Subsidy Control Bill

Paul Scully Excerpts

3rd reading
Monday 13th December 2021 Commons Chamber

We in the Labour party have taken a constructive approach to scrutinising the Bill. Subsidies are a critical tool to supporting our vital interests, but we need a clearer plan for the use of subsidies and much stronger transparency and accountability on spending public money. If public authorities, our four nations’ businesses and the public are to have confidence in the new system of subsidy control and in the new regime to deliver the outcomes for our economy and society, the Bill requires significant improvement. I hope that the Minister will respond favourably on the points that we have raised today.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I thank hon. Members across the House for the informed debate on the Bill and will try my best to respond to their comments in the few moments that I have.

A number of amendments have been tabled on the topic of transparency, which I take really seriously. My Department is working on a programme of improvements for the subsidy database. To name just two examples, we are resolving the technical glitch that meant that subsidies were uploaded with a zero value. Additionally, we are developing an update to add the data for upload to the information published on the database. Officials will actively look at further improvements over the coming months and in advance of the new regime coming in.

The Government intend to review again the evidence collected as part of the consultation alongside that provided by witnesses to the Committee about the transparency provisions. We will reflect carefully on the points raised so far and engage further on our findings with parliamentarians in both Houses as the Bill progresses. I know the strength of feeling in the House on this matter, and we will consider carefully what further action we could take to address those concerns if they come back in the Lords.

I start with the amendments that would reduce the threshold at which subsidies are uploaded. The transparency provisions seek to minimise the administrative burdens and costs to public authorities while ensuring that information is available on subsidies that must meet the substantive subsidy control requirements. That is an important tool to aid interested parties to challenge potentially harmful subsidies. However, the amendments would create an additional administrative burden for public authorities, including small local authorities. Paradoxically, they could make it harder to identify in the database the most potentially harmful subsidies that are eligible to be challenged in the Competition Appeal Tribunal. Many small subsidies will also be publicly available via other transparency tools. Such data may not be perfectly formatted, but it does go far wider than subsidies.

In relation to services of public economic interest, there was broad support from consultation respondents for the application of different transparency measures. The contracts must meet the specific requirements set out in clause 29. That is why the database requirements are different for those subsidies.

[John Penrose]

May I just caution my hon. Friend? I think the paraphrase of his argument about the size of the subsidy database is that big databases are less transparent than small ones. That is clearly bonkers and not right, and I do not think it stands up to any scrutiny. He may be arguing that that is okay because other databases will have the information and that it can all be compared and contrasted, but that works only if the data is in a common format that allows for mutual searching, and there is no such plan for that. May I gently caution him about pushing that argument too far? I do not think it will stand much strain in the Lords.

[Paul Scully]

All I would say is that it is easy to hide something in plain sight, but the subsidy transparency database is being developed under the Cabinet Office’s standard system for all Government databases. I have talked before about interoperability, and we would expect to be able to link those databases and to scrape them in the future.

[Dr Poulter]

I echo the transparency concerns raised by my hon. Friend the Member for Weston-super-Mare (John Penrose). I welcome the Minister’s commitment to allowing the other place to look at this area, but, to reassure some of us, will he please outline the transparency tools that already exist?

[Paul Scully]

I am not sure in terms of transparency tools. What I am saying is that we will ensure that the database is eventually interoperable with other databases. We clearly want the subsidy database to have enough easily accessible, searchable fields to allow people to make meaningful use of the data.

I turn to the amendments that seek to reduce the time period to upload subsidies to the database for both tax and non-tax subsidies to one month. The risk of a deadline as short as a month is that public authorities are more likely to make mistakes. Although it is possible to correct data, that creates an additional administrative burden for public authorities. Inaccurate or otherwise poor data would also undermine public confidence in the database.

A short deadline is particularly challenging for tax subsidies, which are often calculated from the information provided in a tax declaration, which the beneficiary is entitled to change within the 12 months following its due date. That is true, for example, of the Government’s research and development subsidy scheme for small and medium-sized enterprises, where quarterly uploads to the database are planned for the hundreds of subsidies above £500,000 that are awarded every year. Significantly more resource would be required to upload to the database more frequently and to make corrections to previous uploads as required. I note the proposal to require an initial upload of a tax subsidy as an estimate. However, I believe that more changes and revisions to the database would cause confusion.

On auditing the database, I share hon. Members’ desire to make the database as accurate as possible, and my Department is already taking steps to improve data quality. However, a new obligation to subject the database to a routine audit is unnecessary because the system already incentivises accurate entries. Public authorities may not have fulfilled their obligation to make an entry on the database if that entry is not accurate, so the limitation period for a challenge would not start until a correct entry was made. Public authorities must therefore take responsibility for their own data. Ultimately, it would not be a good use of taxpayers’ money to have central Government officials independently verifying every piece of information provided by public authorities. As for the requirement to include the subsidy upload date in the list of requirements for the database that may be included in regulations, I entirely agree that that is useful data. As I have said, we are currently developing an update so that that is part of the publicly available information on the database.

Let me now deal with amendments that raise important points about the nature of the subsidy control regime, and especially about the role of the subsidy advice unit. The SAU’s job is to be an impartial adviser in respect of the most potentially harmful subsidies and schemes. The regime places clear duties on public authorities that are awarding subsidies. It will be for those authorities to assess whether they are compliant with the regime. That is not the SAU’s job. It will only review public authorities’ assessments in a relatively small number of cases that have the potential to be the most distortive. New clause 3 would require the SAU to monitor and investigate subsidy activity, and amendment 9 would require it to list all subsidies annually, whatever their size, along with an assessment of their compliance. Both would involve a fundamental shift in the unit’s role, to an intrusive, investigatory one.

I fully expect that there will be high levels of compliance with the regime, and that public authorities will take their statutory duties seriously. Of course, failure to fulfil these duties would expose public authorities to legal challenge, and would create unnecessary uncertainty for beneficiaries. Members will appreciate the resource burden that monitoring and assessing all subsidies would involve, and will recognise that not only is it entirely disproportionate to the risks that the amendments seek to address, but it would distract from the SAU’s proper focus.

Amendment 26 would allow the CMA chair to make appointments to the subsidy advice unit to bring greater experience in relation to Scotland, Wales and Northern Ireland. The CMA’s staffing is an internal matter, but I note that job vacancies for the new unit are currently being advertised in all four capitals of the UK.

Amendment 8 proposes that subsidies granted under schemes should be open to challenge in the Competition Appeal Tribunal. Schemes represent an important efficiency for public authorities. They allow similar or identical subsidies to be given on the basis of a single, comprehensive assessment against the principles. A scheme should not be made unless the public authority believes that the subsidies given under it will be consistent with the principles. It would therefore be unnecessary for subsidies granted under schemes to be eligible for review by the tribunal. However, if there were a question as to whether a subsidy given under a scheme really met the terms of the scheme, that subsidy could be challenged in the tribunal on the basis that it should be treated as a stand-alone subsidy.

Let me deal next with the amendments relating to the role of the devolved administrations. The UK Government have engaged regularly with the DAs on the design of a UK-wide subsidy control regime, and we will continue to listen carefully to their views. None the less, it is important to reiterate that subsidy control is a matter reserved to this Parliament. That is because we need a UK-wide regime to prevent distortions harmful to competition, and to facilitate compliance with our international obligations. I fundamentally believe that the amendments are inappropriate for a reserved policy matter. The Secretary of State will act in the interests of all parts of the UK.

Amendment 12 concerns who can challenge a subsidy decision. I can clarify that: the devolved administrations, or local authorities, would generally be able to apply for the review of a subsidy when people in the areas for which they are responsible might be adversely affected by it, but there is no reason for the DAs to be able to challenge subsidies that have only a tenuous connection with the interests of people in those areas.

Amendment 10 would allow the devolved administrations to create streamlined subsidy schemes. All public authorities in the UK will be able to use such schemes, but they will function best when they apply throughout the UK. In any case, all public authorities will be free to create subsidy schemes for their own purposes, and primary public authorities, such as the DAs, will be able to create schemes for the use of local authorities and other public bodies within their remit. As for amendment 27, the Bill already requires the Secretary of State to consult such persons as they consider appropriate before issuing any guidance. Attaching a formal consent mechanism to this clause risks delaying the issuing and updating of guidance.

New clause 1 would exempt agricultural subsidies and schemes within the scope of the World Trade Organisation agreement on agriculture from the requirements of the new domestic regime. Having agriculture covered by the same single, coherent framework as other sectors will protect competition and investment within agriculture, while securing consistency for public authorities and subsidy recipients. The Bill’s design ensures that public authorities are empowered to give subsidies that best fit their local needs, whether that means supporting innovation in pharmaceuticals or innovation in farming. I therefore do not agree that agriculture should be exempt from the regime.

Let me now turn to the amendments dealing with net zero.

New clause 2 would require the Secretary of State to report annually on the impact of all subsidies granted in the previous year on the environment and climate change. This would represent a significant administrative burden, not least on smaller public authorities, and would discourage them from granting subsidies in the first place. There are also long-standing existing obligations on public authorities to collect this information in specific circumstances, and therefore this amendment is unnecessary.

Amendment 11 would add another principle to schedule 1 centred on net zero, but net zero is not inherent to all subsidies. A great number of subsidies will not have a meaningful impact on the UK’s emissions. A requirement for public authorities to assess all subsidies against net zero is therefore disproportionate.

Amendment 16 would add an explicit net zero test to the balancing test principle in schedule 1. The terms of the balancing test are not limited to negative effects on trade or investment within the UK, or to international trade and investment, so this amendment is also unnecessary.

Finally, on levelling up, amendment 18 would establish that streamlined subsidy schemes can be made for the purpose of supporting areas of deprivation. The Bill allows the Government to create streamlined subsidies for any purpose, not least for levelling up, so this amendment is unnecessary, but I certainly commit to ensuring that streamlined subsidy schemes collectively support public authorities in delivering levelling-up objectives.

The first subsidy control principle specifies that subsidies should pursue a policy objective that either remedies a market failure or addresses an equity rationale. Clearly, relative economic deprivation would fall into that category, so these amendments are unnecessary.

I am grateful for the constructive engagement of hon. Members on both sides of the House, but I cannot accept the amendments tabled for this debate. Consequently, I ask hon. Members not to press them.

Finally, I thank the team that prepared the Bill: Jamie Lucas, Jess Blakely, Carmen Suarez, Jane Woolley, George Kokkinos, Hannah Swindell, Sam Naylor, Joe Smith, Matilda Curtis, Dharmesh Jadavji, Steve Huntington, Kerry Mattingly, Anthony McDonough, Tim Beaver, Christian Garrard and Josephine Sherwood.

Question put, That the clause be read a Second time.