Subsidy Control Bill

Lord Bruce of Bennachie Excerpts

2nd reading
Wednesday 19th January 2022 Lords Chamber

[Lord Bruce of Bennachie (LD)]

My Lords, I am happy to follow the noble and learned Lord, Lord Thomas, and indeed some of his arguments. This Bill shares the same characteristics as the internal market Act. It lacks detail and clarity but shows disregard and a lack of sensitivity to the devolution settlements. This House managed to secure amendments during the passage of that Act, and I hope that we will succeed in securing amendments to this Bill.

The Bill replaces the EU state aid rules, which developed in a way that had the advantage of practicality and clarity. However, it is not clear whether the lack of clarity is because the Government have no coherent strategy for any subsidy regime or they have one but are keeping it under wraps until they have the powers under the Bill. We need to know. Either way, the devolved Administrations of Scotland and Wales have reacted with understandable concern and, so far, have indicated unwillingness to give legislative consent.

The Law Society of Scotland stated in its helpful submission:

“We … stress the importance of ensuring that this bill and its accompanying guidance implements a regime that is clear, proportionate and gives businesses and local authorities (and their advisers), the tools to operate confidently within it.”


As it stands, the Bill does not do that. The imbalance between the role and powers of the Secretary of State and those of the devolved Administrations aggravates the situation. The Government argue that these are reserved powers. However, devolution requires consultation—genuine consultation—co-operation and respect, not the cavalier application of reserved powers.

Both Wales and Scotland have also expressed opposition to the inclusion of agriculture in the Bill. Indeed, the question arises as to why it is being included, given that we had extensive debate on the Agriculture Act, and that other national and international controls and commitments exist. NFU Scotland has stated that it is

“unequivocal that agricultural and rural development financial support”—

that is, subsidy—

“must be kept separate from the subsidy control regime being proposed.”

Some 86% of Scotland’s land is recognised as having “less favoured area” status. The management of that land has required consistent subsidy and support. Although the nature of the support has changed over the years, moving away from reducing livestock subsidies towards environmental and area payments, there is no doubt that these rural areas will require continued support.

Rewilding has its place, but tension is already emerging between this approach and support for traditional farming, land management conservation, tourism and small-scale economic development as a means of averting depopulation, which is re-emerging in rural Scotland having been reversed for many years.

The lack of clarity in the Bill means that there is an inherent contradiction. On the one hand, compared with EU state aid rules, public authorities may be able to provide subsidies that would have been prevented under those rules. However, they do not know whether they can and whether they will be challenged. This means that agencies could well refer the proposals to the EMA—although whether the EMA will be effective in reviewing them is doubtful—meaning more bureaucracy and delay, or they may simply decide, “It is all too difficult, let’s not do it”, and the schemes will be abandoned. The imbalance in the rules makes this even worse. Making the EMA the arbiter raises questions about the fact that the regime is excessively centralised, whether the EMA has the capacity or the expertise, and how it can be fair and effective to apply its role without the specific involvement of the devolved Administrations, which is not proposed at all.

This leads directly to the role of the Secretary of State. He or she has the power to define subsidies or subsidy scheme of interest or particular interest. The Minister really must give an indication of what the heck the Government mean by “interest or particular interest”. Can he give us examples or any idea of what is in the Government’s mind? The Secretary of State also has the power to refer to the CMA and, further, to challenge the ruling before the Competition Appeal Tribunal on the basis of government regulations that we do not even know about yet.

This presumably means that, if the Welsh or Scottish Governments proposed a subsidy scheme for their disadvantaged areas or sectors that the Secretary of State did not like or challenged, the scheme could be blocked. However, if the Secretary of State—acting as an English, not a UK, Minister—supported a subsidy regime in England that the devolved Administrations deemed unfair, there would be no such right. It may reflect reserved powers, but it fails to recognise the reality of devolution, which requires respect and consent. In reality, the Scottish Government’s interventions have been disastrously mismanaged, delivering neither jobs, production nor economic benefit. However, the way to deal with that is to throw them out, not challenge their right to do so.

I will certainly seek to support amendments to address the balance of the Bill and press the Government for clarity and transparency on how, in practice, they think this will operate.

--- Later in debate ---

[Lord Callanan (Con)]

It would depend on a number of factors, and whether the subsidy complies with the set of basic principles that we outlined earlier under the UK regime. But under the current system—and obviously negotiations are ongoing—and if it was for a good, then the operation in Norther Ireland would be subject to the EU state aid regime because Northern Ireland is subject to that under the current terms of the protocol. If my interpretation is not correct, I will write to the noble Lord.

I assure the noble Baroness, Lady Randerson, that devolved Administrations, as primary public authorities, can also set up schemes for use by other public authorities where that is within their existing functions and powers. For example, the Welsh Government are perfectly within their rights to set up a scheme, if they wish, that can be used and accessed by all local authorities in Wales.

I move on to the role of the CMA and the subsidy advice unit. I agree wholeheartedly with my noble friend Lord Lamont, who noted the importance of independent oversight and robust scrutiny of our new regime. The subsidy advice unit will have an important advisory role for a relatively small number of cases, and an overall monitoring role for the system as a whole. Most subsidies granted are low risk, so it is right that the unit’s focus should be on the small number of subsidies with a greater likelihood of causing distortion in the market. The subsidy advice unit will provide advice that is genuinely useful to public authorities in designing their subsidies and assessing against their regimes’ requirements. This strikes the right balance between improved freedom for public authorities while providing confidence to interested parties, investors and the general public.

My noble friend also raised the issue of the Competition Appeal Tribunal. I can assure him that the regime will be robustly enforced through this UK judicial system, with the Competition Appeal Tribunal hearing judicial reviews of the award of a subsidy or the making of a subsidy scheme. The Competition Appeal Tribunal is UK-wide, has extensive expertise in the related area of competition law and is well suited to hearing challenges to the award of subsidies. In our view, the roles afforded to the Competition Appeal Tribunal and to the new subsidy advice unit will foster a regime that is robust, while empowering public authorities to deliver subsidies more quickly, more easily and more flexibly if that is what they choose to do.

A number of noble Lords, including the noble Lords, Lord German and Lord Bruce, and the noble Baroness, Lady Bryan, raised the issue of the inclusion of agriculture. In our view, the inclusion of agriculture and fisheries subsidies will help to protect competition and investment in these sectors in the UK. This position was supported by the majority of the respondents to the UK Government’s consultation who answered the question on agriculture and fisheries. Although agriculture and fisheries subsidies are not in scope of the subsidy control provisions in the UK-EU TCA, they are still subject to other international rules. The proposed approach will provide consistency for granting authorities while retaining sufficient flexibility for the devolved Administrations and all public authorities to deliver support where it is needed and how they see fit, given their responsibilities.

[Lord Bruce of Bennachie (LD)]

The Minister said that this was supported by the majority across the UK, but he has not acknowledged that it was not supported by the agricultural representatives in Scotland or Wales.