Subsidy Control Bill

Kwasi Kwarteng Excerpts

2nd reading
Wednesday 22nd September 2021 Commons Chamber

[The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)]

I beg to move, That the Bill be now read a Second time.

The Government are determined to seize the opportunities arising from Brexit. Now that the UK has left the European Union and we are no longer bound by the EU’s regime, we have the freedom to develop a new, bespoke system of subsidy control for the UK that delivers on our national priorities. Before the UK joined the European economic community, as it was then called, there was no framework at all. That absence contributed, I think, to Governments pursuing a failed economic approach with Whitehall trying to run the economy. They distorted competition, often by bailing out unsustainable industries and attempting to pick winners. The regime that the Government have set out in the Bill will help public authorities to deliver subsidies where they are needed, without facing excessive bureaucracy or lengthy pre-approval processes.

[Miriam Cates (Penistone and Stocksbridge) (Con)]

One of the industries that I hope will benefit from the Bill is the steel industry. As my right hon. Friend will know from frequent and very welcome engagements with me on the issue, Liberty Speciality Steels in Stocksbridge is a key employer in my constituency. While we were in the EU, the industry had access to the EU’s research fund for coal and steel. Now that we have left, £182 million is due to be returned to the UK. Will my right hon. Friend look into the possibility of ringfencing that money, given that it has been raised from levies on the steel industry rather than through general taxation, so that we can have a UK fund for innovation in UK steel?

[Kwasi Kwarteng]

In her brief time in the House, my hon. Friend has been an impressive and focused campaigner on behalf of her constituents and the wider industry. As she knows, I am a particular fan of the steel industry, and want to seek a sustainable future for it here in the UK. I cannot give any budgetary guarantees, as she will appreciate, but this system does give us much more flexibility than was the case previously.

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

Will the Secretary of State give way?

[Kwasi Kwarteng]

May I make a little more progress? Many other colleagues want to speak.

This is a Bill that promotes autonomy, transparency and accountability. It will empower hundreds of local authorities, as well as the devolved Administrations and other public authorities, to take control, allowing them to design subsidies to meet local needs while also meeting national policy objectives.

[Liz Saville Roberts]

I am grateful to the Secretary of State for giving way to me now. I wanted to pursue his earlier comment. The Conservatives appear to be perpetuating a gift for blaming the EU for everything, to all intents and purposes, and it is no surprise that we have heard a little more of that today. We must bear it in mind that the UK was known for underutilising EU state rules—we were ranked 22nd out of 28 member states in 2018—and it could be suggested that that was due to Conservative ideology rather than to any intrinsic problem.

This Bill will steamroll devolved competence. Does the Secretary of State agree that it reflects a new Conservative ideology, which is deliberately dismantling the powers of devolved Governments and their accountability as elected Governments per se?

[Kwasi Kwarteng]

That was a rather lengthy intervention, if I may say so, although I do not want to entrench on the Chair’s prerogative. As the right hon. Lady will appreciate, the Bill is a function of our leaving the EU. We are not trying to rehearse the arguments of Brexit; we were doing that long before she was elected to the House. I was certainly involved in those debates.

The Bill sets out a regime founded on seven clear and transparent principles. According to those principles, the subsidy must be designed to remedy a market failure. It must be designed to bring about a change in behaviour. It cannot normally cover costs that would have been funded in any case. It must be appropriate, proportionate, and designed to minimise any distortions to competition and investment in the United Kingdom. Finally, the public authority giving a subsidy must carry out a balancing test, and proceed only if the benefits of the subsidy outweigh any distortions to UK competition and investment, and to international trade.

Those principles will be supported by guidance for all to see. That will ensure that public authorities fully understand their legal obligations, and will make clear which subsidies are permitted and prohibited and under what circumstances.

[Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)]

As I understand it, the Bill also gets rid of assisted area status, which in the Welsh context includes my county of Carmarthenshire. Can the Secretary of State explain why the British Government are making it more difficult for the Welsh Government to help businesses in Carmarthenshire?

[Kwasi Kwarteng]

I do not agree with the hon. Gentleman’s description of what the Bill does. If he listens to the rest of my remarks, he may well hear further clarification. Of course, as is always the case, many of these issues will be discussed in Committee if the Bill’s Second Reading receives the assent of the House.

Public authorities will be empowered to make their own assessment of whether a new subsidy meets the requirements of the regime and, in the vast majority of cases, to proceed directly to granting that subsidy. For the first time, the decision on whether to grant a subsidy will always fall to the granting authority itself. For the largest subsidies, or those that present the highest risk of distorting competition, it is worth recalling that the default process under the EU state aid regime could last between nine and 12 months, and that that often determined whether a project could happen or not. Under the new regime, a new body, the UK subsidy advice unit, must publish its report within 30 working days. That is in huge contrast to the nine-to-12 month period under the EU.

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

The right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) mentioned ideology. One ideology that I hope will always hold firm on this side of the House is that of not wasting taxpayers’ cash. Is the Minister comfortable with the situation in which local authorities and devolved Administrations could grant subsidies of hundreds of thousands of pounds without having to publicly declare them? Would we not be better with a much lower threshold, so that public scrutiny could always be in place?

[Kwasi Kwarteng]

Local authorities have to declare spending at much lower levels than the figure that my hon. Friend has just put forward. Clearly, transparency is at the centre of what we are trying to achieve. Instead of a year, the whole process will take only a few weeks. It will be a much quicker process and it will allow public authorities to act with far greater agility than before. However, I do not believe that the transparency will be in any way compromised. This is an area that will give more flexibility while not diminishing accountability. In fact, it will enhance accountability because, under the EU state aid regime, there was no way we could change the rules in any way.

At the same time, this is a regime that will provide certainty and confidence to businesses within the UK, and also to those among the foreign investment community who are keen to invest in the UK, by protecting against subsidies that risk distorting competition or causing harmful economic impacts. And of course, the regime will operate alongside our usual, traditional stringent spending controls to ensure the best use of public money.

[Sammy Wilson (East Antrim) (DUP)]

Does the Minister not see the inherent flaw in his argument about levelling up and treating the whole of the United Kingdom as one, in so far as Northern Ireland will be subject to a dual subsidy regime: the state aid rules imposed by article 10 of the protocol and the Bill that is going through today? So any subsidy that a public authority Northern Ireland wishes to give will be subject to the very one-year scrutiny that he is talking about, whereas a public authority in the rest of the United Kingdom will have it cleared within 20 days, thereby placing any attempt to attract business to Northern Ireland at a disadvantage.

[Kwasi Kwarteng]

That is precisely why I am addressing this precise point in my speech, if the right hon. Gentleman will allow me. We are setting out the detail of a UK regime that is far from simply adhering to the EU, and it will clearly no longer be necessary for Northern Ireland to be subject to the EU state aid regime. That is precisely why we have proposed the change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime.

The Bill, as hon. and right hon. Members should know, has been informed by a public consultation, which showed broad support for the Government’s proposals. The Government also held a second consultation with the devolved Administrations as we reached the end of the policy work and the considerable time that we spent trying to get the Bill shipshape. That second consultation showed clearly that the UK Government and the devolved Administrations agreed on the fundamentals of the regime, including the seven principles, the objectives for the regime, and the need to respect the devolution settlements and support levelling up.

[Liz Saville Roberts]

If the devolved Governments are as content as the Secretary of State is saying, why are the Welsh Government making a legal challenge to this Bill?

[Kwasi Kwarteng]

As I said, there is agreement on the fundamentals of the regime. The seven principles are not contested; they are agreed across the devolved Administrations and the UK Government. I am not privy to the exact motivation of the devolved Administration in this case but, as far as the general principles are concerned, there is a wide measure of consensus.

It is worth reminding the House that the devolved Governments will have more control over subsidies than they have ever had before. Previously, it was Brussels that made the decisions about which subsidies could be granted to support viable businesses. Now, with this Bill, it will be for the elected Governments in Edinburgh, Cardiff and Belfast to make those decisions.

During the trade and co-operation agreement negotiations and the creation of this new regime, ministerial colleagues, officials and I have worked closely with the devolved Administrations, and I thank those Administrations and the officials and Ministers here in Westminster for their considered and constructive input to the development of this policy.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

As somebody who has represented a border constituency for the past 16 years, I have become increasingly concerned about the additional levels of subsidy that the Welsh Government can give to businesses on the border, putting our Shropshire businesses at a disadvantage. Will the Secretary of State address that point, please?

[Kwasi Kwarteng]

As I have stressed, this regime has been discussed extensively with the devolved Administrations. Clearly we have conflicting views, but I believe the Government have worked constructively with the devolved Administrations and we feel that, along with our localism agenda, this is a step in the right direction. Compared with where we were for nearly 50 years in the EU state aid regime, this Bill is a significant improvement and enhancement that represents much greater devolution in this area than we have ever seen before.

[Dame Andrea Leadsom (South Northamptonshire) (Con)]

Is my right hon. Friend as afraid as I am that the nationalists in Scotland will use any opportunity to be different and will impose big, generous subsidies to artificially support their own businesses simply to try to ensure that the English feel hard done by because it suits their agenda of separatism? That is not, in any sense, in the interest of the taxpayer.

[Kwasi Kwarteng]

My right hon. Friend makes a legitimate and correct observation about the general obstructionism we sometimes see. There are seven principles outlined in the Bill, however, and one of them is not to distort the UK internal market, so what she says would clearly raise issues.

Our emphasis in this regime is on transparency, accountability and, of course, agility. This all means that we will not simply be replicating the European Commission’s role in the process, requiring a central body in Brussels to sign off on specific subsidies. In other words, the UK Government did not go to great lengths to secure autonomy from the European Union on subsidy control only to reimpose the same old EU rules months later. That is not what this is about. I hope hon. Members will agree that outside the EU we will have the opportunity to do things differently. We did not leave the EU simply to settle back into the old ways of thinking and into the way things were done before. Those days are over.

I strongly believe that making the most of this new regime will need a culture change, not just in public bodies, devolved Administrations and local authorities but in central Government. It will be a culture change to take more responsibility for our own decisions, not simply outsourcing difficult decisions to the European Commission as we did for nearly 50 years. It will mean that we can be more accountable to the electorate for when and how taxpayers’ money is spent, and that we will be more agile in distributing public resources.

The Bill will ensure that our new subsidy system will maintain a competitive, free-market economy that has been central to the UK’s economic prosperity and success for decades. In that spirit, I commend the Bill to the House.

--- Later in debate ---

[Seema Malhotra]

I have given way to the right hon. Lady already and I hope she will not mind if I continue my remarks.

Will the Secretary of State clarify whether it is the Government’s intention that First Ministers, or public interest groups, be considered interested parties for the purposes of being able to bring forward a challenge to a subsidy decision—if so, why will the Government not put that in the Bill?—or will a challenge have to be made via the Secretary of State?

This is not where the devolution challenges end. Perhaps the Secretary of State could clarify his remarks on Northern Ireland, because, as I understand it, under article 10 of the Northern Ireland protocol, EU state aid rules must apply to subsidies that affect trade between Northern Ireland and the EU. This affects not only subsidies granted in Northern Ireland but subsidies granted throughout the UK. There is a risk—unless the Secretary of State wants to correct me—that article 10, taken alongside the new subsidy regime, could cause legal or practical difficulties, particularly if the UK and EU disagree on what affects EU-Northern Ireland trade.

[Kwasi Kwarteng]

I thought that I could not have been clearer on this precise point in my opening speech. I repeat: it is clearly no longer necessary for Northern Ireland to be subject to the EU state aid regime, and that is precisely why we proposed a change to the Northern Ireland protocol in order to bring all subsidies within scope of the domestic regime.

[Seema Malhotra]

I thank the Secretary of State. Indeed, I did hear those comments in his opening remarks. I was seeking to clarify the issue because I do not think it is clear across the House, and it is important that it is tested and made clear in the course of the passage of the Bill.

Crucially, what is the Government’s intention if the Bill does not receive legislative consent from Scotland, Wales and Northern Ireland, as has been requested?