Subsidy Control Bill

Lord Lamont of Lerwick Excerpts

Committee stage
Monday 7th February 2022 Grand Committee

[Lord McNicol of West Kilbride (Lab)]

My Lords, this is a straightforward group of amendments and I thank the noble Lord, Lord Lamont, for signing them. My very first reading of these clauses left me with a real sense of confusion and, while I have tried my very best to get into the head of the Minister, or at least those drafting the Bill, I am not sure I have achieved that.

Amendment 40 would require subsidies or schemes to be entered in the database within three months of being made, rather than one year, if given in the form of a tax measure. Amendment 41 would require subsidies or schemes to be entered in the database within one month of being made, rather than six months, if given in any form other than a tax measure. Amendment 42 would require that modifications to subsidies or schemes entered into the database are made within three months of that modification, if given in the form of a tax measure. The final one, Amendment 43, would require that modifications to subsidies or schemes entered into the database are made within one month of that modification, if given in any form other than a tax measure.

This proposed new system is fundamentally different from the previous EU system of state aid and, more importantly, different from pre-authorisation of the subsidies. All parties have welcomed that change, and we do on these Benches; however, the proposed new system of post-award disclosures, monitoring and/or possible challenges will work only if there is complete transparency, or at least a nod towards transparency, be that, as we heard on the previous group, on the amount or, on this group, on timing, or, in future groups, under systems that are put in place to allow those challenges. These amendments are important as the balance in the Bill as it is written does not feel right—the balance between those being able to challenge or look at our businesses or organisations and see what is out there and those who will have already received those subsidies.

As it stands, authorities are being afforded between six months and a year to make their entries to the subsidies database, depending on the form of relief they are offering. Much of the public sector, as we heard in the previous debate, is accustomed to fulfilling transparency requirements within a month of the end of a quarter, so these amendments, similar to the financial ones, are already being adhered to. The financial management through local authorities already adheres to very similar systems to what we are looking to amend here. One might have some sympathy for the Government’s approach if they were equally as generous in the time given to refer matters to the Competition Appeal Tribunal, the CAT, but as we will discuss later, this is not the case. The time limits on appealing are tighter.

Last Wednesday, the Minister rightly took pride in the number of changes being made to the subsidies database, arguing it was now simpler than ever for public authorities to meet their reporting requirements. If that is the case, why would somebody be given a full calendar year to upload their reporting of subsidies? We do not accept that reducing the time limit would place an unacceptable burden on authorities; we believe it would greatly assist efforts to improve transparency and ensure proper accountability for decision-making.

On 26 October, at the first witness session in Committee in the other place, Professor Rickard said on this issue:

“I think six months is too long. If it is a tax break for 12 months, after 12 months a competitor might be out of business”.—[Official Report, Commons, Subsidy Control Bill Committee, 26/10/21; col. 21.]


This group of amendments would rebalance a perceived or real inequality between those receiving the subsidy and those who may be affected by it, and their ability to challenge that subsidy. I beg to move.

[Lord Lamont of Lerwick (Con)]

My Lords, I added my name to these amendments in the name of the noble Lord, Lord McNicol. I shall not weary the Committee by repeating the points that he made, but I strongly agree with him. I added my name just because I was puzzled and regard as unfair the imbalance between the time given to public authorities to list subsidies and the very short timetable for people to object to them. I do not see why it should take six months to make public what has been done, while one month seems an extraordinarily short time for somebody to challenge it. As may have been said when I was unfortunately out of the room trying to get on PeerHub, one could easily imagine circumstances where perhaps the website was not working very well, and a few days were missed. “It never happens,” the Minister says. Well, we shall see. That would be a first in public sector computers.

There seems to be an imbalance here. What is sauce for the goose ought to be sauce for the gander—or is it the other way round? Six months is certainly far too long and one month is far too short. I agree with everything that the noble Lord, Lord McNicol, said.

[Lord Fox (LD)]

My Lords, during the debate on the previous group, the noble Baroness, Lady Altmann, asked, “How will they know?” This amendment seeks the answer to the question: how will they know in time? As the noble Lord, Lord McNicol, said, because of the limits of reporting, we are talking about very sizeable subsidies that could exist with a competitor company for up to a year before a person is able to find out what their company is competing against. I am sure that the Minister would understand that that is not a fair situation, and it is within the gift of the Government to make it fairer.

Both noble Lords spoke about the imbalance; that is, a long time to report it and a short time to appeal it. One would almost think that the Government were seeking to discourage the process of challenging subsidies. I am sure that that is not the Minister’s aim and therefore the best way of expressing that aim is to redress that balance.

Reflecting on the last debate and this one, I think that we are in a bit of a mess around reporting—or, indeed, we are not but the Government are. On the one hand, we have the database with the six-month time limit and a very high ceiling; on the other hand, we have local authority websites with a three-month time statute and a much lower ceiling, and potentially we have FoIs—although the problem is that you need to know something exists before you can FoI it. The Government have therefore knowingly or unknowingly set up a multiple market for information.

If I am a business and I need to know what is happening in my sector, the Minister will say that this information is freely available. It is freely available on a pull basis. I shall have to employ someone to go out there regularly to check whether the information exists, where it is and what is happening in my sector. If I am a small business in a market where the receipt of subsidy could affect my business, I shall have to employ an extra person or part of an extra person to do that. This does not seem a sensible way of dealing with the issue. A central database with a shorter time span and a lower value ceiling would be the best way to help businesses thrive.

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[Lord Callanan (Con)]

The figure I used was 74%, not 76%. I do not have that information, but I can certainly get it for the noble Lord—I will supply it in writing.

[Lord Lamont of Lerwick (Con)]

My Lords, the Minister was very persuasive about tax measures. I quite follow what he said about the uncertainties that would surround trying to calculate the cash value of tax subsidies, but he did not spend very much time talking about the one-month period, which is the one that seems a bit unreasonable. It seems as though they are paying more attention to the compliance costs of the public sector than to the costs of the challenger, which ought to be equally kept in mind. Surely one month is a very short period to challenge a subsidy which may have suddenly arrived out of the blue and may require a private sector company to take legal advice on whether it is challengeable. Four weeks to get legal advice, mount a challenge and go through all the formalities seems a very short period of time.

[Lord Callanan (Con)]

I understand the point that my noble friend is making. As I mentioned in my reply to the noble Lord, Lord McNicol, the limitation period is the subject of separate amendments, so we will have a further opportunity to discuss that in the next Committee session. Again, it is a balance between wanting to provide certainty so that the schemes can proceed and the beneficiary can proceed with some certainty, but I understand the point that my noble friend makes. The whole regime is designed to be as flexible as possible, and probably more permissive in many respects than the EU state aid regime. As I say, we will have a longer period to discuss the limitation period and the challenge on a future occasion.

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[Lord McNicol of West Kilbride (Lab)]

My Lords, it is a pleasure to follow the noble Lord, Lord Purvis, and his detailed analysis, especially picking up and bringing back some of the issues from last week. With his contribution and the others, I will be short. I am grateful to the noble Lord, Lord Dodds, for tabling this probing amendment and facilitating discussion on this hugely important topic. I will focus my short remarks on the bigger picture rather than the specific details, which I think have been covered well enough.

Regardless of where people stand on the Northern Ireland protocol and the Government’s negotiations to reform it, it is a part of international law, as we have heard. This legislation therefore needs to be consistent with it. There are different legal opinions on the matter and, while some are favourable to Her Majesty’s Government’s approach, others suggest that decisions relating to Northern Ireland will at best be complex but at worst be subject to challenge or litigation. Neither of these outcomes would be good for firms, businesses or the authorities operating in Northern Ireland.

When this Bill was in the Commons, the Government were asked if they would pause to allow room for negotiations to continue. The answer was no. Despite the passage of those months, we appear to be no closer.

With that, I will leave my comments and look forward to the Minister’s response.

[Lord Lamont of Lerwick (Con)]

My Lords, without endorsing what the noble Lord, Lord Purvis, said, I think this is a very important issue—without going into the wider Brexit questions to which he referred—and it is extremely worrying.

I would like the Minister to confirm whether the Government’s position as stated in this Bill, and which was reaffirmed by my noble friend last week when she replied to the debate, is the final interpretation or is an interpretation that is subject to change. As the noble Lord, Lord McNicol, said, there are different legal interpretations of the protocol, and there certainly seem to be different interpretations between the European Union and the UK Government. Does that not therefore affect the assurances that Ministers can give? What certainty can be attributed to the opinion of Ministers as to what is the meaning of subsidies under Article 10 or subsidies under Article 138, and which subsidies are subject to European Union law and which are not?

Last time, I raised with my noble friend Lady Bloomfield the question of reach-back and what would happen if a subsidy was being given to a company in the north of England that was exporting goods to Northern Ireland and whether that would come under the EU regime or the UK regime. She replied by saying:

“The Commission’s … declaration of December 2020 made it clear that Article 10 could affect a subsidy in GB only”—


I stress the word “only—

“if there was a genuine and direct link in Northern Ireland. This would be the case if, for example, the beneficiary had a subsidiary in Northern Ireland.”—[Official Report, 2/2/22; col. GC 244.]

Is that the only case? If there were no subsidiary, would that be a different outcome?

[Lord Callanan (Con)]

My Lords, let me first thank the noble Lord, Lord Dodds, and the noble Baroness, Lady Hoey, for this amendment. I know that the noble Lord has strong feelings on the protocol and he and I have discussed it many times before. I have also discussed it with the noble Lord, Lord Empey, throughout the progress of our various pieces of Brexit legislation. I know the issues that are involved, and I will hopefully be able to update the noble Lord on our interpretation of the provisions and where I think we have got to—although there is a limit, as I am sure the noble Lord will understand, on what I can say.

I start by emphasising that preventing undue distortion or economic disadvantage to any part of the United Kingdom is one fundamental objective of this regime. Subsidies are inherently distorting, but this Subsidy Control Bill exists to ensure that public authorities minimise those distortions and economic disadvantage, ensuring that the benefits of the subsidy outweigh any negative effects.

Public authorities will need to consider this in making their decisions about whether the subsidy should be given and how it should be designed. That particularly affects any negative effects in parts of the United Kingdom other than the target area of the subsidy, but it also includes the effects on international trade or investment where the public authority may have less incentive to take those disadvantages into account in its ordinary decision-making processes.

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Moved by

[Lord Lamont of Lerwick]

55A: Clause 55, page 30, line 40, after “State” insert “or the CMA”

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[Lord Lamont of Lerwick (Con)]

My Lords, I shall also speak to Amendments 57A, 57B and 60A. The purpose of this group of amendments is to give the CMA the right to call in subsidies quite separately from the mandatory referral process, not just those referred by the Secretary of State. The amendments would not give the power of veto to the CMA and would still leave the Competition Appeal Tribunal as the final arbiter. They are designed to introduce some independent enforcement of the rules into the process. In recent years, we have seen more independence given to bodies such as the Bank of England or the OBR. These amendments try to give the CMA, in its new role, a degree of independence for enforcement.

The noble Lord, Lord McNicol, earlier drew a contrast between the position under this Bill and how it was under the EU, namely that no subsidy was legal until it was approved. This is a much more permissive regime which relies heavily on being policed by competitors and citizens who, for the reasons that we discussed earlier in the series of amendments about the thresholds and the timing, may not always spot the need to draw attention to a subsidy that has been granted.

Let me say that I fully accept that subsidies are necessary for social purposes, for areas of deprivation and for remote communities, sometimes just to soften the blow of industrial change. But we also know the reality that subsidies distort competition; there is sometimes a temptation for Governments to throw good money after bad; one can have the politicisation of subsidies; and one can have pork barrelling. The provisions in these amendments are designed to prevent that happening.

This country needs to improve productivity. We need to strengthen the competitiveness of the UK economy and one way in which that can be done is by having a Government who are disciplined and subject to an independent discipline in their use of subsidies. The Government have been spending a lot of money recently on subsidies, some of which I accept are well justified, but we have a list of areas into which money has been injected—electricity, airlines, train operators, OneWeb, the steel industry. When we were discussing this earlier, the noble Lord, Lord McNicol, referred to the absence of a strategy. I am not personally an enthusiast for an industrial strategy, but I find it difficult to see the rationale for all the subsidies that the Government have given.

I have referred before to the Chancellor of the Exchequer’s future fund. In fairness, the Chancellor said he thought people would have a lot of fun with the investments into which he had put taxpayers’ money. More and more information has come out about it. It was recently revealed that millions have been ploughed into one online betting company. Large amounts of money have been deployed into a luxury Caribbean firm selling holidays on private islands, with some of the properties costing £400,000 a week to rent. There are also the cannabis producers, the dating agency—and Bolton Wanderers, which is also getting a direct injection from the Government.

I can understand that the Government want to help small businesses, but in that case help the generality of small businesses, not just one particular business. There may be lots of small Caribbean holiday companies that need help; why should this one be singled out? No doubt Bolton Wanderers needs help, but what about Scunthorpe and Grimsby Town? Why should one dating agency be favoured over another? If you are going to help small businesses then do it by a grant scheme to which small businesses can apply, or by tax relief, which they can benefit from—schemes that can apply to a generality of businesses.

On top of all that, we have had, as has been mentioned several times in this debate, the mysterious investment of £400 million into OneWeb, which required a directive to the Permanent Secretary before he would approve it. The Government really have been extraordinarily reticent about the purpose of that investment, and the amount of information that has been given to Parliament has been very meagre indeed. There is a cause and a need for explanation and investigation of many of these investments.

The words “market failure” are often mentioned; they were mentioned today and in our debate the other day. Market failure can be used to justify almost anything that Governments want to do: a firm cannot find money; the Government want to give it a subsidy, so they just label it “market failure”. But what exactly is market failure? The Minister referred to it the other day, and we have had it referred to several times. One might define market failure as barriers to entry or inadequate information being available to all market participants, but it is another reason why Governments can just slither off the hook and give money to someone for, perhaps, political reasons.

We need to have a careful look at what is called market failure. The British Business Bank was set up in order to cope with market failure but is itself now the subject of great criticism by the Public Accounts Committee for not overseeing the Covid loans properly. So much for its ability to correct market failure.

The whole point of my referring to these rather questionable subsidies, as I regard them, is that I do not think the Government ought to be able to mark their own homework on these issues. They need an enforcer and an independent view. I say that what is wrong with the Bill is that it is designed to give expression to the agreement that was struck with the European Union, the TCA; it is not really a rigorous enforcement of subsidy control at all. The regime is very permissive compared to what we had in Europe and relies far too much on individual citizens and competitors as enforcers. Those who are affected have to spot and know about the subsidies, and they have to do that within a very tight time limit. As I said earlier, what if the website is not working? All these things can make it very difficult for the competitor to take the action to control the subsidies being given to people with whom they are competing.

We need to have more independence in the process. We need the CMA to have the ability to investigate on its own initiative. We need a degree of independence, similar to that which is increasingly being given to government agencies. I hope the amendment will commend itself to Members of the Committee, and I beg to move.

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[Lord Callanan (Con)]

So shall we finish at this point and start again on Wednesday. Is my noble friend Lord Lamont available for the next Committee session on Wednesday afternoon? We are talking about suspending at this point, because we have run out of time, and returning to this group of amendments then.

[Lord Lamont of Lerwick (Con)]

Yes.

Debate on Amendment 55A adjourned.