Subsidy Control Bill

Lord Fox Excerpts

2nd reading
Wednesday 19th January 2022 Lords Chamber

[Lord Fox (LD)]

My Lords, it is always a pleasure to follow the noble Baroness, Lady Jones. This has been a really interesting debate and has not unfolded in the way I had originally anticipated. In trying to sum up this debate, there is a short sum and a long sum and I am afraid I am going to give both.

The short sum is that, if the Government table Bills like this, they are going to need more Committee days than they have so far allocated. We do not yet know what this Bill is, and we need to find ways of teasing that out from the Government because clearly they are not volunteering the information at the moment.

On the longer sum, it is always good to try to work out what the Government are seeking to cause or trying to cause to happen. I think we have to look to Schedule 1 for that. Principle A in Schedule 1 says:

“Subsidies should pursue a specific policy objective in order to … remedy an identified market failure”—


correct the market, or—

“address an equity rationale (such as social difficulties or distributional concerns).”

Principle C says:

“Subsidies should be designed to bring about a change of economic behaviour of the beneficiary.”


All of this sounds very social democratic and very interventionalist. That might explain some of the concerns voiced by the noble Lord, Lord Forsyth, about subsidies. However, it is still not clear what sway that schedule will have over the actual behaviours and subsidy behaviours we see. The noble Lord, Lord Lamont, and, I think, the noble and learned Lord, Lord Thomas, made the point about how this is policed and whether Schedule 1 is the rule by which this regime is to be judged. This is still very unclear—in fact, not clear at all.

In the various letters and presentations supporting the Bill, the Minister carefully painted the picture of a nation handcuffed by the European Union. However, as we have heard from the noble Baroness, Lady Blake, and others, the UK has traditionally handed out less in public funding subsidies than most of the other EU countries. To date, the UK has chosen not to subsidise economic activity to the level that it could have done within the EU. Of course, it was the perfect right of the Government at the time to make those decisions.

Looking forward, my noble friend Lord Purvis asked how much money there will be. In the past we have funded less than we could. There is a good deal of discrepancy about how much money will be available on a straight like-for-like basis without starting to include funds such as agriculture. Some profit and loss—P&L—for this would be quite handy.

However much money there is, the next point lacking clarity is how the Government will prioritise what is going on. As my noble friend Lady Sheehan, the noble Lord, Lord Ravensdale, and others said, our guide to this is vanishingly vague. The industrial strategy was scrapped, Build Back Better is essentially a colour brochure, specific plans to reach net zero remain essentially unpublished and the “levelling up” slogan is wandering the corridors of Whitehall looking for a purpose. None of this acts as a useful guide.

Where, unusually, the noble Viscount, Lord Trenchard, is wrong is that rather than this avoiding political interference, it creates a vacuum where political interference can run wild. There are suspicious people who would say that the actual guide for allocating taxpayers’ money will have to answer only one key question: how does the proposed subsidy benefit the electoral ambitions of the Conservative Party?

I am sure the Minister would not want that sort of thing running around these corridors. To avoid it, he could start by circulating the drafts of the guidance. He could start by sending out the draft of the support to the Bill, the policy statements and the routes that this Bill will go by. This echoes the point made by the noble Lord, Lord Forsyth.

As we heard from the noble Lord, Lord Lamont, the EU has a long-standing and rigorous programme that aims to benefit the poorest communities. Rules exist under the EU regional aid scheme that cause higher aid to go to the least developed areas. This was largely through the European Regional Development Fund or the European Social Fund.

We have heard about Wales, but Cornwall received the highest ERDF/ESF allocation of any English area. Over the last 14 years, that totalled €1.24 billion. Looking forwards, can the Minister confirm whether Cornwall will continue to receive this level of support? The evidence suggests it will not. In fact, subsidy law experts Jonathan Branton and Alexander Rose note that the Bill does not propose a preferential system that would lead to targeted support for disadvantaged regions. They argue that the consequence of this could be better-off areas receiving support that would previously have gone to less well-off areas.

It is clear, looking at the role of the CMA, that much clarity is required. We need to know how enforcement is going to emerge. Also, the impact assessment says that there will be just 19 new posts within the CMA. Does the Minister honestly think this represents sufficient resource to police this whole scheme?

The issue of OneWeb was raised by the noble Lord, Lord Lamont, and the noble Viscount, Lord Chandos, and I have a different question around that. In order for that investment to happen, there had to be a letter of direction from the Minister to the Permanent Secretary, which says quite a lot. In future, how would a letter of direction be treated by this regime, given that the Secretary of State is likely to have to refer himself in order to have this reviewed? It is a special case, and I would like to know the answer.

The subject of reporting thresholds has been well documented today and I will not repeat it, except to say that reporting at £500,000 is absolutely the wrong route to take. In the Commons, John Penrose MP and Kevin Hollinrake MP both proposed amendments, and we will be working with others across the House to propose similar amendments here.

The effect on devolution has also been well rehearsed, not least by my noble friends Lady Humphreys, Lady Randerson and Lord Bruce, and the noble Lord, Lord German, the noble Baroness, Lady Bryan, and others. I associate myself with them. At the heart of the problem seems to be a take-it-or-leave-it approach to the relationship from London. The Minister has set out a roll-call of meetings with the devolved authorities and their offices, but it is clear these meetings were not dialogues but show and tell meetings. Ministers portray this Bill as a permissive move that empowers local authorities and the devolved authorities, but for their part, the Scottish and Welsh Governments see it as a now regular incursion of tanks on to their devolved lawns by Westminster. We agree with that latter view, and there will have to be amendments, going forward, to address that.

On Northern Ireland, my noble friend Lord Purvis and others detailed how conflation of the TCA and the Northern Ireland protocol will cause problems. The noble Lord, Lord Dodds, also brought this up. The Minister of State in the Commons sought to address this to some extent and to dispel the issue of double jeopardy, but it is clear that he failed to do that. We need to see, in detail, what legal position and legal advice the Government have had on double jeopardy, and we need to debate that in full when we get to Committee.

It seems that the Minister is seeking to play down the issue your Lordships have had with the Bill, and certainly will have when he sums up. There are issues from start to finish with it. Further, it is designed as a shell Bill—another shell Bill. It provides the Government with the opportunity to fill that shell with secondary legislation that can, at worst, amend primary legislation. This, again, is unacceptable. Overall, a lot of work needs to be done on this Bill before it leaves your Lordships’ House, and the Grand Committee awaits.

--- Later in debate ---

[Lord Callanan (Con)]

I thank all noble Lords for their engagement ahead of today’s debate and their contributions this evening on this important Bill. It has been a good debate, despite the relatively late hour. I apologise to our two Green ladies, but I am not responsible for the timings, which were primarily driven by the time that the House dealt with previous business. However, we have had some informed and thoughtful speeches from all sides, which have given me much food for thought. I am particularly fascinated by this emerging unholy alliance between my noble friend Lord Forsyth and the noble Baroness, Lady Jones, who are at opposite ends of the political spectrum. I look forward to seeing how long this lasts when confronted with the reality of politics. It will be fascinating to see, and will no doubt give great amusement in Committee.

A number of noble Lords raised concerns regarding the role of the devolved Administrations. I thank the noble Baronesses, Lady Blake of Leeds and Lady Bryan, the noble and learned Lord, Lord Thomas of Cwmgiedd, and the noble Lords, Lord Whitty, and Lord Bruce of Bennachie, for their considered contributions. I emphasise that the devolved Administrations are and will remain responsible for the spending decisions on devolved subsidies within any subsidy control system. We have produced a Bill that not only protects but strengthens our union, through the creation of a single, coherent framework that empowers public bodies across all four nations to design subsidies that are tailored to local needs. It is in all our interests to ensure that the regime works for the whole United Kingdom and enables the UK’s domestic markets to function properly and efficiently, which is precisely what this Bill does.

It is important that I draw attention again to the point that Ministers and officials have engaged in and continue to engage extensively with the devolved Administrations on the new regime. Such discussions have also been paramount in informing the policy development from the outset. This is not to say that we have agreed to everything. Clearly, we have not—there are some areas of disagreement. However, our proposal aligns with their views on the majority of issues, including the regime’s objectives, their foundational principles and the need to respect the devolution settlement and to enable support for levelling up. Therefore, we hope that the devolved Administrations can understand and support our approach and that ultimately, they will give their legislative consent.

A number of noble Lords raised the issue of the Secretary of State’s powers within this Bill, but they are limited and appropriate. The regulation of subsidies is a matter reserved to the UK Parliament, and the Secretary of State therefore has responsibility to ensure that the new regime is enforced consistently across the whole of our United Kingdom. The Secretary of State must also ensure that the UK is compliant with our international obligations.

A number of noble Lords across the House have also raised concerns about transparency. I reassure my noble friend Lord Forsyth and the noble Viscount, Lord Chandos, that my department is working on a programme of improvements to the subsidy database. These will be completed soon and will address a number of the specific concerns raised here and in the other place. The Government will continue to reflect carefully on the points raised today and will engage further on our findings with parliamentarians in both Houses as the Bill progresses.

With regard to secondary legislation and the regime’s guidance, I thank the noble Baroness, Lady Blake, the noble and learned Lord, Lord Thomas, and other noble Lords for their contributions. To directly address the point made by my noble friend Lord Forsyth and the noble Lord, Lord Bruce, around this Bill being a framework, I draw attention to the testimony provided by the parliamentary counsel for domestic legislation in the House of Commons, Daniel Greenberg. He emphasised the need for the Bill to take the form that it does in order to give the flexibility for the ongoing relationships between the different powers concerned by the substance of the Bill.

As I mentioned earlier in response to the intervention by my noble friend Lord Forsyth—I am sorry if I gave him the impression that he was not permitted to intervene; he was entirely right to do so if he wished—and also addressing the point made by the noble Lord, Lord Fox, we will shortly publish a package of illustrative products that will set out much more information on the regime. We have been keen to ensure that relevant stakeholders have had the appropriate opportunity to provide input in the development of these regulations and guidance. They will be published early next week in time to support the Grand Committee debate of the Bill and will include draft regulations on subsidies of particular interest and guidance on the application of the principles. The final guidance will be made available in advance of the new regime’s commencement to ensure that public authorities understand it and can prepare for it.

On the specific request raised by the noble Lord, Lord Purvis of Tweed, on future impact assessments, I can assure him that we will produce further such assessments where appropriate, and we will provide more information on that in due course.

A number of noble Lords raised questions around net zero. I reassure the House—in particular, the noble Lord, Lord Ravensdale, and the noble Baronesses, Lady Bennett and Lady Sheehan—that the Bill supports our net-zero goal. The principles provided under the Bill are common sense and clearly support the UK’s priorities on net zero and on protecting the environment. An explicit principle on net zero, in our view, is therefore not necessary.

A number of noble Lords also commented on levelling up and disadvantaged areas. I reassure the House that this Bill supports the Government’s levelling-up agenda. It gives public authorities the flexibility to grant subsidies where they are best served to support economic growth in local places, but without the excessive bureaucracy or pre-approval processes. This directly addresses the proposal of an assisted area map such as those under the EU state aid regime, a point made by the noble Lords, Lord Ravensdale, Lord Fox and Lord McNicol. These maps were a necessary feature of the EU state aid regime, in which subsidies were prohibited unless specifically permitted. Assisted area maps were therefore required to facilitate an exemption for subsidies addressing regional inequality.

The UK’s domestic regime is fundamentally different, and it is aligned with the rest of the world. It is a permissive regime that allows public authorities to assess for themselves whether their subsidy or scheme can be given by reference to the sets of principles that I outlined earlier and of prohibitions and requirements. I can therefore reassure the noble Lord, Lord German, and the noble Baroness, Lady Bennett, that the absence of a dedicated regional aid exemption does not mean that public authorities are any less able to give aid or to address regional inequality. As long as a subsidy is justifiable on policy grounds, such as addressing regional inequality, and the public authority considers that it is compliant with the basic set of principles and prohibitions, then it can indeed be given.

I move on to the vital subject of Northern Ireland and points raised by my noble friend Lord Forsyth, the noble Lords, Lord Purvis and Lord Dodds, and the noble Baroness, Lady Hoey. In relation to the Bill’s interaction with Northern Ireland, I reiterate that the UK will of course continue to be a responsible trade partner that respects its international obligations, and our commitments made under the Northern Ireland protocol are no exception. There will be no double regulation of subsidies. Subsidies that are subject to the protocol, which complies with EU state aid rules, will be exempt from the requirements of this new domestic regime. Under current arrangements, subsidies within the scope of the Northern Ireland protocol of the withdrawal agreement in respect of goods and wholesale electricity markets, which affect NI-EU trade, will still need to comply with EU state aid rules. Subsidies for services will ordinarily comply with the more flexible UK domestic subsidy regime.

The noble Lord, Lord Purvis, also referred to technical guidance, noting that in specific circumstances it may be useful for companies to keep separate accounts. This is one possible way to demonstrate that a subsidy given in Great Britain is not being used to cross-subsidise a subsidiary in Northern Ireland, but it is not a legal requirement and nor is it relevant to all companies.

I can reassure the noble Lord, Lord Dodds, that, subject to negotiation with the EU, the intention is that all types of subsidy would be within scope of the domestic regime. The Government will create streamlined routes for public authorities across the UK to award subsidies that help achieve UK-wide priorities. We will continue to work closely with the DAs while developing this policy both at official and ministerial level, and we are committed to continue our close engagement on this with the devolved authorities.

[Lord Fox (LD)]

Sorry to intervene, but to be clear so that I understand: what the Minister has just said is, I think, that if I have a business which has an operation in County Antrim and an operation in Hereford, and they are both technically eligible for a subsidy for the goods they make, the operation in Hereford would be eligible for a subsidy under the UK scheme but the operation in County Antrim would not be. Is that correct?

[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.