Brexit: Competition and State Aid (EUC Report)

Baroness Noakes Excerpts

Thursday 24th May 2018 Lords Chamber

[Baroness Noakes (Con)]

My Lords, when the UK took the momentous decision to leave the EU nearly two years ago, the underlying rationale for the EU committee structure in your Lordships’ House was largely destroyed. This was set up to scrutinise EU proposals that would impact the UK. According to my countdown app, just before I rose to speak, there are only 311 days and 11 hours before we leave the EU. Much of what we are now scrutinising is unlikely to be implemented in the UK, and so scrutiny, at the moment, has little or no meaning. I had expected that the EU Select Committee and its six sub-committees—absorbing the energies of 70 or 80 noble Lords—would, by now, have been reduced and streamlined. But the committees have been busily converting their purpose to scrutinising Brexit. Since the referendum, over 30 reports entitled “Brexit this” or “Brexit that” have been issued. There is a clear role for your Lordships’ House in holding the Government to account in this hugely important policy area, but I query whether we have got the balance right, either in the use of our own resources or—more importantly—in the burden we impose on the Government, given the scale of their task in preparing for Brexit. That both Ministers and officials have dealt with your Lordships’ scrutiny in good heart is a tribute to them. But the question that I pose to the House is whether we should be acting in this way and whether we are being reasonable and proportionate.

The report that we are considering today is from the sub-committee that has the internal market in its title—though it does not deal with goods or financial services and might better be called the “odds and ends” EU sub-committee. I am a member of this odds-and-ends sub-committee and, despite my views on the utility of the EU committee work at the moment, I pay warm tribute to the noble Lord, Lord Whitty, for being an excellent chairman.

[Lord Lea of Crondall (Lab)]

I am grateful to the noble Baroness for giving way. Does she not agree that, on this question of how Brexit would affect state aid, my noble friend Lord Whitty, in his role as chairman, has made a number of observations that show how important and topical it is? I do not understand why the noble Baroness is taking this opportunity to criticise the role of the network of sub-committees. This is a good example of it doing its job very well.

[Baroness Noakes]

My Lords, I was only trying to say that I thought the amount of effort being devoted to this particular aspect of government policy could be regarded as disproportionate, given that the fundamental rationale for the EU Select Committee and sub-committees was to scrutinise the proposals emerging from the EU which would affect the UK. It has stretched its current terms of reference to deal with Brexit matters but, since there is a large number of sub-committees with a large number of noble Lords involved, we tend to produce reports on a very large number of issues, many of which overlap and cover the same underlying issues; for example, mobility of labour. I am merely challenging the proportion; I am not challenging whether any particular aspect of any particular report is or is not interesting or useful.

Perhaps I may continue. I will not deal with the report overall, because the noble Lord, Lord Whitty, has already ably summarised that. The Government have provided a very speedy reply which is comprehensive within the constraints of the current state of negotiations with the EU, which is entirely understandable. The response indicates—although it is too polite to say so in terms—that our report did not identify any new issues beyond those already on the Government’s own list of Brexit things to do. I think that that supports my critique about how well your Lordships’ House is spending its time.

I shall focus on two areas: mergers and state aid. On mergers, one important implication of our leaving the EU is that we will no longer be subject to the decisions of the Commission and the jurisdiction of the European Court of Justice in relation to mergers which affect solely the UK. At the moment, the Commission can and does claim exclusive jurisdiction over mergers which engage no issues whatever outside the UK. These are inevitably the larger transactions affecting the UK. It is right and proper that these cases should return to the exclusive competence of the Competition and Markets Authority.

Of course, mergers that cross the border between the EU and the UK may become a little more complex in future in that both the Commission and the CMA could be involved. The one-stop shop is currently a convenient mechanism for businesses involved in cross-border EU-only mergers. But many mergers engage interests that go beyond the EU and thus may well inevitably involve more than one global competition authority, and the loss of the overall one-stop shop will barely affect those. In my view, the loss of the one-stop shop is therefore a marginal issue.

The report rightly emphasises the desirability of strong co-operation mechanisms going forward, and there need to be mechanisms to allow the sharing of data. But in practice this is unlikely to affect merger cases, because the parties should be happy to agree to data sharing in order to speed up clearance processes. None of our witnesses thought that data sharing and co-operation will in practice be a showstopper.

There was also general agreement that our overall competition policy, for mergers in particular, would not change markedly post Brexit. That is partly because there is a broadly converged global approach to competition and mergers. However, Brexit will allow the UK to develop incrementally; for example, in faster and more responsive processes and in more innovative solutions. We will be free to develop in ways that our own Parliament determines. Our courts can develop their own jurisprudence and, in particular, will not be constrained by the ECJ’s overarching principle of developing the EU internal market. So the general view was that not much is likely to change for now but that we will in future be able to change our policy in ways that suit our economy. That, in my view, is the one big message from this report.

I will turn briefly to state aid. The report is clear, as the noble Lord, Lord Whitty, has already pointed out, that state aid rules are not a major issue for the UK economy at the moment; indeed, the UK is one of the smaller countries in the EU in terms of spend on state aid per head of population. The UK managed perfectly well without a state aid authority before we joined the EU, but it seems that we will not be able to leave without one. There seem to be two reasons for this. First, it is likely that any future free trade agreement will need something to guard against unfair competition due to state aid. Secondly, a bizarre consequence of devolution is that we will apparently need an authority to determine whether there are state aid distortions within what we now have to call the UK’s own internal market.

Since our report was issued, the Government have confirmed what was widely suspected, namely that the CMA will take over the state aid authority role. In that connection, it was good to see that the CMA has received nearly £24 million this year in connection with Brexit preparations and an additional £3 million for additional staffing for the additional caseload. The CMA, in evidence to our committee, was itself relaxed about the adequacy of resources for the task given to it, and I see that one of its executive directors, Dr Michael Grenfell, reiterated that in a speech this week.

I have a couple of questions for my noble friend the Minister about the Government’s role in relation to the CMA, and these touch on the CMA’s independence. First, at present the Government appoint the board of the CMA. In future, the CMA, as the state aid authority, will be sitting in judgment on the Government’s actions from a state aid perspective. This is quite unlike other public sector bodies. Does my noble friend agree that the independence of the CMA, which I know the Government value, needs to be underpinned by appointment processes which are demonstrably independent of the Government? The judicial appointments model offers a useful precedent here.

Secondly, the Government have issued to the CMA what they describe as a “strategic steer”. Do the Government think that that will continue to be appropriate once the CMA has assumed a new role in relation to state aid? It seems to me that a strategic steer comes perilously close to being a direction to the CMA by the back door, and that would clearly be wholly inappropriate in relation to state aid decisions.

Thirdly, within the strategic steer, the Government currently commit to a presumption that they will accept the CMA’s recommendations but allow for policy override. I do not think that that will be good enough for state aid responsibilities. Will my noble friend agree that the Government will need to show a firmer commitment to abide by the CMA’s decisions in relation to state aid?

Those are points of detail. The main message is that no burning issues arise from this report, and certainly none that the Government are not already fully engaged on.