Northern Ireland Protocol Bill

Lord Leigh of Hurley Excerpts

Committee stage
Wednesday 2nd November 2022 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, in the spirit of trying to help the Government, I will repeat what I said in relation to an earlier group of amendments: it would help the Committee, as well as the other place, if the Government could give us an indication of the type of regulations that they have in mind, so that we do not have this blanket provision before us today. There is still time to do that.

I will also ask a question of information. I understand that the “provision” to which the noble Lord, Lord Purvis, refers in removing it from this particular clause does not apply to agricultural subsidies. So, if it is the case that agricultural subsidies are still going to apply, who is in a position at the moment to decide on that, and within what timeframe would that be?

[Lord Leigh of Hurley (Con)]

My Lords, I have been looking at Clause 12 through a particular prism. As my entry in the register of interests discloses, I have a particular interest in financial services. I am also an investor in various enterprise investment and seed enterprise investment companies, which I will refer to as EIS and SEIS companies, and venture capital trusts. For those who are not aware, EIS schemes are those which allow UK investors to invest in UK companies and deduct the amount invested in those companies against their income tax at prescribed rates to encourage investment in private companies.

For some time, I have been frustrated that these truly excellent schemes have been hampered by restrictions. The schemes are hugely popular. EIS has helped some 66,000 companies in the UK in total, with some 3,755 companies raising over £1.5 billion last year alone. Since 2018, VCTs have made some 1,000 investments, raising £1.7 billion, of which 45% were less than £1 million. So I am very concerned by anything that threatens the existence of these schemes and am keen to find ways of enhancing their effectiveness. There are, however, restrictions and regulations reducing the opportunity for UK businesses to raise this vital small equity for essentially risky enterprises, and I have been concerned that these restrictions have in part been due to the requirements of EU state aid rules.

The enormous success of the EIS and VCT schemes is very much a British phenomenon and probably viewed with some mistrust by the EU, given our tremendous track record in starting and growing new UK businesses. In fact, most businessmen and investors I have spoken to are amazed to discover that it is governed by EU state aid rules. Fortunately, at the moment we have EU approval for the design of the EIS and VCT schemes under Article 107 of the Treaty on the Functioning of the European Union, and the smaller SEI schemes, due to their size, fall within Article 21 of the general block exemption regulation. However, as we decide how to plough our own path post Brexit, it is important that we are entirely free to create our own rules concerning subsidies that might amount to state aid—within, of course, the constraints of WTO and other commitments.

As mentioned by the noble Lord, Lord Purvis of Tweed, we now have our own Subsidy Control Act but, under the protocol, some EU state aid rules still apply. I can see the issue, namely that the EU is worried that a company based in Belfast has cheaper finance than a competitor in Dublin—but, frankly, that should be our choice and the choice of other countries to offer incentives to finance their businesses.

Why do we have this problem? As Andrew Harper helpfully wrote in the British Tax Review in autumn 2020, the two sides promote opposing perspectives: the EU very much promulgating its state aid regime on the basis of the level playing field and the UK adopting the subsidy language of the World Trade Organization. This is much more than a semantic or linguistic distinction. It is one of substance, both in the scope and the enforceability of the rules.

In these circumstances it appears sensible to point out the key issues that could arise. Without Clause 12 —and I am aware that there is a stand part debate following—first, the EIS and VCT schemes as they operate in Northern Ireland will presumably have to remain fully EU state aid compliant because of EIS companies and VCT investees based in the Province trading with the Irish Republic or the wider EU. Secondly, following from that, barring the UK Government being prepared to countenance two separate systems within the UK, the EIS and VCT schemes as they apply to England, Wales and Scotland will be difficult to modify.

Thirdly, if, post transition, these schemes were to diverge as between Northern Ireland and the rest of the UK, what is the position in the case of, say, an English EIS company raising scheme funding that would be in excess of that sanctioned by EU state aid rules? If that English company then sends its goods to Northern Ireland, where potentially they can be traded with the south or the rest of the EU, how will that be allowed to happen? It simply cannot make sense to exclude Clause 12.

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[Lord Pannick (CB)]

May I ask the noble Lord two questions? First, should these problems not have been considered by the United Kingdom Government before they signed the protocol? Secondly, is there any reason why these problems cannot be raised in the negotiations with the EU to take place in the near future?

[Lord Leigh of Hurley (Con)]

I cannot answer for the UK Government on whether they should have been raised before; that is clearly historical and we are where we are. In theory, there could be a negotiation with the EU to try to deal with some of these problems, but we would be on the back foot and there would be no reason for the EU to agree, whereas Clause 12 deals with it satisfactorily.

[Lord Campbell of Pittenweem (LD)]

My Lords, I associate myself with my noble friend Lord Purvis of Tweed and the noble and learned Lord, Lord Judge, who have made the case in very strong terms for why subsection (3) should be removed. I pause only to make one observation: it does not even specify the Minister but says:

“A Minister of the Crown”.


So not only is it an extremely wide power, it is a power available to any Minister in any ministry of any kind, at any time, without any restraint whatever. How can that possibly be consistent with the principles on which we pass legislation in this Chamber?

--- Later in debate ---

[Baroness Chapman of Darlington (Lab)]

That is helpful, thank you. What kind of measures do we anticipate, and what would be their impact? It is all very well to play hardball and say, “This is what we will do”, but that will always have a consequence and we need to understand what that might be. Not to do so would be deeply irresponsible.

Then there is the issue of powers. A lot has been said and I agree with pretty much all of it. Clause 12(3), which the noble and learned Lord, Lord Judge, referred to, says

“may, by regulations, make any provision which the Minister considers appropriate in connection with any provision of the … Protocol to which this section relates.”

That is incredibly broad and we ask whether it is necessary for it to be so broad. If I have understood the amendment tabled by the noble Lord, Lord Leigh, correctly, he seeks to put some sort of frame around it. We are all very concerned about where those powers might lead us.

The problem is that we have to look at this in conjunction with the Subsidy Control Act, which is itself very broad, has powers for Ministers and lacks clarity about what the UK Government intend for Great Britain’s subsidy regime. We are compounding one unknown with another. That is quite a lot for noble Lords to swallow. We have been asked to show a lot of faith in Ministers when really what we need, and what the noble Lord, Lord Dodds, has signalled he would like too, is some more information and draft regulations. We want to know where we are going with all this so that we can assess whether it will be the right approach to benefit businesses in Northern Ireland and answer the challenge made by the DUP. At the moment, I can see a set of circumstances in which it would not.

It is right that these issues are resolvable only by negotiation; we all know that. We have to start accepting that and asking ourselves whether the Bill’s approach will assist those negotiations in reaching a positive outcome. My noble friend Lady Ritchie said that this is something where we want the voice of the Northern Ireland Assembly. We want to know what MLAs from all communities have to say. It really matters that we hear from all sides, because this is about solving problems, not making things worse. The Bill really does risk making things worse.

The only other thing I would add is that there is now a different subsidy control regime in Great Britain, but where are this interventionist Conservative Government, who are making use of their new powers up and down the country? Speaking as somebody from the north-east of England, we see lots of tinkering and plenty of things that we could have done whether we were in or outside the EU. I do not particularly see that there will be the massive difference that warrants the kind of tension this is leading to. I suggest that the amendments tabled by the noble Lord, Lord Purvis, and my own are designed to be helpful. These are issues that we will not make progress on through this Bill.

[Lord Leigh of Hurley (Con)]

I agree with the noble Baroness that I was trying to create a framework, in a very amateurish way that is way above my normal pay grade. I take her point that she is trying to do the same thing with her Amendment 18, which is sensible, but does she think removing Clause 12 would weaken or strengthen our hand in the negotiations? If a vote on the clause standing part was to take place, what would be her plans for those people planning EIS investments in the future?