Draft State Aid (EU Exit) Regulations 2019

Debate between Bill Esterson and Nick Smith

Wednesday 10th April 2019 General Committees

[Bill Esterson]

I am grateful to the Minister for that intervention, which tells us that we have not had the response from the Secretary of State. I am pleased that we got that on the record.

The Secondary Legislation Scrutiny Committee (Sub-Committee B) report, published on 7 February, refers to this issue and asked

“whether the Devolved Administrations were content with the approach”.

It is pretty clear that there has not been an answer to that question, let alone the more detailed letter published as evidence given to that Committee, which my hon. Friend the Member for Blaenau Gwent quoted from earlier and which I will quote from in more detail now. Not only are those responses not recorded, but it does not appear they have been made.

[Nick Smith]

I think what we heard from the Minister in her intervention on my hon. Friend was that the Government have still not published their legal position on this matter. We have all been effectively waiting for it for two months. Can he try to elicit from the Minister when we are likely to see that legal position made clear?

[Bill Esterson]

That is absolutely the right question to ask. I will just make clear exactly what questions we want answered by quoting from the letter published on the website as evidence to the Secondary Legislation Scrutiny Committee, which raised significant concerns:

“These Regulations transfer functions to non-devolved public authorities, namely the Competition and Markets Authority and the Secretary of State”—

we will come back to him later—

“and giving functions to non-devolved public authorities restricts the legislative competence of the National Assembly for Wales.”

It also said that

“there is the added problem that the Welsh Government and the UK Government disagree as to whether State Aid is devolved”,

and quoted the advice of the Welsh Government Counsel General, which said:

“‘The Welsh Government’s position is that State aid is a devolved matter and not a reserved matter under any heading of the Reserved Matters Schedule in the Government of Wales Act 2006. However, the UK Government do not consider it as such’”—

the Minister has made that point already—

“‘(as was noted in the Intergovernmental Agreement) and therefore they have not requested Welsh Ministerial consent. The Welsh Government has requested from the UK Government, an explanation of their legal position but there has been no response.’”

As we have just confirmed, that is still the case.

The Welsh Government go on to say:

“The approach being adopted by the UK Government therefore appears to be a breach of paragraph 8 of the Intergovernmental Agreement”

on the European Union (Withdrawal) Act 2018, which states:

“The UK Government will be able to use powers under clauses 7, 8 and 9 to amend domestic legislation in devolved areas but, as part of this agreement, reiterates the commitment it has previously given that it will not normally do so without the agreement of the devolved administrations. In any event, the powers will not be used to enact new policy in devolved areas; the primary purpose of using such powers will be administrative efficiency”.

It is pretty clear that the Welsh Government think this is a matter significantly beyond administrative efficiency. They say:

“In reaching this view we also note that the UK Government has not responded to the Welsh Government’s request for an explanation of their position that State Aid is a reserved matter.

In his letter to us”—

the Welsh Government—

“the Counsel General has confirmed that the Welsh Ministers do not intend on granting to the UK Government unilateral consent for these Regulations.

It is our understanding that discussions between the Welsh Government and the Secretary of State for Business, Energy and Industrial Strategy are ongoing.”

I understand that the Scottish Government have similar concerns, but I have been unable to find public confirmation in writing. Perhaps the Minister will be able to clarify one way or the other—I do not think we quite got that from her earlier.

I mentioned the phrase “constitutional crisis”. I do not know whether that is a fair representation or not, but it sounds pretty serious to have such substantial disagreement. Given the seriousness and the importance of these regulations, I suggest that it would have been extremely beneficial to have resolved this before it came to the Committee.

Paragraph 10.2 of the explanatory memorandum refers to the August 2018 technical notice and discussions with a variety of stakeholders, including the Confederation of British Industry and the Federation of Small Businesses. The responses to the technical notices have not been published with the explanatory memorandum. Paragraph 12.3 states that

“the instrument will not have a significant impact on business.”

From this discussion so far, it is pretty clear that how the CMA chooses to operate the state aid regime, and how funding to the regions and nations of the UK is operated—for example, to replace ERDF funding—will have an enormous impact on business and the economy, as well as on our constituents in the poorer parts of the country.

The Minister might wish to comment on what I have already said, and I also have a number of questions for her. She said earlier that the CMA has expertise, but these are entirely new responsibilities. Hence I referred to the cost-benefit analysis of whether a new body should be created or whether these powers should go to an existing organisation. The decision was taken to give them to the CMA, which is taking on the role of national regulator in addition to its significant current responsibilities.

How are the preparations going for the CMA to take on those new responsibilities? How many staff have been recruited? Has it even been possible to identify the necessary staff with the skills, experience and expertise needed to fulfil the functions required under those new responsibilities? Does the CMA have the capacity to discharge these new duties? Why have the Government chosen to significantly expand this agency in London, missing the opportunity to support the economy across the country? This is a form of state aid, is it not? We might think it ironic that we have regulations on state aid but the Government have chosen not to use such an opportunity to support the economy and jobs in other parts of the country.

Is there a plan to review how the existing state aid guidelines operate in a UK-only context once the new regime has been set up? What will be the engagement and involvement of the devolved Administrations according to the Government’s plan, notwithstanding the fact that the way this is addressed has yet to be resolved? What is their plan on the involvement of local and regional government, industry bodies, trade unions and civil society?

The Secondary Legislation Scrutiny Committee not unreasonably asked for clarity on whether primary legislation would be needed to introduce state aid, and under what circumstances that might apply. This is referred to in a number of places in the explanatory memorandum, including in paragraph 7.6. I should be grateful for clarification from the Minister on what certainty exists around the regime that is being created by these regulations and whether, given the complexities involved, these regulations are in fact inadequate. As the explanatory memorandum says, primary legislation is needed. When will that legislation be introduced? Perhaps she can tell us of any plans to do that.

Will the CMA retain the strict EU interpretation of state aid rules or allow a loosening of them to enable support for the economy, not least given the loss of EU funding and those Treasury forecasts of economic contraction after we leave the EU? If that is not to happen, why are the Government not moving straight to a less strict system, as covered by WTO rules, rather than via this halfway house given that we will no longer be governed by EU state aid rules once we leave? Usually the answer to such questions is that this is because under the withdrawal Act these regulations are deliberately limited in scope, but if that is true, why are the Government not complying with the withdrawal Act in respect of competences and the devolved Administrations, as I think we have demonstrated in some detail—it is certainly the opinion of the Welsh Government from the letter that I quoted earlier? It seems that the Government are content to follow the process of creating SIs when it suits, but not with any consistency. Again, the oversight appears to be of concern, as so often with this Government. The Secretary of State will have oversight day to day, but Parliament will have to wait to receive reports from the CMA. Perhaps the Minister can spell out the system of reporting to Parliament.

Then there is the consultation by the CMA itself, which ended on 18 March. Would it not have been a good idea if, along with the response to the Welsh Government, we had been shown the responses to that consultation before considering this instrument? We know the Government have been struggling with consultation and impact assessments, and ensuring that all regulations are in place on Brexit day, whenever that is, but for this SI there is the additional concern that there is a massive economic imperative, the need for state aid support across the country, and for the replacement of significant investment in communities such as the ones that my hon. Friends and I represent. The concerns about CMA capacity and expertise, and the uncertainty about whether primary legislation will be needed and about overreach into devolved national competences, are therefore all of real concern. The lack of expert evidence is especially important, on a subject that is so significant to our country, our economy, our constituents and our communities.

I am afraid that the way this matter has been addressed suggests a lack of understanding or interest from the Government on state aid. UK state aid is less than a third, proportionately, of the scheme in Germany, and slightly more than half that in France. The Government did not support Sheffield Forgemasters in 2010, and abandoned Labour’s plans to do so. They failed to ensure that contracting supported domestic train manufacturing at Bombardier and steel production at SSI, and stopped the EU using trade remedies to defend our steel industry in the 2015 steel crisis. We know the Government’s attitude to state aid. Sadly, their casual approach with the regulations shows that they are ill prepared for Brexit. Yet again they are failing to support industries, economies, jobs and communities across the country.

It is entirely understandable that our Labour colleagues in the House of Lords tabled a motion of regret that the draft regulations were not accompanied by a strategy for consultation on the use of state aid after the UK has left the EU. I entirely agree with their lordships. The entirely unsatisfactory approach to engagement with the Welsh and Scottish Governments further reinforces the perception that the Lords were absolutely right in their regret of the way that the regulations have been handled.

Draft Insolvency (Amendment) (EU Exit) Regulations 2018

Debate between Bill Esterson and Nick Smith

Thursday 24th January 2019 General Committees

[Bill Esterson (Sefton Central) (Lab)]

I thank the Minister for her analysis of the regulations’ effects. She got quickly to the point that mutual recognition between the UK and the EU is not guaranteed if we leave with no deal. Under the terms of the withdrawal Act we would be giving one-way recognition of EU appointments and judgments. The statutory instrument would give our Government the opportunity, should they need it, to withdraw that recognition. I will tease out one or two points surrounding that intention.

People in the profession do not want the Government to have to use the power—I dare say that the Government do not want to use it either. They want the Government to secure a deal so that the existing system of mutual recognition continues, and they argue that no deal should be avoided. We often do the same in Committees such as this one, but we recognise what would happen in the event of no deal.

People in the profession have made the point to me that the Government have the power to create a level playing field for the UK profession if they are unable to obtain the deal that they are looking for. The SI is not a mechanism for maintaining the current system; it deals only with problems that could arise from not having a mutual recognition deal. I urge the Minister to take on board their point that in the event of no deal the Government should try to re-establish mutual recognition as quickly as possible so that the provisions in the SI will never be needed.

The Minister referred to the Joint Committee on Statutory Instruments’ concerns about the clarity of the regulations, potential defective drafting and the fact that they deliver broad powers rather than narrow ones. She gave various examples of what could happen without the kind of mutual agreement that I referred to. I think the Joint Committee, like the Opposition, would call for every effort to be made to achieve mutual recognition as soon as possible. Can the Minister say what work has been carried out to try to establish that mutual recognition in the event of no deal? Such work is effectively what the sector is calling for.

What indications has the Minister had from the EU about its intentions to maintain the status quo and to reciprocate what she proposes in the regulations, which is that we will continue to recognise the appointments and jurisdiction of EU courts in insolvency proceedings? Has she had an indication that that arrangement will be reciprocated in the event of no deal? What discussions have her officials had with EU Governments or the Commission?

As far as I understand it, the SI enables the Government to remove automatic recognition of foreign practitioners and recognition of court decisions. We have an extremely well regarded, strong and economically successful insolvency regime in the United Kingdom, and it is important that we continue to do so. Maintaining confidence in it is extremely important to our economy as a place for businesses to come to restructure, and for creditors in insolvency cases to recover what they are due effectively and successfully. It is important that we avoid a long-term shift away from a lot of that work being based in the United Kingdom, so those guarantees from the EU are extremely important.

A point made to me by people in the profession was that some people in the insolvency profession across the continent of Europe may see an opportunity to increase the amount of work that they can obtain at the expense of the UK profession. They may not be particularly concerned about reciprocity or about getting the EU to continue mutual recognition. I urge the Minister to address that point when she answers my question about the progress made towards achieving mutual recognition.

Further to paragraph 2.10 of the explanatory memorandum, will the Minister explain the implications of the draft regulations for the Pension Protection Fund? What is changing? I did not entirely get a sense from her speech of what assurances are in place to protect employees. Sadly, in recent years there have been some very high-profile cases that have made a significant call on the fund—the BHS insolvency springs readily to mind. Clearly we need to ensure that the fund is not undermined in any way, shape or form by what is happening, and that the draft regulations will protect workers in the event of a no-deal exit.

As paragraph 2.14 notes,

“the UK will no longer be an EU member State.”

What are the implications for employees of companies that operate in more than one jurisdiction, or where there is foreign ownership of a UK subsidiary? That may be a relatively easy question but, again, I did not quite get a sense of the answer from the Minister’s speech.

Paragraph 3.7 refers to the main thrust of the draft regulations:

“the lack of reciprocity after exit day.”

That is an argument for preventing no deal at all costs, but there is real concern about the fact that we can continue to offer recognition of EU operations in insolvency but we cannot require member states to recognise UK insolvency judgments. The explanatory memorandum sets out the challenge clearly. I would be grateful if the Minister addressed exactly what progress has been made towards overcoming the lack of mutual recognition.

As ever in Delegated Legislation Committees, there are matters of consultation and impact assessment to consider. I understand that there has been informal discussion, and having spoken to people in the sector, I think it is fair to say that they are as happy as it is possible to be—in this case, if not in all cases—with what is being proposed in the event of no deal. However, they stress that the draft regulations are only a stopgap. As the insolvency body R3 stated in its 2017 Brexit recommendations, it is extremely important that a mechanism be put in place as quickly as possible that provides the same benefits as the European insolvency regulation and the recast Brussels regulation.

R3 also noted how much money is recovered as a result of UK insolvency actions. One of its case studies was Nortel, which entered insolvency proceedings in 2009. A total of £1.5 billion was returned to creditors as a result of the work carried out by insolvency practitioners and their agents, where the insolvency was based in the UK. That compares with a total of £4 billion a year returned to creditors in the UK, including to the UK Government through HMRC. I therefore find it quite remarkable that the Government say there is no business impact worthy of an impact assessment—that they regard the impact as below the de minimis level. My calculation is that £4 billion is a little more than the £5 million de minimis level. Yet again, a regulation has a significant business impact but the Government do not carry out an impact assessment.

I will not go through the entire way in which the EU carries out its impact assessments; it does things rather differently. Those of the Committee who were here on Monday will have heard me read them out on that occasion. It is on the record and I do not need to do it again. The Minister may refer to it and I would have hoped she would have done so before today’s meeting.

[Nick Smith (Blaenau Gwent) (Lab)]

Definitely don’t want to go through that again.