Brexit: Competition and State Aid (EUC Report)

Baroness Donaghy Excerpts

Thursday 24th May 2018 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I thank my noble friend Lord Whitty for introducing this debate and for steering us through a subject which is a potential minefield. If you can achieve a unanimous report with such a variation of political views as those held by me and by the noble Baroness, Lady Noakes, you are indeed a master of the universe—either that or one of us was asleep on the job. I accepted that we were looking at a snapshot of what we do now and what we need in the immediate post-Brexit future, and that debating the wider public interest effects was for another day.

Dr Michael Grenfell from the Competition and Markets Authority referred to,

“a challenge to the ‘market competition’ consensus that has prevailed in policy-making, at least in the advanced industrialised world, for the past three decades”.

He acknowledged that,

“the coming years may well see changes to competition policy to reflect these wider public concerns and policy trends”.

He was referring not just to the EU referendum but to the election of Donald Trump and the rise of populist parties, both left and right, in countries across Europe and to what commentators had called “an expression of the public mood”.

However, frustrating as it might have been, the committee concentrated on the job at hand, which was about the immediate future. What was remarkable about the evidence that we took was that nearly everyone said the same thing. One can draw one of two conclusions from that: either the existing system is working well or the witnesses believe that maintaining tight control over the current system is preferable to any alternative. Those who want a more buccaneering approach to trade and mergers will be disappointed by the report, and those who do not believe that the system works well for consumers and who believe that greater use of the existing state aid provisions would be welcomed will also be disappointed. Therefore, it could be argued that the report is about right because it disappoints everyone except the CMA.

The report might seem dry and boring on the surface but it is the thin crust covering a maelstrom of political debate about ownership and control, and about appropriate assistance for the regions. In my view, successive Governments have not maximised their ability to use state aid for important social measures. According to two legal experts in EU state aid law, the UK would have to triple the amount that it spends on state aid to match the proportion of GDP spent by Germany. In 2015, the UK spent 0.35% of GDP on state aid schemes, excluding railways, France spent 0.62% and Germany 1.22%. The Italians and the Germans subsidise their steel industries but, somehow, the rules did not apply to the UK to do the same for Redcar steelworks. Conversely, there are over 800 companies with state ownership in the EU—one of which will be printing our passports soon.

It is clear, therefore, that the so-called liberalisation of the market has been the policy of successive Governments, which probably explains why state aid in the UK has been pushed into the sidings. I question whether the existing set-up protects the consumer: no consumer choice in the water industry; Hobson’s choice in the energy so-called market; and unacceptable quality of broadband coverage in significant parts of the country. Perhaps market power has taken over from competition. A Financial Times article pointed out that lack of competition in banking cost customers £6 billion a year, or £116 each, according to a competition inquiry in 2016. In the energy so-called market, another inquiry found that we are paying £1.7 billion too much every year. The Financial Times wrote:

“Despite official investigations galore, neither has been addressed”.


I will now turn to the government response and select a few issues. The government response makes it clear that the CMA will receive additional funding as our report indicated and has concluded that it will take on the new role as the UK state aid regulator—another area of concern in our report. I think the Government are seized of all the issues and are giving a priority to this in negotiations. The Minister reiterated the Prime Minister’s statement that:

“As with any trade agreement, we must accept the need for binding commitments—for example, we may choose to commit some areas of regulations like State aid and competition to remaining in step with the EU’s”.


That is a significant statement. The Government have also confirmed that existing state aid rules will continue to apply during the implementation period and that they do not plan to make fundamental changes to the UK competition framework, as has already been said.

In response to our comment about delays in bureaucracy in the EU state aid approval process, the Minister simply said that aid givers are always advised to take advantage of the pre-notification procedures to engage in constructive conversations with the European Commission as early as possible. So no government help there then.

On our comment about consumer concerns regarding pricing and dominance in some markets, the Government announced that they would be issuing a consumer Green Paper. I will be asking the Minister a question on that later.

My noble friend Lord Whitty has already covered the issue of having regard to EU law and precedent. Briefly, on our request for clarification, the Minister welcomed our arguments and then said that the Government will,

“take account of the views in the Committee’s account”.

I think that is what is known as a delphic comment.

The Government have accepted the importance of information sharing in merger cases, and this will form part of their negotiations. It refers to businesses agreeing confidentiality waivers to allow confidential information to be shared between enforcement agencies.

Our request that the Government should take account of the future of specialist legal services in the UK in recommendation 5 has been answered with a polite brush-off.

Our report refers to the opportunities for the UK to develop a more effective competition enforcement regime. The Government have responded that they are already taking steps under their industrial strategy, including publishing a review of the existing competition regime by April 2019 to make sure it is working as effectively as it can and publishing a consumer Green Paper that tackles markets that are not working well for consumers and businesses. What form will the review of the existing competition regime take? Will the views of stakeholders be sought and taken into account or will the CMA be marking its own homework? Secondly, when can we expect the consumer Green Paper and how will it interact with the Domestic Gas and Electricity (Tariff Cap) Bill which has just had its Second Reading?

On local government and the devolved Administrations, the Local Government Association, while recognising that its primary function is not to be a vehicle for state aid, submitted that leaving the EU could provide an opportunity to reform the state aid process, simplifying it and introducing greater local flexibilities for councils—for instance, to support smaller-scale local authority activities which deliver public benefits but not unduly distorting competition. The LGA also supports the development of a UK regional aid policy aligned with the industrial strategy. This would provide local government and its partners with the flexibility to tailor interventions and investment to best support local growth.

The Government noted the concerns expressed and,

“shares the ambition to see a UK State aid regime operate as effectively as possible”.

The only solution was to transpose the general block exemptions regulations into UK law, a cautious and predictable response but disappointing for local government.

The devolved Administrations are a key area to resolve. The institutions surrounding them did not exist when we entered the EC and this will present us with a new way of working on these issues.