Brexit: Competition and State Aid (EUC Report)

Lord German Excerpts

Thursday 24th May 2018 Lords Chamber

[Lord German (LD)]

My Lords, I join others in thanking the noble Lord, Lord Whitty, for his chairmanship of this committee and for the report that has emerged. I also thank the committee staff, who have been moving with the sands of time, and therefore the noble Lord’s skilful chairmanship of the committee has been absolutely essential in taking us to this stage.

It will not surprise noble Lords that I do not agree with the noble Baroness, Lady Noakes, on the roles of the European Union Committee and its sub-committees. The primary purpose of the committees of this House is to scrutinise the Government’s relationship with the European Union. These matters are top, front and all that dominate their work in relationship to Brexit—it is the one show in town—and it is perfectly appropriate for committees to carry out this kind of scrutiny.

The noble Baroness has raised issues on which I agree with her—I will come to them in a moment—but I do not agree that there are not new issues raised in the report. The issue of state aid, on which I want to focus, did not exist prior to our membership of the European Union, and what happens next is of critical importance, particularly to the poorer parts of the United Kingdom which have a lower success rate than the south-east of England.

Regarding the committee’s report, on the issue of mergers, acquisitions and anti-trust issues it was demonstrated that we have a robust policy in this country at the moment and that continuing the robust nature of our policy is important. The UK regime is perhaps a leader in this matter, and the issues considered and agreed raise only one major fundamental difference, and that is whether or not the UK regime can continue to engage with, and continue our membership of, the European competition networks. There is benefit in being able to share, learn and work with others even though we may be separated from them. However, when the committee started taking evidence, it became clear that state aid was increasingly cutting through as a key issue which needed to be understood and progressed.

In their response, the Government have said that they do not yet have a state aid policy, but we will need one from day one of our exit from the EU. That end-point could occur whenever the transition or implementation phase comes to an end, so there is time for the Government to come up with a state aid policy for the UK and, therefore, the issue is one that they will have to address. Given that, beginning to address it now is critical in order to avoid the uncertainty that will otherwise result for those parts of the United Kingdom where legal powers enable them to promote and support industry and business development.

As we know from the government response but did not know at the time when we took evidence from the Minister, the CMA will be the state aid authority. I draw the conclusion that we were told at the time of the evidence session, and before we were told that the CMA would take on the state aid authority role, that the £23.6 million which had previously been announced by the Government was for the CMA to undertake Brexit-related issues within its existing responsibilities and that it was therefore not related to the new responsibility of becoming the state aid authority, which of course resulted from the evidence given by the Government in response to this report.

However, I agree absolutely with the noble Baroness, Lady Noakes, that the body has to be independent of government, since it will be advising not only on the state aid regime which the UK Government may have responsibilities for but also that for which the devolved Administrations may have responsibility—and, further on from them, the elected mayors and perhaps the northern powerhouse, which may gain some traction as well. The question of what form that independence for the CMA will take and how it will be guaranteed in its state aid role is pretty critical. I agree with the comments of the noble Baroness, Lady Noakes, in that respect.

The other issue, which was touched on, by both the noble Lord, Lord Whitty, and the noble Baroness, Lady Donaghy, is that the state aid rules are not a barrier to developing business and enterprise in this country. As we have heard, we would have to triple the amount we spend on state aid as a proportion of GDP in order to match the amount that Germany spends on such aid. We might wish to spend more, and we are certainly not among the big spenders. But neither do the state aid rules prevent state ownership, which some people are in favour of and indeed some parties have already set out their stall on this matter. The EU already has 800 state-owned companies working within it, and therefore no barrier is imposed by the state aid rules should any future UK Government wish to go in that direction, which I hope they will not.

EU structural funds, which is the funding that the European Union provides to this country and will be coming back to the UK should we ever leave the EU, already permit distortion to the level playing field, which is a principal pillar of the single market and the customs union. These funds have been greatly useful in west Wales and in the valleys, where GDP has persistently been below 75% of the EU average for the whole of the past 20 to 25 years. The ability to develop infrastructure for business training support and business assistance programmes, which have received European funding and are available in most other parts of the United Kingdom, clearly shows that there is some need to be able to support the different parts of the United Kingdom. State aid is a facilitation of the infrastructure, but despite this, business in the UK has not been a major user of the interventions which have been permitted.

I should also point out the change that has occurred since devolution. Those Members of the House who were involved in political life prior to us joining the European Union will of course be aware that, at that stage, we had regional selective assistance programmes, which were a major subject of dispute within government. But think what will happen now, as those disputes arise between those with the legislative powers to execute those changes. Business development support is certainly something that is within the power of the devolved Administrations. As a former Minister for Economic Development in the Welsh Government, I had to use those powers to the extreme when we faced the closure of steelworks in Wales, where we needed to provide as much assistance as we could to create and retain part of the steel-making fabric in other parts of Wales.

There are now new players on the agenda, apart from Wales, Scotland and Northern Ireland. In the future, this could mean that mayoral powers and local government might be given more in the way of business support. In its new role, the CMA will have to reflect both those changes and the interests of each of those legislative bodies, which it will adjudicate on. So it is not sufficient for the CMA to take instruction from the UK Government alone.

That brings me to the issue of frameworks. The Government’s response to the report mentions that they will need a framework because, although the CMA will be the regulator, it will not provide the strategic framework in which a UK single market will operate. If a UK single market is to operate with those different legislatures, it will need instruction, direction or some form of agreement—at least a fabric of agreement—from them on the framework in which it will operate. As noble Lords just heard, there will be a difference, for example, in the water industry. Some parties in this Chamber may want to nationalise the water industry, but I would point out to those of us who are recipients of water from Welsh Water that it is a not-for-profit organisation, and I do not think that the people of Wales would want to change that—thank you very much. Blanket policies that try to operate across the United Kingdom will certainly not work in the interests of parts of the UK where legislative powers exist to make sure that these things are dealt with at different levels.

So the framework that is about to be discussed is urgently important. Who will determine it? In the debates on the European Union (Withdrawal) Bill, issues relating to powers for Scotland and Wales were the subject of great dispute. While the UK Government have reached an agreement with the Welsh Government, they have not reached one with the Scottish Government on how they will operate certain powers. There is a lesson in this: the UK Government ought to work now with the devolved Administrations, local government and mayors to try to find a way in which this framework can be put together.

Of course, a route for that to happen is through a joint ministerial council, which is meant to bring together Ministers from the different Administrations to come to an agreement. I believe that there is now a role for a JMC to be put on a statutory basis and become the body that will issue and develop a strategy that has the agreement of the whole United Kingdom, so that the CMA can operate in its new state aid role. As we know, the current agreement with the Welsh Government on the European Union (Withdrawal) Bill is that the various powers that reflect on the Welsh and UK Governments have been frozen until the framework is in place. That agreement was reached by the UK Government with the Welsh Government but has not yet been reached with the Scottish Government. That route was taken because the Government needed some process by which they could advance on how those powers would be developed and used. We need joint agreement very rapidly.

Finally, I want to ask the Minister some questions about the future. First, when will the Government begin engagement with the devolved Administrations on the structure of a future framework for state aid, or whatever they might think of as a suitable name for the new subsidy regime for the United Kingdom?

Secondly, does the Minister anticipate that any form of trade deal with the EU, or indeed any other country, will require some form of state aid restriction? We know that the WTO rules are different from the EU rules, but do the Government anticipate some form of state aid restrictions inevitably being put before us?

Thirdly and finally, do the Government agree that some formulation for determining the future state aid regime similar to the joint ministerial committee is an appropriate mechanism? Given the variety of frameworks, not least those identified during the passage of the EU withdrawal Bill through your Lordships’ House, is a permanent statutory structure of a joint ministerial committee an appropriate way of dealing with it?