Subsidy Control Bill

Lord Forsyth of Drumlean Excerpts

2nd reading
Wednesday 19th January 2022 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, the Subsidy Control Bill creates a new, bespoke, UK-wide subsidy control regime that delivers on our national priorities. This Bill demonstrates the Government’s clear determination to seize the benefits arising from Brexit and design a UK-tailored regime that departs from the previous prescriptive and burdensome EU state-aid system. We have designed a regime that works for the whole of the United Kingdom while at the same time maintaining our reputation as a trusted and respected partner on the world stage. This Bill helps us to honour our international obligations under World Trade Organization rules, under the UK-EU Trade and Co-operation Agreement and other free trade agreements.

The regime that the Government have set out in this Bill will help public authorities to deliver subsidies where they are needed, without facing excessive bureaucracy or lengthy pre-approval processes, as seen under the previous EU system. It allows for greater flexibility and autonomy for public authorities to deliver on local priorities. However, the Government are clear that this freedom does not extend to harmful and excessively distortive subsidies. We are not in the business of propping up businesses that are unviable or doomed to fail without government support.

It is also important to set out clearly what this Bill is not. It is not about intruding on spending decisions for local authorities or the devolved Administrations, and it will not dictate the policy decisions that this Government make in supporting our strategic priorities, from levelling up to net zero. Public authorities will maintain their spending decisions in relevant areas and will be supported by clear guidance on how to grant subsidies in line with the new regime. We will continue to make the right strategic decisions, to support the people’s priorities.

For the first time, local authorities, public bodies and the devolved Administrations in Scotland, Wales and Northern Ireland will be empowered to decide for themselves if they can issue taxpayer-funded subsidies, by following a set of UK-wide principles. This will provide them with new freedom and flexibility to design subsidies and subsidy schemes which meet local needs, as well as national policy objectives such as reaching net zero. The seven principles that they will need to follow are clear and proportionate and form the basis of our new regime. They set out that subsidies awarded under the new regime must be justifiable on policy grounds. The subsidy must be appropriate, proportionate, and designed to minimise any distortions to competition and investment in the United Kingdom. These principles, along with additional considerations for energy and the environment, will ensure that public authorities design subsidies that bring out the best in our communities while ensuring consistency. The Government are clear that subsidies are there to support and encourage businesses, not to prop them up.

The Government are committed to our international obligations and relationships with our valued trading partners. Therefore, the principles also require a public authority to carry out a balancing test and to proceed only if the benefits of the subsidy outweigh any distortions to international trade, in addition to UK competition and investment. These principles will be underpinned by clear guidance, which will be published ahead of implementation of the regime. This guidance will support public authorities to ensure that subsidies deliver strong benefits and good value for money for the UK taxpayer, and ensure that subsidies are being awarded in a timely and effective way, to give businesses the certainty and confidence that they need. The guidance will also ensure that public authorities fully understand their legal obligations, and make clear which subsidies are permitted and which are prohibited.

We want public authorities to be able to deliver subsidies quickly, easily and without undue burdens. The Government want low-risk subsidies to proceed with minimum bureaucracy and maximum certainty, so we will create streamlined subsidy routes for subsidies that are at low risk of causing market distortions, and that promote UK-wide strategic policy objectives. These routes will make demonstrating compliance even simpler than the baseline method of principle-by-principle assessment. I appreciate that streamlined routes are a novel approach to subsidising and that further explication is required. To aid understanding, we will shortly publish a policy statement and two draft illustrative routes. Together, they will describe in detail the Government’s thinking in this area and demonstrate exactly how these routes will work.

[Lord Forsyth of Drumlean (Con)]

I know we have had Covid, but I can still ask a question at Second Reading, even though it is unusual. Can my noble friend explain why the guidance and the information that he is describing has not been made available before we got to Second Reading?

[Lord Callanan (Con)]

My noble friend makes a good point. We will be publishing the guidance as soon as it is available. We are still in discussions with the devolved Administrations and others on the exact design of the regime and the possibility of obtaining legislative consent Motions.

The Bill also establishes the UK subsidy advice unit, hosted by the Competition and Markets Authority. The unit will monitor and oversee how the regime is working, as well as conducting a mandatory, non-binding review on public authorities’ assessments for subsidies of particular interest. Subsidies or schemes of interest may be referred to the subsidy advice unit. A subsidy or scheme of particular interest must be referred to the unit, which will then publish a report detailing its decision within 30 working days. This quick process will allow public authorities to act with far greater agility than before, while upholding the highest standards of accountability or transparency. We are clear that this Bill will allow for agile delivery and proportionate scrutiny at the same time.

Although we can expect that public authorities will take their obligations under this regime seriously, we also recognise the need for a direct route to challenge by interested parties, so there will be a meaningful, time-limited process for enforcement, through the competition appeal tribunal. This will ensure that the subsidy recipients have legal certainty once the window for a challenge has passed. A key part of effective enforcement is ensuring that we are as transparent as possible with information on what subsidies have been awarded. My department listened to the concerns expressed in the other place about the operation of the subsidy database. We are editing the database to improve the quality of information that is available publicly. Of course, the database is still relatively new. Officials are actively developing further enhancements over the coming months, in advance of the new regime coming into force.

A UK-wide subsidy control regime is necessary to ensure that subsidies do not unduly distort competition within the UK’s internal market. I repeat, as we have many times before, that we are wholeheartedly committed to ensuring that the new regime works for the whole United Kingdom. That is why the Government have worked closely with the devolved Administrations, including sharing the consultation response document ahead of publication and carefully considering their representations. We have met with DA officials 45 times and Ministers 13 times to talk about the regime, since July 2020, and we will continue to discuss its development with DA counterparts ahead of implementation. We will work closely with the devolved Administrations, but it is important to reiterate that subsidy control is a matter reserved for this Parliament. Noble Lords will remember the robust debates that we had on this matter during the passage of the UK Internal Market Bill, but I assure them that the devolved Administrations are and will remain responsible for spending decisions on devolved subsidies within any domestic subsidy control system.

As it currently stands, and according to the terms of the Northern Ireland protocol, subsidies for services in Northern Ireland will be within scope of the new domestic regime. It is this Government’s view that it is no longer necessary for Northern Ireland to be subject to the EU state aid regime, which is why we have proposed a change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime. As noble Lords will be aware, discussions continue at pace with the EU on the Northern Ireland protocol. However, no matter the outcome of these negotiations, the Bill will deliver for the people of Northern Ireland and ensure that there is clarity on which rules to follow.

This new independent subsidy control regime will help ensure that people in all areas of the UK, from Belfast to Bangor, Derby to Dundee, feel the benefits of targeted subsidies in their areas, and that prosperity and opportunity is spread right across the UK. This includes investment in skills, local infrastructure and new technologies, as well as into research and development. We have the opportunity here to facilitate subsidies that support people’s priorities, from tackling regional inequalities, to combating climate change, to increasing R&D and innovation. The common-sense energy and environment principles in Schedule 2 of the Bill support the UK’s net-zero ambitions, as well as contributing to a secure, affordable energy system. Under this regime, public authorities at all levels of government will be empowered to give subsidies to help address regional disadvantages, supporting our levelling-up aims.

Noble Lords will be aware of the delegated powers in the Bill. I assure them that the powers to make regulations are reasonable and necessary. The regime will need to change over time in response to a number of factors, such as exchange rate fluctuations. Where the Bill includes powers to amend primary legislation, these have been drafted to be as narrow as possible. However, we will of course take into account the findings from the Delegated Powers and Regulatory Reform Committee’s report and we will review accordingly.

The illustrative regulations that we will publish before Committee will help to demonstrate to noble Lords how the Government will exercise, with care, the powers contained in the Bill. I am, as usual, very happy to engage and I will very much welcome feedback from all sides of the House on these products in due course.

We are seizing the opportunities of Brexit. The Bill before us today is an important move away from prescriptive state aid rules. Public authorities across all parts of the UK will have the autonomy and flexibility to deliver subsidies that work for their local area. We are returning decision-making to the hands of the decision-makers in local communities up and down the country. This legislation ensures that our new subsidy system will maintain the competitive, free-market economy central to the UK’s economic success and to our national prosperity. I beg to move.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

My Lords, I apologise if I discombobulated my noble friend by asking a question at Second Reading. I appreciate it is unusual to do that, but it is also unusual to have a Second Reading of a Bill so devoid of detail and without the information being provided. I put a marker down: this is becoming a habit for this Government. I voted for leaving the European Union; I thought it would mean that this Parliament would have more power over our affairs. This kind of behaviour just gives power to the bureaucracy, which is then not accountable to Parliament. That is not why we did it.

Again and again, from the Animal Welfare (Sentience) Bill onwards, we have had legislation which has not been properly thought through. It is particularly striking with this Bill; it has been through the House of Commons, yet when it arrives here we still do not have the basic information to enable us to have a Second Reading debate on what it is about and what its principles are. We are told that that will follow shortly. It is becoming a habit, like Billy Bunter’s postal order—it is in the post, and by the time it arrives you have forgotten what was promised.

I start from a slightly ideological position which may not please some Members opposite; I am suspicious of subsidies, because I believe they distort competition by bailing out unsustainable industries and attempting to pick winners. I think my fly-fishing but very distinguished economist friend Sir Dieter Helm coined the phrase that Governments are poor at picking winners but losers are good at picking Governments. That is important to remember. If we are to have a regime of this kind, it is really important that we know what money is being handed out to whom and for what purpose.

Looking at the Bill, it is great that, as advertised, it promotes “autonomy, transparency and accountability”. It is unusual for me to praise the European Union—having dealt with the principles of additionality and the problems of getting through the bureaucracy, I do think this is an advance—but I find it difficult to understand why the threshold for disclosure is higher than it was for the EU. Why should that be? Unless I have misunderstood, it is £500,000 instead of €500,000. That is a significant difference. People might say that it is just a rounding error—my honourable friend John Penrose made these points in the House of Commons—but, while these subsidies must be reported, you have to wait six months to find them. It is hard to understand how having to wait six months to see them increases accountability or transparency.

The bit I really do not understand, which my noble friend touched on in his introduction and the noble Lord, Lord Purvis, picked up on, is how this works for Northern Ireland. Northern Ireland is part of the United Kingdom, but on my reading of where we are now, any subsidies would be subject to the European Commission’s rules. That is the position and, until such time as the Government have negotiated their way out of the protocol which they agreed to, it will remain so. I am not clear what happens if you are a British manufacturer of car batteries, to take an example a colleague suggested to me today, and your cars go to Northern Ireland—if there is a subsidy from the Government to you in the UK, how does that work? It is not clear to me. I would be grateful if my noble friend could explain what will happen. The noble Lord, Lord Purvis, talked about having two sets of accounts. How will that be possible?

I see that I am about to run out of time. I know my noble friend is not to blame, but something is going wrong with the machinery of government when we continue to get legislation, which is not thought through and has no proper impact assessments or detail, being rushed through the House of Commons and coming here. Everyone complains about the number of amendments tabled in this House and the time it takes to get legislation through. That is because Bills are arriving in a form which is not suitable for consideration.