Subsidy Control Bill

Lord Wigley Excerpts

Committee stage
Monday 31st January 2022 Grand Committee

Moved by

[Lord Wigley]

1: Clause 1, page 2, line 4, after “Parliament” insert “or in legislation enacted by Senedd Cymru or the Scottish Parliament”

[Lord Wigley (PC)]

My Lords, I am delighted to have the opportunity to open Committee on this important Bill by moving Amendment 1, which stands in my name, and for which I am grateful for the support of the noble and learned Lord, Lord Hope, and the noble Baroness, Lady Humphreys. I apologise that I was unable to participate at Second Reading: at that point I was self-isolating after testing positive for Covid. I wrote to the Minister to explain my absence. I was able to follow the whole Second Reading debate on the parliamentary live feed and from that I am aware that the dimension I raise in this amendment was touched upon by several speakers—and of course, I am conscious of the sentiment expressed in Senedd Cymru on the matter.

The point of the amendment is to ensure that Senedd Cymru and the Scottish Parliament are fully involved in the procedures triggered by Clause 1, and thereby the application of the Act for which Clause 1, of course, provides. This goes to the heart of the issues addressed by the Bill. That relates to the essential and totally valid role of Senedd Cymru and the Scottish Parliament in matters relating to subsidy control. I make it clear that I accept that there needs to be a framework in any common market or customs union in which subsidies can be permitted or prohibited. Therefore, there has to be a clear and transparent mechanism for defining the context within which subsidies can be paid, and therefore also the mechanisms of subsidy control that are necessary.

Let us be clear: subsidies have been a tool of government for both Conservative and Labour Governments down the years. One has to think only of the agricultural subsidies applied in UK long before our accession to the Common Market to see that such interventions have been regarded as legitimate. Before the UK entered the European Union, both the Wilson and Heath Governments operated substantial capital and revenue interventions, such as the selective employment tax and the regional employment premium. At one time, such schemes on a revenue basis and capital investment schemes could provide as much as 45% support for manufacturing industry investment. Indeed, when I was head of finance at Hoover, we negotiated an investment package in which £11 million out of a £16 million expansion scheme—substantial money in the early 1970s—came from public funds.

However, in acknowledging the validity of such interventions, as I believe the Minister does, it would be quite unacceptable for the power to decide whether subsidy controls are necessary to rest in one legislature alone. It must be on the basis of parity of esteem for all relevant legislatures—and Senedd Cymru and the Scottish Parliament are most certainly relevant legislatures. It would be totally unacceptable if one Parliament could legislate to protect its own interests while other Parliaments, with responsibility for economic development within their nations, were denied that power. If such powers are to be at the disposal of one partner within the union, they must be equally available to other nations.

It could be that the intention of the Government in proposing the wording of Clause 1(7) is to use the term “an Act of Parliament” in a generic manner, but the definition in Clause 89, the interpretation clause, rules that out, as indeed does the normal usage of that term at Westminster. It may well be that the Government do indeed regard Westminster as the senior partner in these matters and are deliberately choosing to legislate in a preferential manner that enables Westminster, by the use of Acts of Parliament, to seize control of this entire agenda. If that is so, it can be little surprise that the devolved Governments are extremely unhappy about the implications.

This matter, in various guises, is likely to arise again at various junctures in our deliberations. Indeed, other amendments on the Marshalled List raise these considerations. I shall listen to other speakers when they address those other amendments in due course, and there may well be better ways of dealing with this fundamental dimension than the wording that I propose in Amendment 2. However, let the Committee be in no doubt that an equal, even-handed approach must be built into the Bill for it to be acceptable in both Wales and Scotland. On that basis, I beg to move Amendment 1.

[Lord Hope of Craighead (CB)]

My Lords, I have added my name to the amendment of the noble Lord, Lord Wigley, and I agree with what he has just said in support of it. As he mentioned, it will be apparent from the many amendments on the Marshalled List that mention the devolved Administrations that there are real concerns that the provisions of the Bill as they stand will have an adverse effect on the relationship between those Administrations and the UK Government.

I recognise that subsidy control was made a reserved matter by Part 7 of the United Kingdom Internal Market Act, but that does not mean that the UK Government should shut their eyes and ears to the views of competent authorities throughout the UK, and of the devolved Administrations themselves, as to the way that subsidies are distributed and controlled. After all, while we were in the EU the Commission had a very robust evidence-based consultation procedure which ensured that other voices were heard, and that should continue to be the position.

“Respect” and “co-operation” were the key words in the recent report by the Constitution Committee, of which I am a member, about building a stronger union in the 21st century, but I am afraid that those virtues were absent when the internal market Bill was being designed and debated in this House and the other place. As a result, relations with the devolved Administrations became very strained. We do not want to go back to that, but the way in which the Bill has been drafted appears to pay very little attention to the concerns and needs of the devolved Administrations.

I am sure that the Minister will remember, very well, the conversations we had with regard to the amendments I tabled to the internal market Bill to enable exemptions from market access principles to be given to agreed common frameworks. They did not seem to get us very far, until, at the very last moment, there was a change of mind in the Government and an appropriate amendment was put through. Of course, I understand that the Minister’s hands were tied, but I hope there may be a little more flexibility this time.

I respectfully ask the Minister to say something about the legislative consent procedure in relation to the Bill. The Constitution Committee said:

“For the Sewel convention to operate well, constructive relationships and good faith is required between the UK Government and the devolved administrations.”


I hope that that is how things are being handled this time and that the Minister will keep the Committee updated as discussions continue, with a view to settling the devolved Administrations’ concerns, which I believe are still there; as I understand it, a consent Motion has not been achieved in either case.

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[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank the noble Lords, Lord Wigley and Lord McNicol of West Kilbride, for tabling Amendments 1, 13, 16, 17 and 20, and all other noble Lords who participated in this debate. I say at the outset, in answer to the noble Baroness, Lady Randerson, that the use of the Moses Room is not intended to minimise the importance of this Committee stage. We agreed through the usual channels that this would be the best use of time.

Before I discuss each amendment in turn, I start by saying that the proposed UK subsidy control regime empowers public authorities, including the devolved Administrations, to award subsidies flexibly and quickly to meet their policy objectives. As noble Lords have said, the United Kingdom Internal Market Act 2020 amended the relevant devolution Acts to make the regulation of subsidies a reserved, or in Northern Ireland an accepted, matter. The devolved Administrations are, and will remain, responsible for spending decisions on devolved subsidies within any subsidy control system.

As the Minister in the other place clarified, the devolved Administrations have standing to challenge UK Government or any other subsidies in the Competition Appeal Tribunal in instances where the interests of people in the areas in which they exercise their responsibility are affected. Some provisions of the Bill engage the legislative consent Motion process, as they alter executive competence; for example, they confer new functions on DA Ministers. We hope that the devolved Administrations will agree with us on the importance of the Bill and be able to give us their legislative consent for the relevant provisions. Those discussions are continuing and I will keep the Committee updated.

We have engaged closely with the devolved Administrations throughout this process at ministerial and official level, not only on the LCM process but on our policy development ahead of the Bill’s introduction, in advance of our publication last week of the illustrative documents, and as we continue through the parliamentary process in the run-up to implementation. In response to the noble Baroness, Lady Humphreys, I confirm that the Minister for Small Business met the Welsh Minister for Finance and Local Government, Rebecca Evans, last Thursday—27 January. The meeting discussed the Bill as part of ongoing engagement to understand concerns on it and to provide reassurance.

I will begin with Amendment 1. Clause 1 provides an overview of what each part of the Bill will cover and establishes its application to other legislation. Clause 1(7) and (8) specify that if a subsidy is granted, or a scheme is created, using powers contained in either primary or secondary legislation, the subsidy control requirements will apply, unless an Act of Parliament specifies otherwise. The specific reference to an Act of Parliament here is solely to clarify that nothing in the Bill should be interpreted as conflicting with the fundamental principle that no Act of Parliament may bind a future Parliament; in other words, it reflects the constitutional reality and does not create any further exemption or special treatment.

Amendment 1, proposed by the noble Lord, Lord Wigley, extends this clarificatory statement to cover the Senedd and the Scottish Parliament. In doing so, it fundamentally changes the character of this statement from a clarification to an exemption from the subsidy control requirements. The amendment would allow the Senedd and the Scottish Parliament to set aside the subsidy control requirements set out in the Bill, not only for the purpose of subsidies given directly in primary legislation, for which specific provision is made in Schedule 3, but for subsidies given by means of a power in that legislation; in other words, for all devolved spending powers in Scotland and Wales.

The discrepancy highlighted here between the Parliament of the United Kingdom and the legislatures in Northern Ireland, Scotland and Wales is not a matter of government policy but a reflection of constitutional reality. The subsidy control regime differentiates between devolved legislatures and Parliament in a way that respects the devolved legislatures and reflects this Parliament’s status as the supreme legislative body of the United Kingdom. The devolved legislatures have a unique constitutional status and we have ensured that the requirements placed on subsidies given directly in devolved primary legislation are proportionate and respectful of their status and processes. Schedule 3 sets out the specific arrangements that take account of this. None the less, it is important that the subsidy control requirements apply comprehensively and that we do not create exemptions.

As for subsidies given through powers conferred by Parliament or the devolved legislatures in secondary legislation or otherwise, it is essential that these are compliant with the subsidy control rules without exception. As it stands, the clause simply clarifies that express or implied repeal by a future Act of Parliament remains a possibility. It does not suggest that the Government will, on a whim, propose legislation that exempts a particular project or power from the subsidy control requirements.

It is absolutely right that subsidy control is a reserved matter: by its very nature, it affects how all public authorities in the UK, including devolved authorities, may exercise their spending powers. That is because its purpose is to establish common rules for different authorities with different interests and policy objectives to protect UK competition and investment. The Bill will also facilitate our compliance with our international obligations, including those set out in the EU-UK Trade and Cooperation Agreement, which reflect exactly this constitutional reality.

I turn to Amendments 13, 16 and 17. Clause 10 concerns the making of subsidy schemes and streamlined subsidy schemes. Public authorities using a streamlined subsidy scheme will not have to access any subsidies they award under the terms of the scheme against the subsidy control principles. Streamlined subsidy schemes will have parameters for use that must be complied with by the public authorities using them, and can be made by a Minister of the Crown. Two illustrative streamlined subsidy schemes were published by the Government last week; I trust that they provide practical examples for noble Lords of the possible terms of these parameters for use.

Together, Amendments 13, 16 and 17 would have the effect that a Scottish Minister, a Welsh Minister or the Northern Ireland department would have the power to make streamlined subsidy schemes and lay them before their relevant devolved legislature. I will therefore take them together. The first amendment would allow streamlined subsidy schemes to be made by Ministers in Scotland or Wales or the Northern Ireland department. The second and third amendments would require such streamlined subsidy schemes to be laid before the relevant devolved legislature when made or amended.

Related amendments on this matter, regarding the role of the devolved Administrations, were made in the other place. The position of the Government remains that we will create streamlined subsidy schemes for public authorities across the UK to use to award subsidies that help UK-wide priorities. Streamlined subsidy schemes will therefore function best when they apply across the length and breadth of the United Kingdom. The Government will design these streamlined subsidy schemes such that they are fit to be used by public authorities in all parts of the United Kingdom.

Given that these streamlined subsidy schemes will be part of the UK-wide subsidy control regime, the appropriate place for them to be laid is in this Parliament. We have published two illustrative streamlined subsidy schemes and an accompanying policy statement that sets out for Parliament how the Government intend to use these schemes. We have worked with the devolved Administrations while developing this policy at both official and ministerial level. Officials will continue their close engagement with the devolved Administrations as the regime continues to develop. Finally, it is important to note that Scottish Ministers, Welsh Ministers or a Northern Ireland department, as primary public authorities, can also make schemes for use by other public authorities where that is within their existing functional powers; for example, the Scottish Government may choose to make a scheme for use by local authorities in Scotland.

On Amendment 20, Clause 11 sets out the terms for making regulations to define subsidies and schemes of interest or schemes of particular interest. The amendment would require the Secretary of State to seek the consent of each of the devolved Administrations before making regulations on subsidies, schemes of interest or schemes of particular interest under the clause. If this consent was not forthcoming, the Secretary of State would be required to make a statement to the other place explaining why they had chosen to proceed with the regulations without DA consent.

This amendment was also raised in the other place; the Government’s position on it remains the same. Regulations made under Clause 11 will define subsidies, schemes of interest and schemes of particular interest to ensure that the work of the subsidy advice unit is focused on subsidies and schemes that are most likely to cause negative effects on competition and investment in the United Kingdom, or which may do the same to our trade with other countries.

These regulations are key to the functioning of a reserved policy area. It is right, therefore, for the regulations to be debated and voted on here in the UK Parliament. I simply do not believe that it is appropriate to require the Secretary of State to seek consent even when the Secretary of State may ultimately proceed without that consent from the devolved Administrations on a reserved matter. A requirement to seek the consent of the devolved Administrations each time regulations are made under Clause 11 also risks introducing significant delays into the process, particularly if regulations need to be amended quickly in the future, such as in the event that economic conditions change rapidly. In such cases, the Government may need to legislate rapidly without consent, so the amendment would not achieve its aim.

The Government have had numerous discussions with Ministers and officials in the Scottish Government, the Welsh Government and the Northern Ireland Executive and we are committed to continuing to engage regularly with them. We have published illustrative regulations on subsidies and schemes of interest and of particular interest, in addition to the accompanying policy statement outlining the Government’s approach to this important question. Ahead of publication, officials have discussed the approach to these regulations with each of the DAs, taking on board their comments and suggestions as the policy has developed. We have also provided early sight of the draft regulations for comment ahead of publication. I assure noble Lords that this engagement will continue as we prepare for implementation of the regime. I also welcome any comments or questions that my noble friend may have regarding the illustrative products. Indeed, I welcome any further comments or questions from the devolved Administrations. I therefore humbly request that the noble Lord withdraws his amendment.

[Lord Wigley (PC)]

My Lords, I am grateful to the Minister for her response, which I will come back to in a moment. First, I thank all noble Lords who have participated in this short debate. The noble and learned Lord, Lord Hope, spoke of respect and co-operation between Westminster and the devolved Administrations. That goes to the heart of what we are talking about. We need a regime, as far as these aspects of business are concerned, that has mutual respect and co-operation between all parties; otherwise, we are bound to find ourselves in a position where one body is trying to outdo the other and perhaps to gain political kudos for doing so. That is not what this should be about.

The noble Baroness, Lady Humphreys, whose support I was grateful to receive, spoke about the Bill giving no consideration to the issues that arose in respect of earlier Westminster Bills taking powers from the devolved Administrations. That is the feeling that exists, certainly in Cardiff Bay and the Senedd and, as I understand it, in Edinburgh as well.

I was grateful to the noble Baroness, Lady Bryan of Partick, for her comments. She highlighted the failure of Westminster to adequately consult in good time. That, again, is an element of this lack of respect. By properly consulting in time, there is an opportunity to be able to amend proposals taking such consultation on board. But it is done at the last moment. I understand that one consultation took place last Saturday—not from this department, I think—on something that is happening today. That is no good. There has to be an active engagement between the Governments of our three nations, or four nations if we include Northern Ireland—I have not included Northern Ireland in this because of the complex situation there, but of course the principles apply equally.

The noble Baroness, Lady Jones, spoke of the need to have proper respect for devolved Administrations. That should run through every Bill. I noted the strong feelings that the noble Baroness, Lady Randerson, who spoke mainly to Amendment 20, had concerning the consent of the devolved Administrations. The parity of esteem that the noble Lord, Lord McNicol, talked about goes to the heart of this issue.

The other amendments in this group will no doubt be taken at later stages in different guises, because they touch on subjects that arise in different parts of the Bill, but the noble Baroness, Lady Bloomfield, said that the question of the relationship between the Governments in Cardiff, Edinburgh and here at Westminster “reflects the constitutional reality”—those are the words that she used. Those words will create a reaction in Edinburgh and Cardiff that will cause even greater problems.

We need to seek a new partnership approach. If the unity of purpose within these islands is to mean anything, it must be on the basis of respect between all three or four partners and not the idea that because Westminster was the original one and the all-powerful one, it can overrule or ignore what is felt in Edinburgh, Cardiff or Belfast. I believe that it is possible in the general context to get a formula that can reflect that need for recognition and respect, but it is not going to be achieved in the way that the Bill is drafted. The reaction in Cardiff and Edinburgh was totally foreseeable and it could have been avoided—and it needs to be avoided.

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Moved by

[Lord Wigley]

2: Clause 2, page 2, line 21, at end insert—
“(1A) No payment may be regarded as a subsidy if it is equally and freely available to all enterprises whose economic activity, to which the payment relates, is undertaken wholly or largely within the territory of the body making the payment.”

[Lord Wigley (PC)]

My Lords, I apologise for appearing to hog the Committee at this early stage. I will have a self-denying ordinance as things go forward, I promise. Amendments 2 and 3 are in my name and go to the heart of the use of subsidies as a legitimate tool for securing economic objectives. From the Minister’s remarks at Second Reading, it is clear that the Government accept that in some circumstances the payment of subsidies may be legitimate. Surely that must be right.

Let us take as an example the Covid crisis. If the payment of subsidies was necessary to enable a company to bring forward a vaccine more quickly, say, or to enable an adequate supply of face masks to be available for hospital and home care workers, if that is the only way of securing such socially necessary provision, no one in their right mind would oppose such payments being made. Equally, if subsidies were made to one company to give it an unfair advantage over another, that would clearly not be an acceptable use of public funds, unless it was to enable economic or social benefits to become available in a manner that would not have been possible by paying similar subsidies to other potential providers.

This brings us to the fundamental question of the circumstances in which the payment of subsidies is legitimate and who decides that that is the case. I do not pretend for one moment that we can define in legislation all the circumstances and eventualities in which a credible argument can be made for the use of subsidies, although there clearly needs to be transparency and the circumstances need to be defined in terms that can be appreciated by those who might want to supply goods or services for which subsidy payments may arise. This might be difficult to define in words that are both comprehensible and able to withstand scrutiny in the courts.

To make that process easier, I believe that it would be helpful if some of the principles on which a determination of the efficacy and appropriateness of subsidies could be defined in the Bill. If such a detailed approach is difficult—or, indeed, impossible in some circumstances—at the very least there should be some principles spelled out in legislation for the benefit of the Governments of the four nations of these islands and for the guidance of those involved in the provision of goods and services, who have the right to know the ground rules within which they operate.

Amendment 2 seeks to deal with a set of considerations that may well arise for Governments trying to operate within the framework of the Bill. For colleagues to appreciate the background against which I bring it forward, I draw the Committee’s attention to the way in which successive Governments in Wales have tried to tackle the endemic unemployment levels that have blighted Wales for most of the last century, consistently running at twice the level experienced in England. To tackle this, the Welsh Government have—absolutely rightly, to my mind—tried to ensure that public sector contracts for the provision of goods and services in Wales go, as far as possible, to contractors based in Wales or those that will make it their policy to employ people living in Wales to undertake the work.

Clearly, there has to be value for money and tender prices are a factor that cannot be ignored, but that is only one of several relevant factors. The best deal for the community as a whole is not necessarily ensured by insisting that tender prices are the only factor that determines where widgets must be purchased. Quality of product, security of supply, and aftersales service are absolutely legitimate considerations which may trump a pure price consideration.

There is also the effect on the local economy. It is worth noting that in pursuing a local sourcing policy, which clearly can also have significant environmental benefits by cutting unnecessary transport costs, the Welsh Government have succeeded in raising the level of local sourcing from under 35% to some 55% over the past 20 years. The target is to push that figure to 70%. To my mind, that is an absolutely valid approach. If sandwiches for Welsh hospitals can be made locally rather than brought in from Birmingham or London, they most certainly should be sourced locally, as should service provision contracts. There was a nonsense a few years ago when a contract for grass cutting in schools in Anglesey was apparently placed with a company in the east Midlands.

The net effect of this approach has been to reduce Welsh unemployment figures so that they now stand below the level in England for the first time in my lifetime. Activity rates have also increased.

I readily concede that this approach does not solve all our problems. The level of GDP per head of population remains stubbornly low, and I understand that this argument has to be confronted. The quality of work and the added value must also come into the equation. Our Governments, in Wales and Scotland as well as Westminster, must take these considerations on board when developing public policy.

In this amendment I seek to write into the Bill a provision that states that it is absolutely acceptable for Governments to seek to secure economic activity within the communities for which they have responsibility and that it is legitimate in some circumstances to pay subsidies to businesses that employ people within those communities and pay taxes to local government in those areas, and whose profits may circulate in those local economies.

I make it clear that this is not a block on tendering for contracts to provide goods and services for an area. Those who are primarily based away from that area should not be debarred, but surely it is necessary that when such decisions are made, consideration is given to whether companies are willing to locate an office in the areas offering subsidies, to purchase supplies from within those economies and to have a transparent policy of recruiting people in those areas, preferably to work within their communities.

My amendment states that no payment should

“be regarded as a subsidy”

for the purpose of this Bill

“if it is equally … available to all enterprises”

that undertake “economic activity” to which the subsidy relates “within the territory” of the governmental body making any such payment.

In his wind-up speech at Second Reading, the Minister stated that it would continue to be in order for a public authority to give subsidies if in doing so it is “addressing regional inequality”, so I hope that he will either accept the amendment or undertake to bring forward his own, either at the end of Committee or preferably on Report when it can be voted on. It may be that the wording of this amendment needs to be tightened and more focused. What I now seek is an indication as to whether the UK Government appreciate that other Governments must have their hands free to improve the economic well-being of their communities and that the judicious use of subsidies is a perfectly legitimate tool in trying to stimulate economic activity.

Briefly, Amendment 3 is different in nature but relates also to ensuring that Governments are not precluded by this Bill from making payments for the provision of local services by public bodies in their territory. There are many aspects of local services that may be provided by both public authorities and private contractors. One has to think only of care homes, refuse collection, recycling or highway maintenance to see areas where there could be arguments as to whether public authorities are subsidising activities in competition with the private sector.

My amendment is tabled to give the Minister an opportunity to state categorically that the Bill, when enacted, will not constrain public authorities from making such payments and to point out in the Bill where such safeguards are provided, if indeed they are. If they are not, we will need to return to these matters on Report. I believe I may be knocking on an open door with this amendment but I will listen to what the Minister has to say. I beg to move.

[Viscount Chandos (Lab)]

My Lords, I support Amendments 2 and 3 in the name of the noble Lord, Lord Wigley. With the agreement of the Committee, I shall speak to my Amendment 2A. My amendment would add just one word to Clause 2(2) and I will try to be commensurately brief.

Clause 2(2) lists examples by which financial assistance may be given, starting with

“a direct transfer of funds (such as grants or loans)”.

It does not purport to be exclusive or comprehensive, so why do I think it is important to add equity to the examples given of grants and loans? The guidance published last week, following Second Reading, includes the following:

“Subsidies can be provided in many different forms, including grants, soft-loans, loan guarantees, and tax breaks. Other forms, such as taking an equity stake in firms … may also constitute subsidies [to be inserted—link to future section on determining whether an intervention is a subsidy].”


That prospective insertion of a link to a future section—further evidence of the Government’s ill-preparedness for a Bill that they have known for months, if not years, was needed—gives a clue as to why it is important to add equity to the examples given in the Bill.

A grant from central or local government is self-evidently a subsidy. It is relatively easy—not totally simple, but not rocket science either—to gauge whether a loan is, for the borrower, more favourable than market terms and hence has a subsidy embedded within it. A loan will ordinarily carry the requirement to pay regular interest and, by final maturity, to have repaid all the principal amount. The arithmetic is pretty simple. Equity is much more difficult to analyse as the future returns are unpredictable. The risk of loss is total and the potential returns unlimited. Professional venture capital and other investors can take strongly divergent views about the prospects for any one company, which explains the huge dispersion of returns between different funds.

I acknowledge that it can be difficult to say whether an equity investment is made on market, and hence unsubsidised, terms. A judgment has to be made about the share of the company concerned received for the investment made; the speed with which a decision to invest is made; the proportion of the funding contributed; any liquidation preference attached to different classes of shares; and a whole range of other conditions, whether imposed or waived. Even if private sector investment is made pari passu with the public sector’s commitment, that may not be prima facie evidence that the public sector’s investment is on market terms, since the commitment, particularly if as a significant cornerstone investment, may in itself attract private sector investment in a way that could disadvantage competitor companies.

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[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.

[Lord Wigley (PC)]

My Lords, I am grateful to everybody who has participated in this short debate. I am not sure whether the noble Viscount, Lord Chandos, is happy with the response he got, but no doubt there will be opportunities to pursue that further. I also noted the comments of the noble Lord, Lord Lamont. There is clearly an issue here that needs some further consideration.

I was grateful to the noble Lord, Lord German, for his contribution. He was Minister for Economic Development in the Welsh Government. Was it 20 years ago?

[Lord German (LD)]

Yes.

[Lord Wigley (PC)]

It was a long time ago but clearly the noble Lord learned many lessons, not least the one he repeated: to stress that we in Wales received considerable benefit from the European Union and that there is a need for a guarantee that, pound for pound, we will not miss out from the changes taking place. That is a bit on a tangent from the issues we are debating; none the less, it is a well-made point and needs to be well received. Hopefully that will be the case. I agree very much with the noble Lord, Lord German, on his point about the Government spelling out in greater detail the rules coming through that will provide a level playing field. Those are very much needed.

I was grateful to the noble Lord, Lord Fox, for his interesting contribution, as always. He asked what a subsidy is. That really goes to the heart of the Bill, does it not? It is clear from the detailed response we had from the Minister that it will require quite a lot of exercising.

The noble Lord, Lord McNicol, again emphasised the need for greater clarity and transparency. That is what is coming out of this. I thought that the Minister’s responses recognised in many ways that the issues exist, but she believes that they are already covered in the Bill. We are going to need to press those aspects further as we go through the Bill. It is essential that the Bill is understood not only by those of us who work in the world of politics but, even more so, by those at the sharp end of business and industry who have to live with the consequences of it. They need transparency, and they need to be sure that they are not being enticed down a road where there may not be any hope of a satisfactory outcome. As the Bill progresses and we probe more aspects of it, I hope that that light will start shining through and that, if necessary, there will be appropriate briefings outside Committee on any further thinking or clarity that the Government can give to these issues.

I believe that the matters raised in my two amendments are relevant. The Minister confirmed that, to all intents and purposes, what is covered in Amendment 3 is covered by the Bill. That is fine; I said that I might be knocking on an open door. I am grateful for that, but I have no doubt that we will need to return to some aspects of the more general debate we have had. On that basis, I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

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[Baroness Randerson (LD)]

My Lords, I will speak specifically to Amendment 6, to which I have added my name. The noble and learned Lord, Lord Thomas of Cwmgiedd, explicitly outlined its importance.

This very important group of amendments seeks to get to the core of what this is all about: why are subsidies required? As it stands, the Bill sets out seven subsidy control principles, which you could actually call rules and which on their own can easily be interpreted in a mutually contradictory way. They are further complicated by additional “energy and environmental principles”, by “subsidy schemes” versus “streamlined subsidy schemes”, and by “schemes of interest” versus schemes of “particular interest”.

This web of rules is combined with a complete lack of context. I take to heart the points just made by the noble Lord, Lord Lamont. As a councillor in south Wales, I was on the receiving end of changing maps. There is great significance in maps as an instrument to encourage investment in certain areas. If you are not going to have a deprived areas map for places to be assisted, you can have a carefully written industrial strategy that sets out terms on which assistance would be given to help the less prosperous areas. There is also a clear potential for overlap with other government schemes. It seems that levelling-up funding could well be seen to be in direct contravention of several of the principles set out in the Bill.

All this is further complicated by the unbalanced power structure at the top. I will not go through it again, but we will undoubtedly do so at different points on our amendments over the next few meetings. Briefly, the crux of the problem is that the Secretary of State is the Minister for England at one moment and the UK’s referee at another. In addition, there is a weak regulator with ill-defined powers and a lack of transparency, with high financial limits at which subsidies have to be registered. All this together strikes me as a chaotic system that is cooking up a bureaucratic nightmare because it does not have the clarity of the map or of the industrial strategy. It is a lawyer’s dream come true and invites litigation.

My noble friend Lord Fox gave us some excellent examples, and we could add to them the overt conflict between the principles of this Bill and those of the ARIA Bill. I was one of the Peers sitting here prior to Christmas discussing the Government’s desire to have the freedom to invest without particular principles that they would have to obey. I cannot see how that does not conflict with this Bill.

The amendment from the noble and learned Lord, Lord Thomas, tries to start to sort this out. So far the Government clearly do not know what they want, or they would have set it out in much greater detail and with much more clarity. Another way of looking at this is that the Government have been given all the cards in terms of power and can brush aside competition. They can hide significant subsidies that fall below the very generous thresholds that they have set out. It leaves the Government free to pick winners on the flimsiest of evidence—almost as was done over PPE at the start of the Covid pandemic, and we know what grief that has caused to both the Government and taxpayers.

Crucially, Amendment 6 sets out a process of agreement between the four Governments on what constitutes “disadvantaged areas” that are hence in need of levelling-up subsidies. As the noble and learned Lord, Lord Thomas, said, this must be a decision taken at a political level. It is not suitable for the CMA or the Competition Appeal Tribunal; their job is to judge individual cases against the rules established as a result of political decision-making.

Amendment 6 would once again establish in legislation the existing concept of common frameworks in relation to this topic. There are of course dozens of common frameworks on everything, from nutritional labelling to rail technical standards, from blood safety to motor insurance. Each has a set of rules on how the four Governments of the UK will co-operate to ensure that individual internal markets work properly. If any mechanism is likely to disrupt relationships within the internal market then subsidies are the one, so a formal common framework with evenly balanced dispute mechanisms is required. That way, the Governments of the four nations can establish their own priorities for subsidies and ultimately subject them to a formal dispute procedure if needed.

[Lord Wigley (PC)]

My Lords, I had not intended to intervene in this debate, and I am going to do so not from a particularly Welsh angle but from a general one. I identify with Amendment 6 and the comments of the noble and learned Lord, Lord Thomas of Cwmgiedd, with regard to the practicality of any Act like this being interpreted by the courts. We are going to create a monster if we are not careful, and it may well fall down because of its own inertia.

Three areas of experience spring to mind for me in addressing this question. The first is the old—am I allowed to say it?—Chinese saying that if you give a man or woman a fish then you feed them for a day, but if you teach them to fish then you feed them for a lifetime. Therefore, any long-term economic strategy must be geared towards enabling that to fulfil itself, so that we are not just providing subsidies for the day but providing a basis on which to build.

The second experience that comes to mind is writing an economic plan back in 1970 with the late, great Phil Williams, whom some colleagues here will remember from the National Assembly. We did an analysis to find winners in terms of industry and in terms of geographic location. Most of them worked out. In fact, they were fairly common-sense things—electronics, chemistry and so on—and I suspect that they would have fulfilled themselves had there been no grant mechanism, because they were doing what there was a momentum towards.

My third and final point concerns our experience in Wales with regard to European funding; I have no doubt that similar experience will have been obtained in Cornwall, South Yorkshire, Merseyside, parts of Scotland and wherever such funding was available. The funding went not just to narrow projects but to areas of investment with a long-term payback, such as work, even blue-sky projects, in our universities. These would not create immediate jobs but provided a basis on which industry and commerce, and those who were going to invest in them, could look to the future. The scheme of grants that was available then through the European Union was very broad; we should not ignore that dimension. We need mechanisms that enable that to happen. If we can get this right, it could be very valuable. It may well be that this Bill has that potential in it, but there is a lot that needs to be clarified at the moment. Some of these amendments may help tease that out.

[Lord Bruce of Bennachie (LD)]

My Lords, I wish to intervene briefly because this has been a really interesting debate. The intervention by the noble Lord, Lord Lamont, seemed to ask legitimate questions about whether the intention of the Government’s strategy relates to levelling up or regional development.

In the 1970s, I was involved with the economic development strategy. I remember the map that the noble Lord, Lord Lamont, talked about. It was about unemployment and travel to work but it did not always take account of things such as depopulation. There are certain communities where, if there is no work, people go and look for it, but the communities are then told, “You don’t have high unemployment, so you’re not entitled to any support”. Yet those people can be encouraged to stay there, or alternatives can be brought in.

Secondly, it seems to me that this should have some relationship to the economic realities of the region. We have seen situations in which ideas have effectively been dumped into a region, with massive incentives from government, but simply did not survive. These were big projects that became white elephants and embarrassments. On the other hand, supporting local and growing businesses has proved very effective. It is exactly the kind of thing that local councils and local organisations are better at, because they have that degree of knowledge in a way that central government often does not and they are kind of organic.

I remember, in the 1970s and 1980s, the Highlands and Islands Development Board, which was set up in the 1960s. It described itself as an investment bank with a social conscience. At the time, the Scottish Affairs Select Committee was holding an inquiry that Conservative MPs had asked for, originally with a view to discrediting the board. I must say, they rather changed their view at the end of the evidence. The chairman was asked, “How many of the projects that you have supported failed, and what was the average rate of return on the investment you made?” We got an answer to those. When asked, “How did those compare with the private sector?”, the answer was, “Almost exactly the same.” The question then was, “So why do we need the Highlands and Islands Development Board?”, to which the answer was, “All these projects were turned down by the private sector in the first place but succeeded.”

We have been through a period of highland depopulation, and it is beginning to happen again. In my part of the north-east of Scotland, we lost our development assistance, perfectly understandably, on the arrival of the oil and gas industry. Now that it is leaving, we may well need to support not the fossil fuel industry but new industries, perhaps related to energy, or some of the traditional industries that add value to the food production of the area and that sort of thing.

I suggest that we are entitled to ask the Government for some kind of explanation of strategy as to how this is going to work, whether there should be a map and what kind of sectors can be expected or allowed to be encouraged. At the very least, the objective over 10 years would be to reduce the inequalities between the high-growth, high-population areas and the low-population areas to the benefit of both. I accept the point that stealing from one to give to the other is not the answer, but it is sometimes quite difficult to know what the balance is within that. The questions being asked are legitimate and justified; the Government should give us some idea of what the answers might be.