Subsidy Control Bill

Lord German Excerpts

Committee stage
Monday 31st January 2022 Grand Committee

I emphasised at Second Reading that I support selective, targeted and rigorously analysed public sector investments in companies, particularly those that are highly innovative, but it is essential that this is done transparently and fairly, which means that public authorities must disclose on a timely basis any equity investment made containing an implicit subsidy. The very complexity of equity investing means that, for clarity, it should be included as an example in the Bill. The choice of examples is symbolic, as well as bringing emphasis and clarity. It should reduce the likelihood of transactions being overlooked and unreported, and there would be no conceivable downside of including it as an example in the Bill rather than relying solely on the guidance note.

[Lord German (LD)]

My Lords, I want to speak to these amendments because we have reached the point in the Bill when we are looking at the architecture for the future. Clause 2 sets out very clearly the fundamentals that we need to understand. I seek to ask the Government whether the subsidy regime proposed here is more or less permissive, and whether it is more or less bureaucratic, than what we have had before.

I am grateful to the Minister for letting us have more information and some draft regulations and draft guidance, but the problem that the devolved Administrations have is summed up in the statement in paragraph 5 of Streamlined Routes: Objectives, Operation and Next Steps:

“The Devolved Administrations have also had the opportunity to share their views on Streamlined Routes to support their development.”


I am often asked to share my views and very often I am told that the Government do not agree with them. I am sure that that is very common. Perhaps the Minister could tell us whether there has been any accommodation of these views when they have been shared and whether any changes have been made. It would be interesting to see that happen.

My fundamental point is whether the scheme’s architecture is more or less permissive than what we had before. The situation is very different for Wales, of course, because we received the largest amount of European money of anywhere in the United Kingdom over a sustained period. Only two things mattered in terms of the regime itself, as opposed to how it was dealt with: there were subsidies—money and cash—and there were rules on which the subsidies operated. The Government’s own words to us in the Chamber, if they are to believed, were that Wales would not suffer, pound for pound, any less in the money it received than from the European schemes. Clearly, that is not true yet.

My first question to the Minister is: when will the money be received? It clearly has not been yet. Can he repeat the commitment that, pound for pound, Wales will not suffer? We could get that side of the subsidy regime out of the way. However, I suspect that some of us might have been misled in our thinking over the promise that money would be available. I hope that the Minister, on a day when we have been told that we may have been misled about promises put to us, can set the record straight for us right now.

Leaving aside the subsidies themselves—we have heard a little bit but we do not yet know whether there will be cash on the table—we now turn to the rules for them. I had the opportunity to be deeply involved in setting up one six-year period of the European funding for Wales. The way in which it was brought about was interesting. We had to secure an operational programme with the European Union; that programme was broad but very detailed and extensive. When that happened, it gave us, for six years, the rules by which we could operate and understand how to deal with the problems in our country.

The direct comparison now is between the operational programmes, where the EU determined after extensive negotiation, and the other, streamlined schemes, several of which we have in front of us. That comparison includes how these might work and which is more permissive. The former was for six years. It was very broad. You knew where you were. The latter is a tighter constraint around a specific topic. One of the obvious criticisms from the documentation we have received is that there is going to be a whole lot of narrow, siloed regimes. It will be extremely difficult for public authorities and anybody else to find their way not only through those regimes but to the interconnecting places.

An obvious example of that concerns the general conditions in the innovation scheme. I do not think anybody would disagree that a UK subsidy regime should not compensate for costs that the beneficiary would have funded in the absence of any subsidy—that is a fundamental. So why is it in this document? It may also be slightly different in another one; we do not know because we do not have the extent of it before us. Essentially, what we needed was an overarching set of rules that were clear enough to be in the Bill or, alternatively, in any regulation that we see in advance. Perhaps the Minister could tell us, in saying what a regime should look like, where we can get the specifics of these overarching things and the subsidy regimes that will take place.

The amendments tabled by the noble Lord, Lord Wigley, would return the decision-making clearly to the Welsh Government; it is quite clear that, under these powers, they will lose that. One of the suggestions that has been made—it will come up later in our debate, of course—is that we should have an agreed framework of activity within which there would be an ability to do things in a much more free-flowing way. It is absolutely essential that authorities intervene in areas of deprivation. If you do not do that, you certainly do not use the words that begin with an L and a U, which the Government are so keen on. We certainly cannot bring lifestyles to a better place if we do not target where public money should go.

Overlaid with the broad set of rules that I have just talked about, including on such things as displacement and the fact that people cannot be compensated where they would have done it for themselves, we need to understand whether these rules will provide a level playing field. The understanding I get from my reading of them is that we will continue to have an uneven playing field and one on which politics will play a far bigger role than the clear set of understandings that there were in the past between, for example, the Welsh Government and the European Commission, about what one could do. Can the Minister explain why this scheme is an improvement and why it is proportionate between the Governments of this country? The suspicion is that one Government are using their powers to disadvantage another.

[Lord Lamont of Lerwick (Con)]

My Lords, I will speak even more briefly than did the noble Viscount, Lord Chandos, in expressing a modicum of support for him. It is up to the Minister to explain why equity is not included rather than for the noble Viscount to prove the case for including equity; it seems a bit of an omission. We read today about the failure of the British Business Bank to do well on some of its investments. We have also had the publicity about the Covid loans that have not been recovered. Why do I mention the British Business Bank? Because we have seen a whole series of equity injections by this Government that have not always had an overall rationale.

The noble Viscount, Lord Chandos, referred to the spread of returns from equity investment and how different investors would take a different view of the future, but the reason often advanced by government for direct investment is what is termed “market failure”, and I see that the phrase “market failure” is referred to in the Bill. Unfortunately, market failure is a convenient get-out for Governments wishing to subsidise a particular entity. The very fact that Governments provide direct investment, which I know the noble Viscount favours in a way that I would not, often disguises the fact that there is a subsidy. They say that it is because of market failure and they want it to be on market terms, but, too often, it turns out just to be an implicit subsidy. I agree with the noble Viscount that equity, particularly from a public sector grant-making organisation, can often conceal a degree of subsidy. I hope that careful consideration will be given to the point that he has rightly raised.

--- Later in debate ---

[Lord Wigley (PC)]

My Lords, I am grateful to everybody who has participated in this short debate. I am not sure whether the noble Viscount, Lord Chandos, is happy with the response he got, but no doubt there will be opportunities to pursue that further. I also noted the comments of the noble Lord, Lord Lamont. There is clearly an issue here that needs some further consideration.

I was grateful to the noble Lord, Lord German, for his contribution. He was Minister for Economic Development in the Welsh Government. Was it 20 years ago?

[Lord German (LD)]

Yes.

[Lord Wigley (PC)]

It was a long time ago but clearly the noble Lord learned many lessons, not least the one he repeated: to stress that we in Wales received considerable benefit from the European Union and that there is a need for a guarantee that, pound for pound, we will not miss out from the changes taking place. That is a bit on a tangent from the issues we are debating; none the less, it is a well-made point and needs to be well received. Hopefully that will be the case. I agree very much with the noble Lord, Lord German, on his point about the Government spelling out in greater detail the rules coming through that will provide a level playing field. Those are very much needed.

I was grateful to the noble Lord, Lord Fox, for his interesting contribution, as always. He asked what a subsidy is. That really goes to the heart of the Bill, does it not? It is clear from the detailed response we had from the Minister that it will require quite a lot of exercising.

The noble Lord, Lord McNicol, again emphasised the need for greater clarity and transparency. That is what is coming out of this. I thought that the Minister’s responses recognised in many ways that the issues exist, but she believes that they are already covered in the Bill. We are going to need to press those aspects further as we go through the Bill. It is essential that the Bill is understood not only by those of us who work in the world of politics but, even more so, by those at the sharp end of business and industry who have to live with the consequences of it. They need transparency, and they need to be sure that they are not being enticed down a road where there may not be any hope of a satisfactory outcome. As the Bill progresses and we probe more aspects of it, I hope that that light will start shining through and that, if necessary, there will be appropriate briefings outside Committee on any further thinking or clarity that the Government can give to these issues.

I believe that the matters raised in my two amendments are relevant. The Minister confirmed that, to all intents and purposes, what is covered in Amendment 3 is covered by the Bill. That is fine; I said that I might be knocking on an open door. I am grateful for that, but I have no doubt that we will need to return to some aspects of the more general debate we have had. On that basis, I beg leave to withdraw the amendment.