or does there need to be more on this—in relation to potential audit and checking of the accuracy of the information being submitted, and who should be doing that?

Professor Rickard: I think you are right that we are not only trusting the governing authorities to mark their own exams, but trusting them to provide accurate information about what they have done. So I think there are two possibilities—this is blue-sky thinking. One, as I have suggested before, is to collate information—get the information from the granting authority, but also request information from the body or entity that has received the subsidy. And then you can confirm: do these numbers match? This happens in trade all the time: you say, “What is the export data? What is the import data? Can we match these data?” And if not, what is the problem; why do they not appear to match? One way to have a check and balance on the information that is being provided by the governing authority is to seek this kind of information from the people who received the subsidy. It could even be a condition of receiving the subsidy that you will report this information.

The second suggestion, which is one that Mr Pope offered previously, is giving the CMA a bigger role for audits, and even beyond that. I am glad to see that the CMA has been tasked with doing five-yearly reports, but I really think that there is a lot of additional room for ex post scrutiny, not only of the regime but of individual subsidies, to say, “Did this subsidy achieve this goal? Was the subsidy successful? Did it engender jobs, business and economic opportunities?” I think that is a really important role for the CMA or another entity like that, but in order to be able to do this kind of auditing, this ex post analysis, we need more information, which means we need more transparency.

Thomas Pope: I would agree with all of that. What I would say is that I think there is an incentive to get the information right, in that I think if you are found to have got it wrong, probably your 28-day time limit after you have offered accurate information does not apply. So you do want to make sure that you are providing accurate information here. But I completely agree about some role for the CMA or some other body in getting the information from recipients—it sounds like a very good idea to me—and checking that, subject to how burdensome that would be. Yes, that is a good cross-validation. I suppose the concern here would be that the CMA ends up a sinkhole of time, just looking through every single thing that goes on the database, but if you just have a flag to say, “Hold on, the information doesn’t match here,” and then the CMA looks further, they are two strategies that work together quite well, I think.

[Kirsty Blackman]

Q Professor Rickard, you mentioned the subsidy database that there is already. I have had a bit of a look at that. Do you think that it is a model for how we should take this forward, or do you think that there are significant amounts of information that we need to add to it in order that it will make sense to people? You did touch on this, but could you just expand on it?

Professor Rickard: I think it is a commendable first step. I think it is great that it is publicly available, that it is online, that it is relatively transparent. There would be some more things that I would like to see. For example, there are many cases, as you will know from looking at it, where it just says “other” or “not available”, and there are a lot of cells that have not been filled in or do not look as if they have been filled in correctly. I encourage some mechanism to ensure that you cannot just say “other” or “not available”. Sometimes the amounts are listed as zero; I am not sure I understand why that is the case. I also think best practice could be followed in terms of international comparability. For example, you could put on these codes that we use to identify the sector, like NACE codes—internationally standard codes that would identify the sector to which these subsidies are going.

The Bill is really commendable and is a great initial step, and I am glad to see it up there, but there are ways that it could be improved by providing more information, and more consistent and detailed information, and by using some of these international standard codes that exist in databases that we use—for example, for imports, employment, industries or firms.

[Seema Malhotra]

Q I am keen to get your views on the subsidy advice unit and its role, responsibilities and powers as defined in the Bill. Do you think that the unit should have some further external voices on it, whether on the board or involved in its work? It seems to have a huge amount of responsibility, but its membership can only be drawn from within the CMA, from which panels might be appointed to undertake reviews. To give confidence, a process of review will need to be robust and have knowledge of devolved competencies, regional issues and so on. Do you think the unit will be strong enough, or do you think it needs some adaptation in order to make it the most effective it needs to be?

Thomas Pope: I certainly think that the CMA and/or the subsidy advice unit should have a membership and input reflecting its four-nation role in the UK and the fact that, although subsidy control is a reserved matter, it affects devolved competence and the operation of policy in all four nations of the UK. I therefore think it is appropriate that there be better devolved representation. These statutory responsibilities go to the CMA and are then exercised by the subsidy advice unit and the Office for the Internal Market. I think it is time for a look at the CMA’s governance, although that is obviously slightly beyond the scope of the Bill.

There could certainly be ways that the subsidy advice unit could get input. A particular concern could be that, because the regional economies of the UK can look quite different, you may need a different set of local expertise when the CMA or SAU were looking into a particular subsidy in Scotland from what you would need in the north of England, which has quite a different industrial structure. There are lots of creative ways that the SAU could do that. You could have regional panels that have that expertise. I would go further and have a real look at the governance of the CMA as well, because ultimately, while it is the SAU doing the subsidy control, those are the CMA’s powers.

Professor Rickard: I was surprised to see in legislation that members of the SAU can only be employees of the CMA. There may be very good reasons for that. The key for the SAU is to ensure that it is insulated from politics and that the decisions it makes are really not only economic logic but are consistent with the principles. Of course, there is a role for politics in that—people saying, “We want to achieve these particular outcomes”—but I think you really want the SAU to be a technocratic body staffed by experts who will review a subsidy on balance, in line with the principles. With those goals in mind, there may be scope for expanded membership, or certainly at least for ensuring some sort of feed-in from experts on the particular issues, subsidies or areas that the SAU happens to be investigating.

Subsidy Control Bill

Debate between Seema Malhotra and Kirsty Blackman

2nd reading
Wednesday 22nd September 2021 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

It is great to hear the thoughtful contributions from that Tory Bench, although not from the Treasury Bench, I hasten to add. The hon. Member for Amber Valley (Nigel Mills) and I have spoken in many debates together, and I always appreciate his forensic assessments of the details in the Bills before us. I hope that he will be on the Committee, and I hope that I will be too.

First off, I want to ask a couple of questions about what the Secretary of State said, because I am immensely confused by a couple of the things that he said. First, he said that the devolved Administrations were broadly happy with the Bill. If they are broadly happy, why have the Welsh Government said that they object to five of the six parts of the Bill? One out of six does not equate to “broadly happy”. In fact, I get the impression that they really do not like it and are not happy about it.

We have not seen what the Scottish Government are saying about the legislative consent motion, but I cannot imagine that they will be terribly happy with the power grab that is occurring as a result of the Bill. So I am quite confused by what the Secretary of State said. Does he mean that the devolved Administrations are broadly happy with having a state aid regime? Does he mean that they are broadly happy with the detail of the Subsidy Control Bill? I do not know. I do not understand what he is saying, because it does not seem to be coherent with what the Welsh Government have said in public about this.

The other thing that I am really confused about is what the Secretary of State said about the EU state aid provisions no longer applying to Northern Ireland. I thought he said something about article 21 of the Northern Ireland protocol, but maybe he meant article 16. I am not sure what he meant. In terms of the planned changes to state aid application in Northern Ireland, he seemed to be saying that the new subsidy control regime would apply there and that the UK Government were seeking some sort of change to an article in order to ensure that that happened. I am not aware of any publicity around the UK Government asking the EU for a change, but if that has happened, why have we not heard about it?

Could we please have a bit more information on this? We have the trade and co-operation agreement and we have the Northern Ireland protocol, but how do the UK Government expect these measures to apply in Northern Ireland without us breaking either the agreement or the protocol? That does not make sense. If the Secretary of State was making that important an announcement, you would think he would do it in a ministerial statement rather than as an aside during the Second Reading of this Bill. I would be really keen to hear a bit more information about what this actually means.

[Seema Malhotra]

The hon. Lady is absolutely right about the confusion that has been raised. Does she agree that it is important that the Government clarify what they are suggesting has changed in relation to article 10 of the Northern Ireland protocol and whether it has been dropped on the basis of this Bill? Should they not also tell us whether their proposal has been negotiated with the EU, and what the status of those discussions and any agreement might be?

[Kirsty Blackman]

Absolutely. If we as a country can suddenly renege on our international obligations and agreements, why cannot Scotland hold an independence referendum next week? The UK has agreed to these agreements and it would be great, when the Minister speaks at the end of the debate, if he could explain exactly what is going on. This is serious enough for a Minister to be making a separate statement to the House, because it is such an important matter for the people of the UK and particularly for the people of Northern Ireland.

My hon. Friend the Member for Aberdeen South (Stephen Flynn) spoke eloquently about the levelling-up agenda, and I agree that the red wall Tories elected in the north of England should be jumping up and down about this—we are jumping up and down about it, as the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) suggested—because it explicitly excludes us from doing anything that may disadvantage any other area of the UK. In schedule 1, principle F says:

“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.”

And principle G says:

“Subsidies’ beneficial effects…should outweigh any negative effects, including in particular negative effects on competition or investment within the United Kingdom; international trade or investment.”

That reference to international trade or investment confuses me.

The principles try to level the playing field across the UK, so there can be a subsidy in Manchester only if a person in the south of England would not move their company as a result.