Commercial Rent (Coronavirus) Bill (First sitting)

Paul Scully Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Seema Malhotra]

Q Mr Curran, do you have any additional comments to make on those areas, and do you feel confident that the scheme as outlined will work in practice?

Dominic Curran: The British Retail Consortium, in the call for evidence that the Government published last spring, did call for a scheme that extended the moratorium to a future date and ringfenced the protection of the arrears that arose during the process, and it called for a process of compulsory arbitration. At least at headline level and in terms of the core principles of the Bill, this is what we have called for and what our members want. We do welcome it.

We have a slight concern about the definition of a business tenancy. The Bill appears to suggest that it is only a tenancy that is not contracted out of the Landlord and Tenant Act 1954. We have been assured by officials in separate meetings that that is not the intention of the Bill and that actually the Bill covers any tenancy that would be within the scope of the 1954 Act, whether it is contracted out or not, which does give us some comfort. That might be an area you would want to clarify in the course of scrutiny of the Bill.

Engagement with officials and Ministers has been fantastic, actually, throughout the pandemic and through the drafting of the Bill. We have a similar concern to UK Hospitality about the approach that will be taken on viability. Some of the definitions that the Government have said they do not want to enshrine in legislation—which is, I suppose, understandable—will be left to guidance for arbitrators. More than ever, the devil will be in the detail on that. We would want to see what that guidance is as soon as possible to give as much clarity as possible to businesses that might be thinking about using this route.

We would want to make sure that that guidance also directed arbitrators to take as broad a concept of viability and affordability as possible, so that there is enough understanding of a business’s circumstances that they could build in an allowance for the uncertainty of future cash flow and turnover, not least because there will be tax rises coming from April onwards when this process will effectively kick in—both higher businesses rates liabilities for many businesses and further tax increases on Business Network International contributions. We would want to see as much certainty in advance as possible and as much understanding of the need for businesses to have a buffer to enable them to trade while all these adverse headwinds are hitting them. We certainly share some of the concerns of UK Hospitality. I think the approach taken on fees is exactly right, as Kate outlined. While there may be a nominal, reasonable amount to enter the arbitration process, we would want the process to be as straightforward as possible, particularly for smaller businesses, which will not have access to in-house or agency consultants to support them through the process, so that it really is open to all and seen as fair and equitable.

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

Q Can you give us an idea from the retail perspective of how significant the problem of rent arrears still is?

Dominic Curran: I think it is less of a problem than it is for UK Hospitality. That is not to say that it is not a problem, but I think retail rent collection levels are higher than hospitality, as you would expect, given that the retail sector includes businesses that were allowed to open throughout the pandemic, particularly grocery and pharmacy businesses, so turnover has probably been higher proportionately in retail than it has been for hospitality.

I think it affects a smaller proportion of our sector in terms of the quantum of rent arrears, but it is still significant. It is estimated that there are still several billions of outstanding rent arrears in the retail sector during the pandemic period that the Bill covers, as far as we know. Some of that surveying does not take account of agreements that will have been reached off the books, as it were, or outside the formal rent collection dates, so it is an uncertain figure. When we have spoken to members, and this is an informed guesstimate rather than a thorough survey, it feels like we are at about 80% to 90% of rent having been collected and deals having been done, so it is a very small proportion of the outstanding rent liabilities that is left to be resolved. With each extension of the moratorium every three months, as we have seen over the past year and a half, and particularly with the announcement of this Bill and the process that it proposes, we have seen that percentage chipped away. Ever more landlords and tenants are reaching agreements. While it is a significant problem, it is probably less of a problem than it is for UK Hospitality, but it is still really important that even if businesses do not take advantage of the arbitration process, that process is there—if for no other reason than to help chivvy both landlords and tenants into making new arrangements.

[Paul Scully]

Q The code of practice will remain an important part of the solution. How has it helped over the past few months

Dominic Curran: In all honesty, members report that the code of practice did not aid them particularly. Its voluntary nature was the real sticking point. It was not necessarily the content, which was developed in very deep and meaningful consultation with us, UK Hospitality and other interested parties, but it was the fact that it was voluntary that was the sticking point. Because it was good practice, those who were going to use that approach did so anyway, almost regardless of the code’s existence, and those who were not going to use the approach did not feel like the code applied to them, because there were no sanctions on the requirement to negotiate in line with it.

What has helped—in so far as people are aware of it—is the suggestion, and Kate alluded to it, that if you do not negotiate in line with the principles of the previous code and the revised code, there may be some penalty in terms of costs being awarded against you in any subsequent arbitration process. That may help focus minds somewhat.

[Paul Scully]

Q Do you think signifying that we are legislating has helped move things on significantly? Have people priced this in to their discussions now?

Dominic Curran: I would not be able to say significantly, but certainly anecdotally speaking to members, yes, it has helped.

Kate Nicholls: I agree with what Dominic said. The code of practice content was really helpful, and it gave a steer towards negotiations and how you should negotiate in good faith. A mandatory backstop and a legislative backstop are absent. It was limited in its impact in bringing recalcitrant players to the table. When Ministers announced that they were intending to legislate, a third of our businesses still had no negotiations and a large amount of outstanding debt, with no agreement as to how that was to be treated. That has dropped from a third to 20% and it keeps getting chipped away every time we move further forward in the legislative process.

The introduction of the legislative backstop is really important. The code of practice principles will be important to guide discussions for those businesses that fall outside the legislative solution, because obviously there will be parts of the business that will not be covered by the arbitration process. It is about giving the legislative backstop and the clearer direction towards sharing the pain, coming to a negotiated solution and being able to support what would otherwise be viable businesses.

The ministerial forewords in the legislation and the call for evidence are immeasurably helpful in giving a clear direction that landlords should do whatever they can to support businesses that would otherwise be viable. That was the piece that was missing from the code of practice that gives a clearer steer of the intent of the legislation.

[Paul Scully]

Fantastic. Thank you very much.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

Q We have had evidence of concerns about the arbitration scheme—for example, whether there should be a single approved arbitration body and about the difference compared with other arbitration schemes in how the agreement is reached as to which arbitrator should be used. There is a concern that they should be legally qualified rather than just businesspeople, because of the nature of complex arbitration processes. There is also a question about confidentiality, which is the norm in such processes but is not specified in the Bill. Mr Curran, do you have any comments on those issues?

Dominic Curran: On the arbitrators who will be used, the Bill says, if I remember it correctly, that the Secretary of State will nominate or choose which arbitrating bodies will be eligible to provide arbitrators to the process, so it remains a bit of an open question. All I would say—having spoken to officials, this point is well understood and well heard—is that given the nature of the discussions that inevitably will be had during the arbitration process, we would prefer to see arbitrators who have a strong accountancy background, perhaps more so, or at least as much as, those who have a property conflict resolution background.

The nature of the process is to look at tenants’ accounts and to make sure that their income, liabilities and forecasts for turnover are such that they can pay a relevant and viable proportion of their rent arrears. So rather than it being a dispute over the interpretation of a lease or the duties of a tenant or a landlord, it should really be about understanding the finances of that business and enabling it to pay a proportion of rent between 0% and 100%, while being able to continue to trade viably at the same time. We certainly want to see the accountancy profession well represented in that.

Whether any other trade bodies, beyond those that represent accountants, are given the right to carry out the process by the Secretary of State remains to be seen. If you wanted to get the confidence of businesses that are tenants, however, you would want to make sure that you had accountants rather than property dispute arbitrators fulfilling the duty.

--- Later in debate ---

[The Chair]

We have a sound issue, Ms Leech. Hold on one second.

Melanie Leech: Can you hear me now? I will abandon the headphones. Apologies. Our view is that for the larger, more complex relationships, this scheme should not be the way forward. They should be taken as they would have been before the pandemic. Outside the confines of the ringfencing of this scheme, that will be through the courts. These are, ultimately, legal relationships, and the courts are there to resolve legal disputes. I think the scheme can work well for smaller businesses and less complex relationships, but for those larger, more complex relationships, redress should be through the courts, as it always was and will be again outside the confines of the scheme.

[Paul Scully]

Q I have a similar question to that I asked the last panel. From what you were saying, I think you agree that the legislation will be able to bring certainty to landlords. I know it is not a comfortable position to be in, with intervention in, effectively, a private contract, but it will give you some degree of certainty in the sense that you are pricing it into your thinking moving forward.

Melanie Leech: I think what is really important, not only for the individual property owners in the sector but for the market, the health of the sector and the future—I go back to that £1.2 billion GVA that we create every year—is that certainty that you, the Government, understand the importance of contracts as part of what makes UK real estate an attractive investment proposition for pension funds, saving funds and those institutional long-term investors. When we talk about property owners, that is largely who we are talking about. We are talking about our money as individuals, our pensions and savings. In order to protect them appropriately in these circumstances and to secure the future—particularly thinking about the levelling-up agenda, for example, and the investment that will be needed across the country—it was really important that, as part of this announcement, the Government made clear that, if tenants can afford to pay their rent, they should pay their rent in full, and that this scheme is designed to support and facilitate agreement being reached between tenants that are vulnerable and need support and property owners that can afford to give that support. That builds on what has already happened in the market, where millions of pounds of support has already been provided to the most vulnerable tenants. That underlying principle protects the sanctity of the contract for the long term and protects UK real estate as an investment proposition, which we badly need in this country, while also allowing the outstanding cases in which agreement has not been reached to have some kind of resolution.

[Paul Scully]

Thank you. Astrid, same question to you.

Astrid Cruickshank: I have to say that I think it is quite unfortunate that we need this system at all. I try to speak to all my tenants. I have four who just point-blank refuse to engage. I knew a finance director prior to covid who was always happy to take my call, so it was somewhat disappointing to find, when trying to speak to them to try to agree a way forward, that they just will not engage. I have to say that I have been able to unlock mine now, so unless there are further lockdowns—fingers crossed—I will not need to avail myself of this. I have stuck with the consultation process because I think it is important that there is a voice from a small landlord. People tend to assume all landlords are enormous, and I wanted to make the point that that is not the case.

[Paul Scully]

That point is very well made as well. Thank you.

[Mark Eastwood (Dewsbury) (Con)]

Q I have a question for Melanie. Some landlords have argued that a binding arbitration system would favour the tenant over the landlord. What is the view of the BPF on that?

Melanie Leech: I hope that a binding arbitration scheme will be a neutral process that allows both sides’ views to be heard and a resolution to be reached between those two positions. As I said in response to the Minister, the principles should be that someone who can pay their rent should pay it, but if they can demonstrate that they need support, because they cannot afford to pay their rent, that case should be heard, and a landlord who is able offer support should give it. I think those principles, if they remain in place and underpin the scheme, should lead to a fair outcome.

The other thing we have concerns about—although I think the process is designed to avoid this—is that it is not a case of both parties starting in an equal position. We start from the position that there is a contract that says that the tenant should pay rent, and the tenant is seeking support to set aside that contractual obligation. The evidence base is primarily driven by the tenant’s position; I have heard concerns that if a landlord wants to go into the arbitration process, they need evidence from the tenant to underpin their position, and, if the tenant does not provide that evidence, the landlord is at a disadvantage in the process.

The process is designed to deal with that by allowing them to initiate the process from a starting position that says the tenant should pay in full. If the tenant gives evidence to demonstrate why they need a concession, the landlord can consider that and put in a revised proposal before getting to arbitration. As long as that is in place, the landlord need not be disadvantaged by not having the information up front. It is important to recognise that the burden of proof for both viability and affordability is primarily on the tenant; it is only at the stage at which the tenant’s case is made, as it were, that the question of whether the landlord can afford to give a concession comes into play, at which time they also need to provide evidence. I think that the Government understand that, and that it is built into the process. That is one of the things that property owners will be nervous about.

--- Later in debate ---

[Peter Dowd]

Q Would you welcome further, more detailed discussions with the Department on these matters? It is important that we try to get this right, because we do not want to create more problems down the line. I think we have been here before in relation to those people who are regulated—whether that be social workers, doctors or nurses—so it is important that we get that right. Would you welcome more significant or more substantive discussions with the Department about how this should pan out?

Lewis Johnston: I would welcome more detail on exactly what the approval criteria would be and what the role of the approved suppliers under the scheme would be. There has been a good degree of engagement from the Department so far, but what the criteria would be has not yet been published. However, I know that they are coming shortly. That will be the crucial point in terms of assessing what the role of these appointing arbitration bodies would be.

[Paul Scully]

Q In the last sitting, Melanie Leech expressed concern about having a system like this set up for small landlord and tenant issues, compared with some of the bigger and more complex ones. How do you think arbitration services could cater for both sides?

Lewis Johnston: I understand the intention is that it would be the simpler, perhaps smaller party cases going through to the scheme, and I think that is correct. Given that the emphasis is on simplicity, accessibility and managing the costs, any scheme that had to accommodate the intricate, large-scale cases would encounter some problems in terms of balancing the two. Again, I point to precedents with things like the business arbitration scheme. It is difficult at this point to assess exactly what the appropriate fee level would be, because you would have to properly assess exactly how much work will be involved in each case—obviously not until they had come through—but I think that in the simpler cases that could be set at a level that was affordable. As some of Melanie’s members had made clear, it needed to be at quite a modest level for it to be accessible to them.

In terms of how the arbitration bodies would manage a variation in the complexity of cases, even it was perhaps the smaller, more simpler end of the spectrum, there will still be variation. We would maintain—this would apply to other bodies as well—lists and databases of arbitrators who would be suitable. Based on the nature of the case that came through, there would be a shortlist drawn up based on who had the requisite skill sets to handle that case. The pool that we would draw from should be broad enough to be able to cater to different types of cases and different sectors and so on.

[Sara Britcliffe]

Q In the simple case that you talked about, from your perspective what is the likely cost of that, including the legal fees of the tenants and landlords?

Lewis Johnston: I would not want to commit to exactly what it would involve until we got to that stage, but I refer again to the precedent set by our own business arbitration service, which is designed to produce an award within 90 days. It is meant to be documents only, and that is £1,250 plus VAT per party. If it was a very straightforward case—if it was documents only and it followed the same processes—I imagine it could be in the same ballpark in terms of fee level. The best thing would be to have real clarity around what the fees were and how they apply to each case, and for there to be perhaps an assumption against having a hearing, and, if there was a hearing to be requested, very clear guidance on what fee that would entail. Perhaps for a half-day hearing, a certain level. For the business arbitration scheme, there is an option for that. It is £500 for a half-day hearing. Again, the assumption is that the cost could be fixed at those initial costs per party, and that a hearing would not be necessary. It would be documents only.

Commercial Rent (Coronavirus) Bill (Second sitting)

Paul Scully Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Peter Dowd]

Q In terms of arbitration and the process available to commercial tenants, what can be done to ensure that they are aware of that process? We have lots of businesses under stress and strain, which we all understand—the Government understand that; we understand that. What do we need to do to get that message out and to give some reassurance?

Martin McTague: You will probably anticipate my first answer, which is that trade bodies are probably a good way of getting the message out. I think lawyers as well. The first thing that most people in this situation will do is to refer to their lawyer. There has to be a clear duty on lawyers to explain that arbitration is an option that they can take up.

In our experience, the smaller businesses tend to respond better to social media, so a BEIS publicity campaign based on social media contacts. The other obvious one is local government, which could do a lot to get this message back to retailers, especially in their area.

Jack Shakespeare: I support that, absolutely. As a trade body, engagement from the Department to us has been very positive. That communication has been great. We have been able to disseminate as much information as we could accurately and efficiently. I would echo that starting point. Again, use local government, lawyers and social media, recognise the characteristics across each sector and work with trade bodies to get the right messages across. They are obviously the experts in talking to those different businesses.

Andrew Goodacre: The communications have been covered well by my colleagues. To go back to your earlier point on what people have done to get through the crisis, we only do retail businesses, and they worked really hard as always. They have shown great creativity and determination, but one telling fact is that their level of debt has increased five times, by taking out bounce back loans, for instance. The larger retailers would have taken out a business interruption loan.

There was some research done in the summer of this year that suggested that the debt in independent businesses —which is not the usual business model; they do not normally do debt—is five times higher. It is estimated at about £2.2 billion. That has to be repaid. Then you have got rental debt on top of that. It leads back to this argument of viability. When you are assessing a business, you take a cold, hard look at its balance sheet. If a small business has a business loan or rental debt on there—and you have to counter the liability—before you know it, it is technically balance-sheet insolvent. It still may be viable as an operation, but there is a technical balance-sheet insolvency because of the level of liability it is are carrying, which it would not normally be carrying.

Whether it is rental or business loan debt, debt is a problem. Businesses have had to do it because they needed to survive. They wanted to trade and give themselves the chance of re-establishing themselves. Many are doing that. If we get a good Christmas, hopefully they can look to ’22 with some positivity.

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

Q We talked a bit about the scale of the problem. Government signalled that we were going to legislate in this area. Can you give us an idea of what that did? Did it kick- start conversations? Did you see results that are now priced into the debate between landlords and tenants? Do you have any reflections on that?

Martin McTague: I saw a definite change in the atmosphere. I know the Minister will be aware of this, but I think there was some doubt as to whether you, as a Department, would go this far. Free-market instincts would suggest that you would not. As soon as you had made it clear that compulsory arbitration was going to play a part, the whole atmosphere in these negotiations seemed to change. People entered into much more constructive arrangements. Some of them completely avoided or did not want to go down an arbitration route and settle on payment terms, which I do not think they would have done prior to that decision, so I think it has had a wholly positive impact.

Andrew Goodacre: I would say that when we first started looking at the problem in 2020, it was 40% to 50% that had experienced challenges with trying to negotiate something with landlords. I said earlier that we are down to a hard-core 15%—maybe 20%, but it is probably nearer to 15%. There is entrenchment on both sides at that point. The message about sharing a burden that Jack referred to earlier is really crucial in that. People on both sides, where they are entrenched, realise that they stand the risk of losing something from that position. People are beginning to come to it now.

If I have a concern, it is about things I have been hearing from tenants who are saying that landlords are trying to leverage negotiations before getting to arbitration. I mentioned asking people to give up security, or even saying, “We’ll write off part of that debt, but we’re going to increase your overall rent up to this level.” They are using a bit of power, fear and the realisation that cash is king to the business in order to influence a decision that may not be in the best interests of the business in the longer term, but in the short term looks like a natural solution. Some of that may be right. I am not saying that it is not, but there is an indication of some of those behaviours starting to manifest.

Jack Shakespeare: To endorse that, I think it has changed the atmosphere. It has certainly turbo-charged the conversations. It goes back to a few things. The ability to disseminate the information is really important. You have picked up on the clarity before. How that comes out through trade bodies and goes out through lawyers and local government is really important. That will maintain the pace of conversations. It is really important that it does not drop, so that people access that information. The overriding sense of uncertainty looking ahead is a massive dynamic right now, but holistically it has really changed the atmosphere and advanced the conversations.

[Paul Scully]

Q To follow up on your point, Martin, about businesses that are not within the scope, it is a really difficult balance to get right without swamping the system such that it is not satisfactory for anybody. Obviously the code of practice remains there for all businesses. What are your reflections on how the code has worked, whether the changes that have been made recently improved it, and which other areas would be useful within it?

Martin McTague: The code of practice has worked, in that it has set an expected behaviour and the way in which the parties should relate to each other. I accept completely that if you tried to expand the scope dramatically it would damage the impact, but clearly it does not stop with the retailer; a lot of people are impacted by this.

[Paul Scully]

Q Jack and Andrew, do you have any other reflections on the code?

Andrew Goodacre: This code is so much stronger than the previous code in 2020. We are moving in the right direction. It links into your earlier question about changing behaviours, and the code has been instrumental in that. On what would enhance the code, I appreciate that the information is not entirely available yet, but it is about who will be arbitrating, the costs of that arbitration and the decisions around the viability, so that people get to know as early as possible what they need to do to submit, if they feel that they will end up in that situation. Preparing for arbitration will be quite scary to some people—the mere thought of putting all that information together. As soon as we can release what they need to have recorded and prepared, the earlier they can start doing it. You do not want to try to collate all the information with two months to go on the process.

Jack Shakespeare: I have nothing to add to that.

[Mick Whitley]

Q Are you concerned that the potential costs of arbitration might put business tenants, especially small and independent businesses, off engaging in the arbitration process, thereby leading to their closure?

Martin McTague: It might do, but the alternative is that they would have to take legal action, which is likely to be much more expensive and protracted. It is not an ideal solution, but it is certainly a step in the right direction.

Andrew Goodacre: Yes, it could do. If you were looking at costs in the hundreds instead of the thousands that would obviously be better. You have to put it in context. As I think one of your colleagues said, next year an awful lot of cost increases are coming through to business, whether it is the national minimum wage or energy costs, which have tripled for many businesses. Suddenly, whether it is £1,000 or £2,000, it looks like a lot of money. That may lead to a better negotiation and solution before you get to arbitration, but it plays to the landlord to play the waiting game at that point in terms of initiating the arbitration. That is the threat of it.

Jack Shakespeare: To go back to one of Andrew’s last points, as much foresight and clarity on that up front would be beneficial, so that people can make informed decisions on how they go forward.

Draft Regulatory Enforcement and Sanctions Act 2008 (Amendment to Schedule 3) (England) Order 2021

Paul Scully Excerpts

Monday 29th November 2021 General Committees

[The Chair]

Before we begin, I remind Members that they are expected to wear face coverings and to maintain distancing as far as possible. That is in line with current Government guidance and that of the House of Commons Commission. Please give each other and members of staff space when seated, and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in Parliament or at home. Ministers and Members should send their speaking notes by email to [e-mail]. Similarly, officials in the Gallery should communicate electronically with Ministers.

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

I beg to move,

That the Committee has considered the draft Regulatory Enforcement and Sanctions Act 2008 (Amendment to Schedule 3) (England) Order 2021.

It is a pleasure to serve under your chairmanship, Dame Angela. We know the importance of helping businesses to prepare for and efficiently respond to a public health emergency, and the point of the order is to help businesses in that way in the event of a future public health emergency. Key to that will be reducing regulatory burdens imposed on businesses due to regulations introduced to control the public health emergency. The order adds

“Public Health (Control of Disease) Act 1984 (c.22), Part 2A as it applies in England”

to schedule 3 to the Regulatory Enforcement and Sanctions Act 2008. It brings part 2A, and regulations made under part 2A as they apply in England, within the scope of the primary authority scheme. As a result, businesses in England that participate in the primary authority scheme will now be able to receive consistent advice on meeting the regulatory requirements imposed by regulations made under part 2A through a single point of contact.

Part 2A provides, among other things, that regulations can be made to prevent, protect against, control or respond to the spread of infection or contamination, including radiation, which presents or could present significant harm to human health, including by conferring functions on local authorities. It provides for a local authority to apply to a justice of the peace for the making of a time-limited order to reduce or remove the risk that a contaminated or infected person, thing or premises who or that poses, or could pose, significant harm to human health infects or contaminates others. It also provides for regulations to be introduced promptly under an emergency procedure.

To be within the scope of the primary authority scheme, legislation has to be in an enactment specified in schedule 3 or be made under an enactment specified in schedule 3, or be made under section 2(2) of the European Communities Act 1972 and related to a particular specified matter. Accordingly, to bring part 2A, and any enactments made under part 2A as they apply in England, within the scope of the scheme, it has to be added to the list of enactments in schedule 3. Under section 4(4) of RESA, that needs to be done by an order of the Secretary of State.

RESA establishes a statutory framework for a business to form a partnership with a local authority—I will call it a primary authority from now on—to receive support and tailored advice from that primary authority in respect of complying with legislation that comes within the scope of the scheme. A business is entitled to rely on primary authority advice received in its dealings with other local authorities, so the business avoids the cost and regulatory burdens associated with the inconsistent interpretation and application of the law by different local authorities. That gives businesses confidence in the regulations being applied consistently, allowing and encouraging them to invest resources in complying with them, such as through staff training and putting policies in place.

Consequently, the public are better protected, as businesses find it easier to comply with regulations. In addition, local authorities can access, through a central primary authority register, primary authority advice that is given to a business in respect of a regulation. That enables the local authorities to avoid duplication of enforcement and to target high-risk areas. Where a local authority proposes to take enforcement action against a business that participates in the scheme, the primary authority will review the proposed enforcement action and consider whether it is consistent with the primary authority advice that it has previously given to the business.

[Adam Afriyie (Windsor) (Con)]

I thank the Minister for giving way. I have been here a long time—16 years—and I do not think I have ever seen a regulation that is so impenetrable in its actual actions. I want to give the Minister a bit of time to inject some inspiration. I wonder if he can give an example of how the regulation might work for a real business in a real scenario so that we can get to grips with what is actually being laid out. It feels a bit like something from Sir Humphrey—it is utterly obscure and impenetrable at the moment.

[Paul Scully]

It is indeed a technical scheme. On primary authorities, instead of having businesses go to the local authority for any area it might operate in, the regulation allows businesses to go to one local authority that has been appointed to tackle such a scheme. It already happens in various areas, such as trading standards. The regulation brings the particular public health order within the scope of the overarching scheme of primary authority. One local authority can effectively take the lead in interpreting and setting out the enforcement approach for public health emergencies. Unfortunately, the complexities of the technicalities that underlie the scheme mean that it gets technical very quickly.

[Valerie Vaz (Walsall South) (Lab)]

Who designates a primary authority?

[Paul Scully]

That is a good question, and I will come back to it in a second. We have worked together to come to this point, and businesses support what we are doing here. The regulation has been a long time in the making. Local authorities face a lot of challenges in interpreting at pace the regulations made under part 2A to reduce the impact of the covid-19 pandemic, as well as the associated burdens experienced by businesses in trying to comply with all of that. Business stakeholders, local authorities and trade associations have offered strong support for bringing part 2A within the scope of the scheme. In November 2020, the British Retail Consortium, which represents more than 170 major retailers, wrote to the then Business Secretary—now the COP26 President —to request that part 2A be brought within scope. The context for that request was that, in 2020, around 46,000 businesses with an existing primary authority partnership received informal advice on coronavirus regulations made under part 2A.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I thank the Minister for giving way and for making excellent progress in explaining the legislation. First, can he clarify that the regulation is about businesses that have locations or sites in multiple primary authorities, and would therefore be subject to competing advice? Secondly, does the regulation allow the businesses to choose the primary authority they receive advice from, or is that designation—on the point made by my right hon. Friend the Member for Walsall South—made by somebody else?

[Paul Scully]

It is exactly as the hon. Lady describes: the regulation concerns businesses that operate in different areas. The Secretary of State will designate the primary authority.

I can give one example of where the provisions have previously helped simplify the enforcement and interpretation of regulations, which concerns the primary authority for supermarket health and safety—the covid expert panel—which is made up of several primary authority officers and their business partners. The panel promoted active engagement with local authority enforcement teams and external bodies under health and safety legislation, which is in scope of the primary authority scheme, and remained at the forefront of their commitment to compliance in order to ensure that consistency.

Yes, the Secretary of State will designate the primary authority, but it gives businesses that are operating in multiple areas the confidence to know they will have a single set of rules to follow that are consistent, and enforcement will be consistent as well. That is what I mean about the fact that 46,000 businesses with an existing primary authority partnership are getting informal advice—that is about as consistent as it gets. That is why the British Retail Consortium and other business stakeholders are keen to ensure in any future public health emergency that businesses can get that primary advice, rather than having to rely on different interpretations across the board. We know the current pandemic is unlikely to be the last public health emergency that the country will face. It is therefore important that the order ensures primary authority advice can be given in respect of legislation made under part 2A in the event of future public health emergencies.

In conclusion, as I have said, the order widens the scope of the existing scheme, enabling businesses to receive primary authority advice on meeting regulatory requirements introduced by regulations made under part 2A through a single local authority. It reduces the regulatory burden on businesses in England when complying with regulations brought in to control and contain a public health emergency, with the result that the public are better protected and local authorities can regulate more efficiently and effectively. I urge the Committee to approve the order.

--- Later in debate ---

[Paul Scully]

Wales has public health delegated to it, and it has decided to go a different way. We will indeed work with the Welsh Senedd in ensuring that, even if we have a slightly different approach, we show a consistent face to business, because it is really important that businesses operating across Wales, Scotland, Northern Ireland and England have as much consistency as possible. As I said, the Secretary of State is indeed responsible for primary authorities, and provides the web-based primary authority register that supports the scheme. A business that receives advice from its primary authority, known as primary authority advice, is able to rely on that advice in its dealings with all local authorities by virtue of the fact that a local authority that proposes enforcement action against the business is required first to notify the primary authority.

That authority is then able to direct the local authority not to take a proposed action if the primary authority decides that it would be inconsistent with the original primary authority advice that it gave. That is what provides the certainty for businesses, but businesses can approach a local authority that has been working with the original primary authority that it may have sought enforcement action from or dealt with at an early stage. Ultimately, it will be the Secretary of State who is the arbiter to ensure that it is not just about shopping around for businesses, and that there is a level of control within this.

In terms of the business impact, over the period 2021-30 the expected one-off set-up costs for additional businesses to join primary authority schemes amounted to approximately £75,000 to £378,000. That is based on the likelihood of a public health emergency of 1% to 5% a year. That is 2,500-odd additional businesses a year that will be encouraged to form partnerships with a primary authority on account of being able to receive primary authority advice in the event of a public health emergency.

In a typical business year, the median annual cost to businesses of receiving primary authority advice is approximately £2,105. That is weighted by the estimated use of primary authority advice on part 2A regulations at 25%, reflecting the fact that 75% of primary authority advice would not involve advising on them. In terms of what the monetary or other benefits to businesses would be, businesses would wish to join the primary authority scheme only if they expected it to deliver a net benefit to them in the first place. No business will be compelled to join any primary authority scheme. That is why, as the hon. Member for Newcastle upon Tyne Central said, we expect including part 2A within the primary authority scheme to be a net benefit to business.

I have talked about the fact that the order brings within the scope of the primary authority scheme part 2A as it applies in England, as well as any enactment made under part 2A as it applies in England, which is really important for the reasons that I have outlined. I commend the order to the Committee.

Question put and agreed to.

Departmental Contingent Liability Notification: Recovery Loan Scheme

Paul Scully Excerpts

Friday 26th November 2021 Written Statements

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

I am tabling this statement for the benefit of right hon. and hon. Members to bring to their attention the details of the extension to the recovery loan scheme (RLS) announced by the Chancellor of the Exchequer on 27 October 2021.

RLS is facilitated by the Government-owned British Business Bank and delivered through its delivery partners. Under the extension, lenders will offer facilities of up to £2 million to support businesses that are affected by the coronavirus outbreak. There will be no limit on the number and aggregate value of loans that can be made under the scheme.

The extension covers the period 1 January to 30 June 2022. Under the extension, the following changes will come into force:

The percentage of the remaining balance of each loan that is guaranteed by the Government will be 70 per cent, changed from 80 per cent.

The maximum facility size will be £2 million per business, changed from £10 million.

The scheme will only be open to small and medium sized enterprises (annual turnover less than £45 million).

Otherwise, scheme parameters are unchanged. As previously:

The minimum facility size will be £25,001 for loans and overdrafts and £1,000 for asset and invoice finance.

Businesses will be required to meet the costs of interest payments and any fees from the outset.

Businesses that have made use of the previous coronavirus loan schemes will be able to access the scheme.

The lender must establish that the borrower has a viable business proposition assessed according to its normal commercial lending criteria. This may, but is not required to, be determined without regard to any concerns over the borrower’s short-to-medium term business performance due to the uncertainty and impact of coronavirus.

Our central estimate for lending for the initial scheme period—6 April to 31 December 2021—has been updated to £1.6 billion, meaning a maximum contingent liability of £1.28 billion.

The maximum contingent liability for assumed additional lending under the extension of £850 million (our central estimate) is £595 million.

I will be laying a departmental minute today containing a description of the liability undertaken.

[HCWS424]

Commercial Rent (Coronavirus) Bill

Paul Scully Excerpts

2nd reading
Wednesday 24th November 2021 Commons Chamber

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

I beg to move, That the Bill be now read a Second time.

We have made some incredibly difficult decisions, including closing certain businesses, to stop the spread of the virus during the covid pandemic. To minimise the impact on businesses, we have put in place temporary measures to stop evictions of commercial tenants for unpaid rent, restrict landlords’ ability to seize goods to recover rent owed, and prevent landlords and other creditors from instigating certain insolvency proceedings. While those measures offered much-needed protections, they also meant that in many cases rent on commercial premises went unpaid and businesses accrued significant rent debt, estimated to be £6.97 billion across the UK over the pandemic.

We are already seeing the economy bounce back, but now we need to begin the work of preparing for a new economy post covid. We cannot draw a line under covid, however. Understandably, it has not been possible for many businesses to pay the rent debt that accumulated during the pandemic. Over the past year, we have therefore worked closely with business leaders to find a solution to that accumulated debt.

In June 2020, the Ministry of Housing, Communities and Local Government published a voluntary code of practice that encouraged landlords and tenants to work together to negotiate and resolve that unpaid rent. I am reassured by the fact that many tenants and landlords have used the code. The indications are that overall rent collection is increasing but remains below average levels, especially in certain sectors.

There are cases in which negotiation is not working. The Bill will support landlords and tenants who cannot otherwise agree in resolving disputes relating to the rent owed. It will protect rent debts built up by businesses required to close during the pandemic. It will establish a new binding arbitration process that aims to find a proportionate solution that will provide commercial tenants and landlords with the clarity and certainty that they need to plan ahead and recover from the pandemic.

The Government have published an updated code of practice that sets out what the arbitration process will look like, the kind of evidence that will be considered and the key principles to which the process will adhere. The code can be used by any business to help it to negotiate and resolve rent disputes, even if it falls outside the scope of the Bill.

The Bill will protect jobs and enable a swift return to normal market operation. I make it clear that it covers only rent debt that it is attributable to the period from 21 March 2020, when restrictions on business began, until restrictions for the relevant sector were lifted, which generally happened over the spring and summer of 2021.

We believe that it is important that the Bill is targeted to support the businesses that most need it and provide swift resolution to remaining disputes, so it applies only to those tenant businesses that were mandated to close during the pandemic. They are the parts of our economy that were hit hardest, including restaurants, pubs and high street shops; the rent collected from those sectors is still lagging behind other parts of the economy. The income from many businesses in those sectors, even after they have opened their doors again, will not yet be back to normal. Many businesses will therefore have been unable to build up the cash reserves needed to pay off rent debt.

These efforts to support businesses, largely in the hospitality, personal care and non-essential retail sectors, will particularly benefit women, young people and people from ethnic minority backgrounds because of the higher ratio of persons from those groups who work in those sectors.

The primary purpose of the Bill is to implement a simple, binding arbitration system to resolve those outstanding rent debts. A tenant or a landlord can refer a case to arbitration at any time within six months of the Bill’s coming into force, and propose a solution to the protected rent debt. Arbitrators appointed by arbitration bodies approved by the Secretary of State will review proposals and then assess evidence from both parties to determine whether any relief from payment of the debt is appropriate. That could include a reduction from the total amount to be paid, cancellation of the debt, or an extension of the time period in which it should be repaid. The arbitrator will make an award, and if granting relief from payment of a protected rent debt is appropriate, the award will set out the terms.

The arbitrator must follow the principles established by the Bill. One key principle is that awards should only be made for viable businesses, or those that would become viable with an award of relief from payment. For example, a business could be granted an award that reduced the amount of debt owed if that reduction would allow it to become viable again. In this way, we are actively supporting businesses that will continue to prosper and grow, will provide jobs and will help the UK to build back better.

[Mr Toby Perkins (Chesterfield) (Lab)]

Will the Minister expand a little on how he expects the viability test to be met? It is obviously extremely important. During the pandemic, many businesses that applied for bounce-back loans and the like were told they could not have the loans because they were potentially unviable owing to the coronavirus. How is the arbitrator meant to assess whether a business is viable?

[Paul Scully]

I know that the hon. Gentleman is a champion of pubs throughout the country. We will be looking at those and at the hospitality sector in general.

The arbitrator will be able to take evidence from both sides—the Government will not be taking a doctrinal approach—and look carefully at the books and the profit to establish whether this is just the rent debt that occurred during that period of closure, rather than any other debts that the business might have. He or she will have a narrow focus.

[Mr Perkins]

I welcome the Bill—it is important that action is taken, even if it is retrospective—but often the very fact that the rent had to be found will have had impacts on other parts of a business’s funds. As the Minister works through the Bill, will he look carefully at the guidance to ensure that it does not shut out many businesses that could benefit?

[Paul Scully]

Throughout the Bill’s progress, we will continue to engage with Members on both sides of the House, but also with landlords and tenants. We want to make this work, and to resolve these issues speedily but in the most appropriate way. That is in the interests of landlords and tenants. We hope that the fact that the legislation has been announced and we are taking it through the House will send a strong signal to landlords and tenants and they will not have to rely on this in the first place; we would love it if people had the conversations and resolved the issues. Landlords want their units to be filled, and tenants want to ensure that they can continue in a reasonable way, and if they can pay they should do so, as they are at the moment, because the Bill relates only to a particular period of closure.

An arbitrator should not make an award if it would make the landlord insolvent. This works for both tenants and landlords, and support for businesses must not be to the detriment of a landlord’s solvency. The Bill also makes it clear that, if commercial tenants can afford to pay the rent debt without becoming unviable, they should pay. The arbitrator will consider financial records, and any other evidence considered appropriate to determine the viability of a business or the solvency of a landlord. We have engaged with arbitration bodies to develop this approach, and I am confident that it will deliver swift resolution for tenants and landlords locked in disputes. Officials’ engagements with potential arbitration bodies has also raised awareness of our proposals, with the intention that, if Members of both Houses approve the Bill, the system will be set up and ready to go quickly.

I have already mentioned the protections that the Government rightly provide to stop commercial tenants being evicted or their businesses being wound up owing to rent debt during the pandemic. The measures introduced during the pandemic were designed to be temporary, offering much-needed respite to businesses unable to trade. We have already extended protections to continue to support businesses as needed, and to provide the time required to draft the legislation and put it before both Houses for consideration. In place of those measures, the Bill establishes a targeted intervention.

While parties are able to refer cases to arbitration within six months of the Bill’s coming into force, and while arbitration is in progress, there will be restrictions on evictions, seizing of property and other measures of enforcement, and certain insolvency proceedings in respect of protected rent debt. That ensures that the parties who cannot agree have a chance to use this arbitration system to resolve protected rent debt before resorting to other legal remedies. I am confident that six months is enough time to allow tenants and landlords to apply for arbitration, but the Bill allows for the period to be extended if there is evidence that it is not long enough.

Throughout the development of the Bill, the Government have engaged extensively with tenant and landlord representatives. We launched a call for evidence in April, which gathered the views of tenants and landlords on the current protections and the voluntary negotiation approach, and asked for preferences on options for further solutions. The feedback was that while negotiations were taking place their voluntary nature was actually hindering progress in some cases, and nearly half the respondents said they agreed that a system of binding adjudication would resolve the outstanding rent debt. Since those findings, we have continued to work closely with business and landlord representatives to help shape the Bill and support negotiations, and, as I said to the hon. Member for Chesterfield (Mr Perkins), we will continue to do so throughout the Bill’s passage.

I have regularly met businesses and landlord representatives to discuss these proposals, and the issue of rent debt in the affected sectors in general. Following the Bill’s introduction, we have received support from several bodies representing commercial tenants and landlords. They recognise the efforts the Government are making to encourage continued negotiations, and that a system must be in place to be used when negotiations fail.

We have also had productive engagement with colleagues from the Welsh and Scottish Governments and the Northern Ireland Executive, and I thank them for their continued input and support. I have written to the Ministers from the devolved Administrations to inform them of the relevant aspects of the Bill and seek legislative consent where it is required.

The Bill provides a solution that should be used only when parties have been unable to reach agreement between themselves. We are still adamant that tenants and landlords should negotiate where possible, but we recognise that some may never reach agreement on what is owed and how it should be repaid. The protections that the Government implemented during the pandemic have been extended to give the time needed for these negotiations. They have offered much-needed respite for businesses fearing eviction and bankruptcy, but they cannot continue forever, and we must act to help the market get back to normal.

I am sure the House agrees that leaving this rent debt unresolved would be detrimental to UK businesses and landlords, and indeed to communities. I am glad to see that the economy is bouncing back, but it is unreasonable to expect all businesses to be able to pay off immediately all the rent debt that they accrued when they were closed. We have heard from businesses and from landlord representative groups that the voluntary approach will only get so far, and that a binding arbitration system will work to unblock this issue. The Bill will put an end to the temporary protections and clear up the unpaid rent debt that is stalling commercial tenants and landlords and preventing them from prospering. I commend it to the House.

--- Later in debate ---

[Paul Scully]

With the leave of the House, I will speak a second time to sum up the debate. I appreciate and very much value the constructive nature of the debate and the comments and positive notes on the Bill’s purpose. I shall concentrate my remarks on the issues raised that relate directly to the Bill. I do not apologise for the fact that the Bill is narrow.

The hon. Member for Richmond Park (Sarah Olney) asked why legislation did not go through earlier; we extended the moratorium for several months, rather than for just a quarter so that we could get the Bill right. We spent that time working with the arbitration services to make sure that we have the capacity and expertise—on which I shall say a little more later—that we need. We have also worked with landlords and tenants, because we have to strike a really delicate balance: we are, in effect, intervening on a contractual arrangement between two private bodies. A lot of the other support that the Government have given has been in the form of relief on various taxes, including business rates and VAT; through direct grants; or through the guaranteeing of loans. The Bill is very much about the moratorium, and our unwinding from that involves our stepping into private contracts, which we would not do without due care and attention.

The hon. Member for Brentford and Isleworth (Ruth Cadbury) talked about the scope of the Bill and eligibility. By targeting the support, we can be sure to get the arbitration cases through quickly and resolved quickly. We clearly need a solution to the debt and do not want cases to drag on for years. If the scope of the Bill were too wide, capacity would start to be swamped, so in trying to help as many people as possible we would end up helping nobody. It is really delicately balanced.

Nevertheless, I appreciate the fact that over the past 19 months there have been significant difficulties for people we have not been able to support with the £352 billion-worth of financial support we provided as we wrapped our arms, as best we could, around the economy to protect jobs, livelihoods and businesses. By resolving the rent debt for a business within the Bill’s scope, we will help not only that business, but its immediate supply chain and all the individuals who contribute towards its success, by getting that business back on a level footing. I hope Members understand why we have targeted the legislation in the specific way we have and how it will deliver support where it is most needed.

The hon. Member for Brentford and Isleworth also talked about the availability of arbitrators, as did several other Members. I reassure Members that we have worked closely with the arbitration bodies and the market is ready to deliver. Our engagement with arbitration bodies has raised awareness of the proposals and we will continue to engage with interested bodies so that the system is up and running as soon as the Bill comes into force.

We put out a call in respect of arbitration earlier this month and there have been a number of respondents. The arbitration bodies that have demonstrated an interest in becoming approved bodies are already widely recognised and respected in the field of arbitration for the accreditation services they provide to their arbitrators. That accreditation acts as a quality-assurance service. There is a statutory duty on approved arbitration bodies to ensure that the lists they maintain contain only arbitrators who appear to an arbitration body to be suitable by virtue of their qualifications or experience. An approved arbitration body also has a duty to remove arbitrators from a case on any one of the grounds for removal specified in the Bill—for example, when

“the arbitrator does not possess the qualifications required for the arbitration”.

The Secretary of State also has the statutory power to withdraw approval from a body if it is no longer considered suitable to carry out the functions of an approved arbitration body.

The hon. Member for Feltham and Heston (Seema Malhotra) asked how we are going to communicate the changes. It is important that the parliamentary process has signalled the introduction of legislation and, along with continued conversations between the Government and the Opposition, that will raise its profile, but we will have to do more direct communication through business-representative organisations, banks and accountants—the kind of intermediaries that all businesses tend to have. There is lots of work to be done, but we want to make sure that we get it right on the front foot.

On how much arbitration will cost and whether it will be affordable, the party that puts forward the case for an arbitration will pay an application fee to the arbitral body. If both parties agree, the fee can be split between landlord and tenant at the point of application. When making the award, the arbitrator must require the other party to reimburse half the fees paid or to pay

“such other amount as the arbitrator considers appropriate”.

The price will be set by the arbitration bodies, although the Secretary of State retains delegated powers to set a cap on the fees charged. For similar schemes, there is a £1,250 application fee, with additional costs if the parties choose to progress to a hearing. Our preference—not just about cost, but about speed so that we get things resolved for both parties—is an online, documents-based process to keep costs to a minimum and to ensure that the process is available to all.

The hon. Member for Feltham and Heston also asked about demonstrating viability.

[Seema Malhotra]

The Minister has given a figure of just over £1,200 as a comparable amount. Given the Secretary of State’s power to introduce a cap, is the Minister signalling the Government’s intention to introduce a cap and the amount it might be set at? If so, what is the assessment of affordability for the context in which the Bill has been introduced?

[Paul Scully]

I do not want to pre-empt further consideration of the Bill, further discussions with the arbiter or, indeed, the Bill’s passage, but it is clear that tenant businesses will already be struggling financially, given the problem that we are trying to solve with the Bill.

We will make sure that, if we do introduce a cap, that is done at a limit that is consistent with the market, with the overall aim of not preventing small and medium-sized enterprises from accessing the scheme. The cap, though, will be variable. It will be on a sliding scale relative to the amount of protected rent debt that we used to determine the cap should it come in, and we will ensure that it is proportionate for each case. We do expect otherwise viable businesses to be able to afford the cost of arbitration.

On viability, there is no specific definition of what constitutes viability, because, clearly, business models vary hugely. In clause 16, there are factors that arbitrators should consider when assessing the viability of a tenant’s business. Within the wider code of practice, there is also a non-exhaustive list of evidence that could be considered when determining viability and affordability.

Hopefully, that has covered a number of the direct issues. I will not go too heavily into some of the other areas that extend around high streets. Suffice it to say that having put £352 billion-worth of support into the economy—including into those hard-pressed sectors, including retail, hospitality, leisure and personal services —we have 352 billion reasons to get the next bit right to make sure that we can have the Reading East that I remember. Probably some of those businesses have gone since I was at university 30-odd years ago, when I enjoyed far too much hospitality—the Purple Turtle, the After Dark Club, the Turk’s Head, and the Ye Babam Ye kebab shop, he says going down a Ricky Gervais memory lane in Reading East. Indeed, I have also had many a happy meal in Don Fernando’s in Richmond. We want to make sure that we can protect these hard-pressed sectors.

[Matt Rodda]

rose—

[Paul Scully]

I will briefly give way to the hon. Gentleman if he tells me whether any of those businesses are still open.

[Matt Rodda]

They are still open, yes. I am grateful to the Minister for his tour of Reading town centre, and I am also a big supporter of many of those businesses. Will he come and visit Reading with me to look at the specific issues that some of the local businesses face, in particular how some of our small businesses on our local high streets cope when there is no longer a bank?

[Paul Scully]

The hon. Gentleman is absolutely right about the need for access to cash and access to banking services. I am always happy to come to Reading. It is important that banks—and post offices where banking pilots are under way—remain that cornerstone of social value on the high street.

Finally, I went off track when we started talking about Peppa Pig. Children in 118 countries know about Peppa Pig because it is a hugely important British brand and British export worth £6 billion to the economy—that is just Peppa Pig itself. I dare say, though, that the people behind Peppa Pig probably will not need the Bill. It will be those smaller businesses on our high streets up and down the country that do, and that is what this Bill is here to do.

The Bill provides that resolution for the remaining rent debt accrued by businesses required to close. It will deliver key Government objectives, protect jobs and help to prepare for a new, stronger economy post covid. I look forward to discussing the Bill further in Committee, but for now, I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Commercial Rent (Coronavirus) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No.83A(7)),

That the following provisions shall apply to the Commercial Rent (Coronavirus) Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 16 December 2021.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)

Question agreed to.

Subsidy Control Bill (Eleventh sitting)

Paul Scully Excerpts

Thursday 18th November 2021 Public Bill Committees

[The Chair]

Before we begin, I have some preliminary announcements, particularly about face coverings. Members are expected to wear them, unless exempt, when they are not speaking, and are expected to maintain distancing as far as possible, which I can see you have all done. That is in line with current Government and House of Commons Commission guidance. Please give each other space when leaving the room. I remind Members that they should have a lateral flow test twice a week if they are coming on to the estate, which can be done either in the testing centre in Portcullis House or at home. Please send speaking notes by email to [e-mail]. Officials in the gallery should communicate electronically with Ministers. Can I have phones on silent, please? I gently remind Members that tea and coffee are not allowed during sittings.

Clause 78

Subsidies and schemes in primary legislation

Question proposed, That the clause stand part of the Bill.

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

It is a pleasure to serve under your chairmanship, as ever, Ms Nokes. Clause 78 applies the provisions in the Bill to subsidies made by means of primary legislation, as set out in schedule 3. Because of the specific nature of the subsidies given by means of primary legislation, the obligations on those responsible for subsidies in primary legislation needs to be set out separately, rather than being included in the scope of the core clauses of the Bill.

The core purpose of schedule 3 is to apply the subsidy control requirements to subsidies in devolved primary legislation. The schedule makes the necessary technical provisions to that end, and ensures that subsidies in devolved primary legislation are not subject to mandatory referrals to the subsidy advice unit. The schedule provides that subsidies in Acts of Parliament are subject to the transparency requirements on voluntary referrals to the subsidy advice unit. The measures ensure that the subsidy control regime will be comprehensive and robust while taking into account the UK’s unique constitutional make-up.

Before I go into detail about clause 78, it will be helpful to explain what I mean when I refer to subsidies provided by primary legislation. Primary legislation in Westminster or the devolved legislatures can provide for granting subsidies in a number of ways. The most common is by conferring a discretion on Ministers or other public authorities to provide financial assistance, for example section 7 of the Industrial Development Act 1982 in respect of financial assistance in assisted areas. That provides the necessary statutory underpinning for financial assistance but does not mandate financial assistance to be given. The amount and conditions of any financial assistance are at the discretion of the public authority. A subsidy that is granted under a power conferred by a primary enactment is not a subsidy granted by primary legislation. For these purposes, therefore, a subsidy is granted by primary legislation only if the Act itself makes provision that directly amounts to a grant of a new subsidy, or requires a grant of a new subsidy by a public authority with no room for discretion on the part of that authority. Apart from taxation, that is very rare. The reference to the subsidy granted by primary legislation is in practice therefore usually concerned with the grant of a statutory entitlement to a specific tax relief or credit that amounts to a subsidy, for example a tax credit for small businesses to carry out research and development.

I will quickly set out in further detail why each paragraph was included in schedule 3, to which clause 78 relates. Paragraph 1 sets out the intention of the schedule, which I have explained. Paragraph 2 sets out the relevant definitions for the purposes of the schedule, and they are mainly self-explanatory. Paragraph 3 sets out how certain terms of the Bill should be read for the purposes of the schedule, so that the Bill applies to subsidies provided by means of primary legislation. Paragraph 4 provides for the distinction that I discussed before: that subsidies given under a duty imposed by primary legislation are covered by this schedule, but those given under a power in primary legislation are not.

Paragraph 5 confirms that references to a subsidy in schedule 3 should also be taken to refer to a subsidy scheme, as is the case in the rest of the Bill. Paragraphs 6 and 7 apply the subsidy control principles, prohibitions and other requirements, and exemptions in the Bill to subsidies granted or subsidy schemes made by means of devolved primary legislation. In any court proceedings, the provisions in schedule 3 require the courts to consider the views and considerations of the promoters of the Bill, that is, those introducing the Bill or Members of the devolved legislatures who lodge amendments amounting to subsidies, so that courts are not put in the constitutionally novel position of questioning the internal proceedings of the relevant legislature. Paragraph 8 applies the transparency requirements to subsidies in primary legislation, including Acts of Parliament and devolved legislation.

Paragraph 9 deals with the referrals of subsidies in primary legislation to the subsidy advice unit in the Competition and Markets Authority. Voluntary referrals may be made in respect of subsidies or schemes of interest, or subsidies or schemes of particular interest, made in devolved primary legislation or in Westminster Acts of Parliament. That means that the appropriate Ministers, Departments or the Member promoting the subsidy may refer to the SAU those subsidies that have a higher likelihood of distortion. This allows them to make a referral at their discretion, where they judge that the advice or transparency report would be beneficial. That provision does not require mandatory referrals, in view of the unique legislative position and procedure of those subsidies. That means there will be no procedural delays or disruption to primary legislation.

Finally, paragraphs 10, 11 and 12 make the necessary modifications to the enforcement provisions in part 5 of the Bill to apply them to subsidies in devolved primary legislation, which will allow subsidies given by the means of devolved primary legislation to be challenged by judicial review and will include the ability for courts to order devolved Ministers or a Northern Ireland Department to recover a non-compliant subsidy provided by means of devolved primary legislation. Given their expertise in the sensitive task of considering the lawfulness of provisions in devolved primary legislation, the appropriate courts to review such subsidies will be the Court of Session in Scotland, the High Court of England and Wales in respect of Wales, and the High Court in Northern Ireland.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Ms Nokes. There are a number of technical provisions here relating to how implementation will take place. I thank the Minister for his opening remarks. There are areas relating to the application of principles, transparency referrals and recovery orders that we have covered in other debates, and I do not propose to go over those arguments. There are points that the Minister is coming back to us on and we will also review the areas to take further ahead of the Bill moving to Report stage.

I have a couple of queries, which I would be grateful if the Minister could clarify. When subsidies are provided by the means of primary legislation, will he clarify whether there will be any differences on reporting, transparency and so on, or will they be expected to be subject to the same control arrangements?

Secondly, the application of principles in paragraph 6 of schedule 3 also

“applies to subsidies provided by means of devolved primary legislation”.

Are there any either unintended, or intended, effects on the competencies of the devolved Administrations? This issue was one that came up in evidence with the devolved Administrations. There was a concern from the Welsh Government about where there could be overlap, or unintended consequences, with policy decisions being made under devolved competencies, particularly on economic development—that there could be some interplay between the provisions in this Bill and existing competencies. I would be grateful if the Minister could respond on those points.

[Paul Scully]

Essentially, the subsidy control regime differentiates between the subsidies in devolved primary legislation and the subsidies in an Act of Parliament in a way that respects the devolved legislatures and reflects the UK constitution.

The devolved legislatures have a unique constitutional status. We have made sure that the requirements are proportionate and respectful of their status and processes, but it is important that the requirements apply comprehensively and we do not create exemptions. The distinctions in the Bill implement the trade and co-operation agreement, which recognises the sovereignty of Parliament; we would clearly not be compliant with our international requirements if we introduced further exemptions for the subsidies in devolved primary legislation. We will clearly have to ensure compliance within this, and the UK Government will make sure that we comply with our international obligations when giving any subsidies. We will also consider the effects of any subsidy advanced by means of an Act of Parliament during its normal impact analysis and considerations for managing public money.

Question put and agreed to.

Clause 78 accordingly ordered to stand part of the Bill.

Schedule 3

Subsidies provided by primary legislation

Question proposed, That the schedule be the Third schedule to the Bill.

[Paul Scully]

I think I covered schedule 3 in my opening remarks on clause 78.

[Seema Malhotra]

I think the Minister did cover schedule 3. We will reflect further on the Minister’s responses to points that we have made, and I will not raise any further issues now. We will support that the schedule stand part of the Bill.

Question put and agreed to.

Schedule 3 accordingly agreed to.

Clause 79

Guidance

--- Later in debate ---

[Kirsty Blackman (Aberdeen North) (SNP)]

As has been common throughout, I agree with almost everything that the hon. Lady has said, and I agree that we lack information on what this will look like. I get all the arguments that the Government have made about the structure being permissive, but we could do with more information on several of these things. That is why I have tabled amendment 24, which is a probing amendment to try to find out how the Government intend the guidance to be drafted.

Clause 79(5) states:

“Before issuing guidance under this section, the Secretary of State must consult such persons as the Secretary of State considers appropriate.”

It would have been helpful to have more information on that, and it would be useful to have that from the Minister. With subsection (1)(a), (b), (c) and (e), will the Secretary of State consider the devolved Administrations to be reasonable organisations to contact before issuing guidance around the subsidy control principles, the energy and environment principles, the subsidy control requirements and, crucially, the criteria for determining whether something is of interest or particular interest? That is a really important part of the Bill, and we do not have enough information on what interest and particular interest will mean.

The shadow Minister is absolutely correct that there is a hierarchy. In some areas, the Secretary of State must issue guidance because otherwise the scheme will not work, but in others it is more flexible. I probably would have included subsection (1)(e) among the areas on which the Secretary of State must issue guidance, because I do not think the scheme works if people do not know what interest and particular interest will mean. The Minister has spoken an awful lot about certainty for granting authorities and for organisations that will be receiving subsidies, and about trying to cut down the length of the period of uncertainty. In the absence of proper guidance that we have been able to scrutinise in any way, that uncertainty becomes much higher—definitely at this point, and I hope that will not be the case when the Act comes into force and begins to work.

I have one other question for the Minister. Clause 79 says that

“the Secretary of State must consult such persons as the Secretary of State considers appropriate.”

I have asked before—I have been reasonably happy with the answers—about how long in advance of the Act coming into play the guidance will be published. I think it is hugely important that the consultation period is long enough to ensure that that guidance is right, not just in lining up with the principles that have been set out and achieving the Government’s intentions, but in covering all the gaps that organisations foresee and answering the questions that granting authorities or enterprises might have. That length of time is needed to provide the right level of certainty and enable people to study what is a very big change.

We have had state aid rules in place for a long time, and that is why, in practice, an awful lot of the decisions that are being taken just now are based not on the interim regime but on state aid itself. A lot of people who are going to lawyers for advice are being told, “We will apply the state aid principles to this, because that is the easiest course of action just now.” We want to make sure that that does not continue to happen. For the new regime that the Government intend to be in force, we need to make sure that legal experts have the time to get up to speed on how they should advise people, because it is technical, and it is important that people get it right. It is important that subsidies are allowed to be made—that is the point of the Bill—but that regulation is in place to ensure that public money is spent wisely and properly, and that inappropriate distortion of competition is removed so far as possible.

Amendment 24 asks for that guidance to be made by the affirmative procedure, because I do not think that enough scrutiny will be brought to bear on the guidance that will be issued. If the Minister feels that there will be scrutiny, it will be helpful if he lays out how parliamentarians might interact with that guidance, either before or after—preferably before—it is issued. It is obvious that we have an interest, and it is obvious that we have concerns, but we also have ideas; a number of the amendments that we have tabled have been constructive and intended to improve the Bill. None of us suggests that there should not be a subsidy control regime. We are trying to make it the best subsidy control regime, in order that it works for our constituencies and the countries and people that we represent. Any information that the Minister could give on that would be incredibly useful.

[Paul Scully]

The power to issue statutory guidance, as is currently provided for in clause 79, will allow the Government to offer greater colour and detail to public authorities in how to comply with the subsidy control requirements. We plan to provide extensive guidance on the new regime, set out in clear, plain language and including useful explanatory material, case studies, practical explanations and additional matters that public authorities may wish to consider. For instance, it might be used to explain how subsidies could be given to support disadvantaged areas in a way that is consistent with the principles; among other things, it could describe characteristics or criteria that a public authority could use to identify a disadvantaged area, which would help to ensure that the subsidy is addressing an equity objective and is consistent with principle A.

The Secretary of State will consult such persons as appropriate before issuing the guidance. This may well include the devolved Administrations, businesses and public authorities. This will allow public authorities plenty of time to consider the guidance before the new regime comes into force. The hon. Member for Aberdeen North talked about the devolved Administrations. Clearly, the Government cannot do this in isolation. It is incumbent on us to make sure that we speak to the people who will use the guidance, to make sure that it is fit for purpose. I cannot give a precise list of stakeholders that we will engage and consult, but it is in our best interest to ensure that we have the widest, broadest range of stakeholders to make sure that guidance is useful, rigorous and fit for purpose.

On timing, I said earlier that, depending on parliamentary time, the commencement of the Bill will be next autumn, which gives us plenty of time. We have already started the process of engaging with officials, and we will make sure to continue our engagement with officials in the devolved Administrations, as well other public authorities, to make sure that we can publish this guidance in time for the Bill’s coming into force.

[Kirsty Blackman]

Will the Minister confirm that, should there be a requirement to update the guidance in the future, which there is likely to be, a consultation process will be undertaken in advance of that updating, and that there will be a reasonable length of time before changes are made to the guidance so that authorities can comply with it?

[Paul Scully]

It is incumbent on us to engage on any changes. How we engage and the timing of that will depend on the circumstances. However, if we are going to do this and make it work, clearly we need to engage as widely as possible to make sure that those changes are fit for purpose.

Amendment 24 would effectively remove the power to issue statutory guidance and replace it with one for the Secretary of State to make binding delegated legislation on the practical application of key elements of the domestic subsidy control regime. We do not believe that regulations are a suitable vehicle for setting out information and advice on the practical application of parts of the subsidy control regime. Regulations are restrictive in their content and must be drafted in a specific, technical way. Guidance, on the other hand, serves the purpose of explaining and clarifying the regime, in ordinary language, for the benefit of those who will need to use and understand the practical effect of the legislation. It can also be quickly updated should circumstances change.

I know that the right hon. Member for Aberdeen North—sorry, the hon. Member; that was another promotion for a colleague. I am sharing the love. I know that she wants to scrutinise future regulations made under the Bill, and it is right that there be additional parliamentary scrutiny of those regulations, as they impose new legal obligations that are additional to those in the Bill, but that is not true of any guidance that will need to be issued under clause 79. The guidance will need to be consistent with, and cannot change, the law to which it relates.

Amendments 80 and 81 would compel the Secretary of State to issue guidance under subsection 1(a) to (c)— that is, on the subsidy control requirements. I understand the intent behind the amendments, but in practice they are unnecessary. While the Secretary of State “may” issue such guidance, in practice he must do so for the regime to function effectively.

Going back to the Government response to the subsidy control public consultation, as we have consistently said, the foundation of the new regime is a clear, proportionate and transparent set of principles, supported by guidance that will ensure that public authorities fully understand their legal obligations and embed strong value-for-money and competition principles. The guidance will show how the assessment of compliance with the principles should be carried out, and how different benefits and distortive impacts should be assessed for different kinds of subsidies. I assure hon. Members that the Secretary of State certainly does not propose to commence the regime without first issuing clear guidance on the subsidy control requirements.

[Seema Malhotra]

It is heartening that the Minister has said that where the clause says “may”, he thinks it means “must”. From that we conclude that the Secretary of State will issue guidance. It would be helpful to know how soon we can expect that guidance. That was one of the questions. That will be very important in making sure that implementation is accelerated as much as possible, but that there is scrutiny, and time to review the guidance.

[Paul Scully]

I can commit to this: we want to share parts of the draft guidance as we develop it, because we want to make sure that the guidance is there as we go through this process. Officials from the Scottish Government and Welsh Senedd in particular told us, before we even introduced the Bill, that they wanted more involvement in drafting the guidance. We talked about getting the framework right in the Bill, and issuing the guidance once we knew what the framework looked like; that is the right way round. We consulted and engaged heavily on the framework. It is right that we do a similar job of engagement with parliamentarians, key stakeholders and public authorities as we develop the guidance. We want to make sure that it is put in place—and not just five minutes before commencement of the provisions next autumn. We want to make sure that public authorities have that understanding. We will try to share as much of the guidance as we can as we develop it, rather than having people wait until final publication.

The inclusion of clause 79 in the Bill clearly shows that the Government understand the need for, and importance of, guidance for public authorities on these elements of the regime. For those reasons, I ask the hon. Member for Feltham and Heston not to press amendments 80 and 81 to a vote.

[Seema Malhotra]

I thank the Minister for his comments, and for his strengthened interpretation of “may” in the clause. I appreciate his saying that he hopes that guidance will be issued, perhaps in stages, so that there is time for scrutiny. I will not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Paul Scully]

I will speak first to amendment 82. As I have previously stated in addressing other amendments to this clause, the power to issue statutory guidance in clause 79 will allow the Government to add greater colour and detail to public authorities on how to comply with the requirements.

This amendment would require the Secretary of State to gain the consent of the devolved Administrations before issuing guidance, but since subsidy control is a reserved policy matter, it is right that the UK Government do not need to seek the formal consent of the devolved Administrations before issuing guidance. I should reiterate that the Bill as currently drafted already says:

“Before issuing any further guidance … the Secretary of State must consult such persons as the Secretary of State considers appropriate.”

I believe that is the right approach for guidance relating to a reserved policy area.

[Stephen Kinnock (Aberavon) (Lab)]

Which persons does the Minister think the Secretary of State should consider to be appropriate?

[Paul Scully]

I think that would depend on what the guidance is, especially with changes to guidance, because this is clearly looking at the wider future. I will come back to engagement, because attaching a formal consent mechanism to the clause could slow and inhibit the issuing and updating of statutory guidance, so it is important that the Government are able to update guidance quickly, should circumstances change—for example, due to the development of new UK case law—and delaying changes would be unhelpful for public authorities and subsidy recipients alike. That said, we have engaged extensively with the devolved Administrations in developing the policy for the new subsidy control regime and will continue to work closely with them while developing the guidance in the way I described in the previous clause. It is in all our interests to ensure that the regime works for the whole of the UK and enables the UK’s domestic market to function properly.

[Stephen Kinnock]

The Minister has confirmed that consultation with the devolved Administrations has taken place. Does he therefore consider that the devolved Administrations are persons that would be considered appropriate by the Secretary of State for consultation?

[Paul Scully]

It is really important that we continue to engage with the devolved Administrations—with the Welsh Senedd, the Scottish Government and the Northern Ireland Assembly. The key issue we are talking about here, though, is that the consent mechanisms contained in the amendment may risk delay, and may change the dynamic of the fact that subsidy control is a reserved matter. None the less, as I say, it is really important that we continue to work closely with the Welsh Senedd, the Scottish Government and the Northern Ireland Assembly, because we have to make sure that this Bill works for the UK as a whole, and for every part of the UK as well.

Amendment 86, which has also been tabled by the hon. Member for Feltham and Heston, would, as I said, require the Secretary of State to seek the consent of each of the devolved Administrations before making regulations under the Bill. The amendment would not require the Secretary of State to obtain that consent before making regulations, but if it was not forthcoming, the Secretary of State would be required to make a statement to the House explaining why they chose to proceed with the regulations regardless. However, as I noted while addressing the previous amendment, since subsidy control is a reserved policy matter, it is right that the UK Government do not need to seek the formal consent of the devolved Administrations before making regulations creating streamlined subsidy schemes or issuing guidance.

However, again, I am absolutely clear about the importance of engaging with the devolved Administrations as the Bill progresses through Parliament, as well as the process towards implementation and beyond. That engagement will, and has to, continue as we develop guidance and draft regulations. Throughout, the Government will take into account the specific needs and concerns of authorities and other interested parties. Furthermore—we will discuss this issue further in relation to clause 91 and the commencement provisions of this Bill—we are committed to ensuring the timely passage of the necessary regulations to ensure commencement of the Bill as soon as possible. I therefore ask the hon. Lady to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments, and I agree with his statement that this regime needs to work for the UK as a whole: I think that is something on which we all agree. I am not quite clear, though, on whether the Minister is saying that there is an incompatibility between the reserved competence and seeking consent, because I am not sure that there is. If there was, we would not have had evidence—including from Daniel Greenberg, parliamentary counsel—about how there could be some co-ordination mechanisms and consultations in and around how the Bill operates.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause gives the Secretary of State the power to issue and update guidance on the practical application of the provisions in the Bill. It places a duty on public authorities to have regard to the guidance when designing a subsidy scheme or giving an individual subsidy. The Secretary of State is also required to publish the guidance and keep it under regular review, and may revise or replace that guidance. The Secretary of State must also consult persons they deem appropriate before issuing guidance.

[Kirsty Blackman]

I wonder whether the Minister would commit to ensuring that there are links to the guidance on the subsidy control database. People who are interested in the database are likely to be interested in the guidance, particularly if they are considering making a challenge. Will he ensure that the links are on the website, so that people can find them more easily? That would be helpful.

[Seema Malhotra]

The Minister has outlined the details of the clause. Notwithstanding the points we have already made, we support clause stand part.

[Paul Scully]

In answer to the hon. Member for Aberdeen North, the guidance will be on the gov.uk website. I will reflect on how best to make it accessible. It is important that it is accessible to everybody.

Question put and agreed to.

Clause 79 accordingly ordered to stand part of the Bill.

Clause 80

Disclosure of information

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause ensures that the powers and duties contained in the Bill to disclose or use information will operate compatibly with existing data protection legislation. It also amends schedule 14 of the Enterprise Act 2002 to include the new subsidy control functions of the CMA. It will ensure that the information obtained by the CMA in its functions under the new subsidy control regime is subject to the same restrictions on disclosure that apply to existing functions. The clause further ensures that the CMA is protected from defamation law when providing advice or reports under the provisions in the Bill.

[Seema Malhotra]

As the Minister outlined, the clause establishes that any duty to disclose information under the powers in the Bill does not override provisions laid out in the data protection legislation. This is technical and important, and we support the clause.

Question put and agreed to.

Clause 80 accordingly ordered to stand part of the Bill.

Clause 81

Modifications to subsidies and schemes

--- Later in debate ---

[Seema Malhotra]

It is a pleasure to move amendment 83 and to speak to amendments 84 and 85. The clause establishes that unless a modification of a subsidy or scheme is a “permitted modification” listed in subsection (3), including an uplift of up to 25% of the budget or an extension by up to six years, changes to a subsidy or scheme will be regarded as a new subsidy or scheme. Consequently, the public authority will have to comply with the subsidy control requirements. The clause outlines that most modifications to subsidies or schemes must result in said subsidies or schemes being treated as new. The issue is that it also outlines a list of permitted modifications that can be made without having to re-establish the subsidy.

Labour recognises the importance of allowing certain modifications to subsidies, especially under a regime that is intended to be quicker, where there is leave to support a subsidy’s outcomes in line with the control principles and the underlying goals and principles of the legislation. However, such permitted modifications must be reasonable; otherwise, they risk allowing subsidies to undermine the principles of the regulations set out in the legislation.

I wonder whether the Minister has considered in detail subsection (3)(f), which allows an increase in a subsidy’s budget by what seems to be a fairly high and fairly arbitrary 25%. I question whether that is a reasonable modification. There is also a question about subsection (3)(g), which allows the extension of a subsidy scheme by six years. That is longer than a parliamentary term. Again, I wonder whether detailed consideration was given to that. Perhaps the Minister can enlighten us on the basis for deciding to make a six-year extension and a 25% increase permitted modifications.

There is a risk that such modifications will have significant effects on subsidies and schemes. They could cause a previously finely-tuned subsidy to distort the market or become out of proportion. As such, we should question whether they should be allowed to occur without any checks or renewed transparency. Otherwise, there is a risk in increasing a subsidy, particularly a large subsidy, by up to 25%,and, indeed, in extending a subsidy scheme by six years—that is well beyond the period for which local authorities, devolved Administrations or almost anyone in any Administration is elected in this country—without it being subject to some renewal. There does not seem to be a clear explanation of why the clause is framed as it is.

We therefore also propose amendment 83, which would allow for subsidies to adapt to changing economic circumstances by allowing a subsidy’s budget to be increased by no more than the rate of inflation, rather than by a whole 25%. While allowing for adaptation to changing economic circumstances, the amendment would ensure that any significant changes to subsidy amounts were still subject to appropriate transparency.

Amendment 85 would scrap subsection (3)(g), because those long extensions could have significant consequences for the market, and the market could change in that period of time. Any extension of a scheme’s timetable should be subject to full transparency, and it should be treated as though a new subsidy was being created.

I would be grateful if the Minister could respond to our legitimate concerns and explain what underlies the decisions that led to subsections (3)(f) and (3)(g). If there is something that we have missed, we would be happy to reconsider, but in the interests of transparency, value for money and public confidence, we think these are two points that should be addressed.

[Paul Scully]

Clause 81 allows for limited amendments to be made to subsidies or schemes. A permitted modification will not be treated as a new subsidy or scheme as long as it meets the parameters set out in the clause. First, let me cover amendments 83 and 85. These amendments would remove from the list of permitted modifications an increase of up to 25% of the original budget of a subsidy or scheme. Instead, increases only up to the rate of inflation would be treated as permitted modifications. In doing so, the amendments would greatly reduce the flexibility afforded to public authorities to moderately increase the budget of a subsidy or scheme without facing additional administrative burdens.

The Government have committed to reducing administrative burdens on public authorities wherever possible. That includes giving them the flexibility to make limited amendments to a subsidy or scheme without having to jump through additional procedural hoops. An increase of up to 25% is appropriate, as this level of uplift is unlikely to greatly change the distortionary effects of a subsidy or scheme, which is what we are measuring.

[Kirsty Blackman]

Will the Minister write to me in advance of Report setting out what would happen if the increase of 25% takes the subsidy above a certain threshold, whether that is the de minimis threshold or the threshold for reporting? It strikes me that it would be possible to use the provision in a negative way to get round the system. I am sure that it is not the Government’s intention, so it would be useful to have advice on what might happen should that subsidy hit the threshold.

[Paul Scully]

To avoid the bureaucratic burden I talked about, the clause allows for a limited degree of modification without reassessment. That creates the right balance, and public authorities would need to determine whether the change is just administrative or not.

Permitted modifications do not have to be reassessed, and therefore it would not need to be considered whether they bump into subsidies of interest or subsidies of particular interest, for example, because those criteria apply only to new schemes. The public authority will have already carried out an assessment of compliance with the principles and other requirements for all the subsidies and schemes, so the increase in value is unlikely to meaningfully alter that. Clearly, if a public authority was attempting to mislead or exploit that as a loophole, it could be subject to judicial review on general public law grounds.

[Seema Malhotra]

I may have said in my remarks that amendment 85 scrapped subsection (3)(g), but it was amendment 84, as the Minister has outlined. It is important for our deliberations that the point raised by the hon. Member for Aberdeen North is addressed in writing. It is a fundamental point, and there does seem to be a loophole. Surely, we would not want an inefficiency in the regime that could mean public money being pushed through that little loophole by design. An increase of 25% is significant and could result in the subsidy being pushed over a particular threshold against the requirements of the legislation. Surely, we should design out loopholes rather than designing them in. It would be important, for the purposes of our deliberations and to have confidence in the regime, if the Minister were able to address that point, in writing, for the Committee.

On the Minister’s point about “unlikely to”, surely we do not want to design a system based on things that are unlikely. The way the legislation is drafted could incentivise particular behaviours. We do not want a regime or legislation that make more likely things that we want to be unlikely. There is a small financial incentive for people to look at ways of working around the legislation.

[Paul Scully]

I am happy to formally write again to clarify the situation, if necessary, but I am pretty sure that I would be repeating what I have just said in response to the hon. Member for Aberdeen North, which will be in the Official Report.

The likelihood and unlikelihood point goes back to the fundamental issue of the regime being a permissive one. If we regimented everything, we would be recreating the EU state aid scheme, which is far more prescriptive.

On the comments about the increases in values and times, let me cover why we believe that the 25% increase is appropriate. Even the strictest subsidy control regime in the world provides for the types of permitted modifications that are included in the clause. The EU state aid regime allows for an increase of up to 20% in the original budget of an existing aid scheme before public authorities need to notify and seek approval from the EU Commission. As I have said, the regime in the legislation is a far lighter-touch regime. I do not mean to suggest that we should start benchmarking every aspect of our subsidy control framework against EU state aid rules, but it is worth noting that the amendments would make the UK’s rules on modifying subsidies far more restrictive than the previous bureaucratic rules. By providing for that level of budget uplift, clause 81 will help to reduce unnecessary processes and provide maximum certainty to public authorities and recipients of subsidies.

As I stated when addressing the preceding amendments, clause 81 allows for permitted modifications to be made for subsidies or schemes without them being treated as a new subsidy or scheme. Amendment 84 would remove from the list of permitted modifications the extension of a subsidy scheme by up to six years. Any extension to a scheme beyond the date on which it would otherwise have been terminated would therefore be treated as a new scheme.

There will be times when public authorities, in monitoring the outcomes of a subsidy scheme, decide it is beneficial to moderately prolong the length of the scheme. If a public authority incurs delays in rolling out the new scheme, for instance, it may wish to bridge the gap by extending the existing scheme. It is appropriate to provide public authorities with the ability to extend a scheme without requiring an assessment against the subsidy control requirements, as an extension of up to six years is unlikely to greatly increase any negative effects stemming from the scheme.

[Seema Malhotra]

It is important to recognise that if there are to be permitted modifications, they should be designed with transparency in mind, and with ways of tracking how and where they are used. The Minister has just said that the EU regime allows a 20% budget uplift and has an approvals process. The Government are proposing a 25% uplift, but there does not seem to be any clarity in the legislation about the publication of any decisions. Do the Government envisage that, in the event of a permitted modification—of over 5% or 10% of the budget, say—there will be public knowledge of that decision, and if so, where would that information be published?

[Paul Scully]

Other tools exist to provide the transparency in public authority spending, such as the data published by local authorities under the local government transparency code. The regime is not intended to replace other mechanisms for ensuring that we have transparency and good management of public money.

I do not want to compare and contrast every single element of the regime against the EU, but on timescales, the Committee may find it useful to know that the EU state aid regime also allows for prolongation of an existing scheme by up to six years. The amendment would therefore make the UK’s rules around the modification of subsidies and schemes much stricter than those under the EU without bringing any corresponding benefit. I therefore request that the amendment be withdrawn.

[Kirsty Blackman]

I appreciate the Minister’s attempt to explain the 25% and what would happen should the subsidy increase above a certain threshold. However, I would very much appreciate it if he would write to us about what is likely to happen should that threshold be hit.

Subsection (3)(g) specifically relates to the length of time for subsidy scheme extensions. An enterprise could conceivably not have existed during the original term of the subsidy scheme but be later affected by the extension of the scheme, with no ability to challenge that scheme because the extension gives no opportunity for it to be challenged. This is not only about the length of time. We discussed the way in which individual subsidies made within a scheme cannot be challenged. It is distinctly possible that that could inadvertently distort competition for new enterprises that pop up during the period of a scheme and so have no ability to challenge it and no recourse to make their concerns known, because a system just does not exist for them to do so if they are outwith the period of being able to challenge the original scheme. If a scheme is not classed as new but extended, there is a bit of a problem.

I understand what the Minister says about the EU, and I assume—although he did not say this—that six years was likely chosen because that is analogous with the length of time the EU gives. However, because of the differences between this scheme and the EU state aid scheme, lifting the same number of years does not work as well as it could, because individual subsidies cannot be challenged. Only the scheme can be challenged, and there will be no ability for new enterprises to challenge the schemes, even though they may have a major distortive effect on competition.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause allows for limited amendments to be made to subsidies or schemes, referred to as permitted modifications. They can be made to subsidies made under the terms of the Bill or to legacy schemes and withdrawal agreement schemes. Modifications are also permitted to legacy and withdrawal agreement subsidies or schemes in accordance with their terms. They can involve an increase of up to 25% of the original budget or the extension of a subsidy scheme by up to six years.

[Seema Malhotra]

The holes in this clause are bigger than those in a big piece of Swiss cheese, and I am concerned about that. We will not be voting against it, but if we had an equivalent of abstain, we would be doing that.

Question put and agreed to.

Clause 81 accordingly ordered to stand part of the Bill.

Clause 82

Gross cash and gross cash equivalent amount of financial assistance

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause enables the Secretary of State to make secondary legislation to establish how gross cash and gross cash equivalent are to be determined when designing a subsidy or subsidy scheme. It is important to establish a common method for use by public authorities in calculating gross cash and gross cash equivalent values. The Government will set out a methodology to calculate gross cash and gross cash equivalent in regulations that are as clear and simple as possible and subject to the negative procedure.

[Seema Malhotra]

The clause is important and we support it.

Question put and agreed to.

Clause 82 accordingly ordered to stand part of the Bill.

Clause 83

Minor amendment to the Financial Services Act 2021

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause makes consequential amendments to the Financial Services Act 2021, in relation to regulated activities in Gibraltar within the scope of the Act. In doing so, the clause ensures that the meanings of “insurance company”, “deposit taker” and “insurer” used in the Bill reflect definitions used in the 2021 Act.

[Seema Malhotra]

I thank the Minister for his remarks. We will be supporting the clause.

Question put and agreed to.

Clause 83 accordingly ordered to stand part of the Bill.

Clause 84

Financial provision

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes that expenditure incurred under the terms of the Bill in connection with the subsidies database, established under clause 32, is to be paid out of money provided by Parliament. It also establishes that expenditure, as a result of the CMA carrying out its functions, under or by virtue of part 4 of the Bill, will be paid for out of money provided by Parliament.

[Seema Malhotra]

I thank the Minister for setting out how clause 84 will ensure that the costs incurred by the Bill will be met by Parliament. We support the clause.

Questions put and agreed to.

Clause 84 accordingly ordered to stand part of the Bill.

Clause 85

Crown application

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes a customary provision that the Bill applies in full to the Crown. As part of this customary provision, the Crown does not include Her Majesty in her private capacity, Her Majesty in right of the Duchy of Lancaster, or the Duke of Cornwall.

[Seema Malhotra]

I thank the Minister for his remarks. We will be supporting the clause.

Question put and agreed to.

Clause 85 accordingly ordered to stand part of the Bill.

Clause 86

Power to make consequential provision

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause provides for the Secretary of State to make regulations that amend, repeal, revoke or otherwise modify existing primary or secondary legislation, including retained direct EU legislation, where such changes are consequential on the functioning of the Bill. It is important to note that regulations that change primary legislation or retained direct principal EU legislation are subject to the affirmative procedure. While the Bill makes provisions for changes to existing legislation, it is possible that possible technical changes to existing legislation may be required as a result of the Bill.

[Seema Malhotra]

I thank the Minister for his remarks. We have had various discussions over the course of the Bill about how regulations are to be made. Overall, we support the clause.

Question put and agreed to.

Clause 86 accordingly ordered to stand part of the Bill.

Clause 87

Regulations

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause sets out the parliamentary procedures that apply in relation to powers to make regulations conferred on Ministers by the Bill. It sets out the procedure that applies where a power is exercisable by affirmative or negative resolution. It makes clear that any power to make regulations in this Bill is not intended to limit the general implementation regulation-making power in section 31 of the European Union (Future Relationship) Act 2020. Finally, the clause does not apply to clause 91 of the Bill. Clause 91 deals specifically with the commencement of the Bill, and it is normal practice that commencement regulations are not subject to either the negative or the affirmative procedure.

[Seema Malhotra]

I thank the Minister for his remarks. Clause 87 sets out the procedures for when regulations are made under the Bill. We have expressed earlier our opposition to the lack of involvement given to the devolved Administrations; I will not repeat myself, but we continue to have those concerns. However, we will not vote against this clause.

Question put and agreed to.

Clause 87 accordingly ordered to stand part of the Bill.

Clause 88

Directions

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Paul Scully]

The clause establishes that any directions made under the Bill must be made in writing, and also makes provision for a direction to be varied or revoked by a subsequent direction if required.

[Seema Malhotra]

We have no further comments on this clause, and will be supporting clause stand part.

Question put and agreed to.

Clause 88 accordingly ordered to stand part of the Bill.

Clause 89

Interpretation

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes the definitions used for various terms within the Bill, whether those terms are defined elsewhere in the Bill or in external sources of law. It also explains how a trade and co-operation agreement or a supplementing agreement should be interpreted by a court or tribunal that is interpreting a provision of this Bill.

[Seema Malhotra]

I thank the Minister for his remarks. Throughout some of our discussions, the fact that we have not had greater definition of some of the terms used in the Bill has been a challenge, but we will support clause stand part. I hope that some of the more detailed definitions will come forward as soon as possible.

Question put and agreed to.

Clause 89 accordingly ordered to stand part of the Bill.

Clause 90

Extent

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes that, barring one exception, the Bill extends to England, Wales, Scotland and Northern Ireland. The one exception is clause 48(3) of the Bill.

[Seema Malhotra]

We obviously agree with this clause. It is a shame that a four-nations approach has not come forward in the drafting of some of the Bill, but in any case, we are not opposing clause stand part.

Question put and agreed to.

Clause 90 accordingly ordered to stand part of the Bill.

Clause 91

Commencement

--- Later in debate ---

[Kirsty Blackman]

Very unusually, although we are discussing two Opposition amendments, we disagree with one of them. I cannot support amendment 87. As I have said on a number of occasions, I am concerned about ensuring compliance with the regime. There will be compliance only if people have a good understanding of the regime before it kicks in. I do not have a problem with the period following Royal Assent being more than six months, because I would rather that organisations such as public authorities had the time to digest the guidance and regulations in order to be able to adequately comply. We do not want people to accidentally not comply.

I understand the Opposition’s desire to push forward, given the current interim regime, but it is important to get this right. I do not think any of us are comforted that we will be able to judge whether there is a high level of compliance with the regime. The Minister expects that that will be the case, but the lack of transparency data means that it will not be terribly easy to judge the situation.

Under amendment 25, which we have tabled, the Secretary of State would not be able to make regulations to bring the rest of the Bill into force until regulations under clauses 34 and 52 had been made and been in force for at least three months. Those clauses relate to mandatory Competition and Markets Authority referrals and the operation of the subsidy database. It is really important that both those measures are well understood in advance of the rest of the provisions coming into force, which is why the amendment seeks a three-month time period, so that everyone is able to comply.

The second condition that the amendment would require, where I am asking that guidance be in place for three months, is about guidance under clause 79. We spoke at some length during the debate on clause 79 about our concerns. It was useful to have the Minister confirm that the Secretary of State will be making guidance on a number of those things, despite the fact that the word “may” is in there. That is a helpful clarification for us, but it is important that that guidance is published.

I am pleased that the Minister plans to ensure that there is significant consultation and that the asks that come forward are considered. If somebody asks for specific guidance about a specific area because they know it is something they are likely to be dealing with on a regular basis and they are a regular granter, or likely to be a regular granter, of subsidies under this regime, I would like the Minister to have the opportunity to consider that. However, I would also like to ensure that there is a period of time, in advance of people being expected to comply with the regulations and guidance put forward, for them to digest them.

That is particularly important when we look at the operation of the subsidy control database and the method of challenging things on that database. People have only a short period of time—one month—to make those challenges and ask for pre-action information to be brought forward. The Minister’s stated aim is to reduce the length of the period of uncertainty, but the likelihood of there being uncertainty or challenges is increased if organisations do not properly understand the guidance. We all know that lawyers take a significant amount of time to digest things and to give the necessary advice to organisations.

As was stated during the witness sessions, the legal profession will have to do a huge amount of work to ensure that they are giving appropriate advice to organisations that are looking either to grant or to challenge subsidies. I do not think it would be appropriate for the regime to begin in the autumn, as the Minister has stated that the Government hope it will, without there being that period of time in advance.

All the indications the Minister has given are that it is likely that there will be a period of time in advance—that he is hoping that there will be and that consultation will happen. I tabled this amendment to try to ensure that that will definitely happen in the specific areas that are important for organisations to be able to properly understand the guidance in advance. I am not trying to cause us problems or to make the Bill take longer to come into force; I am just trying to ensure that people are able to act in the way the Government would like them to act with this Bill and that anybody whose interests are affected by the giving of a subsidy is able and understands how to adequately challenge those subsidies.

[Paul Scully]

Rightly, the hon. Member for Aberdeen North does not want to extend the Bill—she has extended the Committee, but that is fair enough—

[Kirsty Blackman]

Oh!

[Paul Scully]

She has raised some really important points and it is important that she gets them on the record, because we have a shared aim to ensure that we get this right and make it work for the entire UK.

Amendment 25 would amend clause 91 to require the regulations to have been made and been in force for at least three months ahead of commencement of the new regime. I thank the hon. Lady for the amendment and I recognise her desire to ensure that the guidance on the new regime alongside regulations on the subsidy database and mandatory referrals are in place in good time for public authorities to familiarise themselves with the content.

I share that desire for those regulations to be in place in good time, alongside the clear guidance for public authorities, but I do not agree that it is necessary to restrict when the regime can commence based on those regulations having been in place for a three-month period. Of course we will continue to support and advise public authorities after regulations are made, but we will also ensure that when the Act is commenced, public authorities have a clear understanding of what is required of them under the new regime. That will include having robust guidance and regulation in place.

Amendment 87 would require that the Act comes into force no later than six months following Royal Assent. We recognise the importance of ensuring that the regime is fully operational in a timely fashion, so that public authorities have certainty about how the regime operates and are appropriately supported in interpretating the regime with sufficient guidance. It is not in the interest of Government or public authorities to delay commencement of the regime unnecessarily.

We will ensure that the subsidy control regime is in place as soon as is feasible, while allowing sufficient time for regulations to be made with a proportionate amount of lead-in time for public authorities. Establishing a specific deadline for implementation would remove the flexibility to modify the commencement date if it were in everyone’s interest to do so—for example, if there were an emergency that significantly diverted Government resources or if the deadline fell during the Christmas or summer holidays.

Although seeking to place different restrictions on commencement of the new regime, these amendments serve to highlight the complexity of implementing the Bill and how important it is that the Government get it right. We will ensure that the regime is introduced in good time and that those who need to use it have time to prepare. However, placing these additional restrictions on when commencement can occur would be disproportionate and unnecessary. Therefore, I request that the hon. Member for Feltham and Heston withdraw amendment 87.

[Seema Malhotra]

I thank the Minister for his remarks. Amendment 87 is a probing amendment, and I hope he will be able to lay out a broad timetable as to what will happen after Royal Assent and what we can expect. I am sure that officials will be starting to map out the necessary activity. It would be helpful to know what may come out and in what order. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Clause 91 establishes which parts of the Bill will come into effect and when. It provides the Secretary of State with a power to bring certain provisions of the Bill into force by commencement regulations. Any power to make regulations under part 2, 3 or 4 or chapter 1 and chapter 2 of part 6 come into force on the day of Royal Assent. The clause also provides a power for the Secretary of State to make transitional or saving provisions in regulations when the Act comes into force, if that is necessary.

[Seema Malhotra]

We support the clause.

Question put and agreed to.

Clause 91 accordingly ordered to stand part of the Bill.

Clause 92

Short title

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes a short title for the Act, which is the Subsidy Control Act 2021.

[Seema Malhotra]

It is an excellent title, and we support the clause.

Question put and agreed to.

Clause 92 accordingly ordered to stand part of the Bill.

New Clause 1

Subsidy Control Principles: statement to Parliament

“(1) Within six months of the opening of a new Parliament, the Secretary of State must make a written statement to Parliament on the subsidy control principles.

(2) The statement must include details of—

(a) any legislation the Government intends to bring forward to change the Subsidy Control Principles; and

(b) any changes the Government intends to make to guidance under section 79 of this Act.”—(Kirsty Blackman.)

This new clause requires a new Government to make a statement to Parliament about any changes it intends to make to the subsidy control principles.

Brought up, and read the First time.

--- Later in debate ---

[Kirsty Blackman]

I beg to move, That the clause be read a Second time.

This new clause is not unlike ones I have tabled in previous Committees, including the customs Bill Committee. The idea behind the new clause is to ensure that there is more accountability from Governments at the opening of Parliament in the event that they will intend to make changes to the subsidy control principles.

We have been clear about the way in which the regime works. The principles are fundamental. Should there be changes to the subsidy control principles, that would be pretty significant and would fundamentally alter the operation of the regime. Should the Government or a future Government be keen to make changes to the principles contained in the Bill, it would be reasonable for as much notice as possible to be given to Parliament and those who are likely to be operating within the Act.

New clause 1 states:

“Within six months of the opening of a new Parliament, the Secretary of State must make a written statement to Parliament on the subsidy control principles.”

It must include details of:

“(a) any legislation the Government intends to bring forward to change the Subsidy Control Principles; and

(b) any changes the Government intends to make to guidance under section 79 of this Act.”

I would expect that if the Government were making drastic changes to subsidy control principles, they would want to give as much notice as possible. There is no doubt that if it was at the start of a new Parliament, any change would likely have been a manifesto commitment that they stood for in election, so it would be uppermost in their minds any way. I cannot imagine somebody wanting to alter drastically the operation of the subsidy control regime without mentioning it during an election campaign. That is not to suggest that people will necessarily want to make changes to the subsidy control principles; I do not know that they will want to. But we will not have this Government for ever—thank goodness—and different Governments will potentially make different decisions on subsidy control.

Chair, just before I end my remarks, I will just say thank you to everybody who has supported us through our consideration of the Bill and everybody who has spoken during our debates. Despite the fact that only three of us have dominated proceedings and spoken at length—as well, Chair, as your colleague, Mr Sharma; so, four of us perhaps—we are about to wrap up early and not go to the end of this day, which is surely testament to the excellent chairing.

[Paul Scully]

The subsidy control principles sit at the heart of the domestic regime. They will be underpinned by statutory guidance issued by the Government ahead of the regime’s commencement. I agree that there is no notion that this Government or indeed any Government in the foreseeable future would wish to modify the subsidy control principles; the principles should endure with Governments of any stripe or colour. They are common sense, they ensure good value for money and they help to protect the UK internal market, so I am confident that they will stand the test of time.

However, in the unlikely event that the Secretary of State wished to modify the principles, I do not believe that this amendment would strengthen the scrutiny function of the House. The provisions of the Bill do not confer delegated powers that would enable the Secretary of State to modify and/or remove any of the principles, so any future changes would require the Government to introduce amending legislation and to conform with the necessary parliamentary processes and scrutiny that that would entail.

Guidance issued under clause 79 may of course be updated and revised, and that guidance may need to change in the future to reflect different future practices, or additional information for public authorities, and it is also necessary that that guidance is quickly updated should circumstances change. I do not believe that a statement at the beginning of each new Parliament would necessarily be the right time to announce those changes.

For the reasons that I have set out, I ask the hon. Lady to withdraw the new clause.

[Kirsty Blackman]

I thank the Minister. I will not push the new clause to a vote, but I will just point out that there are problems with the ability to scrutinise delegated legislation; it is not the most robust procedure in Parliament, as anybody who has sat through Delegated Legislation Committees will know. It is very different from being on the Floor of the House, and something like a written statement would mean that all parliamentarians would have the ability to scrutinise, understand and consider any changes that are likely to come through.

Nevertheless, I appreciate the point that the Minister has made that it is unlikely that there will be changes to the subsidy control principles and that any currently foreseeable or potential future Governments are unlikely to make changes to those principles. So, as I say, I will not push the amendment to a vote.

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

--- Later in debate ---

[Seema Malhotra]

I beg to move, That the clause be read a Second time.

New clause 4 would provide for greater transparency under the new regime by mandating the Secretary of State and each of the devolved Administrations to publish annual reports on the subsidies and schemes they have made during the previous year. In our view, that would ensure that interested parties and the public generally are made aware of how their ruling bodies are using public money through subsidies and for what purposes. I am sure that the Minister recognises that transparency is important and that he will agree with Professor Rickard, who said that through transparency we can get better compliance and better value for money, and we can help to ensure that subsidies that have been granted better meet the goals that we are setting out to achieve.

Over the past few weeks, the Minister will have seen all too much, I am sure, both in the Chamber and in the news, the concerns in relation to whether public funds have been used in the way they should be, how contracts have been allocated and so on. I am sure that there will be a keenness to prevent any perceived or potential misuse of public funds or lack of transparency and to ensure that there can be adequate reporting of decisions that are made, particularly on larger subsidies by Administrations.

We will not necessarily press the new clause to a vote today, partly because we think that the issues raised by it could be absorbed within the discussions that we had about the role of the CMA in its reporting and the discussions that we had about the Minister, I think, putting in writing what he would see and how the reporting cycle might work. There may be ways to deal with some of these concerns—depending on what the Minister says—in the rounds of those discussions that we have talked about.

I will just mention also the way we see the CMA having a role. I have not moved new clause 3 today because I think we will want to bring that back. There will be ways in which we look in the round at the role of the CMA and its powers on decision making, advice and reporting. I look forward to the Minister’s response.

[Paul Scully]

Transparency is absolutely an important part of the new subsidy control regime. It is right, therefore, that it has been a significant part of the discussion during Committee. It is key to the enforcement provisions in the Bill. We have thought carefully about the reporting requirements that we place on public authorities, to get the balance right. Other tools for general public authority financial transparency exist elsewhere already and are not limited to subsidies. We are trying to find the right balance between transparency and burdens on public authorities, as we have said. Although the subsidy database is still a relatively new tool, public authorities, including Departments and the devolved Administrations, are already using it and uploading information about the subsidies that they award. The database is a one-stop shop where both interested parties and the public can see the required subsidies awarded.

The new clause risks duplicating public authorities’ transparency obligations through the making of an unnecessary report on granted subsidies in a way that risks confusing interested parties and undermining the streamlining of subsidy transparency that our one-stop database provides. For the reasons that I have set out, it is neither necessary nor appropriate to include a statutory obligation for the Secretary of State and devolved Administrations to report annually on the subsidies and schemes that they make. Therefore, I request that the hon. Member withdraw the new clause.

[Seema Malhotra]

On the basis that there will be further discussion, that we do not want there to be administration that is more time-consuming than it needs to be and that we will revisit the way we can have a very efficient reporting regime, I will withdraw the motion. I am not sure whether I will be speaking again—I am not sure of these final few stages—but perhaps I can take this opportunity to echo the comments from the hon. Member for Aberdeen North by thanking you, Ms Nokes, and Mr Sharma, who also chaired the Committee; all hon. Members who have contributed and been part of our deliberations; and the Clerks, Hansard and so on for helping to make the process extremely efficient. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question proposed, That the Chair do report the Bill, as amended, to the House.

[Paul Scully]

I thank you, Ms Nokes, and Mr Sharma for your excellent chairmanship and getting us through this process efficiently and effectively. I also thank the witnesses and all members of the Committee, who have allowed us to go through significant scrutiny and to have significant discussions; the Clerks, the Hansard Reporters and the Doorkeepers for ensuring that we have been well looked after; of course my officials, who have done an incredible job to get us to this point efficiently; and of course the Whip—what an amazing Whip. Both Whips have been remarkable in getting us through this process.

[Seema Malhotra]

I echo the Minister’s thanks to our witnesses. They gave us very good evidence at very short notice. I also thank both the Whips. We have hugely appreciated how they have managed time well. I also thank our staff—on our side, in particular, Francesca Sellors and Dan Jones—who have helped to ensure that we have had everything in time for the Bill proceedings, because it has been a journey.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Subsidy Control Bill (Tenth sitting)

Paul Scully Excerpts

Tuesday 16th November 2021 Public Bill Committees

In the light of the extended conversation that we have had, it would be helpful if the Minister could come back on that point and enlighten us, and perhaps take on board that the way in which it could be interpreted does not seem to be in the full spirit of devolution and a four-nation approach. I would be grateful to him for his comments, particularly on the issues raised by the hon. Member for Thirsk and Malton.

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

It is a pleasure to serve under your chairmanship, Ms Nokes. I appreciate the contributions of the hon. Members for Aberdeen North and for Feltham and Heston. As we have heard, the amendments are almost identical in effect, so I will discuss them together.

Who has standing to challenge subsidy decisions is an important question that we considered carefully when drafting the Bill. The definition of an interested party, which covers any person whose interests may be affected by the subsidy or scheme in question, is intentionally broad and in many instances could capture the devolved Administrations. As I said in relation to the previous amendment, the rule on standing in the clause is not intended to exclude any party whose interests may genuinely be affected by a subsidy.

None the less, I hope that hon. Members will agree that it is necessary to have some limit on who can bring a challenge, so that the CAT can dismiss various challenges, whether they are vexatious or not. That is necessary to ensure that useful subsidies are not held up without good reason. The absence of a list or further explanation is not intended to exclude any party whose interests may genuinely be affected by a subsidy. On the contrary, the broad definition gives the CAT the maximum discretion so that, whatever the facts of the case may be, it can deem the right people to be interested parties. Depending on the case, that could certainly include one of the devolved Administrations.

Opposition Members have suggested that because the Secretary of State has default standing to bring a challenge there is an unequal situation that prejudices the interests of Scotland, Wales and Northern Ireland. That is simply not right. The Secretary of State has not been designated an interested party to act in the interests of one part of the UK. It is therefore not necessary that there should be some sort of balance, with other actors also having default standing. This is a reserved policy area and, as such, the Secretary of State’s responsibilities and interests are UK wide.

The Secretary of State is always deemed an interested party so that they can challenge any subsidiary they feel would be incompatible with the subsidiary control framework and because, as a member of the UK Government, they are responsible for the compliance of subsidies granted in all parts of the UK with our international obligations. The Government expects that the Secretary of State would use this ability only in exceptional circumstances where, in their view, a subsidy would threaten the integrity of the subsidy control framework, which protects competition and investment within the UK and helps to meet our international obligations. It is just as likely that the Secretary of State would challenge a subsidy given by an English local authority that prejudiced a Scottish business, as it is that they would challenge a Welsh subsidy that prejudiced an English business.

The intention of the clause is to allow a default right to stand as an interested party to challenge subsidies, while reserving a specific role for the Secretary of State to oversee the whole system and ensure compliance with international agreements. It is not appropriate or necessary for any other public authority to have the same standing. I have talked a lot about devolved Administrations, but to cover the point made in the exchange between the hon. Member for Aberdeen North and my hon. Friend the Member for Thirsk and Malton, an interested party could be any of those public authorities, including local councils or any awarding body. As we discussed in the previous group of amendments, that interest is wider than direct financial interest. For that reason, I ask the hon. Lady to withdraw her amendment.

[Kirsty Blackman]

The Minister has not really answered the key question that would be helpful in order to ensure that interested parties are as broad as the hon. Member for Thirsk and Malton and I think it should be. Does a devolved Administration’s interests include indirect interests? Let us say that the Scottish Parliament was to come forward to the CAT and ask for something to be reviewed on the basis that it would affect seven businesses throughout Scotland. Is that included in the definition of persons of interest who may be affected? What if a number of organisations in their jurisdiction are potentially affected by a subsidy given? That subsidy may be given in Scotland; this is not necessarily an inter-nation argument. It could be that a local authority in Scotland gives a subsidy and the Scottish Government are not happy about it because it could negatively affect seven different businesses. Is that included? Is that covered by the definition of interested parties?

[Paul Scully]

Yes. I would say that is a direct interest rather than an indirect interest. Public authorities, including devolved Administrations, may be interested parties. That is why we are keeping the definition wide—because it includes their responsibilities as well as a direct interest for the public authority or the devolved Administration itself.

[Kirsty Blackman]

The Minister has made the clarification to say that it includes responsibilities. Obviously, the devolved Administrations have responsibilities for lots of things in various areas. That is incredibly helpful. I still would like to see amendment 23 in the Bill and I would like to press it to a vote.

Question put, That the amendment be made.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause enables interested parties to apply to the Competition Appeal Tribunal, or the CAT, to challenge decisions by public authorities to give subsidies or make subsidy schemes. The CAT has the advantage of being a UK-wide tribunal with specialist expertise in competition and in hearing judicial reviews in the field of economic regulation. It is well regarded by practitioners and the Government’s consultation demonstrated strong support for its performing this role.

Any interested party who is aggrieved by a subsidy decision will be able to apply to the CAT to review that decision. The clause defines an interested party as any

“person whose interests may be affected”

by the decision in question. The Secretary of State is also explicitly defined as an interested party, which does not mean that the Government have the intention of challenging a large number of subsidy decisions by other public authorities. Instead, it provides a safety valve allowing the Secretary of State to challenge subsidy decisions that might harm competition and investment within the UK or cause concerns to be raised by one of the UK’s trading partners under the terms of our international agreements.

The clause provides that the CAT must apply judicial review principles when determining applications to review subsidy decisions, which means that the tribunal will determine whether the decision was lawful, including whether the requirements set out in the Bill have been met. The tribunal will not be capable of reviewing the merits or effectiveness of a subsidy or subsidy scheme.

[Seema Malhotra]

I thank the Minister for his comments. We have no further comments on the clause beyond what we raised on the amendments. We support clause 70 standing part of the Bill.

Question put and agreed to.

Clause 70 accordingly ordered to stand part of the Bill.

Clause 71

Time limits for applications under section 70

--- Later in debate ---

[Seema Malhotra]

The clause amends the Competition Appeal Tribunal rules to establish the time limits for making an application to the CAT for a review of a subsidy control decision. Interested parties must send their notice of appeal to the CAT within one month of the relevant date. The tribunal may not extend the one-month time limit unless there are exceptional circumstances.

As we have already stated, we believe very strongly that public authorities should have a clearer statutory duty to upload full and accurate information to the subsidy database. Where a public authority fails to comply with that duty, there should be consequences. The regime requires a better incentive for public authorities to upload accurately and fully. Evidence from DWF, which I will not repeat at length again, revealed how many of the entries currently uploaded to the database are far from complete or accurate.

Amendments 75 and 74 would provide a statutory consequence where a public authority has not complied with its duty to upload information to the database, as set out in clause 33(1): namely, an extended challenge period of six months from the date on which it is established that the clause 33 duty has not been complied with. In our view, that would create a strong incentive for public authorities to upload information to the database promptly, comprehensively and accurately. Transparency is central to the new regime, and protecting it is at the heart of the amendments.

[Paul Scully]

Clause 71 sets out the time limits for an interested party to apply to the CAT for a review of a decision to grant a subsidy or make a subsidy scheme. It is important to strike a balance between allowing sufficient time for a subsidy scheme or award to be challenged and giving confidence to the subsidy beneficiary that the subsidy decision can no longer be challenged, and that they can make use of that subsidy.

The Government believe that the appropriate balance is the one-month limitation period, generally counted from the date on which the subsidy or subsidy scheme is published on the database. The hon. Member for Feltham and Heston has tabled amendments to that general time limit, which we will discuss later. I understand that the amendments are intended to extend the period for challenging a subsidy when a public authority has not properly fulfilled its transparency obligations. It may be useful to begin by clarifying how the clause would work in cases where the transparency requirements are not met.

Clause 71 already provides a powerful incentive for public authorities to properly fulfil their transparency obligations. If they do not, there is no transparency date for the purpose of rule 98A subsection (2), so there is no limitation period for when an interested party can seek a review of the subsidy in the CAT. In other words, if there is a non-trivial failure to comply with the transparency obligations in clause 33, the subsidy or scheme could not just be challenged six months after it is made; it could potentially be challenged at any time.

--- Later in debate ---

[Seema Malhotra]

I beg to move amendment 73, in clause 71, page 40, line 33, leave out “one month” and insert “three months”.

This amendment would extend the period for interested parties to submit an application for review of a subsidy to three months.

The amendment would extend to three months the period for interested parties to submit an application for review of a subsidy. We think that is extremely important, because as it stands, interested parties would have one month from the publication of a subsidy or scheme on the database, or from receiving requests for information from the public authority in respect of a subsidy or scheme, to bring a challenge before the CAT.

That is an extremely short timeframe. Uploads to the database could be made on July 22, for example, or on December 16, when we rise for recess. I do not want to suggest that there might be attempts to reduce opportunities for scrutiny and challenge by timing uploads to the database, but at the end of July, for example, there are school holidays, and even Parliament does not return until September. One month can be a very short time for scrutiny and challenge, especially at particular times of the year, and it is about what is chosen to be published and when.

Labour recognises the importance of giving subsidies legal certainty in this quicker, more flexible regime. However, given that public authorities will have six months or even a year to publish subsidies on the database, why will interested parties be given only one month to challenge them? Once the one-month period has elapsed, there will be no other routes for challenging subsidies and schemes. That means that if interested parties are not given the appropriate amount of time to consider new subsidies and schemes, damaging subsidies or schemes will face no risk of challenge. That seems extremely risky, and I hope the Minister recognises that.

Jonathan Branton, a lawyer at DWF, summarised this and said:

“I think one month is too short, because that requires people to be extremely alert about checking things.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 52, Q73.]

People can get busy and have other deadlines for two, three or four weeks. It seems to be an extraordinarily short time that may create inefficiencies in other areas, as people ask, “What subsidies have come out? How quickly should I be checking?” This is about making sure there is a fair, well-scrutinised and effective regime. We need to get the balance right between providing legal certainty and ensuring damaging subsidies can be effectively challenged. It feels as if the balance is not right at the moment in the context of this regime and how it is designed in the Bill.

We propose to correct the balance in amendment 73, which would give interested parties three months to bring a subsidy or scheme before the CAT. In doing so, there would be more time to consider subsidies and their effects. It would give interested parties and public authorities a fair chance to ensure a challenge can be brought, still within a limited amount of time, and the balance between that and legal certainty can be effective.

[Paul Scully]

The clause sets out the time limits in which the interested party must make an application to the CAT to challenge the subsidy. It is important to set that limit so that we can give legal certainty to public authorities and subsidy beneficiaries. Ongoing lack of legal certainty can be a strong disincentive for public authorities giving legitimate subsidies and for the enterprises agreeing to receive them.

For example, a subsidy could take the form of a loan guarantee for a capital investment, such as buying new machinery. Members will appreciate that a beneficiary would be naturally reluctant to go ahead with buying that machinery for as long as there is a possibility that the subsidy decision could be quashed and a recovery order made.

It is right that subsidies can be challenged and that interested parties have sufficient time limits to consider that challenge, but we must not create such prolonged uncertainty that it acts as a brake on legitimate subsidies. That is the balance that we have struck in the Bill with the limitation period, which is generally one month from the date the subsidy or scheme is uploaded on the transparency database.

It is also important to note that an interested party 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 the database.

Clause 71 also makes it clear that in exceptional circumstances, the tribunal may extend the time limits for bringing a challenge, but this amendment would extend the general window for bringing a challenge from one month to three months. That 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 were extended to three months, as the 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 is far too long. It is important to allow sufficient time for those affected by subsidy decisions to submit their claim, while ensuring that public authorities and beneficiaries can proceed to implement subsidy decisions with certainty once they are made. The Government believe that the timings provided for in the clause strike an appropriate balance between those two objectives. I therefore request that the hon. Member withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. I was intending to press the amendment to a vote, but there is a wider question about how we improve the balance regarding how this amount of time is used within the framework of the Bill. Should public authorities be given a shorter time in which to upload, to allow more time for a challenge to be brought? The same amount of time would have elapsed, but that could be a far better framework for the regime.

In the light of the comments made and the consideration that we need to look at this as a whole, I will not press the amendment to a vote today, but we intend to return to this. It will be important for the certainty that we want to see and the transparency we need. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[The Chair]

The hon. Lady does not wish to move her amendment. Does the Minister wish to comment?

[Paul Scully]

I will just say that I always take on board and reflect on everything that the hon. Member for Aberdeen North says—and, indeed, other colleagues as well.

[The Chair]

The amendment is not moved.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause amends the Competition Appeal Tribunal Rules 2015 to set out the time limits in which an interested party must make an application to the CAT to review a subsidy decision. It is important to provide for time limits within which a challenge may be brought against a subsidy decision. It is important to allow sufficient time for those affected by subsidy decisions to submit their claim, while ensuring that public authorities and beneficiaries can proceed to implement subsidy decisions with certainty once they are made. We believe that the timing provided in the clause strikes the appropriate balance between those objectives.

The one-month limitation period starts only once the subsidy or scheme is published on the subsidy transparency database, but the limitation period for challenging decisions can be extended in certain circumstances. The first is where an interested party makes a pre-action information request. That will give the interested party a further month to bring their challenge, starting from when the pre-action request is responded to. Clause 76 enables an interested party to gather more information before deciding whether to challenge a subsidy decision and gives the public authority the opportunity to explain its decision, which may cause the interested party to decide that litigation is unnecessary.

The limitation period will also be extended where the Secretary of State refers the subsidy or scheme to the subsidy advice unit under clause 60. The interested party will then, again, have a further month to bring its challenge, starting from when the post-award referral report is published. Finally, the CAT has the discretion to extend the time limits set out in clause 71.

[Seema Malhotra]

Notwithstanding our concerns that the right balance has not been struck, we will not vote against clause stand part.

Question put and agreed to.

Clause 71 accordingly ordered to stand part of the Bill.

Clause 72

CAT powers on review: England and Wales and Northern Ireland

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause gives the Competition Appeal Tribunal the ability to grant the same forms of relief as are available to the High Court on an application for judicial review in England and Wales and Northern Ireland. The tribunal must likewise apply the same principles as the High Court in deciding whether to grant relief, and the remedies granted by the CAT are, where relevant, the same as those currently available to the High Court.

It is important that these remedies are available to the tribunal when it determines that a decision to give a subsidy or make a subsidy scheme was unlawful. That will ensure that the subsidy control principles, prohibitions and other requirements can be effectively enforced through the tribunal and, in turn, incentivise compliance. It will also ensure that the UK meets its commitments under its international agreements.

The clause works intrinsically with the clauses that follow it. Clause 73 makes equivalent provision in relation to Scotland. That is necessary because Scotland is a separate jurisdiction and has a different set of remedies for applications to the supervisory jurisdiction of the Court of Session, which is the judicial review equivalent. Clause 74 gives the CAT the power to award an additional form of relief—a recovery order. That will give the CAT the ability, should it deem it appropriate, to order a public authority to recover a subsidy, in part or in whole, to rectify any adverse impacts on competition and investment in the UK caused by its award.

[Seema Malhotra]

The Minister has outlined in some detail what the clause does. It grants the CAT power to give certain forms of relief, similarly to the High Court. The CAT may grant a mandatory order, a prohibiting order, a quashing order, a declaration or an injunction. We recognise the importance of these powers, so we will support the clause.

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clause 73

CAT powers on review: Scotland

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause gives the CAT the power to grant equivalent forms of relief as are available to the Court of Session in an application to the supervisory jurisdiction of that Court. When reviewing a case in Scotland, the CAT will be required to apply the same principles as the Court of Session would in those cases.

It is necessary to make separate provision for when the CAT is reviewing an application in Scotland as compared to England, Wales or Northern Ireland because, as the Committee is already aware, Scotland has a separate legal jurisdiction and its own system of judicial review, which differs from that in England and Wales and Northern Ireland. The clause therefore ensures that the tribunal has appropriate and effective remedial powers when it is hearing Scottish cases.

[Seema Malhotra]

We have no further comments on the clause, which we support.

Question put and agreed to.

Clause 73 accordingly ordered to stand part of the Bill.

Clause 74

Recovery orders

[Seema Malhotra]

The clause confers a power on the CAT to make a recovery order if it has granted relief in respect of a subsidy decision and found that the decision was in contravention of the subsidy control requirements in chapters 1 and 2 of part 2 of the Bill. A recurring theme in the Bill is the lack of transparency baked into how the Government confer subsidies and the subsequent management and reporting of those subsidies, with subsidy referrals, exemptions for certain subsidies from the regulations, and the blocking, rather inexplicably, of transparency for smaller subsidies.

In our view, clause 74 represents the latest example of poor transparency. It confers a power on the CAT to make a recovery order if a subsidy is found to be in contravention of the control principles. A recovery order requires a public authority to recoup an amount of the subsidy from the beneficiary of the subsidy. This clause therefore creates a provision to allow any losses that the Government face when they mistakenly confer a subsidy on a business or industry that is in contravention of their own regulations to be recouped.

Does it not make sense, then, that parliamentarians and the public should be able to scrutinise subsidies that have been inadvertently conferred, to make sure that does not happen again? Indeed, as we seem to keep needing to remind Members, there should be adequate public oversight of the spending, or potentially mis-spending, of public money. Professor Rickard noted in her evidence to the Committee:

“The benefits of transparency, and more of it, outweigh the costs.”

She went on:

“I would encourage Members to think carefully about the ways in which we could further increase the transparency to ensure that the UK was a world leader in transparency in subsidies and so as to help to provide consistency and certainty for business and accountability to taxpayers”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 19, Q22.]

Transparency, and more of it, is a good thing. Imagine for a moment that an individual in charge of awarding a subsidy has taken the decision to corruptly award a subsidy to a business or sector from which he or she may gain direct financial benefit. If we are lucky, which we would need to be without adequate transparency, perhaps someone internal to their organisation would discover the malpractice. Without a publicly available report or register where the public can scrutinise which subsidies have been recalled and for what reason, that individual would get away with it and that malpractice could be swept under the rug.

It was discovered, for example, that Andrew Mills, an adviser to the Board of Trade who miraculously secured a £250 million PPE contract despite never having produced PPE in his life, received a pay-out of £32 million in that deal. That is an extremely large amount of money, which was paid out of the public purse, but that figure was only recently uncovered because one individual leaked it to the press. Transparency is therefore vital. That is why we are proposing amendment 76, which would require the CMA’s annual report to provide the full details of all recovery orders made by the CAT in the relevant period. That is what transparency looks like, that is what ensuring value for public money looks like, and that is why we hope the Government will give due consideration to the amendment.

[Paul Scully]

In addition to the ordinary judicial review remedies available under clauses 72 and 73, clause 74 gives the CAT the power to make a recovery order. It may order recovery of some or all of a subsidy if it finds that a subsidy or scheme was made in breach of the subsidy control principles, prohibitions and other requirements. The effect of the order will be to require the relevant public authority to recover the subsidy from the beneficiary. The method of recovery, the amount to be recovered and the timeframe for recovery will be for the CAT to determine.

As we have heard, amendment 76 would make it compulsory for the CMA’s annual report to include details of all recovery orders made in that year, including the names of the public authority, the beneficiary and the amount to be recovered. I support the objective of ensuring that the process of reporting and managing recovery orders is transparent and accountable; however, this intent is already met by the process as it stands in the Bill. Recovery orders, by their nature, will be made public, and enforcement mechanisms exist to ensure that they are followed. Accordingly, there is no need to give the CMA this additional reporting duty.

[Kirsty Blackman]

It would be useful if the Minister clarified how recovery orders are made public and how we can find that information.

[Paul Scully]

I will happily do so. Recovery orders are given during a hearing by the Competition Appeal Tribunal to a public authority if that public authority is found to have given a subsidy that breached the subsidy control principles, prohibitions and other requirements. The cases heard by the CAT are usually held in public, with any ruling later published on the tribunal website alongside a transcript of the hearing. The names of the public authority and the beneficiary, and the amount to be recovered, would ordinarily all be published within that for recovery orders.

I was at the CAT a couple of weeks ago, and I saw the virtual courtroom where a hearing about the takeover of Newcastle United was recently held. The hearing was viewed by 35,000 people—mainly Newcastle supporters, I suspect. According to the president of the CAT, more people watched it than attend, on average, the games of all but 15 of the premier league teams. There is a good degree of interest in the CAT’s decisions, which will be publicly available.

[Kirsty Blackman]

I am really glad that the CAT is so open and transparent. It should therefore not be that difficult for the CMA to put in its annual report the results of all the recovery orders that are published on the website.

--- Later in debate ---

[Paul Scully]

I will address that point, but if the tribunal decides to make a recovery order, the public authority in question must recover a subsidy from the beneficiary in accordance with the terms of the order. Recovery orders will be enforceable in the same way as an order made by the High Court or, in relation to Scotland, the Court of Session. The tribunal will hold public authorities accountable for the subsidies that they give. As the process is already transparent and holds public authorities accountable to the regime, it is not necessary to give the CMA a reporting obligation for recovery orders.

The CMA’s annual report would also not be the right place for that information to be collated. The requirement to produce a report under the Enterprise and Regulatory Reform Act 2013 relates to the CMA’s functions. The Competition Appeal Tribunal, not the CMA, is responsible for recovery orders. The CAT already has the reporting systems needed for recovery orders. I therefore request that the hon. Member for Feltham and Heston withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. He is right that recovery orders are published alongside hearings, but they are not collated, and it is not possible to see them easily in one place in order to understand collectively what is going on. If we want to know where things are not going well and what is happening across the regime from an end-to-end point of view, it is important to have that information not just publicly available, but easily accessible.

[Seema Malhotra]

I thank the hon. Member for her comment, and she is right. When we develop legislation and introduce a regime, it has to stand the test of time and last beyond the time we spend in our individual roles. In five or 10 years, the Minister might have become Prime Minister.

[Paul Scully]

Not a chance, he says from a sedentary position.

[Seema Malhotra]

Others are starting their campaigns, so perhaps the Minister also will do so.

We need to think about making such information more easily accessible. We thought about whether the CMA should publish it simply because if we have data on the regime as a whole, it should not be too onerous to find a way of reporting some of it, perhaps in partnership with the Competition Appeal Tribunal. To enable us to see what is going on and where there are recovery orders, that would be useful alongside other information that we talked about, such as geographical information, so that we have an end-to-end view.

--- Later in debate ---

[Seema Malhotra]

The hon. Member makes a good point. I come back to our broader discussion about needing to have a clear view and how we can be efficient. Data collection and reporting requires thought and design about what will be most useful for coming forward into reporting and therefore fit for making decisions on. Nobody wants to collect the data for the sake of it; it is always for a purpose. How do we make it as streamlined, straightforward, accurate and quick as possible? It is worth coming back to this issue.

In the light of our earlier conversation about the Minister writing on what he expects to see in the annual report, that would also be an opportunity for us to revisit the issue and making sure that the reporting across the whole system is coherent and effective, as well as what would be annual and what would be in the more periodic reports. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

This clause gives the CAT the power to make a recovery order in addition to the standard judicial review remedies that will be available to the tribunal under clauses 72 and 73. As with the other remedies that will be available to the CAT, the power to order recovery will be at the CAT’s discretion. It will be for the tribunal to decide on a case-by-case basis whether the recovery of the subsidy is an appropriate remedy based on the facts in question. The CAT may decide a different remedy, or a combination of different remedies, is more appropriate depending on the facts in front of it.

The clause gives the tribunal flexibility in how the recovery order is framed to account for different types of subsidy that may need to be recovered. For example, the tribunal would have the power to decide how long a public authority should have to recover the subsidy and the means by which recovery is to be exercised. It will be for the tribunal to decide on a case-by-case basis the appropriate content of the recovery order. In many instances, it will be relatively clear which enterprises benefited from a subsidy that needs to be recovered, and relatively simple to require the public authority to recover the amount in question. However, there may be cases where the subsidy is complex in nature, with the tribunal concluding that it should be left to the public authority to calculate the exact amount to be repaid.

[Seema Malhotra]

I thank the Minister for his remarks. We support the clause.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clause 75

Appeals against decisions of the CAT

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Paul Scully]

The Competition Appeal Tribunal will, in the first instance, determine reviews of subsidy decisions by public authorities. In the rare instances where there are legitimate disputes on the meaning of the law underpinning a decision, it is important there is an ability to seek permission to appeal to a court of appeal. Appeals cannot be made simply because one party to the litigation does not agree with the outcome. There will have to be a genuine ground of appeal citing an error in the application of the law. The clause provides the basis on which appeals can be made as appropriate to the Court of Appeal in England and Wales or Northern Ireland, or to the Court of Session in Scotland. Appeals may be made on any point of law with permission either from the tribunal or the relevant appellate court.

[Seema Malhotra]

As the Minister said, the clause allows appeals to be made to the Court of Appeal or the Court of Session on any points of law. We support it.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Clause 76

Duty to provide pre-action information

--- Later in debate ---

[Seema Malhotra]

Clause 76 imposes a duty on public authorities to provide certain information to interested parties about a subsidy or a subsidy scheme. An interested party may request the information for the purpose of deciding whether to apply to the CAT for a review of a subsidy or scheme on the grounds that it failed to comply with the relevant subsidy control requirements. A request must be made in writing and the interested party must state that they are considering applying for a review. The public authority must respond to the request within 28 days and it may impose restrictions that it considers proportionate to protect commercially sensitive or legally privileged information.

Amendment 77 would mean that restrictions should be the minimum necessary when imposed to protect commercially sensitive, confidential or legally privileged information or information whose disclosure would be contrary to the public interest. Let us compare that with the current wording of the Bill, which is that the public authority may impose restrictions that it considers proportionate. The original wording is very ambiguous, provides too little guidance for the public authority and provides little recourse to challenge if it is determined that the restrictions imposed were in fact disproportionate. The restrictions imposed by the public authority should not be overly excessive. It is important that information that should be made public is made public to allow maximum transparency. If we keep the original text, a public authority could choose unnecessarily to make public more than is proper, hampering adequate transparency measures.

Amendment 78 would provide a proper route for challenge if a public authority imposed restrictions under subsection (5) that were found to be excessive. On amendment 79, we consider it proper that where restrictions have been imposed on the release of information to interested parties on the basis of, for example, commercial or legal sensitivities, there is an appeals process to ensure that the decision made was the correct one. That is essential to ensure that a public authority is not able to abuse its powers in deciding which restrictions to impose, and encourages the public authority to choose the minimum restrictions necessary or possibly face an appeals process.

Overall, although we believe that our amendments would substantially improve clause 76, we recognise the clause’s importance in allowing interested parties to make a request for information.

[Paul Scully]

The purpose of clause 76 is to put a duty on public authorities to provide certain information, at the request of an interested party, about their decision to give a subsidy or make a subsidy scheme. That is so that the interested party can decide whether to apply for a review of that decision at the CAT. The pre-action information request will allow claims to proceed more efficiently, and help to avoid unmeritorious challenges. The public authority must respond to the request within 28 calendar days, but can impose proportionate restrictions, as set out in subsection (5), to protect certain types of sensitive, confidential, legally privileged or other information that should not be disclosed. It is important that a public authority is able to impose those restrictions, as that may be needed to avoid potential legal challenges—for example, if certain information is subject to a legal duty of confidentiality, and to avoid disclosing information contrary to the public interest. Where a pre-action information request has been made, it is very clearly in the interests of the relevant public authority to provide a full return and to use with some caution the restrictions on providing those types of information. For that reason, this trio of amendments is unnecessary.

If a public authority abuses the provisions in clause 76(5) and provides insufficient information to clarify whether its subsidy decision complied with the subsidy control requirements, it is all the more likely that the interested party will proceed to a full challenge. If they do, the public authority may be required to disclose further information in proceedings before the tribunal. The public authority will have gained nothing.

I am very reluctant to agree to produce guidance on what might be the minimum restrictions necessary, because that will depend on the facts of each case. The risk that public authorities misuse the discretion that clause 76(5) gives them seems small and, as I have said, it is not in their interests to do so. That risk is smaller than the risk of producing unhelpful guidance that does not allow public authorities to disclose the right information in the context of each case. The amendments propose taking a sledgehammer to crack a nut. Ultimately, I am confident that, helped by the guidance, there will be a high degree of compliance with the regime and very few occasions when there are grounds for a challenge.

[Seema Malhotra]

The Minister may be coming to this point, but will he clarify the process he envisages in a case where there is suspicion that, rather than information being commercially sensitive, there is another reason for not disclosing it? Is there a way to challenge that or to appeal? We want to understand this; that is why we tabled the amendments.

[Paul Scully]

Yes, I will come to that.

I am similarly reluctant to agree that the Government should create a special route of appeal against public authorities’ decisions on what information to provide. There is only a remote chance that such a route would ever be needed, but there is already a route to challenge a public authority’s decision under the clause. Depending on the facts, the general right to judicial review in the High Court or the Court of Session may be available. As I said, however, we can be confident that there will be a high level of compliance, and I am even more confident that public authorities will not act against their own interests and those of subsidy beneficiaries by withholding information unnecessarily in a pre-action information request. It would be excessive to create a special route to challenge the way public authorities comply with these requests.

The Bill makes it firmly in a public authority’s interests to provide a full response to a pre-action information request and to take a sincere and serious approach to imposing restrictions on what information it provides. Inadequate disclosure would increase the chances of a full challenge, and with it the likelihood of further information needing to be disclosed in proceedings before the tribunal. Setting up an apparatus of guidance, regulations and special routes of appeal around the pre-action information request would be wholly disproportionate to the risks that the hon. Member for Feltham and Heston set out. I ask her to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his remarks. I am not entirely sure that he has identified an alternative route. On the basis that he thinks there could be a route, and to allow time to review and test that, I will not press the amendments today, but I would be grateful if he replied in writing on one specific point. If an interested party makes a request and, under subsection (5), the public authority imposes restrictions that it has reason to believe are spurious, for example, the Minister says that JR may be available. The question is whether JR is available. I would like him to state where and how there is the equivalent of an appeal mechanism. If he does that, I would be happy to say that we feel that that important issue has been dealt with.

The Minister also says that only in a small number of cases—I forget his exact words—might the provision be misused, but sometimes the point of having law is to make sure that it is there for such occasions. We cannot predict how many times a mechanism for appeal and challenge may be required, but one day, when he is, perhaps not the Prime Minister, but the Secretary of State, he might have reason as an interested party to use it. For the purpose of ensuring that there is a robust regime, it is important that we cover off this point. If such a mechanism is in the Bill, as he hopes it is, it would be good to have clarification in writing.

[Paul Scully]

I am happy to go again. The public authorities have a statutory duty. They understand their legal position and the legal duties. That is why I believe the number of such cases will be minimal. If public authorities do not provide the correct information, the interested party can go straight to the CAT for a full challenge, but judicial review is available in those circumstances. With three avenues, we do not feel it is necessary to create a specific one for this set of circumstances, but I will put clarification in writing.

[Seema Malhotra]

On the basis that I expect a letter from the Minister, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause imposes a duty on public authorities to provide certain information to interested parties about a subsidy or subsidy scheme. An interested party may request the information for the purpose of deciding whether to challenge the subsidy or subsidy scheme on the ground that the public authority failed to comply with the principles, prohibitions and other requirements in the Bill. To avoid being timed out on bringing a challenge, a request should be made before the expiration of the one-month challenge period, in writing, and the interested party musts state that they are making the request for purpose of deciding whether to review a subsidy or subsidy scheme decision. The public authority must respond to the request within 28 calendar days, but can impose proportionate restrictions to protect certain types of sensitive, confidential, legally privileged information or other information that should not be disclosed because that would not be in the public interest. The purpose of the duty is to ensure that interested parties can make a well-informed decision on whether to commence a challenge against a subsidy decision.

[Seema Malhotra]

Having explained how we believe our amendments would have improved the clause, we acknowledge its importance in allowing interested parties to request information and therefore support its standing part of the Bill.

Question put and agreed to.

Clause 76 accordingly ordered to stand part of the Bill.

Clause 77

Misuse of subsidies

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Paul Scully]

The clause confers on public authorities the right to recover a subsidy that has been used for a purpose that is different from the one for which it was given. Public authorities give subsidies with a specific purpose in mind. They will determine whether the subsidy complies with the subsidy control principles in the Bill. They will reference the purpose for which the subsidy has been given. Many public authorities award subsidies through a written contractual arrangement that sets out the terms and conditions under which the financial assistance is being given; this is likely to state the purpose for which the assistance is being given.

[Kirsty Blackman]

I am sorry to interrupt the prospective Secretary of State mid-flow, but I have a question. Does the clause apply to subsidies below the de minimis threshold?

[Paul Scully]

I will come to that in a second.

It is good practice for the contractual arrangements to contain a mechanism allowing public authorities to recover a subsidy if the terms and conditions are breached, including whether the subsidy is misused. However, not all subsidies are given through contractual arrangements, and those may not have a mechanism to recover the subsidy if it is used for a different purpose. Public authorities may have other private law rights that enable them to recover the subsidies in those circumstances. The clause is designed to avoid any uncertainty by conferring on public authorities a right to recover subsidies used for a purpose other than that for which they were given. The new right to recover is enforceable as if it were a contractual right and does not affect any other remedies that might be available to the public authority with respect to the award of the subsidy in question.

[Seema Malhotra]

I am grateful to the Minister for his comments and to the hon. Member for Aberdeen North for her question, which is important.

As the Minister outlined, the clause gives public authorities the power to recover subsidies used for purposes other than the purpose for which they were given. That is an extremely important stipulation. Subsidies should be used only as intended, in line with the subsidy control requirements, and as agreed between the public authority and the recipient. We will support the clause standing part of the Bill.

[Paul Scully]

May I write to the hon. Member for Aberdeen North on her question? I am not sure whether the clause will apply, but I will write to her.

[Kirsty Blackman]

Thank you.

Question put and agreed to.

Clause 77 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.—(Michael Tomlinson.)

Subsidy Control Bill (Ninth sitting)

Paul Scully Excerpts

Tuesday 16th November 2021 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship, Mr Sharma. I thank you for continuing to turn up to our ongoing and extensive deliberations. I thank the hon. Member for Aberdeen North for her comments. She is right that we have tabled a coincidentally similar amendment to hers. I support all the arguments she made. She is right that the Opposition amendment suggested slightly greater flexibility than the SNP amendment, partly because of our thinking on how long it might take to actually get the information to be able to add more meaningful assessments and recommendations to the monitoring of and reporting on subsidy control.

The clause rightly requires the CMA to undertake a periodic review of the effectiveness of the Bill’s operation and its impact on competition and investment in the UK. The Secretary of State may also direct the CMA to prepare a report in respect of a specified period. I am not fully sure whether that allows for some flexibility if issues are identified; perhaps the Minister can respond to that point. However, the review is important because the new regime contains many significant differences from the EU state aid rules in the processes that we will follow. Those processes, which I think have the support of the House, require safeguards to be in place, because they are not in place in a system in which some of the review and scrutiny is done up front. We cannot embark on this without making sure that there are safeguards on the use of public funds, adequate scrutiny measures and a system for learning what works well and what may not. For example, there may be a learning curve for public authorities, businesses and the Government alike, so it is important that the regime is subject to this regular review. It is good practice and it is important for value for money, for accountability to the taxpayer and to assess the effectiveness of the regime and make any necessary changes.

It is important that the regime is subject to regular review. I think we are joined here in the view that five years is not regular enough, particularly given the very good example of having three elections in five years. Politics is not always certain, yet we want that certainty to be in place. We want the learning to be fast cycle; it is good practice to learn in a more fast-cycle way. Perhaps the Minister could clarify why this time period was selected. Five years would effectively provide for one report per Parliament, assuming that we have a five-year Parliament.

What is more, five years is a significant amount of time to have passed before the first review of the effectiveness of the operation of the regime. There could be significant inefficiencies that cause substantive negative effects within that timeframe, and Parliament would be none the wiser without that informed view and assessment from the CMA. Labour tabled amendments 61 and 62 to reduce the reporting period laid out in clause 65 to every three years, which would allow for enough data to come through and for a cycle of meaningful reports that could take into account recommendations for change and assess how effectively the intended outcomes had been delivered. As a minimum, that is a more appropriate timeframe for reviewing the new regime. I would be grateful to know whether deciding on five years followed discussions with the CMA. If those discussions did happen, what was the CMA’s feedback? Engaging with the CMA is important, and there may be the need for challenge if Parliament has a different view.

As well as giving Governments more opportunity to make changes to the regime, including legislative changes and process improvements, any problems with the regime would be resolved considerably earlier because, let’s face it, if we have five years to do something, it may be left until the last minute. We want to ensure that Parliament is also responsive to any changes and plays its part in ensuring that the regime, and any changes, can be reviewed effectively every three years.

I hope the Minister recognises why five years is too long a reporting period, takes on board the comments of the hon. Member for Aberdeen North and her party and those from Labour, and perhaps offers some feedback to the Committee on why five years was suggested. Does the Minister recognise our arguments, and would he be prepared to include a review in the later stages of the Bill?

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

It is a pleasure, as always, to serve under your chairmanship, Mr Sharma. As we have heard, clause 65 requires the CMA to produce a report on the overall effectiveness of the regime and its impact on competition and investment within the UK. The monitoring report is to be produced in relation to the first five years following the Bill’s commencement and for every subsequent five-year period. That interval was chosen specifically as an appropriate length of time over which to consider the wider impacts of the regime as a whole and to evaluate its overall effectiveness during a period in which a sizeable number of subsidies would be given, so that the medium-term effects could be properly considered and evaluated.

The period is consistent with the maximum length of a parliamentary term, as we have heard, ensuring that there is a regime-wide assessment of the regime at least every normal parliamentary term. Producing such a report is a significant undertaking, requiring a good amount of time to gather and analyse the evidence. Five years strikes the right balance between the time needed to observe how the new regime is working and the benefit of timely analysis and evaluation.

[Seema Malhotra]

I thank the Minister for giving way, and I appreciate his comments. However, he has not explained whether periods of time other than five years were assessed, and has not yet explained—perhaps he will—whether the CMA was involved in the discussions. Given the work of the subsidy advice unit and all the other work going on, producing a report every three years will not be too onerous if it is part of business as usual. What consideration has been given to other time periods?

Perhaps the Minister can also clarify something. Does he see that if a report arrives in year four of a Parliament and some legislative changes are required and then we have an election, that would not be a sensible way of running a regime that requires some interplay between Parliament and the devolved Administrations? More frequent reporting at three years, which is not too onerous—it is as long as it takes to complete a common degree—would make a difference and allow for changes to be brought through.

[Paul Scully]

To be fair, I had only just started making my remarks. However, whether it is butting up against elections or not, that could equally be the case in three years as well as five years. However, five years was chosen, as I said, basically to correspond roughly with the standard parliamentary term; it gives a good amount of time for good and meaningful data to be collected and analysed; and it is also consistent with the monitoring reports of other bodies, such as the Office for the Internal Market.

Clearly, we work with the CMA on this issue and other issues. The CMA will work on the subsidy control regime in the future; we work with it very closely. In the evidence session, Rachel Merelie talked about the fact that there may be merit in the CMA providing advice more frequently at the request of the Secretary of State, and that is exactly what is set out in the Bill, so that the frequency of reporting can be changed, which I will come on to shortly.

We have heard that the various amendments will reduce the key periods, down to either two years or three years, depending on the particular amendment. I will cover the amendments in turn.

First of all, amendment 29 would require the initial monitoring report to be produced within two years of the Bill gaining Royal Assent, as opposed to within five years. Well, I have talked about the fact that five years would normally be the appropriate timeframe, so that the wider evidence and the consequences can be properly considered. I agree that circumstances might arise that could make it beneficial for any monitoring report on the new control regime to be produced within a shorter timeframe. That is why clause 65(4) says:

“The Secretary of State may direct the CMA to prepare a report in relation to a specified period.”

And the Secretary of State will provide the means for an earlier report if it should be considered necessary. Therefore, I believe that amendment 29 is unnecessary.

Amendment 30 relates to the reporting frequency. Again, I understand the desire of the hon. Member for Aberdeen North for more frequent reporting. However, reducing the interval between the reports by the subsidy advice unit to one year is not necessary and could divert resource from other important activities.

Equating more frequent monitoring reports with improved scrutiny and transparency might seem attractive, but in reality it could well have an effect opposite to that intended by the hon. Member, resulting in more superficial reports, which would be less useful in assessing the overall effectiveness of the subsidy regime.

Clause 66 already requires the subsidy advice unit to provide annual reports to Parliament, in order to provide transparency in referral cases that it has handled throughout the year. The monitoring reports set out in clause 65 go beyond that, covering the functioning of the whole regime and not just the specific role of the subsidy advice unit. By necessity, those reports take longer to produce, so that there is sufficient quality data for the subsidy advice unit to consider.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It may seem tempting to wrap all this stuff in lots of scrutiny, but does my hon. Friend agree that red tape costs money? Wrapping the economy in red tape costs money. Ultimately, the cost of that has to be borne by the taxpayer. He is absolutely right to say that at any point in time the Secretary of State could ask the CMA to consider whether there is any evidence of problems with the provisions in the Bill. Better to have that arrangement than simply to ask for review after review, for which there will be a cost to the taxpayer.

[Paul Scully]

My hon. Friend is absolutely right, as usual; we do not want reviews for the sake of reviews. It is good to have a focus, but it is also good to be able to look at the meaningful evidence rather than distract attention and resource from what may be important scrutiny by the subsidy advice unit itself in its day-to-day work. Such reviews would obviously put pressure on public authorities and the awarders as well.

It is important that we ensure that the unit has sufficient time to collate and analyse the evidence. Reducing the amount of time available to produce these monitoring reports would only result in less useful reports, as there would not be good enough quality data available for the unit to assess, nor sufficient time for it to collect and analyse the data that is available. And it would indeed divert resources away from the subsidy advice unit’s other functions, which could, for example, reduce the capacity to accept voluntary referral requests from public authorities.

Amendments 61 and 62, which are meant to be considered together, were tabled by the hon. Member for Feltham and Heston. They are obviously very similar to amendments 29 and 30, which were tabled by the hon. Member for Aberdeen North.

Amendment 61 would require the subsidy advice unit’s initial monitoring report to be produced within three years of the Bill gaining Royal Assent, as opposed to within five years. I have already said that five years would normally be the appropriate timeframe. However, I agree that in some situations it would be beneficial for the monitoring report to be produced within a shorter timeframe. For that reason, we already have the powers set out in clause 65(4). As I have already said, clause 65(4) says that

“The Secretary of State may direct the CMA to prepare a report in relation to a specified period”,

should that be necessary. As such, I believe that amendment 61 is unnecessary.

--- Later in debate ---

[Kirsty Blackman]

I apologise—I did not make myself clear. When I talk about a lighter-touch report, I am talking not specifically about the amendments but about the fact that there should be a third approach in the Bill. If the Government are not going to move from five years—if the five-year reporting period for this deep dive report is going to remain—and we have the annual reports suggested in clause 66, which are too light touch and are just about the numbers, there is a case to be made for a middle step: a report that contains a little bit more than just the numbers, but not quite as much as that potentially costly review. That is not covered by the amendments; I am simply suggesting that the Minister consider it.

[Paul Scully]

I think the middle way that the hon. Member is talking about is actually what clause 66 does. The clause notes the bare minimum of what that the annual report should include. There is plenty more that the CMA can and should include—we are giving it the bare minimum.

[Kirsty Blackman]

That is a hugely helpful clarification. If parliamentarians or anyone else do not believe that the data included in the annual report is transparent enough, the Minister is open to us writing to the Secretary of State to request that it include more information.

The Minister has been clear throughout the course of our deliberations that a number of the changes made by the Bill are about ensuring that things can be done at speed. The tax measures and other things that were put in place because of covid had to be done very quickly—nobody is disagreeing with that—but such an approach can result in unforeseen circumstances. As such, if something started and finished during the course of a five-year period, we would not know anything about its efficacy. We would not know whether it had made a difference in the way intended until significantly after it had ended.

The Secretary of State has the ability to require those additional things. If specific funding is going to be put in place for natural disasters, for example, or any other issue we have discussed, it would be helpful if the Minister would consider asking the CMA to do an additional report, asking: “Did this work as intended? Did the funding subsidy for natural disasters achieve its aims? Could it have been done through means other than subsidies? Was there a requirement for it to comply with everything in these provisions? Would it have been easier if they had not had to jump through certain hoops in order for the subsidy to be given more quickly?”

I think that this provision does not go far enough. The Minister’s clarification about clause 66 is really helpful, and I am sure that both the Opposition and my party will continue to suggest areas where transparency could and should be improved. We will take our opportunity as parliamentarians to lobby the Government, and if there are specific concerns or issues that we believe require a report, we will request that such a report be undertaken. I wish to press amendment 29 to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

As we have already discussed, clause 65 sets out the requirement for the unit to produce a report on the overall effectiveness of the subsidy control regime and its impact on competition and investment. Outside the broad content of the report, the Bill provides that the unit can draw upon powers set out in sections 41 to 43 of the United Kingdom Internal Market Act 2020 to gather information from public authorities, businesses and other persons in the service of producing its monitoring report.

In addition to the information-gathering powers of the 2020 Act, the unit can draw on other existing provisions that the CMA has under the Enterprise Act 2002 to engage with a wide range of stakeholders, and even commission new research in order to meet its statutory duties. Outside of those specific provisions, it is intended that the subsidy advice unit will have discretion on how to approach its monitoring functions.

We have heard that amendment 63 would require the subsidy advice unit to specifically consult the Secretary of State, Scottish Ministers, Welsh Ministers and the Department for the Economy in Northern Ireland in preparing a report. In preparing its monitoring report, the subsidy advice unit will want to seek information from public authorities across the UK, both in their capacity as subsidy granters and in relation to their various policy-making roles. That will be necessary in order to develop a balanced view of the function of the regime and its impact on competition and investment.

Highlighting the role of the Secretary of State and their contemporaries in the Bill gives rise to the question why other parties have been omitted. Why not also specify, for example, that the subsidy advice unit should consult regulators, businesses or their representative groups, or any number of other specific persons? The reason we have not specified individuals with whom the subsidy advice unit must engage is so as to afford it the maximum flexibility to undertake its monitoring function appropriately and as it thinks fit. The unit can also draw on the wealth of institutional knowledge that the CMA has, specifically related to the protection of competition. It is therefore unnecessary to direct the unit’s subsidy monitoring functions in the way intended by the amendment.

Amendment 64 also concerns the subsidy advice unit’s relationship with devolved Administrations in the fulfilment of its duties, and would require that its regime monitoring reports be laid before the relevant legislatures in Northern Ireland, Scotland and Wales, in addition to the UK Parliament. Hon. Members will undoubtedly point to the example of the Office for the Internal Market’s reports on the functioning of the UK internal market, which are laid before all four UK Parliaments.

Although the Office for the Internal Market also falls under the umbrella of the CMA, it is a uniquely constituted body reflecting the specific role and relationships that it has with the Administrations in all four UK countries. We have consciously not followed the governance model established by the Office for the Internal Market for the subsidy advice unit. Subsidy control is and will remain a reserved policy matter. The subsidy advice unit will be formed as part of the CMA, a non-ministerial department that serves the whole of the UK. It is therefore appropriate that the CMA and, by extension, the subsidy advice unit reports to the whole UK Parliament.

[Kirsty Blackman]

May I ask the Minister—sorry if I missed it—to say explicitly whether he would expect the CMA to consult the devolved Administrations in the preparation of the five-year report?

[Paul Scully]

As an awarding body, I fully expect the CMA and subsidy advice unit to speak to all the devolved nations as well as public authorities. That does not specifically need to be in the Bill, for the reasons I have given about excluding others. Given that subsidy control is and will remain a reserved policy matter, it is right that the UK Parliament considers and scrutinises the report. I therefore request that the hon. Member for Feltham and Heston withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. The devolved Administrations are distinct from other institutions because they are democratic institutions. For a regime that has to be accountable, it is important that the voice of those bodies and of Ministers, and others who may well have a view, are consulted. It is important to distinguish democratic institutions from others. The Minister is right that there will be a whole range of people who may want to contribute their views, and I am sure that the CMA will find a mechanism for seeking views.

I want to push amendment 63 to a vote because if this is something that should be done anyway, we want to ensure that it is done. Making sure at key stages that the voice of the devolved Administrations, and indeed of the Secretary of State, are formally heard will add significant insight to what will be in that report. We want that report to be the best it can be.

Question put, That the amendment be made.

--- Later in debate ---

[Kirsty Blackman]

I have a couple of other comments and suggestions. The laying before Parliament is, as has been said, a limited way in which parliamentarians can interact with the report. It is great that it is being laid before Parliament, but a ministerial statement, whether written or oral, would help in not just raising the profile of the report published by the CMA, but making clear what the Government intend to do about any deficiencies that have been created. Alternatively, there could be a requirement in the legislation—I might think about this for Report—for the report to go before the Public Accounts Committee or the Business, Energy and Industrial Strategy Committee, whichever would be more relevant, in order that it could scrutinise the report and ensure that it was taking evidence and creating a report with recommendations to the Government on what needs to be changed.

If the reporting period is to be only every five years, I assume that there will not be immediate—as soon as the report comes through—change happening and that it is likely that there will be a mulling-over period once the report comes in, so that, as the Minister said, the medium-term changes and so on can be assessed and any changes can be made to the legislation. In that case, a written statement or an oral statement being made, whereby we could ask any questions that we needed to, or a more in-depth report by one of the parliamentary Select Committees, would mean that Parliament had a stake, Parliament was invested, and Parliament was assisting in making the changes that the CMA required or in suggesting how to make the changes.

I am sure that the Minister would be the first to admit that the Government do not have every one of the answers. They may have a lot of the answers, in his view, but they do not have every one of the answers, and that is why consultation is hugely important with external organisations but also with those of us who are elected to scrutinise legislation, to scrutinise what the Government are doing, and to try to make the most appropriate changes so that things work, in the interest of spending public money appropriately but also in the interests of our constituents and the people of the UK.

[Paul Scully]

The hon. Member for Aberdeen North is absolutely right to want to improve the system. That is exactly the incentive; we need to improve the system. A number of mechanisms are available already. The BEIS Committee and the Public Accounts Committee can indeed call the report in and consider it, and there are urgent questions and any number of other mechanisms. I understand and appreciate the suggestions. There are mechanisms there.

The main purpose of the function of reporting, as I have said, is to provide a measure of objective scrutiny for the regime. Parliamentarians can consider the report and feed into the process of monitoring and continuous improvement of the regime, as can Government themselves. That objective assessment, based on the information that has been gathered, will be a really valuable and transparent mechanism to demonstrate what is working and what may require improvement. It will of course fall to the Government to provide a suitable response to any issues identified by the report.

The amendment tabled by the hon. Member for Feltham and Heston would put in place an arbitrary and constraining time limit of 30 days within which the Secretary of State must assess the findings from the unit’s monitoring report and then provide details for addressing any potential issues. Without prejudicing what the content of any future monitoring report might be, it seems unlikely that this amendment would have the effect of promoting effective and well considered changes if they were required, because the amendment, by tying the Government’s hands in this way, would risk hurried and ineffective solutions to any issues identified by the SAU. The monitoring reports will represent the culmination of many months of work by the SAU, so it is right that the Government should respond appropriately. However, arbitrary, short deadlines are not likely to promote sensible changes, especially if there is a need for substantive change.

This amendment also offers little benefit in relation to improving the transparency of the regime. First, monitoring reports will already be published for all to see. Secondly, many of the tools provided by the Bill require further scrutiny by Parliament through the means of affirmative regulations, which require debate and, ultimately, the agreement of parliamentarians in both Houses before they can be enacted. Transparency is one of the cornerstones of the new subsidy regime, and continuous improvement is one of the essential principles of good governance. The amendment would do nothing to enhance either of those aims and may in fact prove detrimental to them by forcing an artificially rushed response to the SAU’s finding. I therefore request that the hon. Member for Feltham and Heston withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. On the basis of some of the discussion, and the suggestion about what role Select Committees might play, issues with the report are perhaps something we can review and discuss offline with the Minister. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause requires the subsidy advice unit periodically to review and report on the effectiveness of the operation of the subsidy control regime and its impact on competition and investment. This report should be prepared every five years, or more frequently if requested by the Secretary of State. This review mechanism will ensure that the new subsidy control regime continues to operate effectively, based on experience of how it is working in practice and the impact it is having on competition and investment. The report will be published by the SAU and laid before Parliament.

[Seema Malhotra]

This is an important clause and we support its standing part of the Bill.

Question put and agreed to.

Clause 65 accordingly ordered to stand part of the Bill.

Clause 66

CMA Annual Report

[Kirsty Blackman]

I have just a couple of points to make. We have already raised a number of concerns about the limitations of the transparency that will be provided, particularly on the subsidies that will be on the database and our inability to get any meaningful information from it, because so many of the subsidies that will be made will be excluded from being on the website by merit of their being below the de minimis threshold. We continue to have concerns about that.

The amendment simply asks for transparency data and for the CMA to produce in its annual report data that it has already. These are data that the CMA will have within its local key performance indicators—stuff that it will be considering anyway. It will know the number of extensions and voluntary referrals that have been made. This is not an additional piece of work that the CMA will need to do. It is simply ensuring that such information is added to the annual report, rather than putting an additional burden on the CMA. It is stuff that the CMA will be measuring anyway—if it is not doing so, it is not a public organisation that is working sensibly. This is basic, bread-and-butter stuff, and it means that we would be able to scrutinise properly and have an idea of what is happening.

The points made by the hon. Member for Feltham and Heston, particularly in relation to the resourcing of the CMA, are incredibly important. We want the CMA to be adequately resourced so that it can carry out its functions effectively, because the system does not work if the CMA is not adequately resourced. We will struggle to know whether the CMA has adequate resource if it is not producing data on the number of extensions that it has required. As I say, the amendment is eminently sensible, and I look forward to hearing what the Minister has to say in response to the speech made by the Opposition spokesperson.

[Paul Scully]

The Enterprise and Regulatory Reform Act 2013 requires the CMA to prepare an annual report of its activities and performance during the year. Clause 66 requires the CMA to include details within its annual report of any subsidies and schemes that have been referred to the subsidy advice unit in the previous year, including both mandatory and voluntary referrals. The purpose of including that information is to provide transparency on the number and types of cases being referred to the SAU each year.

Amendment 66 adds to the information that the CMA would be required to append to its annual report in ways that we believe are overly prescriptive. It would limit the CMA’s flexibility to determine what information to include in its annual report and the most effective way to deliver that. Some of the information that the amendment mandates would not be accessible or consistently available. For example, the requirement that the CMA publish the proportion of cases where the SAU found that a public authority’s assessment required improvement, or where it identified a risk to competition and investment, misunderstands the role of the SAU.

The SAU will evaluate the public authority’s assessment of whether the subsidy or scheme complies with the Bill’s requirements. It will also evaluate whether there are any effects of the subsidy or scheme on competition or investment in the UK. The SAU may include advice about how the public authority’s statement might be improved or modified to ensure compliance with the requirements of the Bill, but the SAU is not a regulator. It will not make its own independent assessment of potential risks to competition and investment, or make definitive judgements on the extent of them.

Other requirements of the amendment are similarly unnecessary, including the requirement to publish the number of requests made by the SAU under clause 53(6) to extend the reporting period for a mandatory referral. Clause 53(7) already requires that such requests are published. In addition, the low number of mandatory referrals that we estimate in any given year will mean that calculating the average number of days for extension is unlikely to offer much additional insight into the subsidy control regime. It therefore need not be mandated for inclusion in the annual report.

The amendment would also require the CMA to publish geographical allocations of all subsidies subject to mandatory and voluntary referrals. That would be a burdensome task for the CMA, and would be difficult to comply with consistently. First, the amendment asks for information to which the CMA would not have ready access, since not all subsidies eligible for voluntary referral will be referred to the SAU. Secondly, if a public authority referred a scheme instead of an individual subsidy to the SAU, it would not be possible for the CMA to determine the expected geographic allocation of subsidies not yet awarded under that scheme. The same issue may apply to the beneficiary of a single subsidy that operates in more than one location.

The right approach is to provide the CMA with a degree of flexibility to determine what information about subsidies and schemes referred to the SAU is presented in its annual report. For the reasons that I have provided, I request that the hon. Member for Feltham and Heston withdraw the amendment.

[Seema Malhotra]

I thank the Minister and the hon. Member for Aberdeen North for their comments. I intended to press the amendment to a vote, but on the basis of some of the discussion I will not do so. However, I will challenge a couple of things the Minister said. We are all aware of where there could be burdens for the CMA or others in producing reports, but it is important to ensure that we have an X-ray view that provides insight into what is happening across the system as a whole. Where the CMA should have information that would be relevant, it may be useful to include it in the annual report.

The Minister talked about eligibility for voluntary referral, about which the CMA would not have information. We did not intend to include any wording around eligibility, and I do not think that we did. We talked about the number of voluntary referrals, and those for which the CMA decided not to prepare a report. It is important to ensure that our proposals are understood. I take on board what he said, I think in the debate on clause 65: that he would welcome suggestions from the Opposition, and perhaps from his own side, about what information would be useful. We all want to ensure that there is an effective and efficient regime. None of us wants to see unnecessary costs incurred, but we need transparency and the right information to inform the right decisions and the best response.

--- Later in debate ---

[Seema Malhotra]

It would be helpful, in the light of our conversation, if we could start with the Minister’s expectation. He may well have reflected on the discussion we have had today. That may a good and efficient way for us to come back with suggestions of what else might occur, or perhaps there will be full, total agreement on what we want to see in the CMA’s annual report; we do not know. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

In accordance with the Enterprise and Regulatory Reform Act 2013, after the end of each financial year, the Competition and Markets Authority must prepare and send to the Secretary of State an annual report of its activities and performance during the year. The clause requires that the CMA include details within its annual report of any subsidies and schemes that have been referred to the subsidy advice unit in the previous year, including referrals made on both a mandatory and a voluntary basis. That will help to provide transparency on the number and types of subsidies and schemes that have been reported on by the subsidy advice unit.

[Seema Malhotra]

Notwithstanding the comments we have made in the ongoing discussion, we support the clause stand part.

Question put and agreed to.

Clause 66 accordingly ordered to stand part of the Bill.

Clause 67

information-gathering powers

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause gives the subsidy advice unit—the SAU—information-gathering powers to assist with its monitoring and reporting functions under clause 65. It does so by applying, with modifications, the information-gathering powers that the CMA has under sections 41 to 43 of the United Kingdom Internal Market Act 2020.

Those powers enable the SAU to require that persons produce specified documents and that businesses provide estimates, forecasts, returns and other information that may be specified. The SAU will be able to require that the information be provided for the purpose of assisting it to review and report on the operation of the Bill, and on its impact on competition and investment within the United Kingdom. The SAU will have the power to impose financial penalties, where a person fails to provide information as required, or intentionally obstructs or delays the SAU when it is exercising those powers.

The Secretary of State is given the power to make necessary modifications to the powers, so that they work when applied for those purposes. Such modifications cannot alter the maximum financial penalties that may be imposed by the SAU. It is important that the SAU can obtain credible and comprehensive information, so that it can monitor and report on the subsidy control regime effectively. The ability to impose financial penalties for non-compliance provides a powerful incentive for persons to provide that information to the SAU and is consistent with the CMA’s existing statutory functions.

[Seema Malhotra]

The clause applies sections 41 to 43 of the United Kingdom Internal Market Act 2020 for the purpose of assisting the CMA in carrying out its functions on subsidy control. The clause means that the CMA will be able to give an information notice or require the production of a document by an individual, business, or public authority. We recognise the importance of allowing the CMA to give an information notice, so that it can monitor the subsidy regime effectively. We therefore support the clause standing part of the Bill.

Question put and agreed to.

Clause 67 accordingly ordered to stand part of the Bill.

Clause 68

Subsidy Advice Unit

--- Later in debate ---

[Paul Scully]

Clause 68 requires that the CMA establishes a new committee of the board, called the subsidy advice unit, for the purposes of undertaking the subsidy control functions set out elsewhere in the Bill. The unit would be a specific committee within the CMA dealing with subsidy control, exclusively comprising staff and members of the CMA. In the clause, “members of the CMA” refers to the chair and individuals who sit on the CMA board and the CMA panel of competition experts. “Staff” refers to the civil servants employed by the CMA.

Amendments 67 and 68 appear to misinterpret the relationship between the CMA and the subsidy advice unit. The CMA was chosen as the home of the subsidy advice unit because of the former’s experience of protecting UK competition and its credibility with both domestic and international stakeholders. Although the subsidy advice unit is being set up as a distinct unit, reflecting its unique role compared to the CMA’s other statutory functions, it would still be an internal unit of the CMA. Subsidy advice unit appointments are therefore internal CMA appointments.

Amendments 67 and 68 seek to allow the CMA chair to appoint non-executive members to the subsidy advice unit. However, the CMA can already recruit personnel to the unit with relevant experience in relation to Northern Ireland, Scotland and Wales. The CMA already can and does recruit staff and members from across the UK, and currently employs staff in Belfast, Cardiff, Edinburgh and London.

Amendment 69 goes much further, by requiring that the CMA seek the consent of the devolved Administrations before making appointments to the subsidy advice unit. However, as we have already established, subsidy advice unit appointments are internal CMA appointments. The amendment represents an unprecedented and unwarranted intrusion into the CMA’s internal operations, putting at risk the very independence that makes it such a desirable home for the subsidy advice unit’s function. I therefore request that the hon. Member for Feltham and Heston withdraws amendment 67.

[Seema Malhotra]

The Minister has said that having the voice of the devolved Administrations is unprecedented. Before I come back on whether we will press any of the amendments to a vote, can he clarify whether that is really unprecedented? He was involved in the Office for the Internal Market legislation in a way that I was not directly, so is there a difference in how the Office for the Internal Market is constituted in relation to the devolved Administrations?

[Paul Scully]

It is a different set-up. The Bill places a requirement on the CMA to establish a new committee of its board, to be referred to as the unit, which would consist of members of the CMA and staff. It does not have the same constitutional impact, not least because the subsidy advice unit will deal with the subsidy regime, which is reserved. In the same way as Ministers do not get involved in the day-to-day workings of the subsidy advice unit or the CMA to ensure their independence, it remains for the CMA to determine which staff it appoints to the unit.

[Seema Malhotra]

I thank the Minister for his comments. I do not think he fully answered the question, which is whether there is anything different about the representation of the devolved Administrations in relation to the Office for the Internal Market. Perhaps he can answer that specifically.

The Minister is right about allowing for independence, but it is independence to operate within a framework that I think is being set in the Bill. There is room for us to do this without challenging the independence of the CMA or the subsidy advice unit by simply laying out what Parliament would expect. Perhaps he can come back to me specifically on the point about the Office for the Internal Market and the voice of devolved Administrations in it.

[Paul Scully]

The Office for the Internal Market is a distinct set-up—it is a new set-up—whereas this is a committee within the board of the CMA. As I say, they are two distinct bodies. The OIM is overseen by the CMA, but it sits as a distinct body. The SAU sits within the CMA’s overall tree.

[Seema Malhotra]

And the devolved Administrations?

[Paul Scully]

The hon. Lady talks about the devolved position. The OIM sits as a distinct board specifically because of the constitutional impact of the United Kingdom Internal Market Act 2020. Because the SAU sits within the CMA’s board, it is very much an internal appointment. The OIM is not constituted in the same way. It is not for the CMA to make those internal appointments to the OIM directly.

[Seema Malhotra]

I thank the Minister for that, but I do not feel that he has been completely clear. These are not God-given institutions; we are talking about decisions made by the same Government. The question becomes whether there is a reason, and whether it would be helpful and effective in the way that the regime is set up and operates, to have independent expert voices that are from and work with the four nations of the UK. I do not feel that there has been a clear response to that important issue.

[Paul Scully]

The 2020 Act constitutes the Office for the Internal Market—we determined that—whereas the subsidy advice unit, being not a regulator but an organisation that offers advice, sits directly within the CMA. It is not setting up a discrete body; it is setting up a portion of the CMA. We have charged the CMA to set up the subsidy advice unit. Either the CMA is independent or it is not. The amendment charges us to get under the bonnet of the CMA’s internal appointments and direct it to make certain appointments, which risks undermining its independence.

[Seema Malhotra]

Perhaps the Minister and I will have to agree to differ on this point, because seeking to have particular areas of expertise reflected in the membership of the subsidy advice unit is not challenging its independence; it is setting out the expectation of Parliament. It is within the Minister’s gift to say that, and it could be contained in the Bill if we chose to do so.

--- Later in debate ---

[Paul Scully]

The SAU has the ability to bring in independent experts, including experts with interests in Scotland, Northern Ireland and Wales. The staff clearly have that expertise as well, which is why they have offices in each of the cities I mentioned.

[Seema Malhotra]

I think we will come back to the point that the CMA is likely to do what is required by Parliament and Ministers. It is important to remember that distinction: we are the ones who are making decisions on legislation, so we are accountable to the public and the taxpayer for making legislation that will stand the test of time and operate in the interests of the four nations of the UK, as is intended. That is not for the CMA to make decisions on; it will be looking to the Minister to advise and help make decisions on that. I put it to the Minister that making sure that the subsidy advice unit contains expert voices from across our devolved Administrations is an important part of how we make sure it is constituted to have the inputs we need. After that, as I am sure we all agree, there needs to be independence in how the CMA operates. There will be no determination by Parliament of which specific people should be on those boards—we need to separate those issues.

On the basis of what the Minister has said, I do not think the Bill currently goes far enough, so we will press amendment 67 to a vote.

Question put, That the amendment be made.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The purpose of clause 68 is to require the Competition and Markets Authority to create the subsidy advice unit as a committee of its board, and to allow the SAU to carry out subsidy control functions under, or by virtue of, this Bill on behalf of the CMA. This type of governance has the advantage of not requiring large structural changes within the CMA, while providing appropriate administrative ring fencing to allow the subsidy advice unit to carry out the subsidy control functions, existing as a discrete unit with its own character and brand.

[Kirsty Blackman]

A couple of questions have been raised about this clause. I am not particularly happy with how it works: I think more could have been contained in it. The questions from the hon. Member for Feltham and Heston have shown that there is a lack of clarity on what the subsidy advice unit means and how it will differ from the Office for the Internal Market, for example. The Minister will probably laugh, but it would be incredibly helpful if we were provided with an organogram that explains the work of the CMA, the SAU sub-committee, and the Office for the Internal Market, so that we can understand how it all goes together.

The Minister has been clear that the SAU sub-committee of the CMA board is a different thing from the internal market one. I do not entirely understand how it all fits together. I know that the Enterprise and Regulatory Reform Act 2013 explains some of it, but all those pieces of legislation, in various different places, being mashed together still does not give a picture of how it will all work. If the Minister could agree to look at that, it would be incredibly helpful.

[Seema Malhotra]

I thank the Minister for his comments. Notwithstanding the debate we have had, the Labour party supports clause stand part, but some areas need to be reflected on, including how the Office for the Internal Market is working, and what we can learn for the CMA and this regime. Clarity ahead of Report would be very helpful to settle some of those questions.

[Paul Scully]

I will happily supply an organogram. Effectively, the Office for the Internal Market sits as a specific panel, whereas the SAU is a committee of the CMA and will go down on the CMA board. Working that way was the CMA’s preferred approach because that gives it discretion on how to design the operational processes for fulfilling the SAU’s functions.

[Seema Malhotra]

I accept that the structures are different, but sometimes we can learn from principles. There is a difference between structures, functions and principles, and we are quite interested in the principles point.

[Paul Scully]

I appreciate that, but I was saying that the CMA preferred this way because it allows the CMA to draw on its board and staff members, as well as on existing members of the CMA panel, as it sees fit. That avoids creating any additional complexity in the governance arrangements—as we have seen with the Office for the Internal Market, we do not want that to keep expanding. That allows the CMA to draw on the expertise of CMA panel members with established backgrounds in state aid and subsidy control who were appointed in anticipation of the functions under the new regime.

Question put and agreed to.

Clause 68 accordingly ordered to stand part of the Bill.

Clause 69

References to subsidy control groups

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The purpose of clause 69 is to enable the subsidy advice unit to make a reference to the CMA chair for the constitution of a CMA panel group under schedule 4 to the Enterprise and Regulatory Reform Act 2013. The provision gives the CMA the ability to refer certain subsidy control functions to its expert independent panel members as it sees fit.

[Seema Malhotra]

As the Minister has said, clause 69 enables the subsidy advice unit to make reference to the chair of the CMA for the constitution of a CMA panel group. We have no issues with the clause and will support clause stand part.

Question put and agreed to.

Clause 69 accordingly ordered to stand part of the Bill.

Clause 70

Review of subsidy decisions

[Seema Malhotra]

I beg to move amendment 72, in clause 70, page 39, line 30, leave out subsection (2).

This amendment would allow an application to be made to review a subsidy decision related to a subsidy given under a scheme.

The amendment would enable interested parties to apply to the Competition Appeal Tribunal for a review of the decision to give a subsidy or make a subsidy scheme. An interested party is defined in subsection (7) as

“a person whose interests may be affected by the giving of the subsidy or the making of the…scheme”

or the Secretary of State. Subsection (2) states that:

“Where an application for a review of a subsidy decision relates to a subsidy given under a subsidy scheme, the application must be made for a review of the decision to make the subsidy scheme”,

meaning that an application cannot be made in respect of a decision to give a subsidy under a scheme. The Bill is explicit on that matter.

The evidence from the law firm DWF is quite scathing about that aspect of clause 70:

“We also believe preventing challenges to awards made under a scheme runs contrary to the logic of the system, which seems to be to allow those affected to test the lawfulness of awards at the point they are affected.”

I would be grateful if the Minister could respond on that. Is it right that although an interested party may have suffered as a result of the awarding of a subsidy, if it is made under a scheme, they have no basis to bring a challenge? If that is right, can it be right?

Labour’s amendment reflects both our concern and a suggestion to remediate that deficiency, which is to leave out subsection (2). The result would be that an application to review a subsidy decision could also be made for a decision to award a subsidy made under a scheme. That seems to be one way to address the issue. I would be grateful for the Minister’s response, first, on the issue and, secondly, whether he thinks there is a better way to address it in legislation.

[Paul Scully]

Clause 70 sets out the terms under which an application for review of a subsidy decision may be made to the Competition Appeal Tribunal. The tribunal may review, on application by an interested party, a decision made by a public authority to give a subsidy or make a subsidy scheme.

As drafted, an interested party may not apply to the tribunal for a review of the decision to grant a subsidy under the terms of a scheme. An application may instead be made to review the making of the scheme itself. Before a scheme is made, the proposed terms must be assessed against the subsidy control principles; a scheme must not be made unless subsidies granted under it are consistent with those principles. Consequently, subsidies that comply with the terms of a scheme will comply with the principles and do not need a separate assessment.

Subsidy schemes have long been recognised as a convenient way to grant multiple subsidies—not least because of the administrative simplicity of making a single, scheme-wide assessment against the principles. It would significantly undercut the benefits of administrative efficiency of schemes if subsidies granted in line with the terms of a subsidy scheme were eligible for review by the tribunal.

I am not sure what harm the amendment is trying to remedy. Is it the risk that impermissible subsidies may be granted under a scheme? In such cases, either the scheme is non-compliant and can be challenged within the normal limitation periods, or the subsidy does not comply with the terms of the scheme it is granted under, in which case the non-compliant subsidy would be deemed a new individual subsidy, and could be challenged as such. I therefore request that the hon. Lady withdraw the amendment.

[Seema Malhotra]

I thank the Minister for giving way. Could he clarify—

[Seema Malhotra]

I thank the hon. Gentleman for that. Will the Minister clarify that last point, as to how a subsidy under a scheme could be regarded—if I understood him correctly—as a new subsidy, and treated as a new subsidy for the purposes of a challenge?

[Paul Scully]

The scheme can essentially be challenged under the Competition Appeal Tribunal against the principles. If a subsidy granted under a scheme is consistent with those principles, it is part of the scheme, and it is the scheme that would need to be challenged. If a subsidy granted under a scheme is not consistent with the principles, it is therefore not consistent with the scheme, and it would sit outside that. It could therefore be challenged.

[Seema Malhotra]

I must say that I find that a little confusing. I am not fully clear on how a challenge can be brought to a subsidy under a scheme to even determine—what the Minister said in relation to it. Perhaps I am missing the point here, but it currently seems to be very explicit: it ends up being about the scheme rather than an individual subsidy under the scheme. Nine out of 10 subsidies under a scheme may have no challenges against them, with only one being challenged.

--- Later in debate ---

[Paul Scully]

The scheme itself must already be consistent with those principles, so if any particular subsidy is given within the scheme, and it is not consistent with the principles, then it clearly cannot sit within that scheme itself, because it is inconsistent with the scheme that it is purported to be part of. Therefore, that will then be set aside and will be approachable for the CAT.

[Seema Malhotra]

Who would make that decision? It does not seem to be in line with the wording of the legislation.

[Paul Scully]

That is when the interested parties can approach the CAT on that basis.

[Kirsty Blackman]

rose—

--- Later in debate ---

[Kirsty Blackman]

If there is a subsidy that is given under a subsidy scheme, who decides that that subsidy was not eligible to be part of the subsidy scheme and is therefore applicable to challenge outside the scheme? I think that is part of the point that the Opposition spokesperson was getting at. There does not seem to be a mechanism for saying “That subsidy doesn’t fit within this scheme, and is therefore challengeable in its own right, rather than as part of the scheme”.

A subsidy is, by definition, one given under the scheme until somebody analyses that and decides that it is not applicable to be given under the scheme, but there does not seem to be a process for that subsidy to be categorised as something that should not have been given under the scheme. How does the challenge procedure work here?

[Paul Scully]

Essentially, if the public authority has wrongly given the subsidy as part of a scheme, it will be for the CAT to decide.

[Seema Malhotra]

I thank the Minister for his answer; I want to ensure that we correctly understand what he is trying to say. On the basis of what I think he is saying—that there may be a mechanism for challenging subsidies under a subsidy scheme—I will not press the amendment to a vote today, but I would like the Minister to explain, in writing, how he would see that scenario working, and where the power to bring a challenge sits.

I am still not clear where a determination—that a subsidy is to be treated as a subsidy, rather than a subsidy under a scheme—would come from. That does not feel clear, so let us get that clarified. If we could have that in writing, that would be extremely helpful. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Seema Malhotra]

I beg to move amendment 70, in clause 70, page 40, line 9, leave out

“whose interests may be affected by”

and insert

“who has sufficient interest in”

This amendment would alter the definition of interested party to make it consistent with clause 31(3) of the Senior Courts Act 1981.

The purpose of clause 70 is to enable interested parties to challenge subsidies before the CAT. It defines an interested party as

“a person whose interests may be affected by the giving of the subsidy or the making of the subsidy scheme”

or “the Secretary of State”. We are concerned that the definition is too narrow and is deficient in two respects. The definition of interested parties—the test that establishes standing for the purposes of judicial review—applies a test at subsection (7)(a), which seems narrower than under the Senior Courts Act 1981. The test under subsection (7)(a) is

“a person whose interests may be affected”.

By contrast, the test under section 31(3) of the 1981 Act is a person who

“has a sufficient interest in”.

While it may not seem so different on one level, it could have important consequences.

George Peretz and others have suggested that the definition of interested parties under the Bill narrows the standard public law right and could be interpreted as limiting those who could bring a challenge to parties whose commercial or financial interests have been affected. What would that mean for the ability of those acting in the public interest and not in a private interest to challenge a subsidy?

Let us use an example: the Good Law Project has serious concerns about the awarding of a tax relief to a particular business and does not believe the subsidy is consistent with the subsidy control principles. It is not inconceivable that the business could be owned by a friend or relative of a Minister who is awarding the tax relief or being involved in some other way. In light of the current climate around sleaze, perhaps it would not be surprising at all. Can the Minister clarify what standing an independent challenger, such as the Good Law Project, would have under subsection (7)(a) to bring a challenge to such a tax relief, and if not why not?

Labour proposes amendment 70 to make the definition of interested party consistent with section 31(3) of the Senior Courts Act 1981. It should not only be those whose financial interests are or may be affected and the Secretary of State who can challenge subsidies.

As Professor Rickard, professor of political science at the London School of Economics, explained in October:

“Thinking about who has a particular interest in challenging those subsidies, there may be good reasons to expand the potential set of challengers to ensure that it includes not just competitors but maybe also employees, trade unions, taxpayers or interest groups. That would give us more eyes on the subsidies to ensure that they are complying with the principles, ensuring value for money and achieving the economic outcomes that they set out to achieve.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 23, Q25.]

Does the Minister recognise that the subsidy’s impact can extend beyond those who are more narrowly defined as interested parties? The amendment could bring the test for standing in line with judicial review. It would be helpful if the Minister could clarify whether there was an intention to subtly deviate from the definition in the Senior Courts Act. We hope the Government recognise that it could be a way of improving how the Bill operates as well.

[Paul Scully]

I will go into a bit more detail in a second, but an interested party is any person whose interests may be affected by the decision in question. We are setting out a new UK-specific subsidy regime with unique rules. In that context, we have set out an intentionally broad definition of what constitutes an interested party. That said, the Competition Appeal Tribunal can exercise its discretion. We want to ensure that in each case the right people are determined to be interested parties. By exercising that discretion, the Competition Appeal Tribunal can build up a jurisprudence that is specific to and optimally used for the subsidy control context. The Competition Appeal Tribunal is an expert body in competition matters and has the right knowledge to make appropriate decisions on these questions of standing.

As we have heard, the amendment would require the CAT to adopt the test in the Senior Courts Act 1981, which states that a person seeking review of the subsidy decision must have “sufficient interest”. I understand that the hon. Member for Feltham and Heston intends that the amendment would broaden the scope of who can bring a challenge, but given the breadth of the existing test in the Bill, I do not think that she could be confident that her amendment would have the desired effect. In any event, it would bring along a body of case law that may be unrelated to the new subsidy control regime and could prevent the CAT from exercising its full discretion in each case. As I have said, it is a new system, with standalone enforcement through the CAT. It is therefore appropriate that the tribunal can decide for itself who can seek reviews of subsidy decisions.

The clause does not exclude any party whose interests may genuinely be affected by a subsidy. As such, I cannot see the advantage in changing the test for who can challenge a subsidy, as proposed in the amendment. The hon. Member for Feltham and Heston talked specifically about someone without a financial interest. As I say, that is why the definition of “interested party” is broad. It covers any person whose interests may be affected by a subsidy, and it will be up to the CAT to determine. We are giving the expert body the appropriate discretion to get the answers right in each and every case, and I therefore ask the hon. Lady to withdraw the amendment.

[Seema Malhotra]

This is an interesting and important discussion about who is included in the definition of “interested party”. I would like to reflect on the Minister’s comments and perhaps test them with expert advice and a detailed review of the definitions and explanatory notes for the Bill. On that basis, I will not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned.—(Michael Tomlinson.)

Oral Answers to Questions

Paul Scully Excerpts

Tuesday 16th November 2021 Commons Chamber

[Mrs Maria Miller (Basingstoke) (Con)]

9. What steps he is taking to tackle the misuse of non-disclosure agreements.

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

The Government have committed to changing the law to ensure that individuals signing non-disclosure agreements are able to make disclosures to the police and regulated health and legal professionals. We will also ensure that the limitations of each non-disclosure agreement are clear.

[Mrs Miller]

I thank the Minister for all the work that he is doing on this issue. Will he be bringing forward legislation to ensure that it is clear to all employers that non-disclosure agreements should never be used to buy the silence of victims, because that has no place in British society?

[Paul Scully]

I congratulate my right hon. Friend on the campaign that she is running alongside Zelda Perkins and others. She rightly highlights the Government’s commitment to the issue, as well as the previous Women and Equalities Committee’s excellent work in this area. The Government are committed to implementing legislation when parliamentary time allows, but I reassure her that we will crack down on the use of non-disclosure agreements.

[Mr Gregory Campbell (East Londonderry) (DUP)]

Will the Minister assure us that he will have discussions with his colleagues at the Department for Digital, Culture, Media and Sport to ensure that organisations and businesses that rely on public money, such as the BBC, do not use non-disclosure agreements to silence people who complain about bullying in the workplace?

[Paul Scully]

We have regular conversations with colleagues in DCMS. Some non-disclosure agreements have a commercial benefit, but the hon. Gentleman is absolutely right that inappropriate non-disclosure agreements must be stamped out.

[Huw Merriman (Bexhill and Battle) (Con)]

10. What steps he is taking with the Secretary of State for Transport to help support the aviation sector to decarbonise.

--- Later in debate ---

[David Linden (Glasgow East) (SNP)]

T3. Last month, I met Ed Burns, the managing director of H. Grossman Ltd, a toy company based in Glasgow East. Alongside the British Toy & Hobby Association, it is concerned about the growing number of unsafe toys being sold to UK customers by third-party sellers via online marketplaces. Will the Minister meet us to discuss the campaign to tighten up safety on children’s toys?

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

I thank the hon. Gentleman for that. The Office for Product Safety and Standards, over the period since the campaign was launched in April, has taken 10,000 unsafe products off the market, and it continues to work to identify products available online that pose a serious risk. We are reviewing the UK’s product safety framework in this area, but I will happily meet the hon. Gentleman.

[Sir David Evennett (Bexleyheath and Crayford) (Con)]

T7. I welcome the steps the Government have taken in the last month to reinvigorate the UK’s nuclear industry. Does my right hon. Friend agree with me that, thanks to this investment, we will have a cleaner, greener and more secure energy system that is less dependent on volatile fossil fuels?

--- Later in debate ---

[Nickie Aiken (Cities of London and Westminster) (Con)]

T8.   May I first pay tribute to the BEIS ministerial team for its outstanding work during the pandemic to support businesses in central London, and particularly the Minister for London, my hon. Friend the Member for Sutton and Cheam (Paul Scully), who I know has worked tirelessly, and I thank him? What I am hearing now as we rebuild our economy is that businesses across the Cities of London and Westminster are seeing a real rise in vacancies, which is inhibiting their ability to repair their balance sheets and recover their cash reserves and has halted their ability to grow their businesses. We have got the jobs, where are the workers? What steps is the Minister for London taking to help businesses even further, particularly in the hospitality, retail and leisure sectors?

[Paul Scully]

As Minister for London, every time I go and see a business or business representative organisation my hon. Friend has been there before to champion the Cities of London and Westminster and the central activity zone in London which is so important for the culture and ecosystem of our great city. We want to build a high-wage, high-skill economy, and the retail, leisure and hospitality sectors are at the heart of that. The strategy will include the reopening and we will build resilience through increased staff supply.

--- Later in debate ---

[Mrs Emma Lewell-Buck (South Shields) (Lab)]

Under this Government, the gig economy workforce has trebled in the last five years, fire and rehire is accepted, zero-hours contracts are supported, inadequate sick pay is ignored, and sanctions for non-payment of the minimum wage are absolutely pitiful. Why, then, did the Government ditch their own employment Bill and block the private Member’s Bill introduced by my hon. Friend the Member for Brent North (Barry Gardiner)?

[Paul Scully]

The UK has one of the best employment rights records in the world. We have made good progress in bringing forward measures that add flexibility for workers while ensuring the protection of employment rights, such as banning the use of exclusivity clauses in zero-hours contracts and legislating to extend the right to a written statement of core terms of employment to all workers. We will continue to make sure that we consider options to improve clarity on employment status, and we will bring forward an employment Bill as soon as parliamentary time allows.

[Peter Aldous (Waveney) (Con)]

In Suffolk and Norfolk, investment in research and development is vital to making the most of the opportunities emerging in such sectors as low carbon and life sciences, as well as to tackling pockets of deprivation, particularly in coastal areas. It is thus concerning that, in the Budget Red Book, the east of England is coupled with London and the south-east as an area from which spending on R&D will be diverted and in which it will be discouraged. Will my right hon. Friend work with his colleagues across Government to ensure that this discrimination against Suffolk and Norfolk is removed and is not included in the levelling-up White Paper?

ACAS Guidance: Publication

Paul Scully Excerpts

Monday 15th November 2021 Written Statements

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

I welcomed the publication on Thursday 11 November by the Advisory, Conciliation and Arbitration Service of their online guidance “Making changes to employment contracts—employer responsibilities.”

I strongly encourage all businesses to consider this new guidance on how employers should approach workplace problems that might conceivably require contractual changes. In the guidance, ACAS states that an employer should only consider dismissing and offering to rehire someone on new terms as a last resort. Before doing so, an employer must have made all reasonable attempts to reach agreement through a full and thorough consultation.

The guidance is available at: https://www.acas.org.uk/changing-an-employment-contract/employer-responsibilities.

[HCWS390]