Britain’s Industrial Future

Debate between Bill Esterson and Stephen Kinnock

Tuesday 15th November 2022 Commons Chamber

[Bill Esterson]

Perhaps the hon. Gentleman should be asking the Minister that question rather than me. [Interruption.] He has told me he is going to ask the Minister in a minute, and I look forward to the answer. Our view is that we have to respond to the fact that the EU is already doing this and we are clearly going to have to take action to safeguard the steel industry in this country. So I would be very interested in what the Minister says and whether it is consistent with what I have said.

[Stephen Kinnock (Aberavon) (Lab)]

My hon. Friend is making an excellent speech. Does he agree that what Conservative Members seem to be failing to recognise is that they have had 12 years to deal with the massive disparity in electricity costs between ourselves and our nearest competitors? There has been a total failure to have a procurement strategy that works for the UK steel industry and a complete absence of any action to support the transition to net zero. So rather than us take any lectures from Conservative Members, it is time they showed some humility and actually started to take some decisions about this vital foundation industry.

[Bill Esterson]

I am extremely grateful to my hon. Friend, who has led the steel MPs on this side of the Chamber, and has often led cross-party as well, in fighting the cause of steel communities. As he says, a core foundation industry is crucial to jobs and prosperity; to our national defence and security, with its role in procurement in defence; and to decarbonisation for climate security. It is right that we should be supporting our steel industry and our other core industries.

Subsidy Control Bill (Sixth sitting)

Debate between Bill Esterson and Stephen Kinnock

Tuesday 2nd November 2021 Public Bill Committees

[Bill Esterson]

I think the pings you just heard were all the different legal opinions on the application of the subsidy control regime on EU state aid, Ms Nokes. The Minister found a number of different ways of phrasing the same problem: it all depends, it is one or the other, or he cannot give individual examples. I am afraid that is what it all boils down to.

[Stephen Kinnock]

It is an absolute shambles.

[Bill Esterson]

My hon. Friend the Member for Aberavon uses the word shambles. It is hard to disagree given the Minister’s answer. Until that is addressed, it undermines the operation of the regime, which risks legal challenge.

On the point about individual examples, businesses face the potential of legal challenge if they do not get this right. They are not going to know which regime. We were starting to get an answer there, in that if the subsidy is under the terms of the Northern Ireland protocol, it is state aid. However, even there the Minister could not be entirely clear. It goes back to my initial question: what proposals are the Government putting forward to address this? What is in the Secretary of State’s words on Second Reading, where he was extremely confident that the matter would be addressed, as the hon. Member for Aberdeen North and I both said in our opening remarks? What do the Government think is going to work? What is it from their discussions with their EU counterparts that suggests a way forward? We still have not had that from the Minister and that underlines exactly why the amendment is so important in giving the Government until the day on which the Bill passes into law to address exactly how the operation will apply.

To go back to the words of George Peretz, there are two sets of guidance and two sets of legal opinion. He, as a lawyer, could advise on the same situation, with the awarding body on the one hand and the business on the other, on which regime might apply. Until that is addressed, we have a real problem with the legislation and the existence of the two different subsidy regimes will cause a real problem for the effective use of subsidies to support businesses in the regions and nations of our country.

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[Bill Esterson]

We have heard spectacularly from the Minister the failure of the Government to explain how the regime will operate or to come forward with answers to questions asked during the debate on our amendments. There is little to add to what has been said already.

[Stephen Kinnock]

Briefly, for the record, I am deeply uncomfortable with this part of the legislation. It leaves businesses across the length and breadth of the country in a total state of confusion about which parts of the provisions apply to them and which are under article 10 of the Northern Ireland protocol. I genuinely think it would be a dereliction of duty by the Committee to allow the clause as drafted to stand part of the Bill. Whether we press it to a vote does not matter—we lose the votes all anyway—but I want to put it on the record that that would be a dereliction of duty.

[Bill Esterson]

I reassure my hon. Friend that we will indeed be pressing clause stand part to a vote. He is right: businesses need certainty. We are coming out of a once-in-100-year global pandemic, and they need all the support that they can get. This regime should give that support, but it cannot do so if there is that massive uncertainty at the heart of it, whether this regime or a different one should apply. The Government have not addressed that and they need to get on and address it—

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[Bill Esterson]

I am interested in the answer to that question as well, given that in the last 11 years of Conservative Government we have not seen the investment in new nuclear that was needed to meet our climate obligations.

[Stephen Kinnock]

It was all coming from China.

[Bill Esterson]

Indeed. The role of China in our nuclear industry is a point well made by my hon. Friend. I hope that we will see significant investment in new nuclear as a result of the regulations, if that is what the Government intend. Perhaps the Minister will give an indication of their intentions, because without investment, we will not hit our obligations. Nuclear is, of course, a longer-term project because it takes so long to get going. I remind Members that we have significant targets to hit by 2030, and unless we are talking about small modular reactors, nuclear reaches beyond that timeframe. Can the Minister enlighten us on any plans?

Subsidy Control Bill (Fourth sitting)

Debate between Bill Esterson and Stephen Kinnock

Thursday 28th October 2021 Public Bill Committees

[Bill Esterson]

I am grateful to the hon. Gentleman for intervening. I think he is rather missing the point, which I tried to explain the first time around. I am making the point that the Government showed no interest in what was going on with Morrisons, nor the merits of what was happening.

Coming back to steel, the Government have belatedly woken up. Before I was intervened on, I was actually going to say that perhaps there are signs of improvement on this front. The Government have shown some interest in improving things, because there are amendments in the Budget that would give the Secretary of State for International Trade powers to overrule the recommendations of the Trade Remedies Authority. I am therefore mildly hopeful that we are seeing an improvement in policy and approach from the Government on that measure alone.

[Stephen Kinnock]

My hon. Friend is making some very important points. We have clearly sparked a debate about what constitutes critical national infrastructure and what constitutes businesses that are vital to our national security and our national interest. We can certainly have a debate about businesses operating at the consumer end of the spectrum, but there are other examples. The steel industry is an obvious one, but look at the issues around AstraZeneca and the attempted hostile takeover by Pfizer; look at Arm, or at the way in which private equity is taking over our defence industry. Our country has become the capital of the world for hostile foreign takeovers. We have more than any country in the OECD, and we face a world in which aggressive Chinese-backed investment vehicles and businesses are looking to take over businesses that are potentially coming out of the pandemic distressed and vulnerable.

Subsidy Control Bill (Second sitting)

Debate between Bill Esterson and Stephen Kinnock

Tuesday 26th October 2021 Public Bill Committees

[Bill Esterson]

Q Thanks. On the point about the SAU and CMA capacity, I think you were saying that your concern there is that you want confidence that there are enough staff to answer the inquiries in a timely fashion, otherwise the whole thing grinds to a halt.

Dr Barker: That is right. The CMA is increasingly playing a central role in many aspects of our economic life, and we are asking it to do more and more, not least in the digital space. It would be incredibly beneficial to this new regime if the CMA and its advice unit had the capacity to really assist the process.

[Stephen Kinnock (Aberavon) (Lab)]

Q Dr Barker, may I ask you about your members who are based in Wales, and whether you have had any conversations with them, or feedback from them, about this new legislation? Have they raised any concerns with you about the potential confusion that might exist between the different levels of government, particularly given that they are working in areas that they have come to know as devolved policy areas where their main interface is with the Welsh Government? Have they raised any concerns about this issue with you, or has it not really come on to their radar screens yet?

Dr Barker: They are aware of this issue in each of the devolved nations. The IoD as a whole does not take a view, for example, on whether the subsidy regime should be a devolved matter or a reserved matter for the UK central Government, but they certainly are concerned to ensure that that does not get in the way of a levelling-up agenda that could be very needed in, and very beneficial to, a country such as Wales.

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[Stephen Kinnock]

Q I have two questions, Mr Peretz. The first is around the idea of assisted area maps; do you think there is a connection between the need for an assisted area map and the commitments that were made in the TCA? The joint declaration on subsidy control policies within the TCA says:

“Subsidies may be granted for the development of disadvantaged or deprived areas or regions. When

determining the amount of subsidy, the following may be taken into account: the socio-economic situation of the disadvantaged area concerned; the size of the beneficiary; and the size of the investment project.”

I would be interested in your view as to whether that constitutes an actual obligation to have an assisted area map, or some way of defining disadvantaged areas based on the terms of the TCA?

My other question was around article 10 of the Northern Ireland protocol; I am sure you will not be surprised to hear that, we have discussed it many times. What is your sense now of the state of play around article 10 of the Northern Ireland protocol? To what extent could it be interpreted so broadly as to effectively drive a coach and horses through this legislation?

George Peretz: I will deal with the regional aid map first. The schedule to the TCA is permissive. It allows the parties to do things: it does not require them to do anything. If the UK Government just did not think that regional aid was appropriate at all, they are entirely free not to do it—ditto the EU. There is also a bit of a danger in holding on to old state aid law thinking. The position of regional aid maps in the state aid law regime was there because there was a basic prohibition on state aid unless it went through the process of going to the Commission and getting cleared, unless it fell within block exemptions. Regional aid maps played their role within the block exemptions. They meant that if you were giving a grant that fell within the conditions of regional aid in certain areas, you could give grants in an area that benefited from assisted area status that you would not be allowed to give, for example, in Guildford without going through the process of notification and clearance. If you did it in an assisted area, you could just do it without going through that process.

Structurally, that does not really fit into the new regime, because it does not have that basic prohibition element in it. Instead, it requires all public authorities to think about the principles, which will inevitably apply in a somewhat different way. They are bound to be affected by the region in which they are given. For example, the principle in paragraph A(b) of schedule 1—

“address an equity rationale (such as social difficulties or distributional concerns)”—

will apply very differently in the Welsh valleys than in Guildford, because the social difficulties and distributional concerns are different.

One possibility that could arise under the structure of the Bill is that the Government might well issue streamlined schemes that make reference to the areas concerned—something that a streamlined scheme could certainly do. They could say, “This scheme applies,” and effectively there is automatically no risk of the CMA having to look at it, and you do not have to go through the process of thinking about the application of the subsidy control principles for grants in Pontypridd, as you would were you making the grant in Guildford. That is where something like the regional aid map might come back in, but it is not in the Bill; it will depend on what the Government decide to do about streamlined subsidy schemes.

I have probably written far too much on article 10. The current state of play is that, if I am advising a client such as a local authority or a subsidy recipient, my immediate problem is that I have to look at two sets of guidance—one issued by the European Commission and one by the Department for Business, Energy and Industrial Strategy—that in some important respects tell me very different things. If I am advising a client who is the prospective recipient of a grant from an English local authority, but my client sells a significant quantity of goods in Northern Ireland, the Commission guidance essentially tells me that article 10 is likely to apply. The BEIS guidance tells me that it is unlikely to apply. I am capable of making up my own mind about that, but I would obviously have to draw my client’s attention to the different guidance, and if it ever got to court the court would be entertained with the different guidance and would have to decide what to do, so there is a difficulty.

The fundamental problem is the effect on trade test. Assuming that it is meant to mean the same sort of thing as it means in the EU state aid law rules, which is probably, though not certainly, right, it catches an awful lot of things. It famously caught the question of whether taxi cabs in London could drive in bus lanes, according to the European Court, even though one might struggle to see quite why that affected trade between member states.

The real problem is that the European Court has consistently upheld reasoning on effect of trade, which is extremely thin, based on assumptions, and it does not really include much of what any economist would recognise as economics. An effect on trade has been deduced and that makes it a bit difficult. The boundary line is therefore just obscure. The Bill effectively says that anything that falls under that regime is excluded from the Bill, but you do have the problem that the boundary line is not very clear.

[Bill Esterson]

Q Good afternoon, Mr Peretz. You have been giving a lot of the very detailed challenges and saying how some of the problems might come out and be addressed. Can I ask you to look at the Bill as presented and give an overview of what you think the Committee’s top priorities to address in the Bill might be?

George Peretz: We have touched on a couple of the main issues. The devolution issue that we have discussed is quite important. There is an issue with enforcement, particularly in relation to measures that are not regarded by the public authority as being subsidies, but are just a grey area—and that view could simply be wrong—and how those are dealt with. The Bill does not really address on its face how those will be dealt with. One can sort of work out how they are likely to be dealt with but it would be better if that situation was more expressly catered for and dealt with.

There is an enforcement problem in that, ultimately, unless the Secretary of State decides to refer things to the Competition and Markets Authority—of course, there will be cases where things have to go to the CMA—the mechanism does very much rely on private enforcement by, at the moment, interested parties, who are going to be commercial operators and probably not public interest ones or local authorities. You cannot always rely on commercial operators to enforce things like this. There are all sorts of reasons why they may not. Quite a lot of commercial operators are hoping for the same subsidy themselves, so they will keep quiet, or they get the same subsidy themselves and will therefore be quiet, whereas actually there is a real public interest problem.

You will get situations with quite small companies who are concerned about subsidies being given to a much bigger competitor. They will understandably be reluctant to annoy both the granting authority, probably, and the bigger competitor. There are also the inevitable costs and risks of litigation. In a new regime, those costs and risks are greater, because various points have to be sorted out and decided in the first few cases until you get some case law on it. So inevitably the risks and costs are greater. There is more chance that you will end up in the Court of Appeal on a point than there would be once the regime has bedded in.

All of those will be quite off-putting to a lot of private enforcement. Ultimately, that is the keystone on which the whole enforcement mechanism depends, because if nobody brings challenges to this, public authorities will often get away with pretty sloppy reasoning and genuflection to the principles rather than serious engagement with them. I think that is a concern.