Subsidy Control Bill (Eighth sitting)

Kirsty Blackman Excerpts

Thursday 4th November 2021 Public Bill Committees

[Seema Malhotra]

I thank the hon. Member for his contribution. He will see from the contributions of Opposition Members that we are not saying that exactly the same powers should be given in all circumstances to the devolved Administrations, but that there are areas in which arguments for the devolved Administrations having similar powers make sense within the context of how the regime may operate. With a view to how issues could be raised and dealt with, there may be very good reason for doing that. We propose this not for political purposes but because we seek a regime that will work effectively and with some symmetry of powers relating to the opportunity, where it would be helpful, to challenge subsidies. I will lay out a couple of reasons why.

The clause gives the Secretary of State the power to make post-award referrals to the CMA but does not extend this power to the devolved Administrations. The specific purpose of the amendment is to extend the post-award referral powers in the clause to the devolved Administrations. As it stands, the Secretary of State can refer to the CMA subsidies granted in Scotland, Wales and Northern Ireland that may be perceived to damage the interests of enterprises in England. However, the devolved Administrations cannot bring forward an argument. They may in time have good reason to refer subsidies—English or others—to the CMA that they may perceive damage interests within the devolved Administration areas.

[Kirsty Blackman (Aberdeen North) (SNP)]

I do not intent to speak to the amendment, but I want the Opposition spokesperson to know that she has my full backing for it.

[Seema Malhotra]

I thank the hon. Member for her contribution in response to the challenge to us from the Government side, which I do not think is at all fair, because we have not at any point argued against this being a reserved power or the overall structure of the Bill. We have genuinely sought to amend the Bill to make sure that there is a fair and sustainable settlement that commands the confidence of all our nations.

Powers on subsidies and the regime overall should reside in Westminster, and we understand that it is crucial that subsidies under the regime do not distort the UK’s internal market—we would raise little concern on that, and we think it is vital that that is the case—but as such, devolved Administrations, such as the Scottish Parliament or Welsh Senedd, should have the opportunity to receive the CMA’s advice on subsidies that they consider could damage their national interest. It is not only Labour that thinks that. During the evidence session on 26 October, George Peretz QC, a barrister specialising in state aid, said:

“In a situation where an English local authority, the Secretary of State or another UK Government body acting as an English Department does something that is designed to benefit England but causes serious concern in Scotland or Wales, why should the Welsh or Scottish Ministers not be able to do the same thing if the concern is with competition or investment within the United Kingdom? I find it slightly hard to see what the argument against that is.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 44, Q63.]

Could the Minister share his reflections on those comments? Perhaps he will offer a robust argument for not allowing the devolved Administrations to make post-award referrals, because we fail to see a valid argument for that exclusion. Instead, it feels more like a lack of a fair distribution of powers, and something we should consider as the Bill makes progress. We therefore propose the amendment.

We hope that the Committee sees its importance in ensuring that Scotland, Wales and Northern Ireland feel that they have a fair role in the subsidy regime. I will await the Minister’s remarks before deciding what we shall do on this amendment.

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[Seema Malhotra]

It is my pleasure to move amendment 56 and to speak to amendment 57. We would like to address some further important gaps that we think exist in clause 60. First, as the clause stands, the Secretary of State cannot make a post-award referral on the basis that a subsidy may distort competition between the UK and a third country. In an article on 5 July entitled “UK Subsidy Control Bill—a brief summary”, George Peretz QC said that

“oddly, the Secretary of State does not appear to have that power if the possible subsidy only affects foreign countries, though such subsidies could well cause difficulty at international level.”

Labour is therefore proposing amendment 56, which would allow the Secretary of State to make post-award referrals on the basis that a subsidy or scheme is distorting international competition. We hope the Committee can understand why this is an important amendment. If the Government choose not to support it, will the Minister outline what the reason is and why the Government do not feel the need to refer subsidies that distort international competition to the CMA?

Secondly, we are proposing amendment 57, which would change the Secretary of State’s time to refer a subsidy or scheme to the CMA from 20 days after it is published on the database to 20 days after it is granted. The amendment is not intended to be used as a tool for reducing the time for post-award referrals; rather, it is intended to ensure that the Secretary of State can refer to the CMA grants that public authorities have incorrectly not categorised as a subsidy and that have therefore not been posted on the database. We hope the Minister recognises that, as the Bill currently stands, there is a loophole whereby subsidies incorrectly not identified can escape scrutiny and transparency. Amendment 57 is an attempt to close the loophole, and I therefore hope that the Government will work with us and support it.

[Kirsty Blackman]

Thank you for chairing this afternoon’s meeting, Mr Sharma. I have a brief comment about the omission of the power set out in amendment 56. I would appreciate it if the Minister could let us know what assessment he has made of its compatibility with the trade and co-operation agreement and the World Trade Organisation rules if the Bill does not contain the power that the Opposition are suggesting should be put in via amendment 56.

[Paul Scully]

Clause 60, as we have heard, provides a power for the Secretary of State to direct a public authority to refer a subsidy or scheme to the subsidy advice unit after it has been given or made. The power can be used where the Secretary of State judges that there is risk of failure to comply with the subsidy control requirements, or of negatively impacting on competition and investment within the UK. The purpose of the power is to ensure that there is an opportunity for the subsidy advice unit to provide independent scrutiny and evaluation of the public authority’s assessment of compliance with the subsidy control requirements in circumstances where the subsidy or scheme was not subject to mandatory referral before the subsidy was given or the scheme was made. That independent analysis will increase transparency and provide useful information to the Secretary of State and any potential interested parties, if they are considering a judicial review challenge to the subsidy or scheme. In circumstances whereby the subsidy is given in multiple instalments or further subsidies will be given under the scheme, it may also give the public authority advice that allows it to make adjustments for future instalments or subsidies.

Amendment 56 would add a further scenario that would permit the Secretary of State to direct a referral where they were concerned about a subsidy or scheme’s potential impact on competition and investment between the United Kingdom and other territories. Clause 60(2)(b) explicitly underlines that a referral may be made where

“there is a risk of negative effects on competition or investment within the United Kingdom.”

That is important, because it reflects the domestic character of the new subsidy control regime and emphasises our commitment to protecting our vibrant free market economy.

However, as we have heard, the subsidy control regime is also concerned with impacts on international trade and investment and, in order to comply with our international obligations, this is enshrined in the subsidy control principles. In particular, principle G requires that the benefits of a subsidy or scheme outweigh the negative effects, including those on international trade and investment.

[Kirsty Blackman]

The Minister is attempting to explain why the Government have explicitly included one of the principles, but not the other principle. It seems to me, if one principle is included, they all need to be included, or none of them. Giving extra importance to one principle suggests that the other principles are less important, and therefore amendment 56 makes a huge amount of sense to me.

[Paul Scully]

I will come back to that in a second, but let me finish talking about principle G. If the Secretary of State has concerns that a subsidy does not comply with principle G, or any other subsidy control requirement that is connected to international trade or our international obligations, then they may already direct a referral under subsection 2(a) of this clause, meaning that this amendment is redundant.

I also want to point out that the Bill deliberately refers to “trade or investment” between the UK and other territories, rather than “competition or investment”. The Secretary of State does not have any role in managing the balance of competition between nations. That is enshrined in those obligations.

Amendment 57 concerns the time limits for the referral power in clause 60. The Bill limits this power to within 20 working days from either the day in which the subsidy or scheme is entered onto the transparency database, or, where a subsidy or scheme is exempted from that requirement, 20 working days from the date the subsidy is given or made. These timeframes mean there is a significant window during which a post-award referral may be made. Most subsidies and schemes must be entered on to the database within six months of being given or made, while for tax measures, as we have discussed, the period is within a year.

Amendment 57 removes the ability to issue a post-award referral following entry on the transparency database, and would only allow a referral within 20 days of the subsidy being awarded or made. There is no loophole, as was suggested, but 20 days after the upload of the database is the end of the time period when the referral needs to be made. It does not start with the date of the upload on the database.

[Kirsty Blackman]

On the point the Minister made in relation to “competition or investment” and the disparity between that and “trade or investment”, if the Opposition amendment referred to “trade or investment”, would it be acceptable to the Minister?

[Paul Scully]

Again, the principles are enshrined, and it is the principle that complies with those international treaty obligations.

Going back to the timeframes, amendment 57 would have the effect of curtailing the power and reducing the opportunity to provide transparency on the most concerning subsidies. That would mean, in some circumstances, the deadline could have expired before the Secretary of State or any interested party had any news of the subsidy at all. The additional scrutiny and transparency offered by this measure will undoubtably be lost in some cases which may have benefited from the use of this power, and risks undermining confidence in the system as a whole. I therefore request that the hon. Member withdraw amendment 56.

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The Government are clear that nuclear energy subsidies and subsidy schemes should be subject to the terms of the subsidy control regime. This includes referral to the subsidy advice unit in cases where the subsidy or scheme in question is of interest or particular interest.

[Kirsty Blackman]

I am baffled by this Government amendment. It seems to be directly opposite to what the Opposition moved. The Opposition were concerned that one of the principles was mentioned in the post-award referrals clause, but the others were not. With amendment 5, the Minister concedes that one of the principles should not be mentioned and is therefore asking for it to be taken out of clause 62 but not of the post-award referrals clause. To clause 60, he argued, I think, that it was okay to include one of the principles, but not the others. I am confused about why he made one argument at one point in the debate but is now arguing the opposite—for the removal of one of those principles.

[Bill Esterson (Sefton Central) (Lab)]

It is good to see you back in the Chair, Mr Sharma. The hon. Member for Aberdeen North makes a good point, which we reiterate, about amendment 5, which we will come to because of its relation to our amendments to clause 64.

[Paul Scully]

On the point made by the hon. Member for Aberdeen North, in the previous sitting we talked about UK competition and investment. It simply emphasises the point about UK competition and investment. It does not have any significant effect, because it is already captured in the guiding principles. We want to make sure that there is absolute clarity for businesses and public authorities with clause 62.

[Kirsty Blackman]

So the principle has been removed from clause 62 but is being kept under clause 60? Is that correct? There is no Government amendment to remove that provision from clause 60, but the Government felt it was so important that they need to remove it from clause 62, even though it is literally the same—whether it is post-award referrals or CMA reports following a post-award referral. I am just baffled by the inconsistency, to be honest.

[Paul Scully]

There is no Government amendment to clause 60.

Amendment 4 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

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[Bill Esterson]

There is a monumental lack of scrutiny in the clause that should not be allowed to continue, so we will oppose it.

[Kirsty Blackman]

I have a few questions. Are there any circumstances in which a subsidy given under a subsidy scheme could be considered of interest or of particular interest where the scheme itself is not considered of interest or particular interest? If that is the case, is it possible to ensure that a subsidy scheme in which any of the potential subsidies are considered as possibly of interest or particular interest is subject to the mandatory or voluntary referral, rather than the subsidies given under those schemes not being subject to any referral, despite the fact that some of them might tick the boxes and some will not? Does the Minister see what I mean?

I understand that the question is complicated but, specifically, I am concerned about the lack of ability to refer individual subsidies. Only subsidy schemes may be referred to the mandatory or voluntary referral process; the subsidies made under those schemes may not be referred. However, if we had a scheme that seems to tick all the normal boxes to make it acceptable as a subsidy scheme—it is given under clause 10 and all makes sense—but one of the subsidies given under that scheme is something that is of interest or particular interest, will the Minister confirm that that scheme will therefore be subject to mandatory referral, even if only one of the subsidies given under the scheme is of interest or particular interest?

Even from reading clause 10, I am not sure quite how tight “subsidy scheme” is drawn. Subsidy schemes—given the schemes we have seen in relation to covid, for example—can be incredibly wide and apply to a significant number of industries, whereas the Secretary of State might have made it clear that any subsidies given under agriculture, for example, are considered as particular interest. A scheme could apply to everything in a certain area—widely drawn—but might not be challengeable in its own right.

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[Kirsty Blackman]

I want to raise specific concerns about the first part of this amendment—I am not concerned about the amendment, but I have concerns relating to the first part of it, which is about taking out paragraph (a). Paragraph (a) relates to streamlined subsidy schemes, which were discussed in clause 10. In clause 10, the streamlined subsidy schemes are allowed to be made only by a Minister of the Crown, rather than by anybody else. I understand the Minister’s desire for an ability to make streamlined subsidy schemes—that makes sense. Unfortunately, the amendments that were tabled to widen that out to allow the devolved Administrations to make streamlined subsidy schemes were not accepted.

The exemption of streamlined subsidy schemes from the whole of chapter 1 of part 4 bothers me. If the whole point of the streamlined subsidy schemes is in order for things to happen quickly, I understand that the Minister would not want the mandatory or voluntary referral process to apply in respect of them. However, I do not understand how he can justify the post-award referrals not taking place specifically for streamlined subsidy schemes. It is completely reasonable that, should a streamlined subsidy scheme be about a subject of interest or particular interest, a post-award referral should take place.

I understand completely that the subsidy scheme needs to go before Parliament in order to become a streamlined subsidy scheme, but Parliament is not always right. Sometimes Parliament is wrong, and sometimes it bears scrutiny from experts such as the CMA, which should have the ability to look at this as a post-award thing. I would probably not have gone quite as far as the Labour Front Bench, although I will support this amendment, but I have particular concerns about the lack of post-award scrutiny for streamlined subsidy schemes. If we have a parliamentary process, we are not getting the benefit of the CMA’s advice or its consideration.

It is the case that mistakes were made during the course of covid. Things were done too quickly, and errors were made as a result. An after-the-fact examination to find out what went wrong and whether it is possible to do better next time would be helpful, particularly around streamlined subsidy schemes. Once again, that is not about trying to remove the speed of the process—I understand why the Minister wants that speed—but about a post-award or post-subsidy scheme set-up check to ensure that things are going the way the Government intend them to go.

[Paul Scully]

Clause 64 provides for a limited number of exemptions from some or all of the provisions on the referral of subsidies and schemes to the SAU. The objective of subsections 1 and 2 is to list the types to which it is inappropriate for the SAU referral provisions to apply.

In some cases, the substantive subsidy control requirements do not apply, so it is not possible to evaluate a public authority’s compliance with those requirements. In other cases, the subsidy needs to be given so quickly, as we have heard, that it would not be appropriate to add an additional process that could delay the subsidy.

In the case of streamlined subsidy schemes, the subsidy or scheme will already be subject to additional scrutiny and transparency through other means. They will be developed by the Government through engagement with experts and other public authorities and, once made, they will be laid before Parliament. I take the point of view of the hon. Member for Aberdeen North, but it is the development beforehand that will provide the scrutiny, input and engagement that will then come to this place.

Amendment 59 would bring streamlined subsidy schemes and minimal financial assistance subsidies into the scope of part 4, chapter 1, and therefore make them subject to referrals to the CMA. Of course, the CMA’s role in this regime is to help public authorities to make assessments against the subsidy control requirements, so that subsidies do not unduly distort competition. It is not necessary for streamlined subsidy schemes or minimal financial assistance subsidies to be referred to the CMA, because these types of subsidy are those that are less likely to distort competition in the first place.

We as a Government intend to use streamlined subsidy schemes for low-risk and non-contentious subsidies, to ease the administrative burden for other public authorities of giving subsidies within those terms. The streamlined schemes are available for public authorities to use, if they choose to, when granting commonly used subsidies. As such, streamlined routes will be carefully designed to minimise distortive effects on competition. Streamlined subsidy schemes will be developed and publicised as part of the subsidy control regime. As I have already said, we will continue to engage with experts, public authorities and subsidy recipients as we prepare for implementation, and that engagement will cover streamlined subsidy schemes. If necessary, the Government will also be able to obtain advice from the experts in the subsidy advice unit in developing the schemes under existing powers. Once made, they will be laid before Parliament, so that Members will be able to examine the schemes for themselves. Finally, I should emphasise that the schemes are still subject to the subsidy control requirements. In the very unlikely event that there are grounds to think that they may not comply with the subsidy control principles, they can be challenged in the Competition Appeal Tribunal.

The subsidy control requirements do not apply to the exemption for minimal financial assistance, simply because small subsidies are not generally capable of causing serious distortions of competition. We have previously heard from the Opposition that MFA exemptions should not exist at all, but that position is fundamentally at odds with the Government’s intention that the new subsidy control regime should enable public authorities to award subsidies more quickly and easily in order to meet local needs and drive economic growth. Although the subsidy control requirements are not burdensome, they would still constitute an unnecessary barrier to giving small, less distortive subsidies, and I would draw the attention of the hon. Member for Sefton Central to the consultation, in which 92% of respondents agreed with the Government’s proposal that subsidies below the threshold of £325,000 special drawing rights, which approximates to £336,000, should be exempted from the subsidy control requirements. We have therefore proposed a threshold of £315,000 in the Bill, to account for exchange rate fluctuations.

I have already made the case for exempting minimal financial assistance from the subsidy control requirements. As I have said, the role of the subsidy advice unit is to advise public authorities in assessing subsidies against the subsidy control requirements. When those requirements do not apply, as in this case, it is illogical for there to be a possibility of referrals to the subsidy advice unit. As such, I believe it is unnecessary for streamlined subsidy schemes and minimal financial assistance to be subject to the referral provisions in part 4 of the Bill. For that reason, I urge the hon. Member for Sefton Central to withdraw the amendment.

[Kirsty Blackman]

I have a quick question for the Minister, which he does not have to answer now. I would appreciate it if he could consider when a streamlined subsidy scheme is being published and set before Parliament. He has made it clear that a number of people will be consulted and that it will be drawn up in parallel with thinking from experts and potential recipients of the subsidy scheme. That is fine, but when we are assessing those streamlined subsidy schemes, it would be helpful for Parliament to have that information, and particularly to have a view from the SAU, or from the CMA more generally, about the streamlined subsidy scheme. Even if the SAU just says, “We think this looks good,” that is at least more information for Parliament. It would give me more comfort to know that the scheme fulfils the principles, or at least that the SAU thinks the scheme fulfils the principles as they are laid out. Therefore, it would be much more reasonable for clause 64(1)(a) to be included if we were given that level of comfort.

[Bill Esterson]

Again, we just are not getting from the Minister certainty about the creation of the regime, and this is a common problem all the way through. We are waiting and it is uncertain exactly how this will operate, which makes it very difficult for us to judge whether what we will end up with will provide a degree of scrutiny and transparency in the use of public funds. That applies both to streamlined subsidy schemes and to minimal financial assistance. Although I think the Minister is right about the broad point that smaller payments are unlikely to have the potential to distort in economic terms, they can still be misused. As part of the regime, we are still missing an adequate way to scrutinise, and the hon. Member for Aberdeen North gave some good pointers on how that might be addressed. For those reasons, we will push the amendment to a vote.

Question put, That the amendment be made.