Draft Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022

John Baron Excerpts

Monday 14th November 2022 General Committees

[Kevin Hollinrake]

That is a very good question. I was just getting on to that. Sensitive sectors are areas of economic activity in which there is a record of international trade policy disputes, evidence of global overcapacity within the sector or evidence that one or both of these features will apply to the sector in future.

If the right hon. Gentleman looks at the last part of the regulations, he will see that it lists the sectors that would be defined as sensitive, and those include automotive, steel and other sectors. Subsidies in those sectors have greater potential for substantial distortion, even at lower values. That is why those sectors are subject to a lower monetary threshold, of £5 million, to be defined as a subsidy of particular interest. The Government have set out a list of these sectors in the regulations.

The monetary thresholds are cumulative. As such, a subsidy of £5 million may be above the threshold for a subsidy of particular interest if the recipient had already received a related £6 million subsidy within the last three financial years. This avoids public authorities salami-slicing subsidies to avoid scrutiny. In addition, the regulations set out a minimum value for referral of £1 million. That means that where related subsidies cumulate above the £10 million threshold for subsidies of particular interest, public authorities will have to refer only the most recent subsidy if it exceeds £1 million.

The second element of the criteria is specific categories of subsidy. Subsidies designed to rescue an ailing or insolvent enterprise are subsidies of interest, and restructuring subsidies are subsidies of particular interest. That reflects the fact that both rescue and restructuring subsidies have greater potential to cause undue distortion, but rescue subsidies are often time-critical, since the enterprise may need the subsidy urgently if it is not to go out of business. The final specific category of subsidies is those that are explicitly conditional on relocation. Such subsidies are prohibited entirely, unless they have a beneficial effect on economic or social disadvantage in the UK as a whole. Subsidies in that category are subsidies of interest if they are £1 million or below, and subsidies of particular interest if above that value.

The regulations also apply to subsidy schemes. A subsidy scheme will set out the parameters under which subsidies may be given. The assessment of compliance with the subsidy control requirements will be carried out for the whole scheme, rather than for each subsidy given under that scheme. As such, if a subsidy of particular interest can be awarded under a scheme, that scheme is a scheme of particular interest and is subject to the referral procedures. The same applies to subsidies and schemes of interest. The referral can occur once, at scheme level. Subsidies given under schemes will never be referred to the SAU.

[Mr John Baron (Basildon and Billericay) (Con)]

I thank the Minister for bringing these matters to our attention. Now that we have left the EU, where does all this fit into the big scheme of things? Do we now have greater freedoms with regards to state subsidies, or is an element of liaison still required to ensure we meet our obligations?

[Kevin Hollinrake]

That is a good question, and I thank my hon. Friend for it. The trade and co-operation agreement includes some oversight; clearly, we made some commitments in that agreement regarding subsidies, which is what the statutory instrument and the previous legislation have both sought to address. However, we believe that the approach we are taking to subsidies is far more effective and quicker to deliver than the European Union one. Under that approach, we would have to take a scheme to the European Union, have it approved and then have it come back, which might take several months. Our approach sets out a broad set of principles: a local authority or central Government can set out a scheme and, as long as it adheres to these principles, the subsidy can be delivered far more quickly. In our view, that is a far more effective process.

Finally, a distinct approach will apply to tax schemes. All tax schemes will be schemes of interest and may be referred to the subsidy advice unit. The cumulation rules will apply differently to subsidies given under tax schemes. Only subsidies given as part of the same tax measure within the last three financial years will count towards the cumulative threshold for subsidies of particular interest.