Subsidy Control Bill

Kevin Hollinrake Excerpts

3rd reading
Monday 13th December 2021 Commons Chamber

I represent Aberdeen North in Aberdeen city, which is bounded with Aberdeenshire. There are a lot of people and organisations and a lot of stuff happening between the two authorities. Aberdeen city is surrounded by Aberdeenshire. It is not out of the question that an organisation could be eligible for a subsidy from both local authorities because of the work it does across the boundary. That issue might arise because both local authorities could be giving a subsidy—particularly because it might not be uploaded in the subsidy control database until six months later. That compounds the problem, even if the Minister agrees to make the change to the MFA rules.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Lady makes some very fair points, but to be fair to the Government there are requirements under clause 37(6) for the business to keep records of the subsidies received and report them. That is probably in many ways more practical. That subsidy might be given to all kinds of different subsidiaries of that particular enterprise and therefore, even if she wanted local authorities to determine what they had received in the past, it would potentially be difficult to do so by checking against the database. It makes sense to give the business some responsibility for recording that.

[Kirsty Blackman]

Actually, what the legislation does is to give the business a responsibility to keep the letter. It does not give the business much more responsibility, in my mind, although I will go back and have a look at the clause the hon. Gentleman points me to. I think having the subsidy on the subsidy control database would make all the difference, but if he wishes to come back in, he can.

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[Kevin Hollinrake]

Clause 37(6) states:

“The enterprise must keep a written record detailing—

(a) that it has received a subsidy,

and

(b) the date on which it was given, and

(c) the gross value amount of the assistance.”

That to me indicates that it must keep a full record of what it has received.

[Kirsty Blackman]

Once again, yes, it has to keep a full record, but it does not have to show Aberdeen City Council that record. There is no requirement on the company to be transparent about that record; there is a requirement to keep it, but not to share it. Having it on the database or adding the requirement to share that record, should a granting authority ask in advance of granting a subsequent subsidy, would make the difference we are asking for.

However, that does not fix the issue in relation to transparency of data and ensuring that the database and the scheme are working properly. This was mentioned in the witness sessions. We need to know whether this is working, and we will only know if it is working if we have an idea of the subsidies being granted, even if they are below the MFA threshold.

I said I would come on to the definition of interested parties. Amendment 12 adds devolved Administrations to the list of interested parties. Again, we discussed this at some length in Committee and the Minister gave some assurances. I shall quote a couple of questions that I asked and the response that the Minister gave. I said:

“Does a devolved Administration’s interests include indirect interests?”

I also asked:

“What if a number of organisations in their jurisdiction are potentially affected by a subsidy given?”

The Minister answered:

“Yes. I would say that is a direct interest rather than an indirect interest. Public authorities, including devolved Administrations, may be interested parties.”––[Official Report, Subsidy Control Public Bill Committee, 16 November 2021; c.308-309.]

I am glad that he gave some clarity. It is sort of because of the way the questions were asked that the Minister’s response was slightly woolly. I would very much appreciate it if, when he responds to the debate, he could make it absolutely clear from the Dispatch Box that, in cases of indirect interests, devolved Administrations are considered as interested parties.

Let us say that a subsidy was given somewhere else in the UK, or even in Scotland, and that subsidy negatively affected the chances of seven businesses in Scotland. I think that the Scottish Government should be able to bring a request to the tribunal to say that that needs to be looked at and that they believe that that is an issue. Under the definition of interested parties, it is only those people whose interests have been affected. The Scottish Government’s interests would not have been directly affected by that, but they would have been indirectly affected. I was trying to tease out from the Minister that he believed that, definitely, the Scottish Government or any of the other devolved Administrations could bring a challenge on behalf of organisations within their area. I am quite happy for that to be limited to devolved competences even. However, if they are not in the Bill as interested parties, we very much need that commitment from the Minister. If they are not in the Bill as interested parties, why is the Secretary of State included in the Bill as an interested party? If the definition is wide enough to cover all those areas—

[Kevin Hollinrake]

The Secretary of State is not necessarily an interested party, which is why he needs to be named in here; he might not be affected. The hon. Lady’s point about being directly or indirectly affected is covered under clause 70(7), which says that an interested party means

“a person whose interests may be affected”.

That could be directly or indirectly, surely.

[Kirsty Blackman]

We discussed this at length, with a lot of banter, in Committee. But I have a concern that the provision does not say “directly” or “indirectly”. It does not make that as clear as it could. A clear statement from the Minister at the Dispatch Box would give me a level of comfort. I do not think that it is the intention of the Government to exclude the Scottish Government, the Welsh Government, or the Northern Ireland Assembly from making these challenges, but I think that the Bill is written in a woolly enough way that it potentially accidentally excludes them.

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[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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[Kevin Hollinrake]

I rise to speak briefly in support of the amendments tabled by my hon. Friend the Member for Weston-super-Mare (John Penrose). I will particularly address amendments 1 and 8, which are about something brutally simple: scrutiny and transparency. The Government are rightly approaching this through their obligation to meet the competition requirements of the European Union. For that purpose, £500,000 would perhaps be the right level.

I think this is about more than competition; it is also about cronyism and, potentially, fraud. My hon. Friend put it well when he talked about armchair auditors. Time and again, information about things going wrong is brought to the attention of parliamentarians like me by members of the public and members of the press. The more we give people access to such information, the more likely we are to clamp down on any suggestions of cronyism. Although most are ill-founded, it is important that we clamp down on any suggestions of cronyism and of fraud.

I agree with my hon. Friend that we should lower the threshold for reporting and registering on the database from £500,000 to £500. That seems an enormous difference, but consider what we know already. The easiest place to look is the furlough scheme and the bounce back loan scheme. The National Audit Office estimates that some £26 billion may have been lost in those coronavirus loan schemes, not all of it through fraud—some of it was through non-repayment of debt, or defaults. Nevertheless, a significant proportion of the moneys granted to businesses, which were effectively a subsidy, might have gone missing. The Government rightly put together a huge new team of people within Her Majesty’s Revenue and Customs, with an investment to the tune of £100 million, to try to clamp down on it by investigating the potential for fraud.

Alongside that, it would be a simple requirement for the database to include every single subsidy over £500 for the armchair auditors, the press, the public and—another important component—the whistleblowers. People within an organisation often do not know what subsidies the business may have received, but they might be able to identify the moneys as inappropriate and alert the authorities to that effect. Some 43% of all crimes are now economic crimes, and 40% of those are brought to light by whistleblowers, so it is hugely important that they have access to this information so they can scrutinise what is happening within these businesses.

My hon. Friend the Member for Weston-super-Mare asked why would we not do this? One answer might be bureaucracy and cost—we are not big believers in bureaucracy and unwanted, unneeded cost, and we rightly want to make our system simpler, not more complicated, for businesses—but the requirement to publish on the database is negligible. As others have said, businesses have to issue a letter anyway, so putting five bits of information on a database is not exhaustive. The impact assessment suggests that the total cost of doing it annually will be only £20,000 extra, which is insignificant in terms of the cost of red tape, but the benefits are huge.

As I mentioned in my earlier intervention, the US had much lower levels for reporting than we did. Our level was €500,000 for telling the EU who received benefits from the loan schemes, and it was done quite late in the day, after the loans were received by businesses. In the US it was $150,000, which effectively brought about a $30 billion return of moneys to the US Treasury because those businesses were embarrassed to be receiving the moneys inappropriately.

Another reason we are not doing this is that, when the British Business Bank looked at the coronavirus business interruption loan scheme and the bounce back loan scheme, it felt it should not report on this because it might be likely to lead to

“speculation about the Recipients’ financial position”.

I do not agree. Even if it were true, we are already putting on the database loans over €500,000. Are we saying only businesses below that level would have that problem? That is clearly not the case. A lot of businesses that received coronavirus business interruption loans over £500,000 were quoted on AIM, for example, including my own business. I draw the House’s attention to my entry in the Register of Members’ Financial Interests, although I am no longer associated with that business in any meaningful capacity, as it was subject to a takeover earlier this year. I would have no problem at all with the loan we took under the CBILS programme being declared on a database so people could see it. The reasons we were taking it were quite obvious and I do not think it brought our financial position into question at all. Clearly, in the desperate times we were in, most people would see that we were going after desperate measures in terms of insurance policies, which the loan was to most companies. I do not see that as a valid reason for preventing the declaration to the database being completed for all subsidies down to that £500 level.

I will refer quickly to amendment 8. Allowing individual challenge to individual decisions under a subsidy scheme is another check and balance—another way to ensure money is being handed out appropriately. I think all these amendments make sense, which is why I have signed them all. To give the public, the press and Parliament access to the database is a crucial step. I do not think it would be a bureaucratic issue at all for the people responsible for it. I know we have spoken about it, but I urge the Minister to look at this again and to table such amendments at a later stage, if they are not accepted today.

[Liz Saville Roberts (Dwyfor Meirionnydd) (PC)]

Diolch yn fawr, Dirprwy Lefarydd. It is interesting to hear the hon. Member for Weston-super-Mare (John Penrose) describe this Bill as part of a post-Brexit dividend. For many of us from the devolved nations, it actually bodes ill. It bodes ill in relation not just to key devolved competencies, but to questions about whether this negates the power of public procurement and, particularly, whether it undermines the levelling-up agenda. We would expect to see more principles in operation than we currently do, particularly when we compare this with the regimes we worked with and complained about, but were familiar with, under the European arrangements.

My party, Plaid Cymru, will support new clause 1, proposed by the hon. Member for Aberdeen North (Kirsty Blackman), which would exempt devolved agricultural subsidies from the subsidy control requirements. This is a vital new clause that protects our farmers and ensures that the devolved nations can continue to tailor support to local requirements and priorities. I do not think I need to persuade anybody in this Chamber that UK agriculture is highly regionalised in its type, its significance, the impact it has on its local economies and whether it requires region-specific subsidy for its needs.

I am very much aware of that for the less favoured areas, representing as I do the constituency of Dwyfor Meirionnydd, which is very much an upland area. I have whole communities watching these legislative developments with some concern. I know the farmers’ representatives from Wales, Scotland and Northern Ireland are equally concerned about the implications of what, on its face, appears to be a fairly technocratic Bill, but none the less sets a precedent for the sort of legislation we see coming out from the trade and co-operation agreement in the United Kingdom Internal Market Act 2020.

In Wales, where more than 80% of land is used for agricultural purposes and farmers are the bedrock of our rural communities, guardians of our natural environment and protectors of our cultural identity, subsidies are vital to protecting that legacy. The latest farm business survey showed that subsidies provide on average 30% of upland cattle and sheep farms’ income. Leaving their fate to a Westminster Government set on securing questionable trade deals that boost UK GDP by 0.01% to 0.03% while at the same time sacrificing our farmers is clearly unacceptable. Equally, without this new clause, the Bill would pre-emptively tie the hands of the Welsh Government as they look to establish a new, post-EU subsidy regime. I therefore urge hon. Members across the House to support the clause to protect our farmers, as well as amendment 11 on net zero commitments.

I also extend my support to the amendments tabled by the Opposition, including amendments 19, 23 and 26, which would extend the rights of the devolved Governments. Although I believe that they could, and possibly should, be strengthened by recognising the value of the co- production of guidance, they nevertheless address somewhat some of the Bill’s governance issues. As we have seen time and again, the Government play hard and fast, and make the rules up as they go along. That is why such guarantees as are offered by the amendments are so important.

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[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.

[Kevin Hollinrake]

Does the hon. Lady not agree that the problem with amendment 16—the net zero amendment —is judging what is consistent with the net zero commitments? I have a Westminster Hall debate tomorrow —at 4 o’clock if anybody has nothing better to do and wants to tune in. On greenwashing, for example, it is incredibly difficult to ascertain what complies with net zero when there is so much noise around this. We need to improve in that area. Is this not really a charter for lawyers to take these subsidies to court time and again? Is not that the problem with her amendment?

[Seema Malhotra]

I thank the hon. Member for his intervention. We have agreed with many of his amendments. What he has just said actually lends even greater weight to wanting to make sure that that is a consideration and that we have the resources to support that. Perhaps he will talk to those on his own Treasury Bench about this, because we would have hoped that by now there would be a clearer road map for how the country is supposed to move forward to achieving our net zero commitments. He will know as well as I do that many small businesses have been crying out for a road map to net zero to know what can make the most difference, how to assess it and how to look at whether they have a decarbonisation strategy that is fit for purpose. So I think he is lending weight to our argument that we need something in the legislation to help drive the processes behind that. People want answers and want to know they are doing the right thing and making the right investments on our road map to net zero.

I was referring to the serious lack of transparency in the Bill around how public money is spent and value for money can be assessed. There is no requirement to report subsidies below £315,000 over three years. An unlimited number—an unlimited number—of subsidies up to £500,000 could be made under a scheme and not one would need to be reported, as long as the scheme itself apparently is reported. That is not good enough. The argument that this is in order to be consistent with the EU fall because the thresholds in the EU state aid regime were in the context of a very different regime; they were in the context of a scheme of pre-notification, where scrutiny took place before the allocation of the subsidy, not a permissive regime that challenges subsidies after they have been granted. In that context, we must think differently about what we seek to import; we are not importing the whole environment around how those decisions were made in the past.

The Minister has previously stated that we are in a position to be able to change those thresholds—it is not a matter of can’t; it is a matter of won’t. The hon. Member for Weston-super-Mare (John Penrose) said very cleverly: if this is so obvious and the Minister agrees with transparency, why are we not doing it?

During covid, we have seen Ministers wasting money on crony personal protective equipment contracts. I could spend my entire speech talking about this, but my main point is that that would have remained hidden from the public and from Parliament without ongoing freedom of information requests. Transparency on public expenditure—who is paying out, how much is being given, who it is going to and what it is being used for— are basic questions that we should know answers to as a matter of routine on subsidies being paid by our Governments, local authorities or other public authorities. Greater transparency, not less, should underpin the system of self-assessment by public authorities that sits at the heart of the Bill and our responsibility to the taxpayer.

The Centre for Public Data has made it clear that greater transparency would help ensure the honesty, consistency and efficiency of the system. It is also essential that interested parties—be they competitors, other public authorities or groups acting in the public interest—are able to challenge subsidies that they believe are distortive or unfair.

On the subsidy database, we support amendments 1 to 8 on transparency and reducing the threshold for the requirement to report on the database. This includes subsidies made under a scheme referred to in amendment 1. As the Bill stands, subsidies made under a scheme with a value of less than £500,000 do not have to be entered on to the database. There is no convincing reason for that, and it is in the public interest that all subsidies under a scheme be published. Worse still, a scheme can be registered with little information so that there will be no overall transparency for a scheme under which millions of pounds of taxpayers’ money could be spent without scrutiny.

Amendment 8 in the names of the hon. Members for Weston-super-Mare and for Thirsk and Malton amends clause 70, which currently provides that, where a subsidy is made under a scheme, the decision to grant an individual subsidy cannot be reviewed. The amendment suggests that the response given by the Minister in Committee was not reassuring enough.

This set of amendments also reduces the timeframes in which subsidies must be entered on to the transparency database and the timeframes in which any modifications must be uploaded. Members will be aware that the Bill currently requires subsidies or schemes to be entered on to the database within six months of being made or within one year in the case of a tax measure. We argued in Committee that there was a need to reduce those timeframes. Having longer makes it more likely to result in an incomplete or inaccurate entry, because officials may leave or records may be lost. We heard evidence from Jonathan Branton, a legal expert in the area, who said,

“I have yet to hear a…persuasive case for why you need that long to publish…an award.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 58, Q79.]

Amendments 21 and 22 were intended to bring all services of public economic interest subsidies with a value of more than £500 into the scope of transparency requirements. We do not understand why such subsidies—those up to £14.5 million or all those in the case of hospital care, adult social care and certain public transportation services—should be excluded from transparency requirements. With respect to amendment 6, we firmly support the need for the date of the subsidy to be entered on to the database. There should be no ambiguity about the day that the clock starts to tick for the period in which a challenge can be brought.

If the Minister wants to try to argue that greater transparency would lead to higher costs and more red tape for public authorities, that does not hold up to scrutiny either, because they have that information and they are used to reporting their expenditure above £500. That point was made on Second Reading as well by the hon. Member for Weston-super-Mare. When giving evidence in Committee, Dr Roger Barker of the Institute of Directors said that

“there should be transparency at every level of subsidy”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 37, Q48.]

A transparent system is important, but so is the quality of the data contained in it. That is why we tabled amendment 20, which would require the Secretary of State to ensure that the subsidy database is subject to routine audit to verify the accuracy and completeness of entries. That would incentivise complete and accurate reporting and provide a mechanism for putting errors right.

In Committee, we heard clear evidence that the database in its current form contains significant inaccuracies and gaps in the data entered. Expert witnesses suggested that not all subsidies were being entered, as just 501 subsidies were recorded in the best part of 10 months. Of those entries that had been recorded, more than half had a zero or nil value, so either the database is not fit for purpose or the entry of data by public authorities has not been up to scratch—or both.

If the database is not subject to any oversight or control, and if inaccurate or incomplete information entered on to it is not checked, poor-quality information is likely to lead to misguided legal challenges or to harmful subsidies failing to be addressed. We want to be constructive on this point, which is why the amendment is drafted in a way that permits the Secretary of State to decide who should undertake the audits and how they can be done most effectively.

On devolution, this is not a fair four-nations Bill. As it stands, regulations and guidance can be developed without seeking the consent of the devolved Administrations; only the Secretary of State can call for subsidies to be assessed by the CMA; and there are no requirements for the devolved Administrations to be represented on the CMA’s new subsidy advice unit. That is important because we need a system that commands the confidence of all four nations.

The devolved Administrations should be given a genuine voice in developing and implementing the new regime. The Minister’s response in Committee to our concerns and those of the devolved Administrations was that he had had a number of meetings with the devolved Administrations and would keep talking to them. I would be grateful if he could provide an update on those discussions.



Amendments 23 to 25 would provide Scottish, Welsh and Northern Irish Ministers with the power to call in subsidies or schemes under clause 55. Currently, only the Secretary of State has the power to issue a call-in direction, triggering a report to the CMA. On that basis, the CMA’s reports are not binding on a public authority. The harm of extending the call-in power to the devolved nations is not clear to us. Why is the Secretary of State empowered to call in Scottish, Welsh and Northern Irish subsidies that may damage economic interests in England but the Scottish, Welsh and Northern Irish leaders cannot call in subsidies that they believe can cause economic harm in their nations?