Subsidy Control Bill

Lord McNicol of West Kilbride Excerpts

Committee stage
Monday 31st January 2022 Grand Committee

[Baroness Randerson (LD)]

My Lords, I will speak specifically to Amendment 20, in the name of the noble Lord, Lord McNicol, to which I have added my name. Before I do, I want to place on record my concern that our debates on the Bill are being held only in Grand Committee. This Bill is of equal significance to the internal market Bill, and it has both economic and constitutional significance way above the status it is apparently being given by being located here.

Amendment 20 closely reflects the concerns of the Welsh Government, and there are of course similar concerns among the Scottish Government. In comparison with the other amendments in this group, Amendment 20 is a modest request for the Secretary of State to seek consent from the devolved Governments. However, if consent is not given the Secretary of State can go ahead anyway. This reflects a formula accepted by the Government in other pieces of legislation, which I assume is why it was written in this way—because it is the least controversial option of those put forward. It implicitly allows for a situation in which a devolved Government might seek simply to frustrate the UK Government’s efforts without full discussion and, therefore, does not reflect that in the vast majority of situations devolved Governments seek to negotiate in good faith with the UK Government. That is what the Welsh Government have certainly done this time, but they are not prepared to issue an LCM.

I signed the amendment despite my reservations that a Secretary of State’s Statement is to go to the House of Commons and that this place is not referred to. Given our attention to detail, I would hope that both Houses would be kept informed.

The amendments in this group all seek to restore an appropriate counterbalance to the sweeping powers the Bill allocates to the Secretary of State. Despite the Government’s chastening experience during debates on the internal market Bill, they seem heedlessly determined to continue their smash and grab on the powers of the devolved Parliaments. I am pleased to hear that at least one department of the UK Government has seen the light on this, but that does not alter the fact that the Bill is unreconstructed in its approach.

The Government talk about strengthening the union but are seizing every opportunity to undermine devolution. Powers over economic development and its funding have been devolved, in effect, since the Welsh Development Agency was established in 1975. Long prior to devolution, it was an example of excellence in pursuing successful economic development opportunities, mostly using funding.

The Minister will undoubtedly protest that nothing here removes powers over economic development or agriculture, for example, but power without funding power is a meaningless shell. This system allows the Secretary of State to halt schemes devised by devolved Governments because they are deemed unfair, but it does not in turn allow the devolved Governments to complain about the Secretary of State’s schemes devised for England.

It is not surprising that this is a sensitive issue in Wales. Under the EU system, two-thirds of Wales benefited from regional funding. In the Brexit debate prior to the referendum, people in Wales were promised specifically that they would not lose a single pound or euro, and voted accordingly. That promise proved very wide of the mark, and people in Wales feel betrayed.

It is worth noting that devolution in Wales is much less controversial than in Scotland. It enjoys very broad support across the political spectrum, and chipping away at the Welsh Government’s power to deliver on economic development or agriculture, for instance, is a dangerous path for the UK Government to take. I hope Ministers will see the light.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I thank the noble Baronesses, Lady Humphreys and Lady Randerson, for putting their names to a number of my amendments in this group. I thank the noble Lord, Lord Wigley, as well. His opening remarks summed up the thrust of group one, which is to ensure that the devolved Administrations are fully involved and engaged, and that there is parity of esteem for all the relevant legislatures. It set up the framework for this group of amendments rather well.

As we have heard, this is the first of several important debates on devolution, one of the major concerns about the Bill. As has been noted, at Second Reading the Minister outlined the number of meetings he had had with devolved officials—45, I think, 13 of them to talk about the regime itself. It is concerning that those meetings have taken place but we still find ourselves in a situation where there are unresolved issues with the Scottish Government and the Senedd.

My take on this is that it will not take a lot to move this on. In fact, as the noble Baroness, Lady Randerson, said, Amendment 20 is a very modest amendment, which would give the Secretary of State the power still to press ahead after a month if an agreement has not been reached. These are not tough amendments, especially following some of the debates in the Commons.

On that subject, I thank the department for releasing the guidance, but it is a bit bizarre that the Bill passed through the Commons stages without any of the guidance being published or being able to be read. There are still a lot of square brackets in the guidance and bits that needs to be filled in. As we will touch on later, the concerns that the DPRRC raised will, I hope, lead to some positive changes to the Bill.

A number of noble Lords spoke at Second Reading of their concerns and those of the devolved Administrations, many of which we shared and echoed. Amendments 13, 16 and 17 are intended to make it clear that the devolved authorities can make and modify streamlined subsidy schemes. As we are aware, at present the Bill reserves that power for the Secretary of State, although comments were made in the debates in the other place by the Commons Minister that this could be broadened out. It would be good to hear from the noble Baroness, when she responds on behalf of the noble Lord, Lord Callanan, whether we have seen any movement or development in broadening it out.

We also saw, throughout the Brexit process, which was touched on by a number of noble Lords, that when we got down to the detail in your Lordships’ House we were able to make changes and amendments. The noble and learned Lord, Lord Hope, talked about some of those regarding the internal market Bill. It would be good if we did not have to take this as far or go through the same pain and difficulties that we did on that Bill, especially when the amendments we are looking to make fit into and sit alongside the same changes made there. With that, I will conclude. I look forward to the noble Baroness’s response.

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Finally, since March 2021 UKGI has overseen nearly £100 billion-worth of borrowing to over 230 companies across the country. This, together with the activities of the British Business Bank, has led to a degree of corporate financial activity on a scale unseen, I suggest, for generations. I think the noble Lord, Lord Lamont, referred to that as well. It seems inconceivable that some of those loans will not be converted to equity at some point and I would like the Minister to explain, in the event that they are, how that sits within the constraints of the Bill.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I have very little to add to what other noble Lords have said. I am grateful to the noble Lord, Lord Wigley, and my noble friend Lord Chandos for Amendments 2, 2A and 3. As has been said, they go to the heart of the Bill. Clause 2 is titled “Subsidy” and lays out the effect and explanation of what a subsidy is or can be. The noble Lord, Lord Wigley, has come up with an interesting means of looking at protecting the devolved authorities’ interests by making it clear, as we have heard, that certain forms of payments would not be classified as subsidies and would therefore fall outside the control and requirements of the Bill.

The amendment from my noble friend Lord Chandos raises an interesting point in relation to the illustrative documents that have just been released. As the noble Lord, Lord Fox, said, my noble friend’s amendment was tabled late but that was because the guidance papers were released so late. If some of the guidance and regulations had been shared and published earlier, some of our colleagues in the elected Chamber may well have been able to pick up and dig into some of these issues.

The noble Lord, Lord Wigley, touched on the use of subsidies as a legitimate tool for securing economic benefit when done correctly, but also when done transparently. This is one of the fundamental issues we will come on to in later amendments. The big difference from European state aid is obviously that an agreement had to be reached before state aid was brought in. With this system, and this is one of the benefits of it, the subsidy can be brought in very quickly beforehand. But that creates a huge dilemma if the information on the subsidy is not transparent, and if there is no proper opportunity to analyse and challenge it. That is why we will be going into far more detail on this.

Tidying up some of these issues and getting them into the Bill, rather than in secondary legislation and regulations, would help to move it into a far better position. With that, I look forward to the noble Baroness’s response to the issues, especially the one raised by my noble friend Lord Chandos on why equity cannot be added straightforwardly. The Minister, the noble Lord, Lord Callanan, has tabled a number of government amendments. It would be great if we could do some of the tidying up as we move through Committee.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, again, I am grateful to the noble Lord, Lord Wigley, for tabling his amendments, and to all noble Lords for participating in the debate.

Clause 2, as the noble Lord, Lord Fox, said, is the cornerstone of the new subsidy control regime as it sets out the definition of a subsidy for the purposes of the Bill. The definition consists of a four-limb test, and all four limbs must be satisfied for a financial measure to be considered a subsidy. I also draw the Committee’s attention to Clauses 3 to 8, all of which are necessary to understand the definition of “subsidy”. I believe that those provisions collectively provide sufficient clarity and legal certainty to ensure that all public authorities can give subsidies with confidence. We will provide guidance on this matter as the Bill comes into force.

In response to my noble friend Lord Lamont, I believe the Bill sets out a series of overarching principles that provide a level playing field for all public authorities in the UK. The Bill is not a framework for funding; therefore, in response to my noble friend, spending decisions are of course for the Chancellor. It is a set of rules that all public authorities must follow in their decision-making when they give a subsidy or make a scheme. I do not recognise the criticism that it is too streamlined or too narrow, or that it will not be accessible to the devolved Administrations and to other public authorities outside Westminster. The streamlined subsidy schemes that we create will be beneficial but also entirely voluntary for public authorities to use. I note too that we have adopted helpful suggestions from the devolved Administrations for the illustrative Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations on the treatment of rescue and restructuring subsidies to ailing businesses, as well as in relation to the identification and selection of sectors of interest.

Amendment 2, proposed by the noble Lord, Lord Wigley, would exclude from the definition of a subsidy financial assistance offered by a public authority to all enterprises operating wholly or largely within its territory. I entirely agree with the noble Lord that it is of the utmost importance that public authorities are responsible for the financial assistance that they provide within the areas for which they are accountable, and that when a devolved Administration—or, for that matter, a local authority—design a scheme that is general to enterprises in their territory, subsidies should not be specific. Of course, those subsidies should be designed in support of the economy and community for which the public authority is responsible in order to address market failures or issues of disadvantage. I am pleased to inform the noble Lord that that is what Clause 2 provides, with particular reference to the notion of what constitutes a specific subsidy in Clause 2(1)(b) and Clause 4. I am grateful to him for raising this important point.

The requirement that is relevant to the noble Lord’s amendment is that a subsidy must be specific. In order to be specific, Clause 2(1)(c) provides that it must benefit one or more enterprises over one or more other enterprises with regard to the production of goods or the provision of services. When determining whether a subsidy benefits one or more enterprises over others, it is necessary to consider what constitutes the reference framework for that subsidy by reference to the legal basis for that subsidy, the authority giving the subsidy and how it is financed, in order to determine who is in the same legal and factual position.

Where a UK-wide power is conferred on a UK Minister, the reference framework is the whole of the UK, while a subsidy that will benefit only enterprises in a specific part of the UK—such as Wales or, indeed, London—will meet the definition of a specific subsidy. However, when an Administration covering a discrete area, such as a devolved Administration, make a subsidy under the powers conferred on them, the reference framework will be the territory of that Administration.

Therefore, in the case of Wales, for example, a disadvantaged workers’ subsidy scheme that is available equally to all enterprises in Wales will in most cases not be specific because the subsidy will not favour any enterprise in Wales over another enterprise in Wales in the absence of factors limiting the availability of the subsidy. However, a disadvantaged workers’ subsidy by the Welsh Government limited to enterprises in Newport, or which was otherwise limited in availability, would be a specific subsidy because it favoured enterprises in Newport over other enterprises in Wales. It can also be said, with reference to Clause 4(2), that the notion of the reference framework is inherent in the design of subsidies by the devolved Administrations because they can act only in pursuance of their devolved competences.

Similar provisions are made in relation to taxation in Clause 4 to ensure that, where a devolved Administration are acting autonomously in relation to a devolved tax or a variation of a national tax, there will not be a subsidy if the scheme of taxation does not contain elements that are specific to their areas of responsibility. Acting autonomously includes having the competence to set the tax and being responsible for the fiscal consequences of setting the tax at the chosen level.

I hope to persuade the noble Lord, therefore, that the discretions he wishes to maintain for subsidies that are general to enterprise in Wales—and not confined to certain enterprises in Wales—are inherent in the general principles in the Bill, which are derived from the TCA, without need for a specific amendment.

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Finally, I apologise to noble Lords for the perceived lateness of the publication of the illustrative products last week; it was perhaps later than ideal. I welcome further engagement and comment from noble Lords on these before the versions are made in due course. For these reasons, I humbly request that the noble Lords do not press these amendments.

[Lord McNicol of West Kilbride (Lab)]

I do not think their lateness was perceived—it was real—but that is not why I rise. I go back to a point the Minister made on my noble friend Lord Chandos’s amendment. Under Clause 2 on “Subsidy”, she said that subsection (2) is not an exhaustive list. That is the subsection where my noble friend was looking to add “equity” after “grants”. It may not be an exhaustive list, but lines 23 and 24 say:

“For the purposes of this Act, the means by which financial assistance may be given include”.


If Her Majesty’s Government are not going to add anything in, can they at least clarify that the list in paragraphs (a) to (e) is not exhaustive? Am I just being a bit too pernickety?

[Baroness Jones of Moulsecoomb (GP)]

Not at all.

[Lord McNicol of West Kilbride (Lab)]

Thank you. If the Minister wishes to write to us, that is fine. I am sure we will come back to this.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I think I said that an equity investment is still considered a direct transfer of funds from one entity to another. The whole point of not putting in an exhaustive list is to avoid worry about what you leave out of a list, rather than what you have in it. I believe this is already covered by the Bill.

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Moved by

[Lord McNicol of West Kilbride]

7: Schedule 1, page 52, line 6, at end insert—
“(c) progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050).”Member’s explanatory statement
This amendment adds consistency with the UK’s net zero commitments as a particular consideration for public authorities before deciding whether to give a subsidy.

[Lord McNicol of West Kilbride (Lab)]

My Lords, the future of our planet should be of concern to us all. I am sure the noble Baroness, Lady Boycott, will argue that language around the preservation of it should be part of all our legislation as we move forward.

I have tabled Amendments 7 and 11, both of which are quite short. Amendment 7 would insert proposed new sub-paragraph (c), which refers to

“progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050).”

This amendment adds consistency with the UK’s net-zero commitments as a particular consideration for public authorities before deciding whether to give a subsidy.

Amendment 11 is another short amendment, very much along the same lines, to insert proposed new sub-paragraph (c), which refers to

“delivering progress towards meeting the target in section 1 of the Climate Change Act 2008 (carbon target for 2050).”

We also support many of the other amendments in this group. I hope to hear the Minister provide a clear explanation exactly how the Bill as written, if these amendments are not accepted, will move us closer towards the 2050 net-zero target, and how the use of subsidies could and should contribute towards that.

There are a number of legitimate reasons for making subsidies to industries that have traditionally been associated with damage to—or, at least, not the preservation of—the environment. We have campaigned on this over the years. Many public authorities may wish to support jobs in industries such as steel that have environmental issues. Conversely, subsidies can be used to facilitate the green transition by investing in newer, greener technologies and approaches.

Any climate commitment in the Bill will have to be carefully crafted to balance any immediate economic concerns with the long-term environmental ones. As COP 26 highlighted, we are a long way from delivering the scale of change needed to preserve this planet for future generations. All the parts of the UK economy—our devolved authorities, local authorities and central government—will have to contribute towards hitting emissions and other targets.

The Minister will no doubt point to Schedule 2 as an example of Her Majesty’s Government’s commitment to the green agenda but, as we discussed at Second Reading, the application of the environmental principles is somewhat limited. In the further amendments to the Bill, does the department aim to broaden them in any sense?

From what we have heard in response to other amendments, the Minister is likely to resist the amendments in this group and not want to set any precedent, yet we have seen various commitments made in recent times, whether in the Pension Schemes Act, the Financial Services Act or the suite of Defra legislation, in which commitments have been given and gone into in more detail.

We want to support businesses to support the planet, and many will want to do the right thing, but financial incentives are often needed to help drive those key changes. This new subsidy control scheme should wherever possible support the transition to net zero. At Second Reading, the Minister mentioned net zero three times in his opening and closing remarks, but in the Bill as now crafted there is no mention of it. These amendments seek to impress upon the authorities that would be making subsidies the need for alignment with support for net zero. With that, I beg to move.

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[Lord Callanan (Con)]

I think if the objective is set then it is an overarching benefit, but I will be happy to confirm that to the noble Lord, Lord Purvis, and will copy the letter to the noble Lord, Lord Fox, as well. Once again, I will be very busy in my letter-writing activities for the next few days. With that, I hope noble Lords are satisfied—or, if not satisfied, content—with the answers that I have given and therefore, in compliance with that, that the noble Lord will feel able to withdraw the amendment at this stage.

[Lord McNicol of West Kilbride (Lab)]

I thank the Minister for his response, and I thank the noble Baronesses, Lady Jones, Lady Sheehan and Lady Hayman, for their comments. I am not quite sure how many of the four questions asked by the noble Baroness, Lady Jones, we got through; we might be coming back to some of them.

As expected, to be fair, the Minister said that he believes we have the right framework in place and there is no need to extend it. I had a different take on the discussions with the noble Lords, Lord Purvis and Lord Fox, about paragraph G. The Minister said that not all subsidies will be relevant to net zero. As the noble Lord, Lord Fox, pointed out earlier, many subsidies fit around the issue of energy and climate but, if we take the Minister at his word on that and a particular subsidy has no meaningful impact on climate or net zero, his argument was that it could cause an extra administrative burden on the authorities if they have to show that it is not relevant. However, if the subsidy had no relevance to the environment or to climate. it would be relatively straightforward for them to say so. My feeling was that that negated the argument that the Minister was making for not including Amendments 7 or 11 in the Bill.

I am still genuinely struggling to understand why it would be so difficult to include that commitment, because those are guiding principles. If we all agree that we need to move towards net zero, protecting the environment and delivering on the climate emergency, then this is an opportunity to put that language in the Bill—especially a Bill that is so relevant to the fact that historically either state aid or government decisions, which we have argued for many times, have supported industries that harm the environment, albeit for very good reasons.

I am sure we will come back to this issue but, with that I beg leave to withdraw the amendment.

Amendment 7 withdrawn.