Subsidy Control Bill

Baroness Bloomfield of Hinton Waldrist Excerpts

Committee stage
Monday 31st January 2022 Grand Committee

[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank the noble Lords, Lord Wigley and Lord McNicol of West Kilbride, for tabling Amendments 1, 13, 16, 17 and 20, and all other noble Lords who participated in this debate. I say at the outset, in answer to the noble Baroness, Lady Randerson, that the use of the Moses Room is not intended to minimise the importance of this Committee stage. We agreed through the usual channels that this would be the best use of time.

Before I discuss each amendment in turn, I start by saying that the proposed UK subsidy control regime empowers public authorities, including the devolved Administrations, to award subsidies flexibly and quickly to meet their policy objectives. As noble Lords have said, the United Kingdom Internal Market Act 2020 amended the relevant devolution Acts to make the regulation of subsidies a reserved, or in Northern Ireland an accepted, matter. The devolved Administrations are, and will remain, responsible for spending decisions on devolved subsidies within any subsidy control system.

As the Minister in the other place clarified, the devolved Administrations have standing to challenge UK Government or any other subsidies in the Competition Appeal Tribunal in instances where the interests of people in the areas in which they exercise their responsibility are affected. Some provisions of the Bill engage the legislative consent Motion process, as they alter executive competence; for example, they confer new functions on DA Ministers. We hope that the devolved Administrations will agree with us on the importance of the Bill and be able to give us their legislative consent for the relevant provisions. Those discussions are continuing and I will keep the Committee updated.

We have engaged closely with the devolved Administrations throughout this process at ministerial and official level, not only on the LCM process but on our policy development ahead of the Bill’s introduction, in advance of our publication last week of the illustrative documents, and as we continue through the parliamentary process in the run-up to implementation. In response to the noble Baroness, Lady Humphreys, I confirm that the Minister for Small Business met the Welsh Minister for Finance and Local Government, Rebecca Evans, last Thursday—27 January. The meeting discussed the Bill as part of ongoing engagement to understand concerns on it and to provide reassurance.

I will begin with Amendment 1. Clause 1 provides an overview of what each part of the Bill will cover and establishes its application to other legislation. Clause 1(7) and (8) specify that if a subsidy is granted, or a scheme is created, using powers contained in either primary or secondary legislation, the subsidy control requirements will apply, unless an Act of Parliament specifies otherwise. The specific reference to an Act of Parliament here is solely to clarify that nothing in the Bill should be interpreted as conflicting with the fundamental principle that no Act of Parliament may bind a future Parliament; in other words, it reflects the constitutional reality and does not create any further exemption or special treatment.

Amendment 1, proposed by the noble Lord, Lord Wigley, extends this clarificatory statement to cover the Senedd and the Scottish Parliament. In doing so, it fundamentally changes the character of this statement from a clarification to an exemption from the subsidy control requirements. The amendment would allow the Senedd and the Scottish Parliament to set aside the subsidy control requirements set out in the Bill, not only for the purpose of subsidies given directly in primary legislation, for which specific provision is made in Schedule 3, but for subsidies given by means of a power in that legislation; in other words, for all devolved spending powers in Scotland and Wales.

The discrepancy highlighted here between the Parliament of the United Kingdom and the legislatures in Northern Ireland, Scotland and Wales is not a matter of government policy but a reflection of constitutional reality. The subsidy control regime differentiates between devolved legislatures and Parliament in a way that respects the devolved legislatures and reflects this Parliament’s status as the supreme legislative body of the United Kingdom. The devolved legislatures have a unique constitutional status and we have ensured that the requirements placed on subsidies given directly in devolved primary legislation are proportionate and respectful of their status and processes. Schedule 3 sets out the specific arrangements that take account of this. None the less, it is important that the subsidy control requirements apply comprehensively and that we do not create exemptions.

As for subsidies given through powers conferred by Parliament or the devolved legislatures in secondary legislation or otherwise, it is essential that these are compliant with the subsidy control rules without exception. As it stands, the clause simply clarifies that express or implied repeal by a future Act of Parliament remains a possibility. It does not suggest that the Government will, on a whim, propose legislation that exempts a particular project or power from the subsidy control requirements.

It is absolutely right that subsidy control is a reserved matter: by its very nature, it affects how all public authorities in the UK, including devolved authorities, may exercise their spending powers. That is because its purpose is to establish common rules for different authorities with different interests and policy objectives to protect UK competition and investment. The Bill will also facilitate our compliance with our international obligations, including those set out in the EU-UK Trade and Cooperation Agreement, which reflect exactly this constitutional reality.

I turn to Amendments 13, 16 and 17. Clause 10 concerns the making of subsidy schemes and streamlined subsidy schemes. Public authorities using a streamlined subsidy scheme will not have to access any subsidies they award under the terms of the scheme against the subsidy control principles. Streamlined subsidy schemes will have parameters for use that must be complied with by the public authorities using them, and can be made by a Minister of the Crown. Two illustrative streamlined subsidy schemes were published by the Government last week; I trust that they provide practical examples for noble Lords of the possible terms of these parameters for use.

Together, Amendments 13, 16 and 17 would have the effect that a Scottish Minister, a Welsh Minister or the Northern Ireland department would have the power to make streamlined subsidy schemes and lay them before their relevant devolved legislature. I will therefore take them together. The first amendment would allow streamlined subsidy schemes to be made by Ministers in Scotland or Wales or the Northern Ireland department. The second and third amendments would require such streamlined subsidy schemes to be laid before the relevant devolved legislature when made or amended.

Related amendments on this matter, regarding the role of the devolved Administrations, were made in the other place. The position of the Government remains that we will create streamlined subsidy schemes for public authorities across the UK to use to award subsidies that help UK-wide priorities. Streamlined subsidy schemes will therefore function best when they apply across the length and breadth of the United Kingdom. The Government will design these streamlined subsidy schemes such that they are fit to be used by public authorities in all parts of the United Kingdom.

Given that these streamlined subsidy schemes will be part of the UK-wide subsidy control regime, the appropriate place for them to be laid is in this Parliament. We have published two illustrative streamlined subsidy schemes and an accompanying policy statement that sets out for Parliament how the Government intend to use these schemes. We have worked with the devolved Administrations while developing this policy at both official and ministerial level. Officials will continue their close engagement with the devolved Administrations as the regime continues to develop. Finally, it is important to note that Scottish Ministers, Welsh Ministers or a Northern Ireland department, as primary public authorities, can also make schemes for use by other public authorities where that is within their existing functional powers; for example, the Scottish Government may choose to make a scheme for use by local authorities in Scotland.

On Amendment 20, Clause 11 sets out the terms for making regulations to define subsidies and schemes of interest or schemes of particular interest. The amendment would require the Secretary of State to seek the consent of each of the devolved Administrations before making regulations on subsidies, schemes of interest or schemes of particular interest under the clause. If this consent was not forthcoming, the Secretary of State would be required to make a statement to the other place explaining why they had chosen to proceed with the regulations without DA consent.

This amendment was also raised in the other place; the Government’s position on it remains the same. Regulations made under Clause 11 will define subsidies, schemes of interest and schemes of particular interest to ensure that the work of the subsidy advice unit is focused on subsidies and schemes that are most likely to cause negative effects on competition and investment in the United Kingdom, or which may do the same to our trade with other countries.

These regulations are key to the functioning of a reserved policy area. It is right, therefore, for the regulations to be debated and voted on here in the UK Parliament. I simply do not believe that it is appropriate to require the Secretary of State to seek consent even when the Secretary of State may ultimately proceed without that consent from the devolved Administrations on a reserved matter. A requirement to seek the consent of the devolved Administrations each time regulations are made under Clause 11 also risks introducing significant delays into the process, particularly if regulations need to be amended quickly in the future, such as in the event that economic conditions change rapidly. In such cases, the Government may need to legislate rapidly without consent, so the amendment would not achieve its aim.

The Government have had numerous discussions with Ministers and officials in the Scottish Government, the Welsh Government and the Northern Ireland Executive and we are committed to continuing to engage regularly with them. We have published illustrative regulations on subsidies and schemes of interest and of particular interest, in addition to the accompanying policy statement outlining the Government’s approach to this important question. Ahead of publication, officials have discussed the approach to these regulations with each of the DAs, taking on board their comments and suggestions as the policy has developed. We have also provided early sight of the draft regulations for comment ahead of publication. I assure noble Lords that this engagement will continue as we prepare for implementation of the regime. I also welcome any comments or questions that my noble friend may have regarding the illustrative products. Indeed, I welcome any further comments or questions from the devolved Administrations. I therefore humbly request that the noble Lord withdraws his amendment.

[Lord Wigley (PC)]

My Lords, I am grateful to the Minister for her response, which I will come back to in a moment. First, I thank all noble Lords who have participated in this short debate. The noble and learned Lord, Lord Hope, spoke of respect and co-operation between Westminster and the devolved Administrations. That goes to the heart of what we are talking about. We need a regime, as far as these aspects of business are concerned, that has mutual respect and co-operation between all parties; otherwise, we are bound to find ourselves in a position where one body is trying to outdo the other and perhaps to gain political kudos for doing so. That is not what this should be about.

The noble Baroness, Lady Humphreys, whose support I was grateful to receive, spoke about the Bill giving no consideration to the issues that arose in respect of earlier Westminster Bills taking powers from the devolved Administrations. That is the feeling that exists, certainly in Cardiff Bay and the Senedd and, as I understand it, in Edinburgh as well.

I was grateful to the noble Baroness, Lady Bryan of Partick, for her comments. She highlighted the failure of Westminster to adequately consult in good time. That, again, is an element of this lack of respect. By properly consulting in time, there is an opportunity to be able to amend proposals taking such consultation on board. But it is done at the last moment. I understand that one consultation took place last Saturday—not from this department, I think—on something that is happening today. That is no good. There has to be an active engagement between the Governments of our three nations, or four nations if we include Northern Ireland—I have not included Northern Ireland in this because of the complex situation there, but of course the principles apply equally.

The noble Baroness, Lady Jones, spoke of the need to have proper respect for devolved Administrations. That should run through every Bill. I noted the strong feelings that the noble Baroness, Lady Randerson, who spoke mainly to Amendment 20, had concerning the consent of the devolved Administrations. The parity of esteem that the noble Lord, Lord McNicol, talked about goes to the heart of this issue.

The other amendments in this group will no doubt be taken at later stages in different guises, because they touch on subjects that arise in different parts of the Bill, but the noble Baroness, Lady Bloomfield, said that the question of the relationship between the Governments in Cardiff, Edinburgh and here at Westminster “reflects the constitutional reality”—those are the words that she used. Those words will create a reaction in Edinburgh and Cardiff that will cause even greater problems.

We need to seek a new partnership approach. If the unity of purpose within these islands is to mean anything, it must be on the basis of respect between all three or four partners and not the idea that because Westminster was the original one and the all-powerful one, it can overrule or ignore what is felt in Edinburgh, Cardiff or Belfast. I believe that it is possible in the general context to get a formula that can reflect that need for recognition and respect, but it is not going to be achieved in the way that the Bill is drafted. The reaction in Cardiff and Edinburgh was totally foreseeable and it could have been avoided—and it needs to be avoided.

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[Lord McNicol of West Kilbride (Lab)]

My Lords, I have very little to add to what other noble Lords have said. I am grateful to the noble Lord, Lord Wigley, and my noble friend Lord Chandos for Amendments 2, 2A and 3. As has been said, they go to the heart of the Bill. Clause 2 is titled “Subsidy” and lays out the effect and explanation of what a subsidy is or can be. The noble Lord, Lord Wigley, has come up with an interesting means of looking at protecting the devolved authorities’ interests by making it clear, as we have heard, that certain forms of payments would not be classified as subsidies and would therefore fall outside the control and requirements of the Bill.

The amendment from my noble friend Lord Chandos raises an interesting point in relation to the illustrative documents that have just been released. As the noble Lord, Lord Fox, said, my noble friend’s amendment was tabled late but that was because the guidance papers were released so late. If some of the guidance and regulations had been shared and published earlier, some of our colleagues in the elected Chamber may well have been able to pick up and dig into some of these issues.

The noble Lord, Lord Wigley, touched on the use of subsidies as a legitimate tool for securing economic benefit when done correctly, but also when done transparently. This is one of the fundamental issues we will come on to in later amendments. The big difference from European state aid is obviously that an agreement had to be reached before state aid was brought in. With this system, and this is one of the benefits of it, the subsidy can be brought in very quickly beforehand. But that creates a huge dilemma if the information on the subsidy is not transparent, and if there is no proper opportunity to analyse and challenge it. That is why we will be going into far more detail on this.

Tidying up some of these issues and getting them into the Bill, rather than in secondary legislation and regulations, would help to move it into a far better position. With that, I look forward to the noble Baroness’s response to the issues, especially the one raised by my noble friend Lord Chandos on why equity cannot be added straightforwardly. The Minister, the noble Lord, Lord Callanan, has tabled a number of government amendments. It would be great if we could do some of the tidying up as we move through Committee.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, again, I am grateful to the noble Lord, Lord Wigley, for tabling his amendments, and to all noble Lords for participating in the debate.

Clause 2, as the noble Lord, Lord Fox, said, is the cornerstone of the new subsidy control regime as it sets out the definition of a subsidy for the purposes of the Bill. The definition consists of a four-limb test, and all four limbs must be satisfied for a financial measure to be considered a subsidy. I also draw the Committee’s attention to Clauses 3 to 8, all of which are necessary to understand the definition of “subsidy”. I believe that those provisions collectively provide sufficient clarity and legal certainty to ensure that all public authorities can give subsidies with confidence. We will provide guidance on this matter as the Bill comes into force.

In response to my noble friend Lord Lamont, I believe the Bill sets out a series of overarching principles that provide a level playing field for all public authorities in the UK. The Bill is not a framework for funding; therefore, in response to my noble friend, spending decisions are of course for the Chancellor. It is a set of rules that all public authorities must follow in their decision-making when they give a subsidy or make a scheme. I do not recognise the criticism that it is too streamlined or too narrow, or that it will not be accessible to the devolved Administrations and to other public authorities outside Westminster. The streamlined subsidy schemes that we create will be beneficial but also entirely voluntary for public authorities to use. I note too that we have adopted helpful suggestions from the devolved Administrations for the illustrative Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations on the treatment of rescue and restructuring subsidies to ailing businesses, as well as in relation to the identification and selection of sectors of interest.

Amendment 2, proposed by the noble Lord, Lord Wigley, would exclude from the definition of a subsidy financial assistance offered by a public authority to all enterprises operating wholly or largely within its territory. I entirely agree with the noble Lord that it is of the utmost importance that public authorities are responsible for the financial assistance that they provide within the areas for which they are accountable, and that when a devolved Administration—or, for that matter, a local authority—design a scheme that is general to enterprises in their territory, subsidies should not be specific. Of course, those subsidies should be designed in support of the economy and community for which the public authority is responsible in order to address market failures or issues of disadvantage. I am pleased to inform the noble Lord that that is what Clause 2 provides, with particular reference to the notion of what constitutes a specific subsidy in Clause 2(1)(b) and Clause 4. I am grateful to him for raising this important point.

The requirement that is relevant to the noble Lord’s amendment is that a subsidy must be specific. In order to be specific, Clause 2(1)(c) provides that it must benefit one or more enterprises over one or more other enterprises with regard to the production of goods or the provision of services. When determining whether a subsidy benefits one or more enterprises over others, it is necessary to consider what constitutes the reference framework for that subsidy by reference to the legal basis for that subsidy, the authority giving the subsidy and how it is financed, in order to determine who is in the same legal and factual position.

Where a UK-wide power is conferred on a UK Minister, the reference framework is the whole of the UK, while a subsidy that will benefit only enterprises in a specific part of the UK—such as Wales or, indeed, London—will meet the definition of a specific subsidy. However, when an Administration covering a discrete area, such as a devolved Administration, make a subsidy under the powers conferred on them, the reference framework will be the territory of that Administration.

Therefore, in the case of Wales, for example, a disadvantaged workers’ subsidy scheme that is available equally to all enterprises in Wales will in most cases not be specific because the subsidy will not favour any enterprise in Wales over another enterprise in Wales in the absence of factors limiting the availability of the subsidy. However, a disadvantaged workers’ subsidy by the Welsh Government limited to enterprises in Newport, or which was otherwise limited in availability, would be a specific subsidy because it favoured enterprises in Newport over other enterprises in Wales. It can also be said, with reference to Clause 4(2), that the notion of the reference framework is inherent in the design of subsidies by the devolved Administrations because they can act only in pursuance of their devolved competences.

Similar provisions are made in relation to taxation in Clause 4 to ensure that, where a devolved Administration are acting autonomously in relation to a devolved tax or a variation of a national tax, there will not be a subsidy if the scheme of taxation does not contain elements that are specific to their areas of responsibility. Acting autonomously includes having the competence to set the tax and being responsible for the fiscal consequences of setting the tax at the chosen level.

I hope to persuade the noble Lord, therefore, that the discretions he wishes to maintain for subsidies that are general to enterprise in Wales—and not confined to certain enterprises in Wales—are inherent in the general principles in the Bill, which are derived from the TCA, without need for a specific amendment.

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[Lord McNicol of West Kilbride (Lab)]

Thank you. If the Minister wishes to write to us, that is fine. I am sure we will come back to this.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I think I said that an equity investment is still considered a direct transfer of funds from one entity to another. The whole point of not putting in an exhaustive list is to avoid worry about what you leave out of a list, rather than what you have in it. I believe this is already covered by the Bill.

[Lord Wigley (PC)]

My Lords, I am grateful to everybody who has participated in this short debate. I am not sure whether the noble Viscount, Lord Chandos, is happy with the response he got, but no doubt there will be opportunities to pursue that further. I also noted the comments of the noble Lord, Lord Lamont. There is clearly an issue here that needs some further consideration.

I was grateful to the noble Lord, Lord German, for his contribution. He was Minister for Economic Development in the Welsh Government. Was it 20 years ago?