Brexit: Competition and State Aid (EUC Report)

Lord Hunt of Chesterton Excerpts

Thursday 24th May 2018 Lords Chamber

[Lord Hunt of Chesterton (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Wei, and his remarks about the growth of some SMEs having been deterred by aggressive financial pressures. I also welcome this report of the House of Lords EU sub-committee, under the fine chairmanship of my noble friend Lord Whitty. I am not a member of that committee, but the document we have received is excellent.

Over the years, one has noticed that the UK Government’s policies on competition and state aid have varied according to the political parties taking power, unlike in major European countries, where there has been more consistency over the years. My own experience of state funding, research and development has been as a research scientist in various universities, as a director and consultant of technological companies in the UK and in European countries, and as director of the Met Office, which certainly benefited from UK and European state funding, to the great benefit of its technological development. I have declared these interests in the register.

Recently, I have also been a member of the House of Lords Science and Technology Select Committee, which received evidence from larger companies about how smaller UK companies—SMEs—were making limited use of state aid from the European Commission. The larger companies were concerned about what will happen to these smaller companies, which are of course part of the chain feeding into the large companies. There was general criticism of the policies of the coalition Government, which withdrew funding from regional development agencies in 2010. There has really been no proper substitute for that—and this does not come from me, a Labour person; it was a big company commenting on this. There has since been some return to regional development agencies, with limited funds available to local enterprise bodies. Perhaps they will be expanded in future.

The question is: what will happen after Brexit and will the funding and organisational arrangements be as effective as possible? It would be interesting to hear from the Minister how the UK will collaborate with the European Commission on state-aided funding and competition. The most significant statistics about the levels of state aid are given in the House of Commons briefing paper, which other noble Lords have referred to, including my noble friend Lord Whitty. Some 0.35% of capital is used by the UK on state aid, 0.62% in France and 1.22% in Germany, which shows that other European countries are using state aid more readily and extensively than the UK. The UK could expand its state aid to industry, whether in or out of the European Commission, as my noble friend Lord Whitty emphasised. But how should state aid be applied most effectively for industrial and technological strategies and/or for general development in the UK—for the economy, infrastructure and the environment?

Very noticeable—though other noble Lords have not mentioned it—is the wording of the Government’s response to recommendation 17, and I suggest that noble Lords read it. It shows, surprisingly, the continuing government ambivalence about state aid, which may be relevant in future:

“Rather than propping up failing industries or picking winners, the Government is keen to create the conditions where successful businesses can emerge and grow in all industries and sectors”.


The most reverend Primate the Archbishop of Canterbury was here earlier; perhaps he would have been able to exactly parse this very subtly worded remark. Nevertheless, the deprecatory remark of “picking winners” still seems part of government thinking. It is not seen that way by other European countries. By contrast, in France and Germany, there is total enthusiasm for support for all kinds of industry, including those that might be in danger on a national basis and those that might be “winners”. As my noble Friend, Lord Chandos said, there was a famous French case of supporting the yoghurt industry. It was laughed at in Britain by the Financial Times and elsewhere, but has in fact proved very successful. The other important feature, which, again, other noble Lords have not emphasised, is that state aid in France, Germany and Spain, as I have seen, is strong and differentiated between the national, regional and even sub-regional levels. You can see how it works. For example, in Toulouse, there was a local campaign to develop industry, with a target of hiring 10,000 engineering technicians and others as it was developed.

In its policy of standing by, the UK has seen the decline of certain of our major industries, such as electrical engineering, and the leadership role in Airbus—the UK is now a contractor, whereas it used to lead it with France and Germany. Big elements of the manufacture of steel rails, on which we were a world leader, now happen in the Netherlands. As the noble Lord, Lord Wigley, emphasised, state aid is vital in the devolved regions. The UK Government seem unable to understand the implications of their policy. The House of Lords Select Committee on Science and Technology has been studying industrial strategy in relation to life sciences, and its report was produced a couple of weeks ago. The Government have stated their aim of developing new and large pharmaceutical companies that will have many billions of pounds’ turnover—that is their ambition—over the next 20 years. But how will those winners be chosen or evolve if the Government do not believe in “picking winners”, which surely should be strategically developed through collaboration between industry, the National Health Service and research? Foreign pharmaceutical companies are always impressed, as they reported to our committee, with the research, but are not so impressed with the UK being the place for economic investment.

In developing the UK’s future energy supply, state aid will be essential and done in collaboration with state-aided and private companies in other countries. There should be no hesitation in identifying critical areas: wind energy, fission and fusion. These are also consistent with the necessary global environmental goal of reducing carbon emissions, which is a very strong aim of the Government and supported by all the major parties. I declare an interest in this area.

I note that the Government have in the last few months chosen certain companies and technologies for their large and smaller state-aided investments in these areas. However, no one is quite clear how these decisions are being made and how they will be made in future. That is the big question about state aid: who decides who receives it? That remains an imponderable, and I look forward to the Minister’s reply to that.

The other feature is that there will be other vital strategic uses of state aid, which must surely include the development of new industrial products allied to government regulation and overseas aid. Most recently, that applies in particular to the changes in the use of disposable plastics, with enormous volumes now going to the oceans, with unknown health and environmental consequences. This is a remarkable new environmental danger that has emerged in the past two years, and the Government are now gripping that problem. However, tremendous investment will be needed to find solutions in this area. Regrettably, at a recent EU meeting—literally last week—the European Commission, working with industry and environmental organisations, failed to agree on an industrial, commercial and regulatory basis. But that will be the place where this enormously important issue will be discussed. The question, which goes back to my earlier remark, is how the UK will be involved in such strategic issues, because as sure as eggs is eggs, that is where the big issues will be decided. That is an example of where state aid should be applied urgently, as we discussed last week at a meeting of the All-Party Group for Polar Regions. This is also an example of how the UK will have to continue to work with the EU on all the big issues of science, economics and government.