Subsidy Control Bill

John Penrose Excerpts

2nd reading
Wednesday 22nd September 2021 Commons Chamber

[John Penrose (Weston-super-Mare) (Con)]

I am seriously pleased to see the Bill coming forward. It is much needed, not just because, as the hon. Member for Feltham and Heston (Seema Malhotra) pointed out, it is a fulfilment of our international obligations, but because, as the Secretary of State rightly said, before we went into the EU and had any kind of proper subsidy control regime, it was pretty much a free-for-all and I am afraid that, no matter who was in government, broadly speaking, the lack of rules was terrible.

Politicians on all sides and of all stripes over an extended period have a dreadful track record in yielding to temptation, particularly when they are being lobbied hard by someone pleading desperately for this or that piece of help—it’s just one more wafer-thin subsidy, sir. We give way. We all do—it is only human—and it is a long proven fact that politicians are terrible at picking winners, but losers are really good at picking politicians. It is therefore essential that, as we come out of the EU, we have our UK-only version of a rules-based system in place. The Secretary of State is right to move towards that, even if we did not have those international obligations to deliver it.

I am also pleased to see the seven principles that are the core of the approach, backed up by various other environmental principles as well. They start with the notion that there must be a market failure before any form of taxpayers’ cash can start to be dished out. We can all think of businesses in the past—perhaps even today—that would have liked nothing better than to reach their sticky fingers into the taxpayers’ pockets and extract some cash to make their lives better, their shareholders’ lives simpler and their management’s lives easier. It is therefore absolutely right that the Secretary of State has limited his own freedom—and, more particularly, that of his successors—so that we can have, we hope, a consistent approach and we will not have open season for Government failure. We always talk about market failure in this place, but that principle is crucial for avoiding Government failure in future.

That is a point I made in the Government-commissioned report I was asked to write by the Secretary of State’s predecessor on competition policy. Self-denial is absolutely essential to make sure that we do not start splashing around taxpayers’ cash in an unproductive way and subsidising commercially hopeless cases because they have good lobbyists. The trouble is that the more hopeless they are but the deeper pockets they have and the better lobbyists they have, the harder it is to avoid that kind of temptation.

This is a welcome and necessary Bill, and it is vitally important. As my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) said earlier, I do not think we should have any truck with the notion that we were not one of the most prolific users of subsidies when we were still part of the EU. We ranked relatively low in the league table against other countries in the EU in our use of subsidies, and as a free marketeer I think that should be a badge of honour. It shows that we are in general allowing capitalism to run and allowing capitalist animal spirits to move resources, investment and productive assets around our economy in the most efficient way to drive our economic growth. Ultimately, it is that economic growth that pays for the public services we all care about, and that we all need and rely on as well. So yes to capitalism and yes to avoiding distortions, discriminations and, dare I say it, potentially the risks of political favouritism if we do not have these rules in place and a rules-based system. I am delighted that this Bill is here, and it establishes some really important principles for all of us.

There is one small fly in the ointment, which I will mention now. I do not want to try your patience, Madam Deputy Speaker, by going into things that will I am sure be properly covered both in Committee and on Report. I will mention the principle at this stage—it has already been mentioned by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and by others—and it is the point about transparency. The Secretary of State has made that a central point, and he is absolutely right to say that he wants to establish the UK as one of the leading examples of subsidy transparency in, I think, the world. I may be misquoting him slightly, but I am sure the principle is one he would sign up to.

That is an absolutely core piece because if we do not have such transparency—if we cannot see what these subsidies are or we cannot see what they are until it is too late—how on earth are we to know that this excellent new set of rules-based principles are being followed properly or not? Sunlight is the best disinfectant, as we all know, and exposing this to public scrutiny cannot be bad. Because we are setting up this rules-based system, we should have nothing to hide. If we are worried about transparency, that is always a bad sign in the first place. Therefore, the central principle, which the Secretary of State and his fellow Ministers have already enunciated, is entirely the right one.

My concern is therefore not with the principle that the Secretary of State has enunciated; it is whether or not this Bill will actually deliver the principle in the way he hopes. This is a technical concern, not one of principle at all, but the technical concern is real. We have left the EU, but the EU’s basic rules for disclosure required us to disclose subsidies of above €500,000. The new Bill, as we have heard, has a variety of different exemptions, but broadly speaking it requires us to disclose subsidies of above £500,000. That means we will be disclosing fewer subsidies in future than we were under the EU because the threshold is higher. It is not the only threshold; there are other thresholds. One of them is even higher still, at £725,000, for public interest subsidies of one kind or another, which I think is for subsidising things such as buses and social housing. All those things may very well need subsidies, but why are we being secretive about it? Why should we not make this public?

[Robin Millar (Aberconwy) (Con)]

There are very specific exclusions for inclusion on the central database. Would my hon. Friend extend his argument to consideration of those excluded items as well?

[John Penrose]

There are a couple of exclusions that I think make an awful lot of sense. For example, there is an exclusion about national security, which I hope everybody on all sides of this House would sign up to. However, in principle, to follow and frank the principle that the Secretary of State has rightly put across about how we want to be the most transparent about our use of subsidies—because it will show that we are following those rules, and that we are letting capitalism rip and therefore that productive assets are being used in the most effective way without distortion—in general there should be fewer exclusions, with only the minimal number of exclusions that is safe, although I completely accept that there will need to be some. There is no reason why we should worry about disclosing pretty much any subsidy, particularly because local councils, for example, already have to report anything they spend above £500. They already take records, keep notes, and publish those details, and it would be peculiar to say that although they have to declare spending above £500, they do not have to declare subsidies above £500,000. I am not sure that is terribly consistent.

The Secretary of State has rightly pointed out that when subsidies are notified they have to be turned round and approved or disapproved by the CMA within 30 days. That is entirely right. We need a prompt, nimble, and agile response in order for our economy to work in a prompt, nimble and agile way. It therefore seems odd, if I may put it politely, that we are allowing subsidies not to be registered for up to six months after they have been made. We will therefore have fewer subsidies declared, in a way that does not match what local councils already have to declare. Councils already have to keep such information and data; it is not something they will have to start doing from scratch, and all they will need to do is paste it on to a central database. They also do not have to put it out for six months. These are small technical tweaks, but they are central to delivering on the principle, which the Secretary of State rightly enunciated.

[Sammy Wilson]

Is the hon. Gentleman concerned that a subsidy could be well in place for six months but then there would be a challenge period of 30 days? If there was a reasonable challenge and another body had lost out, would it not be a bit late?

[John Penrose]

The right hon. Gentleman is right, particularly because in the modern digitising economy, everything is moving faster and faster every year. Even if that issue was not a problem before—and I think it probably would have been—it certainly would become one in future. There is scope for tightening that part of the Bill technically, so as to deliver on the principles that the Secretary of State has rightly enunciated regarding timing, the degree of transparency and the level of disclosure. As we will have nothing to hide, we should not hide it; we should get it all out there and ensure that it is available.

[Kevin Hollinrake]

My hon. Friend makes some strong points, and I absolutely agree with those about transparency. One objection to lowering the threshold to a few hundred pounds rather than £0.5 million might be the burden of red tape attached, but, as I understand it, the costs for having a database that includes pretty much every subsidy—about £20,000 per annum—are minimal.

[John Penrose]

My hon. Friend makes an important point. Indeed, he has led me to the final point in my speech. He is right to say—I know Ministers in the Department have this instinctively in the marrow of their bones—that we must not turn this into some bureaucratic red tape burden. Indeed, one chapter in the report that I was asked to write about competition policy refers to reducing red tape burdens. We all understand that too much of that will slow down even the best company and reduce its competitiveness compared with companies in other countries, so he is right to be concerned.

In this case, however, doing what I suggest should reduce the red tape burden rather than add to it. That is because one of the other exemptions, which I think is £325,000, is for a cumulative set of subsidies. If I have three or four subsidies granted by three or four different local councils, or perhaps by a devolved Government and some local councils, and they cumulatively add up to £325,000 over a three-year period, that has to be declared and everyone has to keep track of that. Under the existing Bill, individual councils making those grants will not be keeping that record. They will not be able to, because they will not know what the other councils have done. The companies that are getting those grants will have to keep their own records for three years. That is a business burden that we will create if we do not change the Bill right now.

If we just said instead, “There’s one central public database and everything gets put on it; no company has to keep any records whatsoever because it’s all out there and it’s visible, searchable, clear and transparent,” there would be no extra business burden at all and, as my hon. Friend the Member for Thirsk and Malton just pointed out, there would be minimal extra public burden, because the local councils, devolved Administrations and Government Departments keep these records anyway. All they would have to do is extend the print range on their spreadsheets slightly further down the page, or organise their automatic file uploads a little more simply, so the burden would be minimal. If we did it that way round rather than what is currently in the Bill, we would avoid creating a new red tape burden.

With that, I will do something unusual for a politician and shut up. This is a good Bill, it is an essential Bill, and it does some really important things. I am really pleased to see it come forward. My right hon. Friend the Secretary of State is doing precisely the right thing, in the right way. We have one concern about detail; with any luck, I am sure that can be ironed out.

--- Later in debate ---

[Nigel Mills]

I think it is fair enough for a UK single market to have a single regulator that decides a subsidy regime to ensure that the application of the rules is consistent across the whole of that single market. The hon. Gentleman wants to go back into the EU single market, which has a single regulator which decides things across the whole of that its single market. He does not seem to accept that the EU single market should have the same arrangement.

[John Penrose]

May I strengthen my hon. Friend’s point by saying that whatever people’s views of the CMA may be, it is pretty well respected as being a robustly politically independent organisation, no matter who is in government?

[Nigel Mills]

I am grateful to my hon. Friend, but I think we should move on from this point before we lengthen the debate into something that we do not want.

As I was saying, a transparency regime enabling us to see promptly what is being paid to whom and for what reason, and what the expected outcomes are, is of key importance. I agree with what my hon. Friend was saying earlier: a regime in which we have to wait six months for a disclosure, and then only of amounts over half a million pounds, has the wrong balance. I think that is where we end up with concern over subsidies, and scandals brewing, and then a lurch back towards more of a clearance regime. I urge the Government to rethink those points.

We are not expecting public authorities to be handing out huge numbers of subsidies after half an hour’s consideration. The rules that we are introducing are fairly strict. There will have to be some careful consideration of any proposed subsidies to ensure that those rules have been met, and there are processes for checking that the person who is being paid has not already exceeded a certain threshold. It is not a half-hour, quick and dirty process; there is plenty of time to gather the information that is needed to declare the subsidy, which can then, pretty promptly, be put on to what I suspect will be a simple database form that the CMA, or whoever, will put in place. I do not think it is an intrusive burden to have to say, “Here is what we gave to whom and why.”

I should add that I would like it to be possible to see the identity of the beneficial owner of the entity that has received the subsidy on the database, so that we can see who is really benefiting, rather than seeing some obscure, lower-down subsidiary name, which would make it not very easy to trace by going through the whole system who has been getting what from different public authorities.

Let me suggest as a comparison the furlough scheme, which is essentially a subsidy being given to businesses to pay their employees’ wages. We have published the names, in a range of bands starting with £1 to £10,000, of employers who have received that subsidy during the pandemic. I think that if we can publicise the details of employers who have received up to £10,000, we can justify publishing the name of anyone who has received a subsidy that has gone through a due process, down to a much lower level than £500,000, without its being unduly damaging to their commercial confidential interests. I think that someone involved in the process of asking for money from the taxpayer should accept and welcome that transparency. There should be nothing to be ashamed of, nothing to hide: if that money is needed for a good purpose, there is no reason why we should not know about it. I urge the Government to make some changes in that regard.

I was intrigued by the remarks about the way in which taxation policy can elide with the subsidy regime. There are quite a few cut-outs for taxation situations which I guess make sense, but I think there could be a role here. If we are giving individual taxpayers very generous tax deals, letting them off liabilities that they may owe for reasons that may not necessarily be entirely technically robust—as people have feared before—I see no reason why those should not count as subsidies and therefore be published through this regime, in order to get around that horrible situation in which we know that deals are being done but we do not know who the beneficiaries are. I think that it would be an interesting legal challenge to establish whether they are caught by these rules.

My final remark—I think—concerns the exclusion of subsidies for purposes of national security. I have absolutely no objection in principle to our being unable to publish everything that is spent in relation to national security, but those words—

“for the purpose of safeguarding national security”—

constitute a very broad definition. We have hit a problem with the freedom of information rules in this regard. Some authorities have an incredibly broad interpretation of what that means. I think it was the West Yorkshire fire and rescue service that would not publish a response to an FOI request about the vehicles it had bought in case someone could somehow clone them and thus get into its premises. I hope that the Government are not expecting to have such a ridiculously broad definition of national security that we cannot in any circumstances see the subsidy given to any defence company, or police authority, or fire and rescue authority. Given that energy security is probably a national security issue, presumably no energy subsidy could be published. I suspect that some creative people around the country could find all manner of ways of making the broad definition “for the purposes of national security” exempt almost anything from these rules. I hope that we can be clear in Committee about the sort of things we think we should not publish, and about where the line should be drawn as to what we can see. If we have too many exemptions from these rules, we will end up weakening confidence in the system. We could end up with scandals that could lurch us away from the fast-moving, flexible system that the Government want in order to get aid where it is needed fast. We could end up back in a cumbersome, slow and bureaucratic system to try to avoid the scandals that we could see from a lack of transparency.