Subsidy Control Bill

John Penrose Excerpts

3rd reading
Monday 13th December 2021 Commons Chamber

The key things that we are keen to look at are: the issue of agriculture being included; the issue of net zero not being included; the issues around transparency; and, finally, the issues around parity of esteem, particularly with interested parties. I hope that the Minister can give me some comfort from the Dispatch Box on the last of those, to make clear for anyone looking at this in the future that the devolved Administrations are counted as interested parties when it comes to indirect, as well as direct interests.

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

I rise to speak to the amendments in my name and that of my hon. Friends. I start by saying that there is a great deal to support about this Bill, and I think I mentioned that on Second Reading. This Bill is vitally important, not just because it is required under the terms of our leaving the EU, but because it does some very important things to how the future subsidy control regime will be applied. We have already heard that the central set of principles is crucial. The notion of pre-approval and allowing things to be done at pace to create a much less bureaucratic, much more nimble, much more predictable regime is overall hugely to be welcomed. I hope everyone will be able to sign up to that.

The Bill also means that I hope we will be able to move to a principle where we have as few exemptions and exceptions to our subsidy control regime as possible. It is essential that we have a subsidy control regime that does not allow loopholes through which—I am sure the Minister would never dream of doing such a thing—some less principled future Government might try to drive any sort of measures through that might involve either cronyism or economic distortions of any kind. It is essential that there are minimal loopholes and that the Bill covers as evenly and as predictably as possible the entire economy.

It is no accident that this country has had one of the lowest levels of public subsidies granted in recent years under the guise of the EU’s regime. For the free marketeers among us and those who care about economic efficiency and productivity, that should be a source of pride, and we should not be trying to overturn or change that in future. In fact, I made that point in the Government-commissioned competition policy review that I was recently asked to do, which has a chapter specifically on subsidy control that says that less is definitely more. It is far better to do less in the area and therefore ensure more space for companies and business leaders to compete on their organisations’ abilities and the quality of their products and services rather than on whom they know in Government and, as a result, how much rent and subsidy they can wring out of their political connections. It is essential that we remember that, adhere to it and persist with it as much as we can.

That is crucial, because the Bill done right ought to be a major piece of post-Brexit dividend that we should seek to achieve as a result of leaving the EU. If we get it right, we can have a faster, more nimble and more economically rational way of dealing with subsidies. We can keep the best of the objectivity that everyone said we had under the EU but do it in a faster, more digitally enabled and generally more modern, less bureaucratic and less covered-in-red-tape fashion. Such a post-Brexit dividend is here for the taking. It is waiting for us to pick it up off the table, provided that we can do it correctly.

My concern—this is why I tabled amendments 1 to 8 —is that while the Bill does an awful lot of that right, we may be about to make one critical error. We have already heard the points about transparency made by the SNP spokeswoman, the hon. Member for Aberdeen North (Kirsty Blackman). It is all very well to pre-approve and to have a more flexible, faster and more nimble approach, but that will work only if we have an army of armchair auditors who can spot when something is going wrong and say, “Hang on a second. This is a marvellous principle, but it isn’t being adhered to in this case.” Without transparency, hon. Members, people in our constituencies and the journalists who pore over such things will not be able to do so until it is too late. In a digitising economy, speed matters, too. If it cannot be done before it is too late—or at all—companies will be driven out of business. Once all that is left is rubble, the jobs are lost and the investment is forgone, it is too late to come back two years later—or even eight months later in fast-moving sectors—and say, “We’re terribly sorry; we got this wrong.” We need to be able to move rapidly and pick up things up as soon as possible. That is why I tabled the amendments.

[Kevin Hollinrake]

My hon. Friend makes a strong point about armchair auditors in particular. As soon as the US published all loans of $150,000 under the paycheck protection program—its version of the coronavirus business interruption loan scheme—$30 billion was paid straight back to the US Treasury on the basis that companies did not want that visibility. It was not that money was taken fraudulently—perhaps it was taken inappropriately.

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[John Penrose]

My hon. Friend makes a very good point. For those of us who worry about the scale of subsidies, who take pride in ours being a relatively low-subsidy country and economy and who want it to stay that way—we do so because we care about competitiveness and people competing only on the basis of their ability to please their customers rather than whom they know in Government—that must be the right approach. That American example of how transparency can drive down subsidy levels is a good one. Incidentally, it would be fascinating to see how that applies to countries such as Spain, which have low thresholds for declarations and therefore high levels of declarations. We can follow that carefully.

[Richard Fuller (North East Bedfordshire) (Con)]

My hon. Friend is making a very useful speech, and I very rarely say that in Parliament—not about him, but generally about speeches here. Does he agree that the value of his amendments is that they would increase the number of pieces of information we have, and that the Government are missing the value of predictive analytics in considering the way in which subsidies are or are not working, as that can then be applied to other areas of Government expenditure?

[John Penrose]

That is absolutely right. Transparency is of course about trying to improve the productivity of our economy and avoiding distortions of our economy, and of course it is also about trying to reduce cronyism, but my hon. Friend is right to say that there is a longer-term benefit in that we can then tell whether the subsidies we are offering are any good: are they actually having the effect we want them to have and can we learn from that? I am afraid there is a long and ignoble history—we can all see this and cite examples from Governments of all political types and stripes in history—of politicians just getting it wrong and not learning that extra data might very well achieve something. I am afraid the old phrase that politicians are terrible at picking winners but really good at picking losers applies here in spades, and data and objectivity are essential in pricking that bubble and avoiding that happening again.

The good news is that Ministers get it: Ministers are clear about the value of transparency. They have said so to me and others. In fact, the Minister said to me in a letter earlier in December:

“Transparency is fundamental not only to the future subsidy control regime but also to good governance more widely.”

That is absolutely right. So, the principle is clear: there is no disagreement in any part of the House that this is the right thing to do.

So, why are we not doing it? That has been covered partly in Committee, but it bears being repeated here strongly and forcefully. The EU regime which the Bill is supposed to supplant has a series of transparency declaration thresholds. Everything over half a million euros must be declared; there are thresholds too for cumulative grants, which we heard about in the speech of the hon. Member for Aberdeen North, although half a million euros is the basic threshold. This Bill, however, says that everything over half a million pounds has to be declared. Unless the exchange rate has gone completely doolally in the last 10 minutes, that is a much, or moderately, higher level than half a million euros, and as a result we will in the future be declaring fewer subsidies under this transparency regime than we were in the past, in spite of the fact that Ministers have rightly said transparency is absolutely essential and a core principle with which we all agree. We are not delivering on the central principle on which everybody agrees, and that is why I have tabled basically three groups of amendments. They do three things, some of which we have already heard about; the hon. Lady summarised them nicely, so I will not go through the detail again.

The first group addresses amounts and says, “Look, we shouldn’t just say we have to declare anything over half a million pounds; we should be much more transparent than that.” If we are really serious about trying to be world-class about this issue, let us knock three zeros off that number: let us go for £500 instead. What have we got to hide? What have we got to be scared of? Why do we not just put it all out there and let people see? That would be transformational, for the reasons I have just described.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

My hon. Friend is making a very good speech and making very good points. On the issue of transparency, surely it would be cheaper as well as more transparent to do exactly what he says, because when there is a digital system putting all this information together it takes more time and money and reduces the productivity of the staff involved if they have to sift through what meets a certain threshold. Why not, as my hon. Friend says, just put everything out there?

[John Penrose]

Absolutely; my hon. Friend makes an important point. Equally, the point about cost goes more broadly than that too. We heard about the cumulative threshold where, if a single company receives multiple different grant applications or subsidies that collectively go above £315,000 over three years, that is supposed to be declared—but how will it be declared? The company is supposed to keep the letters, but it does not necessarily have a duty to declare it. The different subsidy granting organisations, be they local authorities around the country or whatever, will not necessarily know to talk to each other and will not know for at least six months, or a year in some cases, whether someone else has made those grants.

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[Nigel Mills (Amber Valley) (Con)]

Does my hon. Friend agree that there is a general presumption that there should be more transparency about people receiving money effectively from the taxpayer? We could have a strange situation where if I am being paid £600 for grass cutting for my local council, the council would publish the invoice on its database, yet if I am receiving tens of thousands of pounds of taxpayers’ money, it would not be published. Surely, that cannot be the right balance.

[John Penrose]

That is absolutely right. Although I appreciate that there is a technical distinction between amounts of subsidy and amounts of general local authority spend, it is a very strong comparison. If it is worthwhile recording £500 spend on anything by a local council, why are subsidies so special and why should they be different? If anything, because of the scope for potential cronyism and other concerns, we should be tougher on subsidies than on other kinds of spending. Let us at least make the thresholds the same at £500, and then there can be no concern or worry about it.

The first collection of amendments is about the amount. The second collection of amendments, about which we have already heard a bit from the hon. Member for Aberdeen North, is about speed. As I have mentioned, in today’s digitising economy, publishing details of a subsidy potentially almost two years later, or even six months later, could be way too late. A company could have gone under if it had been faced by a successfully heavily subsidised competitor in its local area. Jobs will have been destroyed, wealth will have been destroyed, investment will have been forgone and, most importantly, the reputation of that local economy as a free, fair, sensible level-playing-field place to do business will have been damaged.

Clearly speed matters today, and it will matter more and more as our economy moves faster through digitisation. It makes no sense at all, therefore, to allow six months, and in some cases even longer, for those subsidies to be declared. When someone dishes out a subsidy, a letter has to be sent to the person receiving it, so in most cases they could put the subsidy on to the database at the same time—they could probably do it electronically if they had the right interface. I am suggesting that that could happen within a month; it could probably happen within days, but let us be generous and kind, and give people a bit of space.

I will expand on the point about tax-related subsidies. It is true, as we heard, that a tax-related subsidy can take almost two years to be recorded and to become transparently visible under the current proposals. I cannot see any reason why that should be the case, not just for tax-related subsidies but for anything else at all. In general, for most tax-related subsidies, we can do it immediately because we know the value with some certainty right up front. If I am giving someone a subsidy as a reduction on their business rates, I know how much the value of that subsidy is going to be on the day it comes out, so I can put that out on the subsidy database right there and right then. The same goes for most other kinds of tax-related subsidies, such as subsidies on VAT or whatever it may be.

Only for a very small number of tax-related subsidies would there be uncertainty for any length of time. As we have already heard, and I think this is absolutely right, it is perfectly possible to come up with a good estimate to begin with, and I do not think it works—it is not an adequate piece of logic—to turn around and say, “Well, because we don’t know precisely what this particular subsidy amount will be, we should not reveal it at all.” That is making the best the enemy of the good, and the trouble with that, and with saying that we are therefore not going to put anything out, is that we do not end up with the best or the good. We end up with something that is actually pretty dreadful, because we are keeping it secret for up to two years. How does that make sense when, as we have already heard, we can estimate it very accurately? In fact, in many cases these things are done in bands, and we can certainly say, at the very least, that it will be roughly in this or that band. Even if we get it wrong, we can still correct it later, and people know it is there, what it was and roughly how much it will have been. That will have allowed challenge, if necessary.

[Kirsty Blackman]

Specifically on the issue of uploading subsidies to databases and challenging such subsidies, the only way in which a subsidy will be overturned anyway is if the subsidy was given incorrectly—if it was against subsidy principles or was distortive in some way—so surely this has no effect on the vast majority of subsidies, except that it means they will be uploaded much more quickly. However, in the case of subsidies that are wrong, bad and going to cause problems, surely the quickest possible time is better so that we would be able to see them.

[John Penrose]

That is absolutely right. It is not just about whether a particular subsidy breaches those principles, but as the hon. Member rightly points out, it is also a question of whether we can then spot that a pattern of cronyism is emerging. If a particular local council was giving out grants to its mates, we could see that much faster. That may not be breaching the subsidy control principle, but you can bet your bottom dollar that people would want to know about that and that the most almighty stink would be created.

That brings me on to the final group of my three groups of amendments, which is about the ability to challenge and check individual items or individual examples of a subsidy within a broader subsidy scheme. At the moment, if someone registers a subsidy scheme under the terms of the Bill, dishes out subsidies under that subsidy scheme and then basically ignores the terms of the subsidy scheme or misapplies them in some terrible way—because of cronyism, because they are just doing a bad job, or even fraudulently—nobody, under the terms of the Bill, can challenge the individual decisions being made. That cannot be right, and it seems daft. All I am saying is that we need to be able to challenge individual examples within a broader scheme, otherwise this transparency mechanism or challenge mechanism will be fundamentally flawed.

That is the modest proposal. So far, I have not heard a single argument that unpicks the logic of that. As far as I can see, there are three Departments of Government with a dog in this fight. There is Lord Frost, who is in charge of the Brexit dividend, and he ought to be thoroughly in favour of this because of the opportunity it offers. There is the Secretary of State for Business, Energy and Industrial Strategy—he was here briefly just now, and I hope he will be back later—who is of course a good free marketeer and is thoroughly committed to improving productivity, so he should be in favour of this, too. Finally, there is the Chancellor of the Exchequer, who is the guardian of taxpayers’ money. As I have said, we should be taking pride in the fact that we are one of the least heavily subsidising economies in the developed world, and we certainly were when we were part of the EU, so I cannot see that he is going to be objecting to it either.

As I sit down, I therefore just ask the Minister to please explain the logic behind opposing any of the arguments that not just I but others have been advancing. Will please explain who on earth thinks this is a bad idea, because I cannot find them or see them and I do not think anybody knows who they are?

[Deidre Brock (Edinburgh North and Leith) (SNP)]

I rise to speak in support of all the amendments and new clauses in the names of my hon. and right hon. Friends and myself, but specifically new clause 1. I am aware that the Cabinet Secretary for Rural Affairs and Islands has already written to the Secretary of State for Environment, Food and Rural Affairs specifically on this matter.

To begin with, I will tell a little story to illustrate that the apprehensions around this issue were long-standing, even before the United Kingdom Internal Market Act 2020 passed into being, and now appear to be fully justified, especially when we take into consideration the principles of mutual recognition and non-discrimination contained in that Act. In late November 2020—on St Andrew’s Day, rather ironically—in the debate on the statement on the agricultural transition plan, I asked the Secretary of State for Environment, Food and Rural Affairs for assurances that the Bill, as it was then, would have absolutely no impact on Scotland’s ability to set support in Scotland independent of the system chosen for England. He responded that Scotland and the other devolved authorities

“will have more freedom than ever before to design a policy that they judge to be right for them. We will set up a joint group across the UK to do market surveillance, to ensure that there is not disturbance to the internal market”.—[Official Report, 30 November 2020; Vol. 685, c. 42.]

The House will note that there was no answer to my question in that reply. However, shortly afterwards the Secretary of State reassured a fellow Conservative MP who had expressed fears on behalf of farmers in his English constituency that food production might not be supported under the new English scheme and that his farmers could

“be undercut by farmers, including in the devolved nations, who are subsidised for food production or by area, not just for stewardship”.—[Official Report, 30 November 2020; Vol. 685, c. 50.]

I wondered how he could give any such assurance if he intended keeping the UK Government’s nose out of our agricultural support choices, but I ken noo.

As my hon. Friend the Member for Aberdeen North (Kirsty Blackman) has mentioned, at the heart of the problem is the broad recognition that agricultural subsidies do not fit neatly into standard subsidy control regimes. That is why agriculture has its own separate subsidy control arrangements in the EU through the common agricultural policy, and in the World Trade Organisation through the agreement on agriculture. Equally, while the trade and co-operation agreement has provided interim rules on subsidy control in the UK since Brexit, it does not apply to subsidies subject to the provisions of part 4 or annex 2 of the WTO agreement on agriculture, which relate to most agricultural subsidies.

The Scottish Government have asked the UK Government repeatedly why agriculture is included in this new regime when it is not included in most standard subsidy control regimes, but I understand that to date no satisfactory reason has been given. The Minister has responded that a majority of respondents to the Department for Business, Energy and Industrial Strategy consultation thought it should be included, which seems jolly fair-minded of the Minister, we might think. On the other hand, the UK Government have so far chosen to ignore the serious concerns raised by the Scottish and Welsh Governments. The UK Government have refused to share the consultation responses with our Government, even the anonymised ones, which makes it even more difficult for Ministers and civil servants to understand the reasoning behind this decision or at least to assess whether the responses were weighted and, if so, how. The only reply that I have seen from the Government’s response to the consultation is that this hitherto accepted exemption has been removed in order to maintain a “consistent approach” and a broad sectoral scope. So it is some sort of tidying-up exercise, apparently.

Taken all together, this ratchets up what were considerable levels of concern to—I think it is fair to say—alarm not just in the Scottish and Welsh Governments and other devolved Administrations but in organisations such as the National Farmers Union of Scotland. There is less concern from the National Farmers Union of England. I wonder why that might be. It is worth reminding ourselves that the high percentage of less favoured areas in Scotland’s agricultural land—some 86%—is almost directly reversed in England, where it is only 12%. We have unique agricultural conditions and practices, so the need for a support system that recognises and understands that and takes it fully into account is vital.

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[Sarah Olney (Richmond Park) (LD)]

It is a pleasure to contribute to this very thoughtful debate. I do not share the enthusiasm of the hon. Member for Weston-super-Mare (John Penrose) for Brexit as a whole; nevertheless, I support his comment that if this is to be one of the benefits of leaving the European Union, it is important that we get it right, especially since all the other benefits seem disappointingly slow to materialise.

I support many of the hon. Gentleman’s comments about transparency: it is important that the information is made available. He is right that it will improve the efficiency of subsidies if we can see who is getting them and understand where they are being applied. I valued the intervention from the hon. Member for Thirsk and Malton (Kevin Hollinrake) about what has happened in the United States, and that is an important point to consider. It is important to think about the effectiveness and efficiency of subsidies, and the use of taxpayers’ money.

This will be a new subsidy regime for the UK. The more information that is available to the widest number of people, the more we will be able to see as a country—not just the Government—what is and is not an effective subsidy. We will be able to see what has worked, what has played a role in driving investment to underdeveloped regions and what has helped to build new sectors of the economy. It is so important that that information is available. More particularly, I support the moves of the hon. Member for Weston-super-Mare to move the threshold to £500, because, where subsidies can distort markets, it will have a disproportionate impact on smaller businesses. That is why moving the threshold in the way that he proposes is so important.

[John Penrose]

May I back the hon. Lady up by saying that it is about not just smaller businesses, but local economic effects? Something that may, on a large scale, be distortive for the entire national economy may be distortive at a much smaller level for a particular city region or a particular town. I hope that she agrees with that point as well.

[Sarah Olney]

I absolutely do, which is why it is so important to get this level of oversight at the much smaller threshold that the hon. Gentleman is proposing. Potentially, within the gap between the £500 that he is proposing and the £500,000 that the Government are proposing, there will be a great deal of market-distorting subsidy, and it will be up to competitors who have been disadvantaged to challenge or to bring their own court cases against those subsidies. If they do not have knowledge about how they are personally being disadvantaged, what can they possibly do about it? That is why that point is so important.

My new clause 2 is about climate change. I welcome the comments made by the hon. Member for Aberdeen North (Kirsty Blackman) about the importance of this matter in her excellent opening speech. There are the seven principles against which the subsidies will be assessed, and also the nine energy and environmental principles. What I am disappointed about is that they do not add up to a broader commitment to using public money to fight climate change. I can only amplify what the hon. Lady said about it being our key public challenge at this time, covid notwithstanding.

The Liberal Democrats would have welcomed the opportunity to put the transition to net zero at the heart of the UK’s subsidy regime, and for the Government to have used every tool at their disposal to make the transition as swiftly and painlessly as possible, and we can see how public subsidies can help to achieve that.

New clause 2 provides for an annual report to Parliament detailing the climate change impacts of subsidies granted that year. This would have been an important mechanism for reviewing the extent to which subsidies are being used to stimulate or to de-risk investment in the green economy. We look to the private sector to drive much of the innovation that we need to see and to create the consumer markets for our net zero future, but the Government must do all they can to encourage the private sector to prioritise reducing emissions alongside creating economic value.

Public subsidies are an important part of the levers available, and taxpayers need to see that they are being used effectively. Let us take, for example, the nine environmental and energy principles. In the past few months, we have seen a tremendous concern about our energy sector, and it is easy to imagine a scenario where subsidies are being granted to improve energy resilience and energy supply. Such goals might make sense in the short term as they are in line with the principles, but when we are making short-term decisions about subsidy use, it is really important that we step back and look at the longer-term impact of some of those decisions. We need to take the opportunity every year to make sure that, regardless of the short-term decisions that sometimes need to be made, we are nevertheless continuing along the path towards net zero—the challenge that the Government have set for themselves. To have that separate net zero/climate change consideration of the total use of all of our subsidies would be an important check for the Government to make sure that they are progressing towards net zero in the way that they should

In short, this Bill would have been much improved by enabling greater scrutiny of the subsidies granted. I regret that the Government are not doing more to enable that.

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Labour tabled amendments 15 and 18 to ensure the Bill explicitly states that subsidies and streamlined subsidy schemes can be used for the purpose of reducing regional inequality. Under EU state aid rules, subsidies could be, and indeed were, targeted at areas of economic deprivation, significantly aiding struggling regions. Labour recognises there were some drawbacks to the EU’s assisted area map, but it did, as my hon. Friend the Member for Aberavon (Stephen Kinnock) said, direct resources to areas of most need. The Government should not waste the opportunity the Bill brings to ensure we can target areas of economic deprivation.

[John Penrose]

I am listening carefully to the hon. Lady. I am sure everybody here would agree with the principle of trying to level up, particularly in parts of the UK outside London and the south-east, but can she address the point I was making about politicians having a long and really pretty awful record in picking losers? How does she think that, under her proposal, things are going to be different this time?

[Seema Malhotra]

I do not think it is about us picking losers or winners at all. This is about us using the data, understanding where there are areas of greatest need and having that as part of a data-led levelling-up agenda. Given that the Government have created a specific Department for levelling up, Labour is surprised that that mandate is not clear and that the hon. Gentleman does not have the answers he needs to have a framework that gives confidence that we are applying resources to areas of greatest need. To be frank, the Government’s record on that is not very strong. The Bill should be explicit that supporting areas of deprivation should fall squarely within the subsidy control principles.

On improving the way the new regime will operate, there is a serious lack of transparency in the Bill on how public money is spent and how value for money can be assessed.

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[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I thank hon. Members across the House for the informed debate on the Bill and will try my best to respond to their comments in the few moments that I have.

A number of amendments have been tabled on the topic of transparency, which I take really seriously. My Department is working on a programme of improvements for the subsidy database. To name just two examples, we are resolving the technical glitch that meant that subsidies were uploaded with a zero value. Additionally, we are developing an update to add the data for upload to the information published on the database. Officials will actively look at further improvements over the coming months and in advance of the new regime coming in.

The Government intend to review again the evidence collected as part of the consultation alongside that provided by witnesses to the Committee about the transparency provisions. We will reflect carefully on the points raised so far and engage further on our findings with parliamentarians in both Houses as the Bill progresses. I know the strength of feeling in the House on this matter, and we will consider carefully what further action we could take to address those concerns if they come back in the Lords.

I start with the amendments that would reduce the threshold at which subsidies are uploaded. The transparency provisions seek to minimise the administrative burdens and costs to public authorities while ensuring that information is available on subsidies that must meet the substantive subsidy control requirements. That is an important tool to aid interested parties to challenge potentially harmful subsidies. However, the amendments would create an additional administrative burden for public authorities, including small local authorities. Paradoxically, they could make it harder to identify in the database the most potentially harmful subsidies that are eligible to be challenged in the Competition Appeal Tribunal. Many small subsidies will also be publicly available via other transparency tools. Such data may not be perfectly formatted, but it does go far wider than subsidies.

In relation to services of public economic interest, there was broad support from consultation respondents for the application of different transparency measures. The contracts must meet the specific requirements set out in clause 29. That is why the database requirements are different for those subsidies.

[John Penrose]

May I just caution my hon. Friend? I think the paraphrase of his argument about the size of the subsidy database is that big databases are less transparent than small ones. That is clearly bonkers and not right, and I do not think it stands up to any scrutiny. He may be arguing that that is okay because other databases will have the information and that it can all be compared and contrasted, but that works only if the data is in a common format that allows for mutual searching, and there is no such plan for that. May I gently caution him about pushing that argument too far? I do not think it will stand much strain in the Lords.

[Paul Scully]

All I would say is that it is easy to hide something in plain sight, but the subsidy transparency database is being developed under the Cabinet Office’s standard system for all Government databases. I have talked before about interoperability, and we would expect to be able to link those databases and to scrape them in the future.