Draft State Aid (EU Exit) Regulations 2019

Andrew Griffiths Excerpts

Wednesday 10th April 2019 General Committees

[The Chair]

Again, I refer the hon. Gentleman to the document before the Committee. The Minister has ownership of it, and it is for her to explain its contents. If there are queries about responsibilities or intergovernmental correspondence, it is for her to explain that to the Committee, and it is then for the Committee either to support or to reject the regulations, based on the evidence she brings forward.

[Andrew Griffiths (Burton) (Con)]

Further to that point of order, Mr Hanson. Is it not a fact that if any member of this Committee feels that they have been given insufficient documentation, they can vote against the regulations at the end?

[The Chair]

Not only that, but Mr Esterson has indicated that he might wish to have an adjournment. It is perfectly possible to table a motion that the Committee should now adjourn. A vote would be taken and the Committee would determine it. There are a number of options. The key point is that the documents before us have been tabled by the Government and speak for themselves. The Minister has to explain them to all members of the Committee accordingly.

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[Kelly Tolhurst]

I point out to the hon. Gentleman that the devolved Administrations are highly aligned with the policy position on setting a UK-wide state aid regime. Our conversations with the devolved Administrations are ongoing and will continue as they are. The Secretary of State has made it very clear that he is committed to meeting the devolved Administrations to discuss these matters and many others in relation to how we exit the EU. In fact, the Prime Minister has made it clear that, were we to enter into an agreement with the European Union and therefore not be in a no-deal situation, we would extend the opportunities for devolved Administrations to feed in.

[Andrew Griffiths]

Does my hon. Friend agree that just because we do not like the answer to a question, it does not mean the answer is incorrect? Is not what we are doing here just transposing the current EU regime into UK law, with the CMA replicating the role that the Commission currently undertakes?

[Kelly Tolhurst]

I thank my hon. Friend for that contribution. That is absolutely what we are doing here today. We have before us a no-deal SI, so in the event of no deal we will be replicating the EU laws in the domestic setting. The SI is extremely important for fairness and competition in the UK, so there really should be no resistance from the Committee to what is in it, because it is a fundamental of how we already work, and in a no-deal situation it would be important were we to enter into any future trade deals with the European Union.

I will continue with my opening remarks. Maintaining a level playing field across the whole UK means that the richer parts of the UK will not be able unfairly to distract investment away from less prosperous parts of the country. The existing principles and practices of the regulation of state aid will remain substantively unchanged in the domestic regime, in accordance with the aims and powers under the withdrawal Act. These regulations will therefore have minimal impact on public authorities that grant state aid or entities that receive it.

Instead, the regulations correct deficiencies in the retained EU law relating to state aid. That includes correcting references to EU concepts, such as the internal market and the functions of the Commission, which will ensure that the law remains operable in a domestic setting while minimising the impact on stakeholders. An alternative test of trade within the United Kingdom, however, would inadvertently change the scope of the rules by catching local measures that are currently not caught.

The main practical change under the new regime is that rules will be regulated and enforced by the CMA in place of the European Commission. The CMA is well placed to take over the European Commission’s role of approving, investigating and monitoring state aid across the whole UK. It has extensive experience and understanding of markets as the UK’s competition regulator, and is independent of the Government in its decision making. To prepare for its new role, the CMA has received £20 million from the Treasury contingency fund to prepare for EU exit in 2019-20, in addition to the £23.6 million it received for the year 2018-19, which specifically included £3.3 million for its state aid function.

The Government are working to ensure that the CMA will be ready to take on the new role and have every confidence in its ability to do so. The CMA is on track to recruit all the staff needed to start working on state aid by exit date, if necessary. The CMA will adopt the Commission’s existing state aid guidelines, which provide clear parameters for how and when aid should be approved. The CMA will also receive investigatory and enforcement powers broadly equivalent to those of the European Commission, although I should explain one point of divergence from the EU regime.

Under the EU rules, the European Council has the power in exceptional circumstances to intervene and approve aid before the European Commission has reached a decision. That power does not easily translate into the UK context and we do not consider it appropriate to use the regulations to vest the Government with similar powers. The regulations will still allow the Government to act swiftly if necessary, much as they have been able to do under the existing regime. Ultimately, the Government could bring forward legislation to amend the state aid rules if they deemed that to be absolutely necessary—an option that is not available to the European Council in the EU context.

I mentioned earlier that state aid rules help to ensure fair and open competition throughout the UK. Over the past year the Government have engaged extensively with each of the devolved Administrations and shared drafts of the regulations. As agreed, each devolved Administration will be responsible for managing the communication between their respective aid givers and the CMA. The Government have offered to sign a supporting memorandum of understanding with the devolved Administrations about the operation of the state aid regime, which we still hope to agree. Those discussions have indicated broad agreement on the substance of the Government’s policy to establish a UK-wide state aid regime that mirrors the EU’s. We will of course continue to work closely with the devolved Administrations on the development of state aid policy in the longer term.

As we leave the EU, the draft regulations will give certainty to public authorities and recipients of state aid, and help to maintain confidence for businesses across the UK. Commitments on state aid support free trade, as is recognised in the political declaration. The CMA has the expertise, operational independence and resources to enforce a UK state aid regime.

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[Bill Esterson]

It is always a pleasure to serve under your chairmanship, Mr Hanson, given your formidable expertise and experience, which you demonstrated in response to the points of order.

The Minister rightly made clear the importance of the draft regulations. Given the number of these SIs that are being debated in the main Chamber, it is highly odd that something so important, detailed, extensive and far-reaching, with so much impact on all our constituencies up and down the country, is not. However, there is nothing I can do about that. All I can do is make my comments and present my analysis in this forum.

[Andrew Griffiths]

Given that we are just transposing the current EU regime into UK law and providing for the CMA to take over from the Commission, can the hon. Gentleman tell us what the Labour party would do differently?

[Bill Esterson]

The hon. Gentleman tempts me down various different routes. I shall come to how the Government have diverged from their normal practice of straight transposition with these regulations. That applies particularly to the debate we had about the devolved Administrations. These regulations do not follow the normal pattern, as will become clear as I set out my argument.

State aid plays a vital role in our economy. Ensuring that we have a functioning state aid regime means that putting in place regulations that deliver exactly what is needed is very important. It is therefore essential that we carry out the detailed scrutiny this afternoon in the same way that the Lords did on 14 March. Given the scale of the regulations and their far-reaching nature, I will put on the record our concern about whether we have been provided with sufficient evidence of whether they deliver the technical details required for a functioning state aid regime that supports our economy and communities up and down the country. We will, however, do what we can to tease out some of the concerns that we have been able to identify about the technical nature of what is being proposed.

This set of regulations comes to 80 pages. I, and other Members, have been on Public Bill Committees that have been allocated many days, if not weeks, to consider far shorter Bills with line-by-line scrutiny, quite often following pre-legislative evidence sessions from expert witnesses. Yet we are given 90 minutes, of which about 64 remain, and we will have to do our best to identify the key areas for such scrutiny. It is a most unsatisfactory situation, but we will do what we can.

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[Bill Esterson]

My hon. Friend is quite right to pursue that point further. I prepared a section of my speech on that, and I will pick up his point in detail when I reach it. I have identified some additional points from what he said earlier and the Minister’s reply.

Paragraph 6 of the explanatory memorandum covers the legislative context. It lists no fewer than 14 pieces of legislation affected by the regulations and underlines just how much of a challenge it is for the Committee to scrutinise these changes, which are vast in scale and have far-reaching consequences. The volume of legislation listed in paragraph 6.4 demonstrates why it simply is not possible for us to say whether the regulations deliver the technical changes the Minister claims are being made. It is not that she is wrong; it is that I have no way of telling whether she is right or wrong. That is an important distinction. [Interruption.] I am perfectly capable of reviewing the legislation, as the hon. Member for Burton points out. Unlike him, I do not have the legal background—

[Andrew Griffiths]

indicated dissent.

[Bill Esterson]

Oh, the hon. Gentleman does not have a legal background either—never mind. We are in danger of being diverted again.

In paragraph 6.10 of the explanatory memorandum, the Government say they will rely on EU case law in their application of state aid rules, but there is legal opinion that we may have to rely on case law from before we joined the EU—this point was picked up in the Lords—as we will no longer be bound by the treaties of the EU. That may be tested in the UK courts, and it may take years to resolve. That has been the case with other regulations passed in Committees like this, and Ministers have not been able to give a satisfactory answer—presumably because there are conflicting legal views about how it would be resolved. Before we joined the European Union, there was of course no comprehensive state aid regime to regulate what was and was not permitted, so the difference between the two options is very significant.

The information provided to us does not give us the evidence we need to make a reasonable judgment about the technical adequacy of the regulations. For a simple example of that, I refer Members to paragraph 6.14 of the explanatory memorandum. I have no doubt about the need to omit specific references to Germany in article 107(2)(c) of the EU regulation, but I also have no way of knowing whether such a technical change is appropriate. More to the point, we have no way of knowing whether all the necessary technical changes of a nature similar to those identified in paragraph 6.14 and a number of other paragraphs have been made.

A further example of our inability to form an opinion can be found in the wording of paragraph 6.28, which states that

“a large number of deficiency corrections were required to make the Procedural Regulation operable in a domestic setting.”

The explanatory memorandum does not describe in detail what that large number of deficiency corrections is, it does not say what the evidence base is for asserting the need for those corrections, and it does not give back-up expert witness evidence in support of that assertion. That sentence is a pretty fair indication that we have an impossible task and are being asked to approve something with a clear lack of evidence to support doing so.

The CMA is being asked to take on responsibility for oversight of the state aid regime from the European Commission. In paragraph 7.2 of the explanatory memorandum, the Government refer to

“the costs and benefits of setting up a completely new body or having an established regulator take this on”.

I note the information before us does not give the details of that cost-benefit analysis or why the decision was taken to choose the CMA rather than setting up a new body.

That takes me back to the points made in earlier interventions about the devolved Administrations. Paragraph 10.1 refers to the discussions with the devolved Administrations and the CMA. It sounded to me in those earlier exchanges as though the Minister was in danger of being right in the middle of a constitutional crisis. Without publication of the Secretary of State’s response to the letter from the Welsh Government, this dispute has not been resolved to anybody’s satisfaction. How can we judge what the outcome is or should be without sight of that response?

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[Kelly Tolhurst]

Thank you, Mr Hanson. I think the hon. Gentleman’s point of order highlights that he was not questioning my integrity, so I thank him for pointing that out.

[Andrew Griffiths]

We have heard Opposition Members speak at such length and with such passion that one might have thought that, if they were so bothered and exercised about the subject, half of their members of the Committee would have turned up to take part.

[Kelly Tolhurst]

My hon. Friend makes a fair point.

In many of our debates on no-deal regulation, the fact that we are where we are regarding the powers in the withdrawal Act and bringing in retained European law through secondary legislation has been a bone of contention for the hon. Member for Sefton Central. I understand that he wants further scrutiny, but I assure him that the reason we are here today, dealing with a no-deal SI, is that we are retaining EU law and bringing it over so that in the event that there is no deal on exit day, we have a functioning domestic regime. The regulations have been laid and there have been opportunities to read and examine them. I do not believe that the Government in this case are shirking their responsibilities or not giving Parliament the opportunity to scrutinise. We have been debating for an hour in this Committee. The withdrawal Act does not allow us to make big policy changes; we can make the changes required. We are debating a no-deal SI, which will come into effect if we leave the European Union with no deal. If we can reach agreement on a deal, the regulations will not be relevant.