Subsidy Control Bill (Second sitting)

Kirsty Blackman Excerpts

Tuesday 26th October 2021 Public Bill Committees

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

I am happy to let Ms Blackman go first.

[Kirsty Blackman (Aberdeen North) (SNP)]

Q Thank you, Ms Nokes, and thank you, Minister. Dr Barker, you seemed to say that pretty much all of the subsidies should be declared—that there should be transparency about all subsidies. Can I check that was what you said there?

Dr Barker: That is what I said, yes.

[Kirsty Blackman]

Q Okay. Perfect. You are in the unusual position where you represent both those people who may receive subsidies and those who may challenge subsidies. Do you feel that the balance is right? Do you feel that, given how the Bill works, your members are likely to be able to challenge subsidies that they feel are disadvantaging them or their organisations?

Dr Barker: This is why I was arguing for transparency. Transparency is an important part of that. A lot will depend on how quickly and effectively the system operates and how much trust there is in the system. If you are potentially a competitor and you can see that there is a clear justification, based on widely understood principles, for a subsidy—it is something that is not being covered up and that is openly stated—and if you have trust in the decision-making process, the system is going to work well, and there is probably going to be less legal challenge from competitors. But as soon as that trust is lost—because things are taking too long, because there is a lack of transparency, because decisions are being made on a very unsafe basis, or because officials do not understand how to apply the principles—that is going to build mistrust and that will then lead to more legal challenge and more problems from the system. It is very important that all the components of the system have the right resources and the right clarity in terms of guidance, and that there is transparency.

[Paul Scully]

Q Dr Barker, you rightly mention guidance—that you want to give certainty, but not be too prescriptive. I take your point about that, and we need to make sure it works for the whole of the UK. We have a more permissive approach, with the seven principles. Assuming that we set and define subsidies that are of particular interest to your satisfaction—perhaps just the most distorting, rather than the wider definition you were worried about—will that give enough certainty to businesses and the flexibility that they need to be able to prosper in the UK without the more prescriptive system of EU state aid?

Dr Barker: Yes. For us, it is very much about finding the balance. We absolutely do not want a highly prescriptive, bureaucratic regime. We really do see the benefits to our members of nimbleness. It is finding that balance between being nimble and not too nimble, such that decisions are made that then subsequently fall through. It is finding that sweet spot that we need to search for.

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[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.

[Kirsty Blackman]

Q I have a couple of questions. In the event that BEIS is the granting authority, the only person, realistically, who can make a referral to the CMA to look at it is the Minister, who is in charge of the granting authority. Is there an argument for other people to be added so that a conflict of interest does not arise?

George Peretz: That is absolutely a fair point. If the subsidy measure comes from central Government or even if it is BEIS that is the granter, is it realistic to expect the Secretary of State to call it in or make a post-award referral? You are obviously going to be concerned, from a Scottish perspective, with the possibility that you have a BEIS decision—there is serious concern about this in Scotland—that has an adverse effect on the Scottish economy in some way or another. That is the point I was making. It does seem to me right, as matter of principle, that in those circumstances the Scottish Ministers at least—and potentially other people—would have the right to send the matter off to the CMA to consider.

Bear in mind that the CMA report is not binding, so in a situation where the Secretary of State wanted to say, “Well, I hear what the CMA says, but I just disagree: I still think that this measure is wholly compliant with the principles and the CMA has just got it wrong in suggesting that I change it”, he can go ahead. It is then a risk of litigation—it might be better if the Scottish Ministers had a clear right to bring that litigation too, but that is the current position.

[Kirsty Blackman]

Q That is helpful. I have a couple of additional questions following on from Stephen Kinnock’s question about the Northern Ireland protocol. We have heard already that granting authorities in the UK tend to be fairly risk averse. Given their risk-averse nature, would a situation where most of the granting authorities in the UK are advised that they have to apply state aid rules as well as the Subsidy Control Bill rules make it more difficult for them to put in subsidies in the way that the Government are hoping?

George Peretz: It certainly generates work, so I look at it not entirely unfavourably, but yes, from anyone else’s perspective it is a bad thing. There is certainly an issue, and not much that the Bill can do about it. Given the way article 10 stands, the Bill does the only thing that can be done, which is simply to exclude from the Bill measures falling within the scope of article 10, but you do then have that issue.

When we were members of the EU in the old days, you would advise on something that was state aid, or was certainly likely enough to be state aid that the beneficiary—they tend to be quite cautious because they do not like to receive money that they then have to pay back—said, “We are rather concerned that it is state aid, but it does not seem to fall within the any of the block exemptions and has not been notified and cleared.” In the old days, if the grant were a from local authority, the beneficiary would go off to BEIS, which would take a look at it, and if there was a real risk that it was state aid, they would be notified. That happens now, but there is a bit of a suspicion that BEIS will take a somewhat conservative view of what article 10 covers, because that is the UK party line. That is fine, but the UK party line may not actually be right and may not be what a UK court would decide.

If you are the beneficiary of a grant from a local authority in the situations that I have described, and you are concerned that your competitor may challenge that as an article 10 measure in the UK courts, as they are entitled to do, the BEIS guidance says that it should be fine, and although the court may read that guidance, it certainly would not be bound by it. Ultimately, if a UK court is uncertain, it will refer the matter to the European Court of Justice, about which we have heard rather a lot in recent days, and it will decide, or at least decide the parameters within which that decision is to be taken. It is all a bit of a mess.

[The Chair]

I will bring the Minister in because we will have a hard stop at 3 pm.

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[The Chair]

I will bring in Kirsty Blackman and come back to you if there is time.

[Kirsty Blackman]

Q You spoke about the generalities of where it says Secretary of State quite regularly in the Bill, Daniel. Clause 70 specifically talks about interested parties and those people who are able to call in a subsidy; it mentions the Secretary of State, but also persons

“whose interests may be affected”.

In your view, could we ensure that Scottish Ministers, Northern Irish Departments or Welsh Ministers have that ability by amending that section, by the Minister saying in Committee that that is the case, or by changing the explanatory notes? Would those all be routes that would allow those three authorities to have the ability to refer as well?

Daniel Greenberg: From a purely technical perspective, I think that is on the cusp of the things that I would be comfortable encouraging you to simply put in the explanatory notes. It either is an interested party or it is not. If it is not, saying in the explanatory notes that you hope it is may not be enough to get you over the line, in contrast to the Minister helpfully saying so to the Committee.

If I may briefly speak about the difference between explanatory notes and a Pepper v. Hart statement, Chair? The official explanatory notes are a source that the courts will have regard to in determining doubts and questions about the law. A Pepper v. Hart statement is the law: it is part of the legislative intention when the Act is passed, so it is more powerful.

However, if the Act says “dog” but the Minister says to the Committee, “We meant cats as well”, that will not help. You can have all the ministerial statements you like, but if it don’t go woof, it isn’t covered. However, if you have a clear understanding that it is expected that interested parties are to include the devolved Administrations, then the Minister saying that that is the Government’s legislative intent in using that phrase gets you well over the line. Would you then need an amendment? No.

[Kirsty Blackman]

Q Another additional question on that—the other thing that has concerned me, as well as a number of the witnesses today, is the amount of stuff that is in regulation and guidance, not in primary legislation. Do you feel that the balance has shifted towards more things being done by guidance and regulation in recent years? Do you feel that there is a significant portion of the Bill that is being done by regulation and guidance, rather than through primary legislation, or even by affirmative procedure?

Daniel Greenberg: Yes, okay, there is a bit of a shift, but it has been quite slow. People have been complaining about the increase in skeleton Bills by successive Governments since I started in public service 150 years ago. So, there is an increase, but it has been gradual.

However, if I may say so, you should not be complaining about that here. My whole point is that this is inevitably a Bill about structure and shape. Those of you considering the devolved institutions and other interests want to ensure that you have the flexibility to move forward while balancing everybody’s interests. The best way to do that without having to come back to Parliament each time is to ensure you have powers with a mechanism for consultation and co-ordination. Then, you know that that process of co-ordination will have the powers necessary to give effect to it through subordinate legislation and quasi-legislation. You should not be complaining on this occasion, because the Bill needs to be skeletal in order to give the flexibility for the ongoing relationships between the different powers concerned by the substance of the Bill. Does that help?

[Kirsty Blackman]

It does, thank you.

[The Chair]

Thank you. Seema Malhotra, did you want to come back in?

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[Seema Malhotra]

Q We had some discussion about clause 70(7)(a), and there is some point of clarification about the definition of “interested party”, which I do not think is fully clear in relation to the devolved Administrations, but either we agree on the need for the Bill to be taken forward, I hope with some significant improvements, or there is a view that that cannot be achieved. I want to come back on a couple of points that you made, Mr McKee, that I was not fully clear on. The first is on being prepared to be involved in discussions, the question being what outcomes would be achieved. Do you feel clear at the moment on what specific changes, whether in relation to call-in powers, an obligation to consult or consent, you would want to see inserted in the Bill to meet some of those concerns? It would be very helpful to understand specifically what they were. Perhaps that could be in writing afterwards.

Secondly, I was not fully clear on what your view was in relation to local authorities. It seemed that it was more for the Scottish Parliament to decide what local authorities in Scotland may or may not do, rather than local authorities across the UK being able to make subsidies if they felt that they were in line with the subsidy control principles, and beneficial for their area. I was slightly confused on what your view was about local authorities being able to make subsidy decisions in Scotland. Perhaps you could come back on both those points, and put in writing what specific changes you want to see.

Ivan McKee: On the specifics of what our asks would be, I am very happy to put that in writing. In broad terms, it centres around, as I said, the requirement to not have the Secretary of State able to operate in devolved areas, as per the devolved settlement, and for the Scottish Government and Scottish Ministers to be able to do that. For us to have equivalent powers as it refers to devolved areas would be the ask, in broad terms. I have outlined some of that verbally, but I am very happy to come back to the Committee in writing with the details on specifically what that means.

Local authorities have always been able to grant aid within the rules that exist, so effectively nothing changes there. What changes with regard to the Bill is the authority that it gives the Secretary of State that it does not give in devolved areas to Ministers in the devolved Administrations. That is our concern.

[Kirsty Blackman]

Q Nice to see you, Ivan. My question is about the priorities and the fact that we are being asked to take on trust an awful lot of the stuff that is coming forward in regulation and guidance. Given the current track record of the UK Government and their relationship with Scotland, trampling over the Scottish Parliament, do you think that it is likely that the regulations and guidance that come through will be in any way suitable or tailored to the needs of Scotland, or do you think that they are likely to be done for the benefit of the UK?

Ivan McKee: Experience has shown us over recent years that the commodity of trust is in short supply. We would be very concerned if the issues that we are talking about were not dealt with in the Bill. I think we would be in a very difficult place if we were relying on guidance that might come out later to give us the comfort that we require that this was not a challenge to the devolution settlement, and the powers of the Scottish Government and Scottish Ministers.

[Kirsty Blackman]

Q Just one more on that. Are you aware that about one 10th of the subsidies on the UK subsidies website are from Scotland? About 50 of the 500 are Scottish subsidies. Scotland, presumably, does not do 10% of the subsidies in the UK. Do you think that the UK probably needs to pull its socks up a bit there?

Ivan McKee: I would not like to comment. We do what we think is right for the people, communities, regions and businesses in Scotland. I am sure that the UK Government will do what they think is right for businesses in England.

[The Chair]

If there are no further questions, I thank you, Mr McKee, on behalf of the Committee for giving evidence to us today.

Ordered, That further consideration be now adjourned.—(Michael Tomlinson.)