Subsidy Control Bill (Seventh sitting)

Debate between Kirsty Blackman and Bill Esterson

Thursday 4th November 2021 Public Bill Committees

[Kirsty Blackman]

I was going to ask a question about this clause, and the Minister has managed to make me even more confused. Subsection (1) states:

“A public authority may request a report from the CMA before giving a subsidy, or making a subsidy scheme, of interest.”

It does not state that, additionally, any other subsidy may be referred to the CMA under a voluntary referral. It might elsewhere in the legislation, but it does not at this point.

My concern was that it relates only to subsidies “of interest”—subsidies of particular interest are covered by mandatory referral, and that is fine—but for subsidies that fall outside the category of interest, perhaps because interest is narrowly drawn by the regulations when interest is set, there seems to be no way for those public authorities to refer them voluntarily to the CMA, as the legislation is drafted. It would be good if they could.

Let us say that “particular interests” and “interests” are defined by the Government, that goes through the affirmative procedure, we have a discussion, and the definitions are agreed. Accidentally, however, something is left out of the category of interest—because we do not think of everything—and a local or public authority discovers the anomaly and thinks to itself, “Do you know what, I should refer this to the CMA voluntarily, because I think it probably should be included in the schemes of interest, but in the way that the legislation is written, it does not fall under that”, so it tries to make a voluntary referral. It cannot, however, because it may make a voluntary referral only in the case of something that is of interest.

There is a bit of a gap. Authorities should be able to make that voluntary referral, whether it is a scheme of interest or not. There is a concern. As to what the Minister said, absolutely, if the Secretary of State has a concern additional to the interest section, that would be fair enough and make a difference, or if the authority itself decides that it should be referred to the CMA. I do not think that that will be a huge amount of extra work. Authorities will not refer themselves to the CMA for fun; they will do so when they feel that there is a reasonable chance that what they are considering doing is contentious.

I will not vote against the clause, because voluntary referrals are a good thing, but I do not think that it goes as far as the Minister suggested it goes—unless I have missed something.

[Bill Esterson]

I was not entirely clear which clause the hon. Member for Aberdeen North was speaking to. We are still on clause 55 stand part—but it was a very good speech on the next clause, so we now know what she will say.

We expressed our concerns in the debate on our amendment. I hope that the Minister will reflect on those concerns and consider whether greater strength is needed in this clause and, similarly, I suspect, in clause 56—when we get to that debate.

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[Bill Esterson]

Thank you, Ms Nokes. On that basis, it will probably not be wise to take the interventions. I am using these things as an example of the ruling party’s attempts to remove independence. The CMA is also supposed to be independent. We have seen a desire to break the rules and then just remake the rules in the main Commons Chamber, and I fear that now we may be seeing something similar—we need to ensure that we do not see something similar—when it comes to the independence of the CMA in its role with regard to the subsidy control regime.

Without amendment, the clause will allow the Government to rewrite the contents of an independent report if there is any warning that it will say something that they do not like. That is not how independence works, and it is not good government. Our amendments would remove the power for the Secretary of State to do that. It would remove the power to edit reports published by the CMA, and it would ensure that the independence of the CMA stays as it is.

[Kirsty Blackman]

I have just a brief question. This clause lays out things that reports following mandatory or voluntary referrals “must” include and some things that the reports “may” include. Can the Minister confirm that the reports may also include things not mentioned here and that the additional things that would be included would be at the discretion of the CMA? If it can include only the musts and the mays in the clause, it will not be able to include anything else that the CMA considers would be relevant in the report. Given that the Minister has stressed the independence and expertise of the CMA, it would be sensible to confirm that it can include matters that it feels are relevant, whether or not they are explicitly mentioned in the Bill.

[Paul Scully]

The CMA is independent and will use its expertise. I think that we have crossed wires here, because actually the clause allows the Secretary of State to talk about the content of the report but not to textually amend an independent report. That is not what we are talking about here, which is what is within scope of the report—to ensure that it can actually do it. This is to be able to give additional transparency and scrutiny in the regime itself. The clause allows him to make provision about the content and form of the report, but, as I said, not to change the text of an independent report.

Any changes to the content of the report must be made by the affirmative procedure. That is core to the subsidy control regime, because if the Government believe that the process needs to be refined, it is only right to have parliamentary scrutiny of it. By contrast, any specification as to the form of the report would be a technical regulation, for which the negative procedure is appropriate. Amendments 53 and 54 remove that possibility, except by future primary legislation.

As I say, removing the mechanism for amending or enhancing the baseline for SAU reporting that is set out in clause 59 would unnecessarily tie the hands of the SAU and future Governments seeking to improve the referral process based on the experience and expertise that is gathered over time through the functioning of the new regime. As set out in clause 67, the power to change the content of the report may be exercised only for a period of one year following the publication of SAU’s first report under clause 65.

As I have set out, however, changing the form of the report is a technical matter, so it is appropriate for the regulations to be subject to the negative procedure. I therefore request that the hon. Member for Sefton Central withdraws the amendments.

[Bill Esterson]

Clause 59(4)(a) uses the phrase

“amend subsection (1), (2) or (3) to make provision about the content of the CMA’s report”.

The Minister used the terms “text” and “content” interchangeably, which highlights our concern. Using secondary legislation, the Secretary of State is able to give himself the power to amend CMA reports. That is the problem—that is what overturns the power.

[Kirsty Blackman]

The Minister did not answer my question about additional information that the CMA may include in a report that is outwith the scope of the Bill. It does not fall under part 2; it falls under something else that the CMA thinks is relevant and should be in the report. Does the hon. Gentleman agree?

[Bill Esterson]

The Minister did not answer the hon. Lady’s question, so maybe he can do that after I finish my summing up, which will not take much longer.

We will push the amendment to a vote, because the Minister did not address our concerns about removing the independence of the CMA.

Question put, That the amendment be made.

Subsidy Control Bill (Eighth sitting)

Debate between Kirsty Blackman and Bill Esterson

Thursday 4th November 2021 Public Bill Committees

[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.

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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 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.

Subsidy Control Bill (Sixth sitting)

Debate between Kirsty Blackman and Bill Esterson

Tuesday 2nd November 2021 Public Bill Committees

[Bill Esterson]

I beg to move amendment 46, in clause 43, page 25, line 16, at end insert—

“(3A) The Scottish Ministers, the Welsh Ministers, and a Northern Ireland department may request the Secretary of State to declare a natural disaster or another exceptional circumstance in Scotland, Wales, and Northern Ireland.

(3B) If the Secretary of State refuses a request made under section (3A), he must make a statement in the House of Commons outlining the reasons for his refusal.”

This amendment allows the devolved administrations to ask the Secretary of State to declare a natural disaster or exceptional circumstances, so that the exemptions listed in Clause 43(1) applying to Scotland, Wales, and Northern Ireland may apply. If the Secretary of State refuses a request for exemption, this amendment requires him to make a statement to the House of Commons.

Amendment 46 allows the devolved Administrations to ask the Secretary of State to declare a natural disaster or exceptional circumstances so that exemptions listed in clause 43(1) applying to Scotland, Wales and Northern Ireland may apply. If the Secretary of State refuses a request for exemption, the amendment requires them to make a statement to the House of Commons. To reiterate the point I made in the last debate, we are determined to ensure that the role for the devolved Administrations in the administration of their own nations is respected and considered. Of course, we agree that the subsidy regime sits with the Westminster Government, because it is a UK-wide system, but on matters as important as states of natural disaster, devolved Administrations should always be consulted.

Members will appreciate that natural disasters are not political by nature. A natural disaster does not discriminate who it targets and where it affects. By that logic, devolved Administrations, which are just as likely as anywhere else to experience natural disaster, should be granted powers to request that the Secretary of State declares a natural disaster or exceptional circumstance so that the exemptions listed in clause 43(1) may apply. We believe the amendment would respect the role of devolved Administrations in managing their response to disasters effectively, while still ensuring the Secretary of State has the final say.

[Kirsty Blackman]

The very nature of natural disasters is that they do not occur across the entirety of the UK in one go. Let us hope a natural disaster does not occur across the whole of the UK in one go! Generally, they are regionally specific; they will happen in a relatively confined geographical area. Whether it be flooding, an earthquake or something of that sort, not everywhere will be affected. Therefore, thinking about how this provision could apply, it makes a huge amount of sense for there to be an actual mechanism through which the devolved Administrations can request for the Secretary of State to declare a natural disaster. I would hope that the Secretary of State would be doing so anyway, and would recognise that a disaster in Wales—

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[Kirsty Blackman]

It would be useful to know how widely national security is defined. Are we talking about subsidies specifically relating to, for example, new military equipment, or to much more tangential things, such as for an organisation that provides server capacity for one of the security services? How tangential can something be in order to be covered by the clause? If the Minister cannot answer, I would be grateful for an answer at some point, in writing or through the method of interpretive dance, if that is what he prefers, because it would be helpful for us to understand this. This is a brief clause, but I am concerned that that definition could be drawn too widely. I just do not know because I do not have enough information.

[Bill Esterson]

The clause makes it clear that subsidies given to safeguard national security are not subject to the subsidy control regime. This is an important principle that must be interpreted without prejudice in the light of our international commitments; I am sure the Minister agrees with that. We are pleased to see it in the Bill.

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[Bill Esterson]

I beg to move amendment 47, in clause 48, page 27, line 6, at end insert—

“(2A) On the date on which the Act is passed, the Secretary of State must make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

This amendment would require the Secretary of State to make a statement to the House of Commons regarding the applicability of Article 10 of the NI Protocol on the date on which the Act is passed.

The amendment would require the Secretary of State to make a statement to the House of Commons on the applicability of article 10 of the Northern Ireland protocol on the date on which the Act is passed. Clause 48 provides that the requirements of the subsidy control regime do not apply to subsidy schemes that are subject to the Northern Ireland protocol. The Minister will suggest, I imagine, that this gives comfort to public authorities and avoids the double jeopardy of both regimes applying to a subsidy scheme—I take that from what he and the Secretary of State said on Second Reading.

If the Minister were to say that, he would be assuming that there is clarity on which subsidies and schemes are subject to the protocol. On this vital question that public authorities will need to interpret, there is no agreement between the UK Government and the European Commission. There is significant uncertainty about the extent of the reach back—that is, where EU state aid rules will continue to apply across the UK. Where a subsidy is applied in Wales, Scotland or England has consequences in Northern Ireland. George Peretz told us in last Tuesday’s evidence session,

“if I am advising a client such as a local authority or a subsidy recipient, my immediate problem is that I have to look at two sets of guidance—one issued by the European Commission and one by the Department for Business, Energy and Industrial Strategy—that in some important respects tell me very different things.”—[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 46, Q64.]

His final assessment was:

“It is all a bit of a mess.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 48, Q67.]

We should all note that the European Union published proposals to address problems with the Northern Ireland protocol a fortnight ago. That is a step in the right direction, although the proposals it put forward do not address the state aid subsidy issue. In contrast, on Second Reading on 22 September, the Secretary of State suggested

“we have proposed the change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime.”—[Official Report, 22 September 2021; Vol. 701, c. 338.]

Here we are six weeks later, and we are no clearer about the status of the negotiations with the EU. I hope the Minister will set my mind at ease and tell us what the UK proposals are to solve the problem that George Peretz set out so well in evidence last week.

Let us remind ourselves: the Government negotiated the Northern Ireland protocol and signed it, so they now have a duty to make the protocol work, just as they have a duty to make Brexit work. It is no good threatening to rip up an agreement that the Prime Minister himself signed just two years ago, and certainly not without something to put in its place. Perhaps the Minister can confirm when he last discussed these issues with his European counterparts, and the timeline on which he expects there to be clarity on article 10 of the protocol and its impact on the Bill.

The purpose of the amendment is to require the Secretary of State to provide a statement on

“the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

Public authorities and recipients need and deserve certainty on this issue.

[Kirsty Blackman]

The hon. Member for Sefton Central used the quote I was going to use from the Secretary of State, who was really pretty clear that the new subsidy control regime that we are discussing is the one that will apply across the United Kingdom. That was the point the Secretary of State was making—that this is the only subsidy control regime that will apply across the United Kingdom. That seems pretty factually incorrect, not least for Northern Ireland but, as the Opposition Front Bench spokesperson pointed out, for other parts of the UK where that trade will end up going to the EU.

The very least the Government could do is to ensure that a formal statement is made, because if we are relying on what Government Ministers have said in the course of either debates in the House or statements, we do not know the answer. We have been told a number of different conflicting things. I get that this is a movable feast and that there is no final decision on exactly how it will work. That is why the amendment is so reasonable. It specifically says that the applicability statement will need to be made on

“the date on which the Act is passed”.

Presumably, by the date on which the Act is passed we will have some idea of which regimes will apply in Northern Ireland. We have spoken very little about Northern Ireland specifically during the course of this Committee but, when the Minister talks about giving certainty to enterprises and public authorities, it seems to me that Northern Ireland is in a unique position where there is no certainty at all. People literally do not know which regime will apply.

It is all well and good to say, “We will consult with people and ensure that they see the guidelines in advance of having to put them in the subsidy control database,” but the fundamental issue of which regime they are complying with has not yet been answered in a way that would stand up to any kind of scrutiny. The amendment is completely reasonable and, if the Minister does not want to accept it, he should be clear with us and with the organisations concerned, particularly in Northern Ireland, about how he and the Secretary of State will explain to them which regime they will be operating under.

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[Bill Esterson]

We gave the Government every opportunity with our amendment, but they chose to vote it down. They have left us with what my hon. Friend the Member for Aberavon called a dereliction of duty, which is a good way of putting it. The clause does not do justice to businesses, awarding bodies, communities or our constituents. Those are good reasons why we should vote it down.

[Kirsty Blackman]

I have not had a chance to think about exactly how not having the clause as part of the Bill would affect the Bill as a whole. I share the concerns, that there are major issues with the clause, but at this point I will abstain on any vote.

[Bill Esterson]

I understand the hon. Lady’s concerns, but there is such a big problem with what is set out, it is right for us to register our objection by voting against the clause.

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[Kirsty Blackman]

I would just like to ask why.

[Bill Esterson]

I am interested in the answer to that question as well, given that in the last 11 years of Conservative Government we have not seen the investment in new nuclear that was needed to meet our climate obligations.

Subsidy Control Bill (Third sitting)

Debate between Kirsty Blackman and Bill Esterson

Thursday 28th October 2021 Public Bill Committees

[Bill Esterson]

That is a good point. The hon. Gentleman is right that this does not end when we reach net zero—that is the first point. The second point is that if we need a change, we can amend the legislation later. Right now, however, this is the crucial change that the country and the world need to make. I reiterate that we as Members of the UK House of Commons—those of us here today—have an opportunity to make a statement and a commitment and to put this change on the face of the Bill.

[Kirsty Blackman]

I got so carried away with my attempts to convince the Government to get to net zero as soon as possible that I forgot to ask questions when I stood up previously. It would be useful if the Minister could clarify why there are two schedules. Why does the treatment differ between the two areas? There is a difference in the treatment of subsidies in relation to energy and the environment compared with subsidies relating to any other area, and I do not quite understand the logic of having two different things. One set of principles could have covered everything, including moving toward net zero. If the Minister will explain why there are two separate schedules and why the two areas are being treated differently, that would be incredibly helpful.

Subsidy Control Bill (Second sitting)

Debate between Kirsty Blackman and Bill Esterson

Tuesday 26th October 2021 Public Bill Committees

[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.