Subsidy Control Bill Debate
Full Debate: Read Full DebateLord McNicol of West Kilbride
Main Page: Lord McNicol of West Kilbride (Labour - Life peer)Department Debates - View all Lord McNicol of West Kilbride's debates with the Department for Business, Energy and Industrial Strategy
(2 years, 10 months ago)
Grand CommitteeIn moving Amendment 64, I will also speak to Amendment 65. I am grateful to the noble Lords, Lord Bruce, Lord Wigley and Lord German, for adding their names to one or both of the amendments.
Just because it was touched on a minute ago by the Minister, I should say that we have received the letters. The lessons from day 3, on Monday, when the letters were received before the Grand Committee started, may well have been learned. Notwithstanding that, I thank the Minister and his department. I have not read the letters in detail because I was engrossed in the previous debate, but I want to pick up one small point in them. Obviously it is worrying that any subsidy under the level of £315,000 does not have to be entered on the database. What is even more worrying is that that subsidy does not even have to abide by the principles in Schedules 1 and 2. This gives more weight to the arguments for reducing the subsidy level and admittance on to the database, especially if the subsidies do not have to meet the principles in the schedules.
The noble Lord makes a very interesting point. It does have operational independence, and I am sure that is something it would be able to consider.
I thank the Minister for her detailed response. When she, the other Minister or the department reply, could the letter be shared between all those who have spoken in this debate?
I have one other question—and I do not expect the Minister to have the answer just now. She talked about a budget of £20.3 million being divided between the SAU, digital and one other body. Could we have the split between the three of them, because they have three distinctive functions, and the one we are concerned about and talking about is the funding of the SAU?
Likewise, I listened in detail but I am not clear whether I missed the point about why Clause 68(4) is so prescriptive and detailed in stating that the SAU will consist
“only of persons who are members of the CMA or its staff”.
If it is that prescriptive, it seems to rule out the points made by the noble Lord, Lord Wigley, so maybe it could be opened up a little.
The Minister, in referring to some of the concerns and issues around devolved authorities, said that the department was well aware of them. These amendments are meant to be helpful and to try to create, foster and build a better relationship—as the noble Lord, Lord Bruce, has outlined—especially as we move from European state aid to our own authorities being able to create and deliver subsidies. One hopes that there are some things in not just this small group of amendments but other groups that will help to generate and foster that better relationship between central government and the devolved authorities. With that, I beg leave to withdraw my amendment.
My Lords, one problem that legislators always face is the inability to look with complete clarity into the future. Trying to predict with any degree of accuracy how this system will work is almost impossible. The advantage of the proposal that my noble and learned friend Lord Thomas is advancing is that if cases go to the CAT, gradually there will be a build-up of decisions that will begin to add extra guidance that we cannot provide in the legislation. This is the way the law works in many fields.
It is that aspect that appeals to me. Gradually, through a series of decisions in various situations, the CAT will be able to add an extra dimension to the way in which this system has tended to work. There is a value in this. I think the word “enforcement” is perhaps rather pointing in the wrong direction. It is more like building up decisions, a category or a case law that would act as guidance for further cases, so that one does not constantly have exactly the same problem being advanced. We would be able to say that there is a decision by the CAT that tells us the answer in that particular situation. Decisions of that kind can be helpful, and I hope very much that the Minister will see value in what my noble and learned friend Lord Thomas is proposing.
We welcome the tabling of these two amendments, which move us on from the composition and core investigatory powers of the CMA towards enforcement or, to use the word of the noble and learned Lord, Lord Hope, “guidance” of subsidy decisions, via the Competition Appeal Tribunal. The two amendments in this group aim to achieve similar things but by different means.
In relation to Amendment 67 from the noble and learned Lord, Lord Thomas of Cwmgiedd, the CMA would have the option to refer matters to the CAT. That is a sensible proposition, and we are more than happy to support it. It seems counterintuitive to have a body tasked with investigating or looking at whether due process was followed when the subsidy was awarded, only for a separate person or entity to be left to initiate enforcement proceedings. Even if an interested party were to use the SAU’s output as a basis for referring the matter to the CAT, how much weight does the Minister think such a report would carry? As an entirely separate entity, would it be reasonable for the CAT to disregard or override any of the SAU’s findings?
Amendment 71 from the noble Lord, Lord Fox, takes a slightly different approach. It gives the CAT the powers to pre-emptively investigate subsidies if it believes that an award is not consistent with the principles of the Bill. I am more than happy to support this amendment. Whichever approach is taken, it is clear that all involved need greater clarity on how disputes will play out. I will not repeat the points made by the noble Lord, Lord Lamont, but independent enforcement will bring clearer and better oversight to the Bill.
I thank the noble and learned Lord, Lord Thomas, and my noble friend Lord Lamont for tabling Amendment 67. I also thank them and the noble Lord, Lord Fox, for Amendment 71. Before addressing the two amendments in turn, I will offer some context. We have discussed at length the conception of the new domestic control regime as envisaged by the Government. We have heard criticism to the effect that the regime is, in the view of the protagonists, lacking in robust enforcement.
Of course, international comparisons are somewhat beside the point for our UK-specific approach. It is worth while bearing in mind, though, that the mere fact of establishing a coherent regime for the purposes of subsidy control would place the UK somewhere near the top of the list of the most comprehensive subsidy control regimes. Outside the European Union, no other international partner or competitor will enjoy such a comprehensive and transparent approach to the regulation of subsidies.
This legislation was predicated in the TCA, as my noble friend points out. We are of course meeting our obligations. One of the purposes of this legislation is to meet our international obligations, not just under the TCA but with other trade agreements that we might strike as well.
In our view, an interventionist regulatory role is not necessary for the effective scrutiny of subsidies and would be detrimental to the smooth development and deployment of subsidies where they are needed. I have confidence that public authorities will take their statutory obligations under this regime very seriously and, in fulfilling those obligations, public authorities will be supported by comprehensive guidance. As a result, I do not anticipate that breaches will be by any means a common occurrence. My noble friend referred to the EU state aid regime, which is a different system, but it is revealing of public authorities’ attitudes to their obligations that since 1999, the European Commission has ordered UK public authorities to recover aid on only four occasions.
That is because those systems are fundamentally different. The EU state aid system was a pre-authorisation, not a post-investigation or oversight. It is not comparing apples with apples, because of how the systems operate.
I said that it was a different regime but was pointing out the number of times that subsidy has been recovered since 1999. My point is that it is not a frequent occurrence. I totally accept that it is a different system and that they are different regimes, but it served as an example of the behaviour of UK public authorities.
In the event of such breaches occurring, a private person asking the court to review the legality of a public authority’s action is a well-established route for ensuring that those authorities do not exceed their powers or act irrationally, and for preserving the rights of the individual against the state. Indeed, it is the normal way for challenging the actions of public authorities, and that is why we have broadly replicated the judicial review process in this Bill, with some subsidy-specific adjustments and additions. I know that noble Lords sitting at the back will be much more familiar with that regime than I am.
Today and in other Committee sessions, your Lordships have asked, in the absence of an enforcer—I will not attempt to repeat my noble friend Lord Lamont’s Latin experience—who will challenge subsidies and how a potential interested party will know about a subsidy that may affect their interests.
The subsidy control requirements are not a regulatory abstraction; they are there to prevent unnecessary distortions of competition. Where a public authority has failed to assess a subsidy against the principles, there is likely to be harm. Anyone whose interests may be affected by the subsidy, be they individuals, businesses or other public authorities, including the devolved Administrations, they have standing to challenge it. The people best placed to decide whether to bring a challenge are those who are actually operating in the relevant sector and area.
Transparency declarations will provide enough information for people to assess whether their interests may be affected by a subsidy. I once again underline that every subsidy or scheme that is in scope of the main subsidy control requirements and that may be challenged in the Competition Appeal Tribunal is also subject to the subsidy control transparency requirements, with the exception of certain SPEI subsidies, as we debated the other day. For those subsidies that present a greater risk to the market, or where the public authority is less sure of its assessment, the CMA reports will provide further information still.
On the point made by the noble and learned Lord, Lord Thomas, about the costs of pursuing a challenge, in practice an interested party is likely to take legal advice before deciding to ask for a review of a subsidy, and of course that will incur costs. However, as with other kinds of legal proceedings, the CAT can award costs to whichever party is successful. The pre-action information request process will be an important opportunity for a potential interested party to find out more about a subsidy and make a decision about whether to proceed with a challenge, and then to make a decision informed by the likelihood of success, most likely following advice.
I turn to Amendment 67 from the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Lamont, and I return to some of the arguments that I made in respect of the grouping we finished at the beginning of this afternoon’s session. The subsidy advice unit is an advisory body; it is intended to advise public authorities on the most potentially distortive subsidies and, by doing so, to provide a measure of additional scrutiny and transparency to the benefit of interested parties and, ultimately, the public at large. Ultimately, the SAU will shine a light on the underlying assumptions that have led to the development of a subsidy or scheme. It is for the public authority to exercise its own judgment with respect to that information. I have confidence that public authorities will take their responsibilities under this regime seriously and, where the CMA has issued a report, the public authority will give appropriate weight to the CMA’s conclusions.
In response to the question from the noble Lord, Lord McNicol, about the purpose of SAU reports, they will provide a public indication of the quality of a public authority’s assessment. It is in a public authority’s best interests to demonstrate that they have properly considered the potential distortive impacts of a proposed subsidy or scheme, and that offering such a measure is justified and proportionate to the policy problem that they are trying to address. Should a public authority fail to take proper account of the CMA’s conclusions, the report means there will be a significant amount of information about the subsidy in the public domain, beyond what would already have been required by the transparency database. Interested parties will therefore be all the more able to assess whether the subsidy may affect their interests, and of course to mount a challenge if they so wish. There may be a difference of opinion on this, but I am afraid that I just do not agree that there should be a role for the CMA in this.
In response to the Latin question of the noble Lord, Lord Lamont, about who will guard the guards themselves, I repeat that, assisted by guidance, which will help public authorities to understand their obligation—I have cited the example of a number of repayments previously—I think we can expect a high level of compliance with the regime. As the noble and learned Lord, Lord Hope, observed, the Competition Appeal Tribunal will build up a body of case law which will then be an important additional source of guidance for public authorities.
As I said to the Committee on Monday, of course I hope that no UK government subsidies would require referral, but Ministers intend to be open-minded to calling in a UK government subsidy for SAU scrutiny where that is requested by another public authority or considered desirable for other reasons. Furthermore, where necessary, the Secretary of State has the ability to refer subsidies to the Competition Appeal Tribunal. However, I would be surprised and disappointed if he or she had to challenge a subsidy made by a UK government department, but he or she could certainly do so if they felt that a subsidy risked competition and investment within the UK or compliance with the UK’s international obligations.
I turn now to Amendment 71, tabled by the noble Lords, Lord Fox and Lord Lamont, and the noble and learned Lord, Lord Thomas. This would have the Competition Appeal Tribunal refer specific subsidies to itself for decision. I would submit that that is highly unusual and would potentially compromise the CAT’s neutrality. Of course, there are practical objections to this amendment as well. As with all courts, the tribunal’s expertise, resourcing and premises are equipped for hearing cases, not for gumshoe investigatory work. I do not think that the noble Lords are really suggesting that this should be the case.
I have very little to add; it has been covered comprehensively. I was happy and pleased to add my name to Amendment 69.
We have talked a lot about equity and balance, and the final group of amendments probably has even more of the issues raised in it so, rather than repeat everything that has been said, I am more than happy to endorse it. We will then pick up the final issues around engagement and involvement with the devolved authorities and central government in the final group.
My Lords, before I speak to the detail of these amendments, this is perhaps a good opportunity to update the Committee on our progress in seeking legislative consent for the Bill, as we promised in our first Committee session on 31 January.
These amendments, and a number of others we have debated, touch on the UK-wide and devolved aspects of the Bill. As we have discussed on numerous occasions, subsidy control is reserved, but there are clauses in the Bill that alter the executive competence of the devolved Administrations. From the very beginning, the UK Government, at both ministerial and official level, have worked closely and extensively with the devolved Administrations in designing the new subsidy control regime. We have worked to secure their support for LCMs for the Bill. I pay tribute to my officials and those in the devolved Administrations for their ongoing efforts in this space.
Our strong preference remains to secure legislative consent, and we will keep all avenues open to achieve this and to remedy the significant concerns of the devolved Administrations. Of course, we also want to ensure the operability of the new regime. Negotiations are still in progress, but I assure noble Lords that I will keep the House updated at the earliest opportunity, without prejudicing the content of those negotiations. I also assure the Committee that, should any amendments be necessary to reflect the outcome of those negotiations, we will table them as soon as possible prior to Report to enable your Lordships’ House to consider and scrutinise them with sufficient time.
My Lords, I thank the noble lord, Lord McNicol for this amendment, and the noble Baroness, Lady Blake, for speaking to it. I also thank the contributions of other noble Lords—and the noble Lords, Lord Fox and Lord Lamont, reflected on this issue during the Monday’s session.
An interested party, which is anyone whose interests are affected by the subsidy, may apply to the Competition Appeal Tribunal for a review of the subsidy within one month of the subsidy’s upload to the transparency database, if there has been a post-award referral to the CMA within one month of that report, or if a pre-action information request has been made within one month of the response to this request. The limit has been set at one month so that we can give legal certainty to public authorities and subsidy beneficiaries as swiftly as possible. It is important to avoid creating such prolonged uncertainty that it acts as a brake on legitimate subsidies.
We must also ensure that interested parties have sufficient time to consider a subsidy before asking the CAT to review it. That is just what this Bill does. An interested party, perhaps a competitor who is thinking of approaching the CAT to review a subsidy, can make a pre-action information request to a public authority. The limitation period is then extended until one month after the public authority has responded. Since the pre-action information request gives the public authority up to 28 days to respond, in practice, the limitation period can run for two or three months after the publication of the subsidy or scheme on this database.
If the argument is that we are only giving one month to raise a complaint or to look into this, why are the uploading timeframes six months and/or one year? If the Government want to create legal certainty for the organisation that is giving the subsidy, surely, as the noble Lord, Lord Lamont said on Monday, what is good for the goose is good for the gander. If they want that legal certainly, deliver that within the one month in terms of the upload to the database. Then there is parity and legal certainty.
As the noble Lord, Lord McNicol suggested, we explored this point fully last week. There are good reasons for it. If it is a tax subsidy, the full amount might not be clear. It might be variable, based on a number of different reasons, and the fact of giving a subsidy may well be published in other transparency obligations that local authorities or the devolved Administrations already have. However, I understand the noble Lord’s point.
In response to the noble Baroness, Lady Blake, Clause 71 also makes it clear that in exceptional circumstances, the tribunal may extend the time limits for bringing a challenge. This amendment would extend the general window for bringing a challenge from one month to three months, which is too long. It is longer than the challenge periods available in other areas where business decisions are dependent on the decisions of public bodies, such as procurement and planning decisions, where the limitation periods are 30 days and six weeks, respectively. In those areas, the harmful effects of prolonged uncertainty have been recognised through the shorter challenge periods available. The same reasoning applies in the subsidy control context. If the general limitation period for challenging subsidy decisions was extended to three months, as this amendment proposes, public authorities and subsidy beneficiaries could in practice have to wait as long as five months before having reasonable legal certainty about a subsidy that they have granted.
There is a risk that this could have a chilling effect, not only on the giving of subsidies but on the timely use of them by beneficiaries. For example, a subsidy could take the form of a loan guarantee for a capital investment, such as buying new machinery. Your Lordships will appreciate that some beneficiaries may be reluctant to go ahead with purchasing that machinery for as long as there is a possibility that the subsidy decision could be quashed and a recovery order made.
The noble Baroness, Lady Blake, and the noble Lord, Lord McNicol, asked how the Government can justify giving public authorities six months to fulfil their transparency obligations but providing interested parties only one month to challenge a subsidy. I recognise the strength of feeling on the length of time on the transparency deadline and how this compares with the limitation period. During Monday’s Committee, I set out the reasons why the deadline is set at six months: it allows for better-quality data where subsidies are based on an estimate, and it gives public authorities greater ability to upload their subsidies in bulk, and therefore to reduce administrative burden.
My Lords, I rise to speak briefly to my Amendment 80, which is a probing amendment. It is grouped with this lot of amendments, but it is a different subject, and I will try to be as quick as I can.
It relates to Clause 85, headed “Crown application”, which provides that the Act will apply to the Crown, but excluding Her Majesty in her private capacity, Her Majesty in right of the Duchy of Lancaster, and the Duke of Cornwall. I am afraid that this continues the debate about the uncertainty of the role of the Duke of Cornwall and the Duchy. It is one little hobby-horse that I have been pursuing for many years, and I apologise for that. I refer noble Lords who want to get into the detail to the Second Reading of my Private Member’s Bill, the Duchy of Cornwall Bill, on 26 October 2018, which seems a long time ago.
Since the Duchy of Cornwall says that it is in the private sector—I am assuming that the Duke and Duchy are synonymous—why should the Duke of Cornwall or the Duchy be given special treatment in this Bill? No other big landowner or property owner is allowed special treatment. I understand why Her Majesty in her private capacity and the Duchy of Lancaster are, but the Duchy of Cornwall says on its website:
“The Duchy of Cornwall is a … private estate … established by Edward III in 1337.”
This was confirmed in the second-tier tribunal in 2016, after a Mr Michael Bruton had claimed that the Duchy was in the public sector and therefore needed to do an environmental study on putting Japanese oysters into the Helford river in Cornwall, which it owned. In the First-tier Tribunal, Mr Bruton had won, largely because the Duchy’s representative said, “To all intents and purposes, we believe we are above the law”, which is quite an interesting statement. Of course, the Duchy then appealed to the next-tier tribunal and, not surprisingly, with all the free legal advice it gets from the Government, it won. The tribunal’s decision was:
“The Duchy of Cornwall is not a public authority for the purposes of the Environmental Information Regulations 2004.”
Why should the Duchy of Cornwall be treated differently from anyone else—any of us—to whom this Act will apply? If the Minister is not able to answer that question today, perhaps he could write to me. He might want to contact the Duchy itself. I warn him that the last time I raised this, in the leasehold reform Bill debates about three or six months ago, the Minister agreed to write to the Duchy of Cornwall, the Duchy of Lancaster and the Crown Estates about the leasehold reform Bill. We got good responses from the Duchy of Lancaster and the Crown Estates but, as far as I know, no response from the Duchy of Cornwall.
I do not think that right, because the Duchy of Cornwall must have given views on this Bill and I would like to know what it said. Did it send a letter? Did the Minister have correspondence? If so, can he put it in the Library? If he did not, how was this decision made? I think it very unfair that the Duchy of Cornwall—probably uniquely among big estates in this country, whatever their rights and wrongs—should be given this special treatment, for it means an exemption to the Bill.
My Lords, I think we have a hard stop in 20 minutes, so I will be very brief. I am grateful to noble Lords who put down amendments in this group, including the Minister; I hope there will be lots more to come from the Minister. My Amendment 75 has been signed by the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord German and Lord Wigley, and I appreciate their support on this, as well as in the debates on many other devolution-focused amendments.
I was going to say, judging by the previous responses on the devolved authority amendments, that I did not think we would hear much change, but actually the Minister’s response to the last debate was heartening, so hopefully this amendment regarding the devolved authorities will receive the same response. I will leave it there. As we finish Committee, I note that the comments made in the DPRRC report were very telling, and I look forward to discussions with the Minister and officials between now and Report. I hope that we can address some of the DPRRC’s concerns.
My Lords, I am pleased to say that we are now on the final group of amendments. I have made it through thanks to the supply of copious quantities of cough lozenges, so I thank Ruth for those.
I first thank the noble Lord, Lord German, for tabling Amendment 74, the noble and learned Lord, Lord Thomas of Cwmgiedd—