State Aid (EU Exit) Regulations 2019

Lord Fox Excerpts

Thursday 14th March 2019 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, I welcome the opportunity to discuss these two statutory instruments and I welcome the opportunity of the amendments that have been tabled to press the Government. I shall take each in turn. I remind the House that as a very young person I spent six months working as a stagiaire in DG IV, as it then was—it is now DG COMP—of the European Commission, where we looked at measures to prevent the distortion of competition, such as state aid.

I shall press my noble friend on whether and at what stage the Government will come forward with their policy on state aid post Brexit. We do not yet know what our own destination will be. It is quite possible that we will end up remaining or applying to join the EEA and EFTA, which have a competition regime very similar to that of the European Union. If that were the case and we ended up with a sort of Norway-plus EEA/EFTA-style arrangement, would the House have to revisit the statutory instrument in that regard, and would other changes have to be made?

I cannot remember which Government were in power at the time but it is worthy of note that the United Kingdom was effectively the author of the original Articles 85, 86 and, I think, 92, which relate specifically to state aid. The noble Lord, Lord Stevenson, raised in particular the question of the Irish border. Obviously, that will have an impact, particularly in relation to the block exemption on agriculture but also to any subsidies for other products that may be deemed to be a distortion of trade. A no-deal Brexit is still a potential prospect, so what consideration has been given to the World Trade Organization rules that will apply to subsidies? If the answer is in this rather long SI, perhaps the Minister could refer us to it. That would be immensely helpful.

I now turn to the European structural and investment funds regulations. Yesterday we had a debate on the rural development agricultural fund and a short debate on the maritime and fisheries fund, and this debate on structural funds is not dissimilar. I do not know whether the investment funds cover Horizon 2020. Perhaps the Minister could confirm my understanding that it is the Government’s desire to continue to participate in projects such as Horizon 2020. It would be immensely helpful to know that.

I should like to place on record—I know that the noble Baroness, Lady Crawley, will remember this only too well from her time in the European Parliament— that we have benefited from a European Social Fund programme targeted at new opportunities for women returning to work, and there are other specific projects as well. This is something that for some reason the UK Conservative Government would never embrace: targeting and giving assistance, through funding, to workers in their 50s or older who perhaps need training before they feel confident enough to return to the employment market. I see the noble Baroness, Lady Quin, in her place. She too will remember that great training schemes were made available for youth employment, although obviously they were not that helpful. When one sees the level of youth unemployment in countries such as Spain, it is clear that these projects are never as well funded as they could be.

Therefore, can the Minister say what criteria will be used, what projects and beneficiaries might be identified, and what sums will be made available? My specific question relates to paragraph 7.5 of the Explanatory Memorandum to the structural funds regulations, which says:

“To this end, HM Government funding guarantee ensures that, in the event of a No Deal, HM Treasury will underwrite sums that would have otherwise been received from the European Commission”.


I would like to pin the Minister down. Am I correct in understanding that we will have matched funding replaced by additional government funds, and am I right in assuming that HM Treasury’s largesse will know no limits? That is a very big ask because, if we have been allocated £8.4 billion of funding under structural funds for 2014 to 2020, there will be a remaining period until the end of that time is reached. So I should like clarification that the matched funding will be made good by Her Majesty’s Treasury for the projects that are outstanding for that period.

Finally, I will follow up on a point raised by my noble friend the Minister in his introduction, when he said that this was something to which we might return. The point was highlighted by the House of Lords Secondary Legislation Scrutiny Committee Sub-Committee B, in paragraph 42 of its report. The Government have decided not to replicate the current power granted by the European Council, which the Secretary of State could assume in the right circumstances. Will my noble friend set out the circumstances in which the Government might seek to appropriate those powers? Would it be a statutory instrument that he would intend to assume? Will he explain to the House and satisfy Sub-Committee B that there is sufficient flexibility in the statutory instrument to override any need for the Secretary of State to have the final say?

[Lord Fox (LD)]

My Lords, in the event that the proposition put prior to this debate by the noble Lord, Lord Adonis, comes to pass, and this SI is not needed, my time will not have been wasted: a more cogent seminar on state aid I could not have asked for than the one I have just received from the noble Lord, Lord Stevenson. I am grateful to him for placing these amendments before your Lordships’ House as this is an issue that requires greater clarity; I associate myself with the questions put by the noble Baroness, Lady McIntosh.

My remarks will be less structured than those of the noble Lord, Lord Stevenson. Regarding the question he posed of what qualifies as state aid, I put before your Lordships my experience of working in the United States and where, for example, a company might be looking to establish a new facility. When considering where that facility might be located, the company speaks to the administrations of various states—this is literally state aid. It asks about the tax structure it would receive in that state, the training regimes that universities might deliver, the buildings and planning regulations that might be needed. All these things qualify as aid which may be offered to companies to locate in a particular place.

The United States would talk about not being a country that distorts the market. Yet the local market is heavily distorted by literally billions of dollars that different US states put in to attract businesses to their location. How does this future regime of state aid fit into that pattern? We have unitary authorities. My noble friend Lord Purvis is going to ask about the role of devolved authorities, but we already have a degree of devolution to unitary authorities in England. They are required to deliver local or regional industrial strategies; LEPs are being granted money to deliver them. How does this fit into a structured state aid programme?

We talked recently about Nissan, which received a secret letter from the Government reassuring the company that it should keep one of its models in the north of England—a large sum of money was secretly committed by the Government in that letter. I contend that that was state aid; whether it would be recognised internationally as state aid is another matter. But we have a dichotomy: there is aid that the state—through a central, local or devolved budget—can give to companies or individuals to help them flourish or locate to particular areas, but it may or may not qualify in terms of whatever international agreements we are under. The noble Baroness, Lady McIntosh, is right to say that, whether we are operating under an EEA, WTO or any other regime, this will become an important distinction. What work are the Government doing on distinguishing between these various forms of state aid?

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On the noble Lord’s point about these matters and to what extent they are devolved, it is Her Majesty’s Government’s view that regulation of state aid is a matter that is reserved for them. I recognise that there is a difference of view. However, given that the UK Government are closely aligned with the devolved Administrations on the substance of policy and given the limited scope to depart from mirroring the EU regime by using powers in regulations, it is not necessary for us to resolve the matter at this stage, because at this stage we are just bringing in no-deal regulations to deal with these points. We will come on to others, such as the shared prosperity fund, later. I appreciate that all noble Lords who have spoken want me to say more about it. There is a certain amount I can say but I obviously cannot go quite as far as noble Lords would want on guarantees and so on.

[Lord Fox]

We would be satisfied with that kind of comment if we knew what vehicle the debate about these future issues will come in. Will it be in primary legislation brought to this House straight away? Would it be merely a series of Command Papers? If the Minister could explain the structure by which future negotiation or legislation will go ahead, we could perhaps be more satisfied by that.

[Lord Henley]

I will see how I get on in my response to the various remarks made by the noble Lord, Lord Fox, and others. I was going to start with state aid rather than on structural funds but we all know about the shared prosperity fund. I think it was back in July that my right honourable friend made a Written Ministerial Statement on that subject. The noble Lord will know, as that Statement made it clear, that it is designed to tackle inequalities between communities, especially in those parts of the country whose economies are furthest behind. It will achieve that by investing in the “foundations of productivity” and so on, as outlined in our industrial strategy, which is now—gosh, it is a year and a half old. But it will be an integrated, simplified fund, operating across the UK. I do not know at this stage whether it will need primary or secondary legislation, or whatever, and it would be wrong to speculate.

[Lord Henley]

My Lords, I do not accept the point that the noble Lord is making. I made it clear that we believe that state aid is a matter reserved for HMG. As I said, we recognise that there is a difference of view; that can be resolved in due course but I do not think it necessarily needs to be resolved in advance of this SI. He and I will obviously have to continue to disagree on that matter.

I was going to deal with these matters in the order that I originally set out, starting with questions relating to state aid and in particular to the amendment moved by the noble Lord, Lord Stevenson. What is important on this occasion is that we do not conflate the rules that govern the overall aid framework with the provision of aid itself. Decisions by public authorities on how and when to provide funding to business and industry after EU exit are quite separate from the decision in front of the House today, which is on whether to approve a state aid framework to ensure fair and open competition throughout the UK. By keeping the rules as close as possible to how they operate today, compared to what has been the case, will provide continuity and certainty in the immediate aftermath of the UK’s departure from the EU. This will ensure that aid can be provided in a similar way to now.

Individual choices on how and when to give aid within that regulatory framework will obviously be for each public authority to make. That applies equally to successive Governments, the devolved Administrations and local authorities. As with the other public authorities granting that state aid, the Government will of course continue to consult individual spending authorities where it is appropriate to do so after the UK leaves the EU. But our strategy for supporting business and industry before and after EU exit is comprehensively set out in the industrial strategy, which we have debated on various occasions. As I said, it was launched almost a year and half ago and is already having an impact. That is how it should be set out.

As I made clear, and I repeat it, we have engaged constructively and intensively with each of the devolved Administrations on the state aid regime, including discussing the details of the proposed regulations and the accompanying set of commitments to underpin how the regime will operate. I think the noble Lord, Lord Fox, wanted more detail on this—perhaps it was the noble Lord, Lord Purvis—and we hope to conclude a memorandum of understanding in due course with the devolved Administrations. No doubt when we have concluded that, it can be published. Our discussions over the last year have shown a broad alignment on the substance of the policy to establish a UK-wide state aid regime that mirrors the EU’s. We will continue to work with the devolved Administrations and, as agreed, each of them will be responsible for managing communication between their respective aid givers and the CMA. They will not need to go through my department, as is the case at the moment.

[Lord Fox]

I thank the noble Lord for beginning to flesh this out. Rather than continue the debate here, it would be helpful if the Minister could go back to his department and then write to us about the basis for the assertion by Her Majesty’s Government that they have predominance on this issue over Scotland and the devolved authorities. On what basis in law do the Government assert that UK-wide role? Can he also flesh out the mechanics for the CMA operating in Scotland? Rather than detain the Minister at the Dispatch Box, a written response would be helpful.

[Lord Henley]

I am more than happy to offer a written response, but the Government have been clear throughout. My noble and learned friend Lord Keen set out our position in various debates on the withdrawal Bill and so on. I will dig that out and offer it to the noble Lord. Other Ministers, equally learned in the law, have also made similar points in another place. As I said to the noble Lord, Lord Purvis, this is a matter for the Government but we believe we should continue to consult the devolved Administrations.

The noble Lords, Lord Fox and Lord Stevenson, also wanted me to flesh out the role of the CMA and asked whether it would have the power to overturn legislation. I repeat that our intention is to make sure that the regime covers the same sectors, applies to the same actors and does the same job as it does at the moment. It is worth noting that there are very limited circumstances in which aid is granted directly by Act of Parliament. To ensure that aid granted by any future Act of Parliament can be reviewed in a non-binding way by the CMA, which is the domestic regulator, Schedule 3 creates a process for it to consider aid that may be granted directly by an Act of Parliament. It provides for a Minister of the Crown to seek a non-binding advisory opinion on proposals for grant aid by an Act of Parliament. It also provides for interested parties to request the CMA to prepare a non-binding advisory opinion. I hope that explains the matter, but I will expand on it in any letter that I write to noble Lords in future.

The noble Lord, Lord Stevenson, also asked how we were intending to use this provision in future. I will expand on this a little more. The rules are not intended to prevent public authorities supporting industries or businesses, or even—dare I say it—nationalising assets. A rigorous state aid system is good for taxpayers and consumers and ensures an efficient allocation of resources. There is a large degree of flexibility in the rules to ensure that a wide range of interventions can still be deployed, but in a way that minimises distortions to competition. The future regime will still allow the Government to act swiftly if necessary, much as they have been able to under the existing one. EU state aid rules do not prevent, and have not prevented, the UK pursuing its active industrial strategy. In practice, the existing EU rules have always been sufficiently flexible to allow the UK to make innovative state aid interventions where necessary.

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[Lord Henley]

The noble Baroness is too fast for me. I had two final points, one of which was to deal with concerns about match funding and whether that guarantee would underwrite it. The guarantee will underwrite the funding previously received by the EU. Match funding will continue to be provided by existing match-funding providers, such as the National Lottery.

My noble friend also asked about our future participation in Horizon. All I can say at the moment is that decisions on future such EU programmes will come as part of the spending review.

I appreciate I have not answered all the questions that have been put to me, but I believe I have answered most of those that are directly relevant to the statutory instruments before us. I appreciate that the noble Lord, Lord Fox, would like—and will receive—a letter. That letter will set out more about the possibilities for the future, and I will write to the noble Lord, Lord Purvis, in greater detail about our possible disagreement on where responsibility lies.

[Lord Fox]

The Minister may have answered this question, so I apologise if I missed it. In dealing with the shared prosperity fund and its disbursement, we come back to that paradigm of what happens in the United States, for example. Do the Minister and the Government foresee that the CMA will have a role in policing that process? If not, how do we prevent regions bidding up, which we have experienced in some RDAs? The Minister again said we will have ample opportunity to debate this in the future, but it is not clear to me through what vehicle this debate will continue.

[Lord Henley]

I am sure the noble Lord will find it easy to raise the subject, and will do so. Whether there will be the opportunity through primary, secondary or whatever legislation, I do not know. On his broader questions about the shared prosperity fund, he will have to wait for the guidance that the right honourable Secretary of State will provide. That might be his moment to consider such matters. With that, I beg to move.