SMEs: Access to Finance

Paul Scully Excerpts

Tuesday 9th November 2021 Westminster Hall

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

It is always a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate my hon. Friend the Member for Darlington (Peter Gibson) on securing today’s debate and on how he framed it. I pay tribute to him for his work as chair of the APPG on personal banking and fairer financial services. It is important that we continue to shine a spotlight on that. He has been a staunch advocate for smaller businesses both in his constituency and around the country, and he brings his own experience to bear on that. We also heard from my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who is a vice chair of the APPG and has brought so much fresh, new thinking to these areas, which is important for me, for the Economic Secretary to the Treasury and for the Government as a whole. We continue to respect and listen to the views of both my hon. Friends.

The business experience of my hon. Friend the Member for Thirsk and Malton has been instrumental in the framing of his words. Both my hon. Friends illustrated how deeply they care about small businesses and their contribution to the economy, which, as we have heard, provides millions of jobs. SMEs will be the backbone of the drive for growth, innovation and jobs, and we are absolutely determined to support them. That is why during the pandemic we protected small firms with our income support schemes, grants, and nearly £80 billion-worth of Government-backed finance to more than 1.6 million businesses. However, as we start our economic recovery, we need to shift our focus from emergency support to policies that will help businesses create jobs and invest. As the Chancellor has said, our plan is to make the UK the best place to start, grow and scale a business. The logic is simple. More start-ups and scale-ups will in turn help us in our mission to level up the country.

[Margaret Ferrier]

We need to ensure access to affordable finance UK-wide, so can the Minister tell us what steps the Government are taking to make sure that Scottish SMEs have the right level of accessibility?

[Paul Scully]

I thank the hon. Lady for that intervention. I mentioned levelling up the country, and she is absolutely right that we need affordable, diverse finances for SMEs right across the country, and that includes in Scotland. I want to make sure that we go further to make the UK the best place to start growth. It should not matter where we are in the country. It should still be the best place to start to grow and scale a business. That is as equally true of Scotland as it is of Wales, England or Northern Ireland. Brilliant businesses can be found everywhere in the UK. However, access to finance is undoubtedly skewed towards London and the south-east, and we need to rectify that.

At the Budget, we took some major steps towards redressing those regional imbalances. For example, the British Business Bank’s start-up loans have been helping entrepreneurs since 2012 with viable ideas that might otherwise struggle to obtain finance from more traditional sources. In fact, the bank has made 165 loans to businesses in Darlington, totalling more than £1.5 million. At the spending review, we built on that success, pledging another 33,000 loans over the next three years. That is not all for Darlington—it would be a significant number of start-ups there—but across the country. That is money that will get other great ideas off the ground.

Members have spoken of the need for strong local options for business; we absolutely agree. That is why the Budget committed a further £150 million to the bank’s successful Regional Angels programme, which helps entrepreneurs obtain early-stage finance across the UK. We also announced more than £1.6 billion for the British Business Bank’s regional funds, which provide debt and equity finance for SMEs to help them with their next stage of growth. Across those funds and start-up loans, CDFIs will continue to play an essential role to help get finance to underserved SMEs.

To answer the points hon. Members raised on CDFIs and mutual banks, community development financial institutions play a massive role in the landscape of alternative lenders, including those essential lenders providing credit to SMEs. They are such an important delivery partner for the start-up loans programme; 11 of the 21 start-up loans delivery partners are CDFIs. They account for approximately 30% of the loans issued through the scheme in 2021. More widely, the British Business Bank was working with 21 CDFI delivery partners, across a range of programmes, at July 2021. That includes the regional funds and the recovery loan schemes.

In addition, 14 CDFIs were accredited lenders for the covid loan schemes. In the wake of the spending review, we will continue to explore opportunities for collaboration between the BBB and CDFIs. The Government are also supportive of efforts to establish the regional mutual banks that we have heard so much about this afternoon across the UK. I understand that some prospective mutual banks have had success in raising capital from various sources, but they have also encountered some challenges. There are no plans directly to capitalise regional mutual banks, but I know the Government have been engaging with prospective mutual banks and are willing to explore solutions that are practical and proportionate.

My hon. Friend the Member for Darlington is not only not far from the Treasury in this place and constituency neighbour to the Chancellor, but the Treasury is moving a number of its operations to Darlington, his home town, which he represents. He will not have too far to go to knock on the door to further his case for regional mutual banks. I am sure he will be delighted to know that businesses will continue to obtain funding through all those schemes, along with those in the north-east and the wider south-west of England for the first time as we get regional funding for the British Business Bank increased.

The new regional funds the British Business Bank is setting up in Scotland and Wales, while building on its existing activity in Northern Ireland, will bring levelling-up opportunities for businesses across the UK. As the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) said in relation to Scotland, it is important that we support businesses wherever they are. The regional funds will support a wide range of businesses, including the innovative, high-growth firms that play such a big part in creating prosperity and opportunity. We are further turbocharging those firms through the £375 million Future Fund: Breakthrough, which sees the Government co-invest with private investors and businesses that are heavily focused on R&D.

Finally, as we have heard, the Chancellor announced the extension of the recovery loan scheme to 30 June 2022. From 1 January, the scheme will be open only to small and medium-sized enterprises and the maximum amount of finance will be £2 million per business. The guarantee coverage that the Government will provide to lenders will be reduced to 70%.

We also heard from Members about patient capital, and we are looking to improve access to longer-term sources of finance. We absolutely agree with my hon. Friend the Member for Darlington that we need to unleash the hundreds of billions of pounds in pension funds and other institutional investors for long-term investment. That is not just good for the wider economy, because it will support growth, but good for the customers who will benefit from the opportunities for returns offered by UK long-term assets. It is an area where we know we can and should make more progress. I am happy to say that this Government are taking significant steps in that direction.

We are implementing a plan to unlock more than £20 billion to finance growth in innovative SMEs. As part of this, British Patient Capital, a subsidiary of the British Business Bank, is supporting UK companies with high-growth potential to access the long-term financing they need to scale up.

We have also taken significant action to remove barriers to pension scheme investment in a wide variety of asset classes. Members may recall that in the Budget, the Chancellor announced the consultation on further changes to the auto-enrolment charge cap to remove barriers to higher-return investments, while ensuring vital member protections remain in place.

[Kevin Hollinrake]

I would like to put on record my thanks to the British Business Bank, which has done a fantastic job in engaging with the APPG over the last 18 months or so and a tremendous job in helping to get that money out of the door. In terms of releasing equity capital—the Minister talked about pensions, which is a very good move by the Treasury—I think Octopus also suggest we allow ISA investments into unquoted companies which, again, could provide a source of equity finance for some of the good, high-growth companies he was talking about. Would the Minister consider having a discussion with the Treasury about this?

[Paul Scully]

That is certainly something the Economic Secretary to the Treasury will have heard and will consider as we look to diversify finance, especially in longer-term projects. We have established the productive finance working group, which is an industry-led body, which has now published recommendations setting out how we can unlock new investment in those long-term assets. I am pleased to say the Financial Conduct Authority has just published its rules for a new long-term asset fund structure, which will make accessing illiquid assets easier and encourage investors to look increasingly further ahead.

Finally, we are encouraging asset management and pension funds to play their part. I am delighted to say that the Chancellor and the Prime Minister are planning an institutionalised investment summit later this autumn, which will be a chance to celebrate the progress and commitment to further industry-led action.

Although we undoubtedly need to do more to widen access to finance for business, we should not overlook the great support that existing lenders provide to our SMEs. Last year, in fact, members of the Finance & Leasing Association provided SMEs with more than £16 billion to fund new equipment, plant and machinery, or software. According to the British Business Bank’s “Small Business Finance Markets Report”, banks provided £104 billion in SME lending, up 82% compared with in 2019.

I am delighted that some major lenders are helping our Help to Grow scheme, which aims to boost productivity by giving entrepreneurs management training through the Help to Grow Management scheme, and helping them to adopt digital technology through Help to Grow Digital. I encourage all hon. Members in the Chamber and further afield to promote those schemes to their SMEs because they are incredibly important opportunities to boost productivity wherever they are in the country.

[Margaret Ferrier]

Government Department procurement processes usually mean that the cheapest quote wins the contract, which might mean that SMEs struggle to compete or operate at greater cost to their business. What steps are the Government taking to level the playing field for these contracts and encourage SMEs to apply?

--- Later in debate ---

[Paul Scully]

The Government have gone a significant way to try to simplify procurement options for SMEs. There is undoubtedly an unlevel playing field, as big businesses have the resource and capability of procurement specialists, which SMEs clearly do not. SMEs inevitably have to join the framework as subcontractors, which is not as easy for them or as good for the taxpayer, because it adds extra cost and extra levels. The Cabinet Office is always looking at the procurement framework to see what more we can do to have greater access for SMEs.

The greater the choice of finance options for small firms, the better. We know that challenger banks, including those in the FinTech sector, have the potential to make a real difference so, following the recent Kalifa review, we are rolling out initiatives that will help these organisations try out new ideas and grow.

To boost competition, we have also raised the banking surcharge allowance to £100 million from £25 million, which means that 35 banking groups will fall out of its scope completely. The British Business Bank has a specific objective to support diverse finance markets, and 94.5% of the finance supported by the bank’s core finance programme in 2020-21 was delivered through smaller, newer or alternative finance providers, exceeding its 94% target. I am sure that, over time, these measures will help to further widen small businesses’ finance options.

On the British Business Bank and its objectives, my hon. Friend the Member for Thirsk and Malton talked about delivering net zero. Indeed, we have implemented a net-zero objective within the British Business Bank, and therefore everything it does has to adhere to that objective.

The right hon. Member for Wolverhampton South East (Mr McFadden) talked about MREL, and the Bank of England is currently leading a review of that and its approach to setting a minimum requirement for own funds and eligible liabilities. The Treasury is working closely with the Bank, which is considering the responses to its consultation—the Bank will respond in due course. The Government and I thank the banks for their continued engagement. He also talked about bail-in debt, which is primarily a matter for the regulators, and it fits into that review, too.

The hon. Member for Motherwell and Wishaw (Marion Fellows) asked what will happen to the Government’s pandemic loan schemes, and we clearly have to get the balance right in ensuring taxpayers’ money is used well. As we heard from my hon. Friend the Member for Thirsk and Malton, a number of businesses that borrowed money did not necessarily need it, but they wanted the extra protection and are still sitting on the money. He is right that converting the money into a grant is probably not appropriate in ensuring that we get best value for money.

We clearly want to make sure that we address fraud, and we will have further updates on our estimate for fraud in the Department’s annual accounts, which will be published shortly and will be available to be inspected. We also have the pay-as-you-grow schemes. We have listened to businesses and have made sure to extend the exceptional support, allowing them to repay their bounce back loans on terms that work best for them. Businesses will be responsible for repaying any facility they have taken out, as is right and proper, but they will not necessarily be able to make repayments for the first 12 months or pay the standardised low interest rate of 2.5% afterwards, but the pay-as-you-grow options provide additional support to businesses throughout the life of their loans. We are trying to make sure we can flex as best we can to ensure that businesses have the best chance of recovering and succeeding.

This Government champion small businesses, and we have heard about the wisdom of people who run small businesses. This is not a macro consideration, and it is not just about a unit of economic activity. Entrepreneurs are taking a risk to set up their business, and they often take a personal hit to ensure that those who work for them can pay their bills. From my experience of running small businesses, I know that it adds a totally different perspective on life when someone is responsible for other people’s livelihoods. It is important that we have the human cost of getting it wrong at the forefront of our minds and that we see that small businesses can get the just rewards that they deserve for the risks that they are taking. However, it is also important that the people who work within small businesses get the opportunities that small businesses and SMEs inevitably can and will create as we recover and build back better. We want to ensure that the UK is a great place to be an entrepreneur. As I hope I have shown, we are focused on giving firms throughout the country the right tools to succeed, including access to finance to both launch and grow.

I thank right hon. and hon. Members once again for their excellent contributions to the debate. I look forward to working with everybody on this most important of issues over the months ahead.

Fireworks: Sale and Use

Paul Scully Excerpts

Monday 8th November 2021 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Twigg.

I congratulate my hon. Friend the Member for Carshalton and Wallington (Elliot Colburn) on securing today’s really important debate and at such a pertinent time, as ever. I algo congratulate him on his considered speech, which framed the debate on the e-petition that has been signed by so many people. I also thank the other hon. Members who have taken part in this debate, and I am grateful to the members of the public who took the time to sign the e-petition that has brought us here to Westminster Hall to discuss this important matter, because it has received more than 300,000 signatures and calls on the Government to limit the sale of fireworks.

Therefore, I will take the time to outline and explain the Government’s position on this matter, and to say, first of all, why we believe—although I understand that it is not the subject of this debate, as has been outlined—an outright ban on fireworks or an outright ban on their sale to the public is not the appropriate course of action.

We have concerns that banning fireworks in that way could have significant adverse and unintended consequences for public safety, particularly in leading to the emergence of a black market in illicit fireworks. There was a reason why there was not a 2019 debate on this issue. Yes, it was the year of a general election, but more importantly in 2019 the Petitions Committee conducted an inquiry on this issue, which I was a part of as a Member of the Committee, and the evidence given by interested parties aligned with the Government’s current view. Those interested parties included both the National Police Chiefs’ Council and the National Fire Chiefs Council.

The petition being debated today also highlights the concerns that some people have—understandably—about the impact of fireworks on vulnerable groups and animals. These are issues that I was only too pleased to discuss with my hon. Friend the Member for Dudley North (Marco Longhi) when we met back in July to discuss the fireworks survey that he had carried out in his constituency; as he said, it went somewhat viral. I really sympathise with those views, and I am always sorry to hear the stories of how some individuals and animals have been affected by fireworks. That is why the Government are committed to promoting the safe and considerate use of fireworks, and why we have been carrying out a programme of action on fireworks to ensure that those who use them do so safely and appropriately.

It is important to say that this is a highly regulated area, with a comprehensive regulatory framework already in place to control the sale, availability and use of fireworks. We believe that this framework strikes the right balance for people to enjoy fireworks while aiming to reduce risks and disturbances to people and animals. For example, current legislation sets an 11 pm curfew on the use of fireworks, with later exceptions only for the traditional firework periods of 5 November, Diwali, new year’s eve and Chinese new year.

[Patricia Gibson]

I interrupt briefly to ask the Minister if he believes that this “highly regulated area” is fit for purpose. Can he still say, given the concerns that have been raised today and in previous debates, that he thinks enough is being done? If not, what more can he do?

[Paul Scully]

I thank the hon. Lady for that intervention and hopefully I will flesh out some more of our thinking, including on enforcement and what other action is being taken.

There is a 120 dB noise limit on fireworks available to consumers. Retailers are restricted to only selling consumer fireworks during a limited period around each of the seasonal celebrations that I just referred to, and retailers may only supply fireworks to the public outside those periods if they obtain a licence from their local licensing authority. However, I fully appreciate that it is just as important to ensure that legislation is enforced effectively. We have heard of some issues where that has fallen short, but I will describe what powers and mechanisms are in place against the illegal sale and use of fireworks.

Local authority trading standards work with retailers to ensure that the fireworks that are sold are safe, and have powers to enforce against those who place non-compliant fireworks on the market. Trading standards and local fire and rescue authorities in metropolitan counties can also enforce against those selling fireworks without an appropriate licence—for example, outside of the normal selling period.

[Naz Shah]

Does the Minister share my concern that the licence he refers to does not require the people who sell fireworks to be fit and proper? Unlike for alcohol and cigarette sales, that is not stated in the legislation.

[Paul Scully]

The hon. Lady raises an interesting point, which I will take away and look at. I think that a licence can be easily revoked if the person holding it is not fit and proper, but she is right: the licence does not specifically say that, as far as I understand it. Those licences are given for a reason—to try to avoid those inappropriate sales—but that is something we can certainly reflect on.

The police, local authorities, and other local agencies have a range of tools and powers that they can use to respond quickly and effectively to antisocial behaviour, including the antisocial use of fireworks, through the Anti-social Behaviour, Crime and Policing Act 2014. Local areas can decide how best to deploy the powers in the 2014 Act depending on the specific circumstances.

[Rachael Maskell]

The example from my personal circumstances showed the Minister that the Act is completely ineffective, and therefore people are being put at risk every single day from fireworks being lobbed by young people who should not possess them. Will he not recognise that the structures that are in place do not work, and therefore put proper enforcement in place?

[Paul Scully]

We are never going to get a perfect situation. It was terrible to hear what the hon. Lady faced. One Member talked about the Republic of Ireland having tougher restrictions than we do, and it was terrible that only last month a lady in Galway had a firework fired into her face. Even with those tougher restrictions, there is no perfect situation, but we need to take an evidence-based, careful, proportionate approach. As I say, there is always more we can reflect on, but local police are best placed to understand what is driving the behaviour in question and the impact it is having, and to determine the most appropriate response.

[Dr Whitehead]

I hope that the Minister will not conclude his remarks on the question of evidence-based activities without saying where the report he mentioned last year actually is, and what he intends to do about it.

[Paul Scully]

I was not going to. Let me tackle that issue now: I talked about the fact that legislation already exists to limit the noise levels of fireworks available to consumers to 120 dB, and we said that we were going to work on a report on that topic. I freely admit that that report has not been published: the testing work on the noise was delayed due to covid and adverse weather conditions impacting the laboratory’s ability to carry out the necessary testing. However, the result of that testing will be available in due course, and we will reflect on what is in that report as we proceed.

[Mr Hollobone]

I look forward to the publication of that report. If neighbours ramped up the stereo and pumped out music at 120 dB every 5 November, there are laws in place to deal with that. However, as far as the Government are concerned, it seems to be socially acceptable to let off fireworks of up to 120 dB without any legal recourse at all.

[Paul Scully]

I understand my hon. Friend’s point. I would differentiate between a constant noise of 120 dB in a confined area and the more individual use of fireworks in an outdoor area, but none the less I take his point.

The Government are also committed to giving the police what they need to support local communities, including through the recruitment of an additional 20,000 police officers by March 2023 and investment in measures to make communities safer through the safer streets fund. That being said, I understand the challenges faced by enforcement authorities, and I assure Members that the Government are not complacent in this area.

[Jim Shannon]

Has the Minister had the opportunity to discuss the Northern Ireland legislation with the devolved Administration and the responsible Minister at the Assembly? I understand that there are exceptional circumstances, but that legislation seems at least to have led to some control over this issue.

[Paul Scully]

I have not had a discussion at ministerial level, but officials look at what is happening in Northern Ireland, Wales and Scotland—and in other countries. Clearly, there is a difference in the law in Northern Ireland, predominantly because of troubles and the historical context there; however, officials from the Office for Product Safety and Standards do look at that.

[Patricia Gibson]

The Minister is generous with his time. He has clearly set out how he thinks this should be dealt with, but it is not satisfactory for many of us. Will he support devolving power to regulate fireworks to the Scottish Parliament, so that we can choose our own path and solutions that fit our communities, given that his Government are not interested in going down that road for the rest of the United Kingdom?

[Paul Scully]

Scotland has put forward some proposals and there has been a consultation; I am interested in seeing what happens there. I am also aware that the Scottish Government are drafting a Bill on fireworks to be introduced next year; that primary legislation is still at the proposal stage. My officials engage regularly on the matter with officials in the Scottish Government; it will be interesting to reflect on what happens in Scotland as a result of that work.

We are continuing to engage with local authorities to understand the issues they face, and I am committed to working with my colleagues in the Home Office to ensure that the Government provide appropriate support.

[Sarah Owen]

I am glad to hear that the Minister is willing to work with Members, so I reiterate my question: will he meet me to discuss the subject and the measures outlined in my private Member’s Bill? What we have heard so far is that the current restrictions are failing people. What we are not seeing from Government is new action that will tackle the misuse of fireworks.

[Paul Scully]

I will happily engage with the hon. Lady on her private Member’s Bill.

[Robbie Moore]

Do not the examples given in today’s debate, including the yobs and hooligans in Keighley who fired fireworks at Keighley fire brigade only last week, demonstrate that fireworks are being purchased and getting into the wrong hands and that we need to look seriously at tightening the licensing provisions for the sale of fireworks?

[Paul Scully]

I was going to turn back to exactly that. In our polling, the Government found that 11% of the population want a total ban on fireworks, 36% want a ban on the private sale of fireworks, and, from memory, 64% enjoy the use of fireworks and want to be able to enjoy them both privately and publicly. We came to similar conclusions from our evidence as were reached by the Petitions Committee in its 2019 inquiry. In the extensive report setting out its findings, the Committee concluded that introducing further restrictions on fireworks was not the appropriate course of action, due to the potential unintended consequences. That was just two years ago. We agree with that position.

We acknowledge the experience of people who believe that banning fireworks would push the market underground and make it more difficult to regulate and monitor. We also agree with the Committee’s conclusion that such a ban would have a substantial economic effect on those who have built their livelihood in the fireworks industry. Restricting fireworks would probably also have dire consequences for community displays, which raise funds for good causes.

Due to those significant concerns, the Government believe that the most balanced course of action is to continue to pursue non-legislative measures on fireworks to complement existing legislation. That is the position we set out and committed to in our response to the Petition Committee’s inquiry. As such, we have been carrying out—

[Naz Shah]

Will the Minister give way?

[Paul Scully]

I want to leave my hon. Friend the Member for Carshalton and Wallington time to conclude, so I will not give way to my hon. Friend for a second time.

We have an ongoing programme of action for fireworks, responding to the key issues raised. This included commissioning the research by Ipsos MORI that provided evidence on consumer attitudes and behaviours around using fireworks in the UK. The key findings have informed our public awareness campaigns and support the need to educate consumers on use of fireworks, to commission noise research—admittedly yet to be published—to test the decibel level of commonly used fireworks, to engage with animal welfare organisations to better understand what specific issues they face, and to engage with the fireworks industry to consider what action it can take to promote consumer safety.

I draw hon. Members’ attention to one of the key commitments the Government made in response to the Petitions Committee regarding public awareness of the safe and considerate use of fireworks. We know that information and education are vital to address the key issues around fireworks. The Office for Product Safety and Standards works in partnership with animal welfare organisations, safety charities and the industry to develop an annual campaign on fireworks; the 2020 campaign was far reaching and had a potential reach of 2.6 million people on Twitter. We built and expanded on that success for the 2021 fireworks campaign, focusing on educating people on how to buy, use, store and dispose of fireworks safely; ensuring that retailers know and understand their responsibilities when selling fireworks; and promoting considerate use so that people and animals are better protected from any negative effects that may be caused by fireworks.

[Alex Davies-Jones]

Will the Minister give way?

[Paul Scully]

I will give way very quickly, but this will be the last time.

[Alex Davies-Jones]

I am grateful to the Minister for giving way, especially as he is short on time. When I met people from my local fire service this week, they mentioned the idea of a firework amnesty for people who purchase fireworks but end up not using them—perhaps because of poor weather—and have no way to safely dispose of them. They encouraged some sort of formal guidance around such an amnesty so that people could safely dispose of or hand in unused fireworks. Would the Minister support that?

[Paul Scully]

That is a really interesting idea. Any way of taking potentially dangerous things that will not be used correctly off the streets is well worth another look. More widely, we have partnered with the Royal Society for the Prevention of Accidents and other organisations, which will undoubtedly look at that as well.

In addition, this year the Government collaborated with the Association for Science Education to produce teaching materials for children in schools, to introduce messaging about safe and considerate use at an early age. I look forward to seeing the statistics from this year’s campaign, and would be more than happy to share those with hon. Members if they are interested. As I said, the Government are aware of Scotland’s new regulations and proposed new Bill, and we work closely with all the devolved Administrations. I would be really interested to see how that pans out.

I want to leave some time for my hon. Friend the Member for Carshalton and Wallington to wind up and reflect on the debate. I thank him especially, but also all the colleagues across the House who have come to show their interest in an incredibly important debate. Hon. Members should bear in mind that the Petitions Committee might want to update its report next year and take evidence before bringing a debate to Parliament. There is also the opportunity for an all-party parliamentary group, where Members can take evidence on those international comparisons, if they want to bring that kind of information to the Government and Parliament in future debates. I pay tribute to the work of the Committee.

Subsidy Control Bill (Seventh sitting)

Paul Scully Excerpts

Thursday 4th November 2021 Public Bill Committees

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

It is a pleasure to serve under your chairship, Ms Nokes. I thank the hon. Member for Aberdeen North for her remarks. She raises a number of important and pertinent issues around scrutiny, in particular about subsidies introduced by the Secretary of State.

The clause deals with the mandatory pre-award referrals to the CMA. It outlines that:

“A public authority must request a report from the CMA…before giving a subsidy, or making a subsidy scheme, of particular interest, or…where directed to do so by the Secretary of State”.

We have highlighted our concerns about the definitions of subsidies “of particular interest”. It is a glaring gap in our debates on the detail of the legislation. We think that the definition should be included in primary legislation, and I hope the Minister has listened to our concerns. I am sure that the issue will come back at future stages and, at the very least, our expectation will be that the definition is published very soon after the Bill receives Royal Assent. Things that we could be dealing with now should not end up delaying the ability to make decisions and implement the regime.

Although we are concerned about the definition, we support the overall importance of the measures outlined in the clause and the function of mandatory referral to the CMA, in the interests of checking compliance with the principles, bringing assurance on value for money and confirming that there will be no distortion or harm to the economy.

On amendment 28, the hon. Member for Aberdeen North makes an important continuing reference to the Government marking their own homework. Although we recognise the intention and some of the arguments behind the amendment, we do not think that producing a report on a subsidy every time one is given by the Department for Business, Energy and Industrial Strategy—as a sort of blunt tool—would necessarily be the most effective use of the CMA’s time.

Rather, we have argued very strongly for all subsidies, regardless of whether they are below a particular amount or given to a certain recipient, to be posted on the database to ensure sufficient transparency. We will also seek to ensure that there are greater rights on call-in powers or that the CMA can investigate itself, if it deems that there a reason to do so. We think that any assurances, which are, in part, the intention behind the amendment, could be better delivered through the Bill in other ways. On that basis, we will abstain on amendment 28. We support clause 52 standing part of the Bill.

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

As always, it is a pleasure to serve under your chairmanship, Ms Nokes. Before I begin, I would like to make a general point about today’s debate and address a question raised during our discussions on Tuesday. Throughout the discussion of clauses in part 4 of the Bill, Members will hear me refer to the subsidy advice unit, which will be a new sub unit of the Competition and Markets Authority established by this Bill. Technically speaking, the provisions in part 4 confer various responsibilities on the CMA, and it is for the CMA to decide which of its responsibilities it will delegate to the SAU. The mechanics of that process will be discussed later when the Committee considers clause 67. While the decision on how to organise its work rests with the CMA, in practice it is likely that most if not all of the responsibilities under part 4 will be delegated to the SAU. Therefore, for consistency and ease, I will be referring to the SAU throughout these debates.

Clause 52 sets out that two categories of subsidy and scheme will be subject to referral to the CMA. The first is subsidies and schemes of particular interest, which we discussed in the context of clause 11 on Thursday 28 October, and the second is the subsidies and schemes that are referred by the Secretary of State under the provisions that we will shortly discuss under clause 55. Amendment 28, as we have heard, would add to that list of subsidies subject to mandatory referrals, requiring the Department responsible for the subsidy control regime to refer individual subsidies above £2 million and all subsidy schemes to the SAU. In practice, the BESI, my Department, is the Department with responsibility for subsidy control. I can reassure hon. Members that BEIS takes its subsidy control commitments very seriously. BEIS subsidies, like those of all other public authorities in the UK, will be subject to the “subsidies of particular interest” regime. There is no special treatment in this regime for my Department: indeed, BEIS can already ask advice of the CMA where necessary, using the powers in the Enterprise Act 2002.

The Bill establishes the two categories that we have talked about: subsidies and subsidy schemes of interest, which can be voluntarily referred to the SAU, and subsidies and schemes of particular interest, which must be referred to the SAU. The Government will set out in regulations definitions for both of those categories, and those regulations will be subject to the affirmative procedure, so there will be opportunity for parliamentary scrutiny of them. Those definitions will capture subsidies that are more likely to give rise to trade disputes, as well as subsidies that are more likely to distort UK competition and investment. BEIS subsidies and subsidy schemes will be subject to the same requirements and procedures as all other subsidies. I assure hon. Members that my Department really will not get any special treatment on this issue.

However, routinely requiring BEIS to be referred to the SAU when it offers subsidies and subsidy schemes would be a disproportionate approach to managing the risk of those highly distortive subsidies. It is important for the SAU to focus its attention and casework on genuinely distortive subsidies, not to focus unduly on subsidies and schemes made by BEIS in particular. The Government fully agree that subsidies and schemes of particular interest merit a proportionately higher level of scrutiny than other less distortive subsidies and subsidy schemes, but those subsidies are, in principle, better captured through a robust and well-evidenced set of thresholds and criteria. Those criteria will be set out in regulations defining the subsidies and schemes of particular interest, rather than placing a discrete requirement on a single public authority on the face of the Bill.

[Kirsty Blackman]

Specifically regarding the process, and what might happen in terms of subsidies of interest and subsidies of particular interest, does the Minister agree that this is going to be a movable feast? The regulations will be subject to the affirmative procedure, but things may change, and therefore there will need to be a change to the interests and particular interests. I am just asking the Minister to give me comfort that if the Government agree there is a particular issue with something, and it needs to be added to the group of “interest” or of “particular interest”, it will be added.

[Paul Scully]

Yes, I can give the hon. Lady that assurance. Those schemes will be set out rigidly and subject to the affirmative procedure, so we can have parliamentary scrutiny, but none the less—as she rightly says—we need to retain flexibility, which is exactly why those definitions are in regulations in the first place, rather than on the face of the Bill. Of course, we look to provide as much parliamentary scrutiny of those regulations as possible. I ask the hon. Lady to withdraw her amendment.

[Kirsty Blackman]

I will not press this amendment to a vote at this stage, but I might bring it back at a later stage. 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 that public authorities refer certain subsidies and subsidy schemes to the subsidy advice unit before they are given or made. Two types of subsidies or schemes must be referred: those defined as being of particular interest in clause 11 and those that are called in by the Secretary of State under clause 55.

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[Kirsty Blackman]

I agree with the hon. Lady. My concern, which I mentioned briefly when talking about the amendment, is that subsection (1) is not flexible enough. It mentions particular interests and

“where directed to do so by the Secretary of State”,

but I would prefer to see an additional category that says, “other reasons”, with regulation to follow if that is what the Minister suggests. There are probably more reasons why things could be referred mandatorily to the CMA without having to go through the affirmative process of changing the particular interest subsidy section in clause 11. There could have been a little more flexibility in that clause, and it would be useful if the Minister agreed to think about that.

[Paul Scully]

I am always happy to think about flexibility.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Clause 53

CMA reporting period for mandatory referral

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

[Paul Scully]

Clause 53 sets out the timeframe within which the subsidy advice unit must publish its report on a subsidy or subsidy scheme once a mandatory referral has been made to it by a public authority. The subsidy advice unit has an initial five-day working period in which to tell the public authority whether it has provided the information required by clause 52. It then generally has 30 working days in which to publish a report on the subsidy or subsidy scheme. That is the reporting period.

There are a couple of situations where it might be extended on a case-by-case period, whether by mutual agreement with the SAU and the public authority or directed by the Secretary of State following a request made by the SAU. Extensions are intended to be used sparingly—for example, when the SAU has been asked to report on a particularly complex case.

[Seema Malhotra]

It is a pleasure to respond to the Minister’s comments. The clause sets out the CMA’s reporting period for mandatory referrals. It specifies that the CMA has 30 working days to issue a report, unless the reporting period is extended under subsections (4) or (6). There is also the important five-day period for the CMA to respond to a request for a referral.

Labour Members recognise the importance of a relatively quick reporting period to give public authorities the confidence they need when granting subsidies under what is designed to be a quicker and easier system. However, it should not be without safeguards and, sometimes, extra safeguards, bearing in mind that pre-notification brings checks earlier in the process. We have to continue to be very mindful of that. We want subsidies that are given for the right reasons to be granted, without an extra onerous delay from the reporting taking too long, so it is important that some targets and mandatory deadlines are in the legislation.

We are concerned about whether the CMA will have the necessary capacity to produce the initial response within five days, and then the report within the 30 working-day period. Can the Minister offer reassurances about how the Government will monitor, review and work with the CMA on whether it has the capacity? There may be a spurt of requests, particularly perhaps earlier on in the process, as public authorities are starting to feel their way through it. They may even request, for good reason, voluntary referrals. What process is he putting in place to ensure that the CMA has the necessary resource to carry out its reporting adequately and in a timely manner?

We want that reporting to be to the required standard. Corners should not be cut in order to meet a deadline. We need the work to be done effectively and with the confidence of all interested parties and the public. We would also like clarity on what exactly would constitute an exceptional circumstance to allow the Secretary of State to extend the reporting period. Will the Minister provide further clarity on what might fit that definition? Despite those concerns—there may need to be some tightening up later—the clause lays out the necessity of the measures for the effectiveness of the regime. We will therefore agree that it stand part.

[Paul Scully]

The purpose of the referral process is not for the subsidy advice unit to duplicate the public authority’s assessment of whether the subsidy complies with the subsidy control requirements. The SAU provides the evaluation of the assessment based on the information that is already provided by the public authority, so it is not duplicating work. We therefore believe that 30 working days is reasonable, given that specific role, but for exceptional or complex cases where more time may be necessary, as I said, the SAU may extend the reporting period, either through agreement with the public authority or by a request to the Secretary of State.

When that extension is agreed by mutual consent, the SAU has to publish a notice stating how much the reporting period has been extended by and why that has happened. If it cannot be agreed by mutual consent, the SAU can request that the Secretary of State directly extend the reporting period. That can be requested and, in turn, granted only in exceptional circumstances. We chose the CMA in the first place to host the SAU because of its expertise and experience in protecting competition and investment, making it a natural fit for those broad aims. We are already working closely with the CMA to plan for the delivery of the new SAU, ready for the implementation of the regime.

Question put and agreed to.

Clause 53 accordingly ordered to stand part of the Bill.

Clause 54

Cooling off period following mandatory referral

[Paul Scully]

I beg to move amendment 3, in clause 54, page 30, line 8, leave out “on or”.

This amendment ensures that a public authority may give a subsidy after the reporting period expires, but not on the final day of that period.

The amendment consists of a very minor change that is nevertheless necessary to ensure the public functioning of the mandatory referral process. Clause 54 requires that the public authority waits for a cooling-off period to elapse following the subsidy advice unit’s report on a mandatory referral before giving a subsidy or making a subsidy scheme. That is intended to ensure that public authorities have a minimum window for considering the contents of such a report before giving the subsidy or making a scheme. Subsection (3) applies where the subsidy advice unit has not produced a report before the statutory reporting period of 30 working days. The reporting period is usually 30 working days. Here there is no need for a cooling-off period since there is no report for the public authority to consider. Instead, the public authority should be able to give the subsidy or make the scheme any time after the reporting period has expired.

As currently drafted, subsection (3) allows the public authority to make the subsidy on the last day of the SAU’s 30 working-day reporting period, before it has technically expired. That gives rise to the theoretical possibility of a public authority being able to give a subsidy or make a scheme on the last day of the reporting period, when there is still a short time left for the SAU to publish its report—that is not the intention. This amendment clarifies that the full reporting period must have expired before the public authority can give a subsidy or make a scheme without having to wait for a cooling-off period to elapse.

[Seema Malhotra]

We support Government amendment 3, which provides clarity as to exactly when the cooling-off period ends. I will reserve my other comments on the clause for the next stages.

Amendment 3 agreed to.

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[Seema Malhotra]

I beg to move amendment 48, in clause 54, page 30, line 10, leave out “Secretary of State” and insert “CMA”.

This amendment provides that the power to extend the cooling off period should sit with the CMA rather than the Secretary of State.

The Labour party accepts the necessity of the cooling-off period to ensure that appropriate consideration is also given to the CMA’s report. However, we do have some concerns about subsection (4) of the clause. We believe that the power to extend the cooling-off period should lie not with the Secretary of State but with the CMA. Given that the extension of the cooling-off period could have a significant effect on the granting of the subsidy and the effectiveness of its intended purpose, we should not risk it being seen as a politically charged, or political, decision. As such, we believe that it would be better for the CMA, an independent organisation whose judgment is trusted, to make that decision. Amendment 48 would make that change.

[Paul Scully]

As we have heard, clause 54 provides for a cooling-off period of five working days that have to expire before the authority can give a subsidy or make a subsidy scheme that has been subject to the mandatory referral process. The clause further provides that the Secretary of State may direct an extension to that cooling-off period if they judge that the report published by the SAU at the end of the mandatory referral process shows serious deficiencies with the public authority’s assessment against the subsidy control principles. Amendment 48 would remove that power from the Secretary of State and give the SAU the power to direct an extension to the cooling-off period. However, that would be at odds with the advisory role of the SAU, as laid out elsewhere in the Bill. We will discuss that in a more holistic way in the context of other amendments, particularly amendment 58 and new clause 3.

For now, I emphasise the Government’s view that the SAU is not a regulator or a gatekeeper, but rather acts as that impartial adviser for the most potentially harmful subsidies and schemes. Its reports are non-binding, and it will provide an important way of scrutinising the underlying assumptions in the design of subsidies and schemes, as well as identifying potential weaknesses. Granting a power to the SAU to extend the cooling-off period after it has published its report risks muddying the water between the role of adviser and enforcer.

[Seema Malhotra]

If there is a concern, does the Minister envisage the CMA being able to recommend extending the cooling-off period?

[Paul Scully]

Part of the CMA’s regular reporting on how the system works will look at the scheme holistically, and it may wish to look at that period as well. Ultimately, it is the Secretary of State who is responsible for the subsidy control system and its consequent effects on competition and investment across the UK. Although the SAU will be created to help facilitate the effective operation of the regime, it does not have the same overarching responsibilities as the Secretary of State, so it is right that the Government bear the responsibility for intervening in the subsidy control regime where necessary. In drawing the SAU into the space for that decision making and matters of public spending, even in a limited way, the amendment would risk the CMA’s hard-earned reputation for independence and political neutrality.

[Kirsty Blackman]

I have spent years looking at education reports and care inspectorate reports. There are criteria for giving marks and a particular language is used—something is good, poor or dreadful. Is the Minister expecting that “serious deficiencies” will be used by the CMA in the report? Will it say, “We consider there to be serious deficiencies”, which the Secretary of State would consider to be a red flag, resulting in the potential extension of the cooling-off period? Does the Minister think the CMA will do that explicitly, or will the Secretary of State have to read between the lines and try to work out how bad things are? We do not know how the reports will be structured, so it would be helpful if the Minister could make clear whether the Secretary of State is going to understand the meaning of the reports and whether the SAU would seek an extension to the cooling-off period because it believed there were serious deficiencies.

[Paul Scully]

There is not going to be a rating, because the SAU is not a regulator or enforcer, but it is responsible for making sure that the situation is made as clear as possible so that people, not least the Secretary of State, can understand it. That is why we have left this matter to the CMA—its staff are experts and have great experience of doing exactly that.

[Seema Malhotra]

This has been a very helpful debate. The Minister is right: we will discuss some contextual powers in the debates on later clauses and new clause 3. Clarifying the roles, expectations and powers for the CMA, the Secretary of State and other bodies, such as devolved Administrations, is an important point to come back to, but I will not press the amendment at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Seema Malhotra]

It is a pleasure to move amendment 50 and, with that, to speak to amendment 51, to which it is related.

Clause 54(4) states that the Secretary of State can extend the cooling-off period if he or she considers that the CMA’s report has identified “serious deficiencies”. The hon. Member for Aberdeen North has referred to that point. Yet again, the Bill is lacking a key detail—namely, what would constitute a serious deficiency. We have had a brief discussion on this point. Clarity is necessary for public authorities, the CMA and interested parties, in order to have confidence in the new regime and the timing of subsidies.

The amendment would require the Secretary of State to define serious deficiencies for the purposes of directing that the cooling-off period is extended. It would be helpful to the Committee if the Minister could confirm how and where we will reach a definition of serious deficiencies and when we are likely to get that definition. My comments apply to both amendments 50 and 51.

[Paul Scully]

The meaning of the term “serious deficiencies” is intended to mirror the common understanding of those words, so we do not believe the requirement to define it further is necessary. Defining it further, either in the Bill or through regulations, risks leading to a situation where the Secretary of State judges that there is a serious problem with a public authority’s assessment, but is prevented from taking action because the specific problem is not exactly set out in those regulations.

[Seema Malhotra]

I am slightly surprised, because serious deficiencies is being used as a trigger for the Secretary of State to be able to use a power. I would be very surprised if there was a common understanding that was so common that even the members of this Committee, if they were to secretly write it down on a piece of paper and compare notes, would have exactly the same definition of serious deficiencies. I am not sure that suggesting there is a common understanding, as if that is fact, is the right way to address this particular point. We need this defined, and we need to know when and where it will be defined.

[Paul Scully]

One of the problems is that, if we define it in the way I think the hon. Lady is after, we then lose some of the flexibility. I was just about to say that the exact situation will vary on a case-by-case basis. A serious deficiency could arise, for example, if the subsidy advice unit identified that the proposed subsidy or scheme might have significant negative effects on UK competition and investment but the public authority had not considered any of the options for mitigating those effects. Another example might be if the SAU identified significant technical flaws in or omissions from the public authority’s assessments of compliance with the requirements of chapters 1 and 2 of part 2, such as the analysis of how the subsidy incentivised a change in the beneficiary’s behaviour or the impact on international trade.

[Kirsty Blackman]

Does the Minister agree that it is likely that the SAU will have internal working definitions of what is “acceptable” or “deficient”, and that it is likely to say that to the Secretary of State in giving its recommendations and possibly asking for any extensions?

[Paul Scully]

Absolutely—that is exactly what I was going to come on to. The hon. Lady has obviously seen the next paragraph I was going to read. The Secretary of State would not be taking that view on his own. It would not be an arbitrary judgment; it would be acting on the basis of a published report by the SAU, which is obviously independent.

As the hon. Member for Feltham and Heston said on Second Reading and has reiterated this week,

“the new system will work only if it provides transparency, oversight and scrutiny”.—[Official Report, 22 September 2021; Vol. 701, c. 341.]

This amendment only serves to undermine those aims slightly—unintentionally, I am sure—by limiting the circumstances in which the Secretary of State can act to extend the cooling-off period and ensure that a public authority has more time to consider the SAU’s comments. I therefore request that she withdraw her amendment.

[Seema Malhotra]

I thank the Minister for his comments. I will not press the amendment to a vote, but I want to repeat this point. In light of what the Minister has said, some of the examples or scenarios that he has started to outline suggest that there is more that can be done to scope out, set out some expectations or perhaps put something in guidance so that there starts to be a sense of scope around what sorts of scenarios could result in a consideration of serious deficiencies.

I say that not because I am trying to create an issue that is not there, but because where we have something in legislation that is a basis on which a power is to be exercised, it is incumbent on the Government to ensure that there is greater clarity about what the expectations might be. That might not be a complete list, defined A to H, but it may be a broad set of guidance, for use both by the subsidy advice unit in making assessments, and by the Secretary of State in making a clearer and more transparent decision that could also be open to scrutiny. I hope the Minister will confirm to the Committee that he would be prepared at least to look at some of those areas he has outlined—perhaps there will be more and we might need to come back to this in the regulations—to provide clarity on what could be quite an important use of the power. We would hate for the use of the power to be challenged on the basis of people not agreeing that something was a serious deficiency. We do not want the process to be subject to unnecessary delays that could be dealt with by planning ahead for different interpretations. There is perhaps not the common understanding that the Minister thinks of “serious deficiencies”.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Paul Scully]

Clause 54 establishes the cooling-off period that must elapse before a public authority may give a subsidy or make a subsidy scheme that has been referred to and reported on by the subsidy advice unit, following a mandatory referral.

[Seema Malhotra]

We have no further comments other than the issues we have raised already. We support clause stand part.

Question put and agreed to.

Clause 54, as amended, accordingly ordered to stand part of the Bill.

Clause 55

Call-in direction

--- Later in debate ---

[Kirsty Blackman]

I stand as a proud representative of the nation of Scotland to make a brief speech on amendment 52. The powers that are suggested under clause 55 are limited powers. They are not unlimited powers to call in anything on a whim of the Secretary of State or of anybody else. They can only be called in in relation to subsidies or subsidy schemes of interest, or subsidies or subsidy schemes in which the Secretary of State considers there is a failure to comply with chapters 1 and 2 of part 2, or there is a risk of negative effects on competition or investment within the United Kingdom.

The amendment proposed by the Opposition does not affect that. It would still apply only in the case that the devolved Administrations wanted to call in something that was a scheme of particular interest, or something that the Secretary of State had presumably already called in that was against chapters 1 and 2 of part 2 or where the Secretary of State agreed there were negative effects on competition or investment within the United Kingdom. Those are not, as the Government members of the Committee have suggested, unlimited powers parallel to those of the Secretary of State; they are limited powers. The only time the power would be exercisable is if the schemes were of interest—rather than of particular interest, because they are mandatorily referred—and the three devolved Administrations would be able to call those schemes in. It would be a limited power that would only apply for schemes of interest. I absolutely support the amendment—it makes sense—and we would obviously like it to go further. We have a devolution settlement and this is a proportionate amendment that makes sense in the context.

[Paul Scully]

Under the powers in the Bill as drafted, when the Secretary of State decides to exercise the call-in power, that direction has to be published. In addition, the SAU has to provide annual reports on its caseload, including any subsidies and schemes that were called in by the Secretary of State. That transparency will help ensure that the powers are used appropriately and that Parliament has oversight of how and when the powers are being used. Amendment 52 would allow those referrals to the SAU under the terms of clause 55 to be made by devolved Administrations, whereas the Bill provides the power for the sole use of the Secretary of State.

In the majority of cases, the most potentially harmful subsidies will be those that meet the criteria for subsidies of particular interest, which will be set out in regulations, but it is inevitable that there will be some subsidies or schemes that fall outside those boundaries. They will still benefit from the additional scrutiny offered by the SAU.

The call-in power provides a mechanism to catch potentially highly distorted subsidies that may not be caught within the “subsidies of particular interest” definition. It will also provide a safety net where there is a risk of failure to comply with the subsidy control requirements or there is a risk of negative effects of competition and investment within the UK. This is a reserved power and as such the Secretary of State’s responsibilities and interests in making referrals are UK wide. As a member of the UK Government, they are responsible for subsidies granted in all parts of the UK being compliant with our international obligations.

[Kirsty Blackman]

I have two questions. I would have expected that “particular interest” would cover anything that does not meet chapters 1 and 2 of part 2 anyway, so it would be nice if the Minister could clarify that point. Secondly, if any of the devolved Administrations request a meeting with the Secretary of State because they are concerned and want the Secretary of State to call something in, would the Secretary of State grant that meeting?

[Paul Scully]

On meetings, I am not the Secretary of State, but effectively, yes—we want to engage with the devolved Administrations. We do that on a regular basis, and have done in the formulation of this Bill, as we have discussed many times, and we will continue to do so as we go through guidance and the working of the Bill.

In the event that one or more of the devolved Administrations has serious concerns about a subsidy given or a scheme made, of course they can request that the Secretary of State use that call-in power. The Secretary of State would carefully consider any request from their counterparts in the devolved Administrations, just as they would on any other policy matter. As I say, we have met the devolved Administrations a number of times since July 2020 on the formulation of this Bill. We continue to meet and engage with them regularly, and listen to their views as the Bill progresses through Parliament, and we will do so in the lead up to implementation. I request that the hon. Member for Sefton Central withdraws the amendment.

[Kirsty Blackman]

My other question was about the definition of “particular interest”, or “interest”. Subsidies of particular interest will be mandatorily referred, as we have already agreed, but subsides that risk to fail to comply with the requirements of chapter 1 and 2 of part 2 could be referred by the Secretary of State. It would concern me if compliance was not part of schemes of particular interest, or schemes of interest. I understand that some schemes of particular interest would be defined on the basis of the sector they are in and the specific details of the subsidy, but I would expect that lack of compliance with the rules would cause a scheme to be of particular interest anyway. I hope the Minister understands what I am trying to get at here. If a subsidy does not comply with the subsidy control principles, surely it is either not a subsidy—it is not allowed—or it is a scheme of particular interest that would need to be looked at mandatorily, or perhaps optionally, by the CMA.

[Paul Scully]

I think I get the general gist of where the hon. Lady is going with that point. That is why, rather than trying to define them as not complying, we are trying to define them specifically at the outset, hence the regulations that we will be putting forward, but there is plenty of opportunity to have that discussion.

[Bill Esterson]

The hon. Member for Aberdeen North correctly made the point that the amendment asks for a limited set of powers. I set that out using the evidence. We should follow the evidence of people who are experts on these subjects. We had a range of very good witnesses, who set out why there should be the sorts of powers that we are proposing. I cannot help think that there will be occasions when the Secretary of State is making awards. If he, as it says in the Bill, is making those awards, is there not a potential conflict of interest if there is not another way of providing that call-in if there is perceived damage in the other three nations? The Minister might want to respond to that point.

The amendment makes a limited request. The Minister talked about requests to the Secretary of State for a call-in, but a request is not the same as a power. Unless there is that power—potentially in the case of a conflict of interest where the Secretary of State is the awarder—there is a limit to the way the Scottish, Welsh and Northern Irish Administrations can ensure there is a fair application of the system in terms of call-ins. I would be grateful if the Minister could come back on this point about the potential conflict of interest where the Secretary of State is the awarder in relation to the use of call-in powers.

[Paul Scully]

As I say, the Secretary of State will be acting on behalf of the UK Government. Subsidy control is a reserved power, as we established in the debate for the United Kingdom Internal Market Act 2020 that we had at length at the end of last year. None the less, there is no special treatment for the Department for Business, Energy and Industrial Strategy. There was plenty of opportunity through the publication of the advice and the reason for call-ins, and any enforcement that may need to be done through the Competition Appeal Tribunal to highlight that potential. None the less I think there were enough checks within the structure to avoid that. I hope the hon. Member will withdraw the amendment.

[Bill Esterson]

I do not think that we got an answer to my question. There is still the concern that if the Secretary of State says no and there are legitimate concerns in the three nations, there needs to be the additional limited opportunity of call-ins. We will push the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

Clause 55 gives the Secretary of State the ability to direct a public authority to request a report from the subsidy advice unit on a proposed subsidy or subsidy scheme. That may be made in relation to a subsidy of interest or any other subsidy or scheme that the Secretary of State considers to be at risk of failing to comply with the subsidy control requirements or of negatively impacting competition or investment in the UK. It is not intended to be used routinely, but it is a necessary safeguard. It is there to ensure that an additional layer of scrutiny can be applied to subsidies that might risk creating market distortions but would otherwise not be subject to mandatory referral to the SAU.

[Kirsty Blackman]

I was going to ask a question about this clause, and the Minister has managed to make me even more confused. Subsection (1) states:

“A public authority may request a report from the CMA before giving a subsidy, or making a subsidy scheme, of interest.”

It does not state that, additionally, any other subsidy may be referred to the CMA under a voluntary referral. It might elsewhere in the legislation, but it does not at this point.

My concern was that it relates only to subsidies “of interest”—subsidies of particular interest are covered by mandatory referral, and that is fine—but for subsidies that fall outside the category of interest, perhaps because interest is narrowly drawn by the regulations when interest is set, there seems to be no way for those public authorities to refer them voluntarily to the CMA, as the legislation is drafted. It would be good if they could.

Let us say that “particular interests” and “interests” are defined by the Government, that goes through the affirmative procedure, we have a discussion, and the definitions are agreed. Accidentally, however, something is left out of the category of interest—because we do not think of everything—and a local or public authority discovers the anomaly and thinks to itself, “Do you know what, I should refer this to the CMA voluntarily, because I think it probably should be included in the schemes of interest, but in the way that the legislation is written, it does not fall under that”, so it tries to make a voluntary referral. It cannot, however, because it may make a voluntary referral only in the case of something that is of interest.

There is a bit of a gap. Authorities should be able to make that voluntary referral, whether it is a scheme of interest or not. There is a concern. As to what the Minister said, absolutely, if the Secretary of State has a concern additional to the interest section, that would be fair enough and make a difference, or if the authority itself decides that it should be referred to the CMA. I do not think that that will be a huge amount of extra work. Authorities will not refer themselves to the CMA for fun; they will do so when they feel that there is a reasonable chance that what they are considering doing is contentious.

I will not vote against the clause, because voluntary referrals are a good thing, but I do not think that it goes as far as the Minister suggested it goes—unless I have missed something.

--- Later in debate ---

[Kirsty Blackman]

It is no wonder that I was confused by what the Minister said. He was speaking to clause 55 and I was looking at clause 56. Apologies.

[Paul Scully]

We will hear the hon. Lady’s comments again.

Question put and agreed to.

Clause 55 accordingly ordered to stand part of the Bill.

Clause 56

Voluntary referral to CMA

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

[Paul Scully]

The clause—wait for it—allows public authorities voluntarily to refer certain subsidies or subsidy schemes to the subsidy advice unit before they are given or made. Those are known as subsidies or schemes of interest, and the criteria will be set in secondary legislation, as set out in clause 11.

To make that voluntary referral, the public authority has to provide certain information about the subsidy or the scheme that will be referred, including an assessment by the public authority of whether its proposed subsidy or scheme would meet the principles, the prohibitions and the other requirements set out in chapters 1 and 2 of part 2 of the Bill.

The Secretary of State is also given the power to make new regulations specifying the form in which that information must be provided to the SAU, as well as any additional information that must be provided beyond that which is already set out in the clause. That will enable the content and the form of the request to be adapted based on operational experience of whether the SAU is getting the information it needs to report back effectively.

Openness, transparency and a risk-based approach to scrutiny will ensure confidence in the new UK subsidy control regime. The voluntary referral process provides an additional avenue of scrutiny for public authorities seeking to grant some of the more potentially distortive subsidies and schemes. To answer the question from the hon. Member for Aberdeen North, who may want to ask it again, the process gets the balance right by ensuring a flexible system with enough information for the public authorities to get it right in the first place. A lot of that will be done through guidance, and the SAU is there to be helpful and give advice; it is not an enforcer or a regulator.

[Kirsty Blackman]

Let me just imagine that I made an excellent speech.

The concerns that I raised a few moments ago still stand. I think there should be more flexibility in the first part so that it is made clear to public authorities that they can refer something should it not fall under the specific definition of “schemes of interest”. I would appreciate it if the Minister considered tabling an amendment to that effect. I do not feel that that would make additional work.

I genuinely feel that public authorities would use that flexibility only in circumstances where they feel that “schemes of interest” has been defined too narrowly to cover the scheme that they would like to refer to the CMA. That flexibility would not be overused; nobody would be daft enough to overuse it. There seems to be no ability for public authorities to refer anything unless it is classed as a scheme of interest or particular interest, or is something deemed by the Secretary of State to meet various criteria. I would appreciate it if the Minister looked at that.

[Seema Malhotra]

The clause does indeed allow public authorities to

“request a report from the CMA before giving a subsidy, or making a subsidy scheme, of interest.”

We have had some interesting and helpful discussion so far, but our main concern remains the lack of clear definitions in the legislation, particularly the definition of “interest”. Such clarity would provide some necessary assurance to public authorities, the CMA and subsidy recipients about how the regime will work in practice.

We could have pre-empted this issue and had clearer definitions to ensure that more was done upstream by public authorities, meaning fewer referrals. More referrals will create more burden on the subsidy advice unit. Referrals will be made for good reason, however, so we absolutely need the provision. It is likely that there will be greater demand for referrals in the earlier stages of the regime’s implementation, but as people become familiar with the process and judgments become clearer, and the CMA gets some case studies to use, the system will improve.

It is important that there is clarity from Government. We may come back to some of this, but the referring public authority will also need clarity on what it will and will not get back. Guidance on that would be extremely helpful to make the legislation work effectively.

[Paul Scully]

I take on board the hon. Lady’s point about guidance and ensuring that public authorities know what to provide and what to expect back. That is absolutely fair. In terms of where we go and how wide we make this, it is not our intention to replicate the needlessly complicated and slow processes under the state aid scheme; this will be focused on the most potentially distortive subsidies, to provide scrutiny where it is most needed, so it would not be proportionate to have the extra step for every subsidy regardless of size or impact.

The SAU itself will have discretion on whether to accept voluntary referrals based on the CMA’s existing and published prioritisation criteria, because we want to ensure that it can do its job effectively, but none the less offer that advice.

[Seema Malhotra]

The Minister is starting to go a little bit further in implying that there will be, perhaps not trade-offs, but decisions that will need to be made about whether to have the review done by the subsidy advice unit and what that might be intended for. What the clause might be intended for may not be the same as what public authorities may feel in wanting to seek a voluntary referral. Can he perhaps clarify whether, for example, undertaking a voluntary referral may be used to seek to provide reassurance so that there is less likelihood of a challenge later on? Decisions that are taken will bear some relationship to other parts of the Bill and the ability to bring challenges. What status would receiving a report back from the subsidy advice unit have? Could that be used if, for example, there was a challenge later on?

--- Later in debate ---

[Paul Scully]

Indeed, that is exactly the reason for the SAU not to be the regulator or the enforcer but to provide expert, independent advice. Even in the more distortive schemes, as I have always said, there is nothing stopping a public authority from giving the subsidy even if there is advice not to. However, since that advice is published, it would be available to people looking in on the matter, and in any referral to the CAT that would be taken into account. One of the reasons for putting it under the CMA is that it already has the expertise and the ability to give good advice and robust assessment and analysis.

Rightly, where the SAU itself considers appropriate, the public authority can get advice on the design of its subsidy or scheme, but the SAU will base that on its own criteria, such as the overall impact on competition, strategic significance and the available resources.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Clause 57

CMA reporting period for voluntary referral

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

[Paul Scully]

Clause 57 sets out the timeframe within which the SAU must publish its report on a subsidy or subsidy scheme. Once it has accepted a voluntary referral made by a public authority, it has an initial period of five working days to tell the public authority whether it will produce a report in response to the request. It will then generally have a reporting period of 30 working days in which to publish its report on the subsidy or subsidy scheme.

The clause also enables the Secretary of State to make regulations to amend either the period of five working days or the reporting period itself, which will allow the Government to amend those periods, should longer or shorter periods prove to be necessary based on experience of how the regime is working in practice. Any regulations would be subject to the affirmative procedure and therefore would need to be approved by Parliament in draft.

[Seema Malhotra]

I thank the Minister for his comments on clause 57 stand part. The clause outlines the CMA’s reporting period for subsidies and schemes that are voluntarily referred to it. We have no issues with this clause, but I wanted to raise one small point in relation to subsection (6).

I would be grateful for clarity about how the Minister expects any extensions of the reporting period to be reported, because we do not just need to know that it is taking longer because there is complexity: we need to know whether it is taking longer because there is a resourcing issue, or because public authorities are not completing the paperwork correctly and there is some confusion over some information that might be provided. Understanding those reasons would inevitably be useful when seeking improvements to the system and making the process more efficient.

More efficiency also means less cost and better value for money, because it is public money that goes into the CMA and the subsidy advice unit, so we need to make sure those resources are used effectively and improve the quality of both the applications and the process. I would be grateful to understand how the Minister envisages that being done.

[Paul Scully]

It is in the interests of the SAU and everybody else that this system works. If the quality of evidence that public authorities are giving is causing complexities, feedback to those public authorities would be incredibly helpful in making sure the framework works, but it is also the kind of thing that would be covered in the CMA’s reporting when it says how the framework is working in itself.

[Seema Malhotra]

Would that be in the annual report, or in the five-year review? Five years is rather a long time.

[Paul Scully]

It would be in both. That reporting is there to say what subsidies exist and how the framework is working, but those conversations would also be happening all the time through the advice to public authorities and BEIS’s communications with the CMA on a regular basis, making sure that the framework works. As I said, it is in everybody’s interests that we get that exchange right.

Question put and agreed to.

Clause 57 accordingly ordered to stand part of the Bill.

Clause 58

Call-in direction following voluntary referral

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

[Paul Scully]

Clause 58 sets out what would happen if the subsidy advice unit agreed to report on a subsidy or scheme that has been voluntarily referred, and that subsidy or scheme is then called in by the Secretary of State. The clause streamlines the pre-award reporting process that would apply when the subsidy is called in following a voluntary referral, because the SAU should already have some familiarity with the subsidy or scheme that has been called in, due to its already having been voluntarily referred.

Three scenarios are dealt with within this clause. The first is where the SAU has not published its report on a subsidy or scheme that was voluntarily referred, and the statutory time limit for doing so has not yet expired. The second is where the SAU has not published its report on a subsidy or scheme that was voluntarily referred, and the statutory time limit has expired. The final scenario is where the SAU has already published its report on a subsidy, but that subsidy has not yet been given or made. This clause ensures that the processes for scrutinising subsidies and subsidy schemes by the SAU are as efficient and timely as possible.

[Seema Malhotra]

We agree that in such cases, the subsidy or scheme in question should be treated as if it were part of a mandatory referral to the CMA. We have no issues with this clause, and will vote for it to stand part.

Question put and agreed to.

Clause 58 accordingly ordered to stand part of the Bill.

Clause 59

CMA report following mandatory or voluntary referral

--- Later in debate ---

[Kirsty Blackman]

I have just a brief question. This clause lays out things that reports following mandatory or voluntary referrals “must” include and some things that the reports “may” include. Can the Minister confirm that the reports may also include things not mentioned here and that the additional things that would be included would be at the discretion of the CMA? If it can include only the musts and the mays in the clause, it will not be able to include anything else that the CMA considers would be relevant in the report. Given that the Minister has stressed the independence and expertise of the CMA, it would be sensible to confirm that it can include matters that it feels are relevant, whether or not they are explicitly mentioned in the Bill.

[Paul Scully]

The CMA is independent and will use its expertise. I think that we have crossed wires here, because actually the clause allows the Secretary of State to talk about the content of the report but not to textually amend an independent report. That is not what we are talking about here, which is what is within scope of the report—to ensure that it can actually do it. This is to be able to give additional transparency and scrutiny in the regime itself. The clause allows him to make provision about the content and form of the report, but, as I said, not to change the text of an independent report.

Any changes to the content of the report must be made by the affirmative procedure. That is core to the subsidy control regime, because if the Government believe that the process needs to be refined, it is only right to have parliamentary scrutiny of it. By contrast, any specification as to the form of the report would be a technical regulation, for which the negative procedure is appropriate. Amendments 53 and 54 remove that possibility, except by future primary legislation.

As I say, removing the mechanism for amending or enhancing the baseline for SAU reporting that is set out in clause 59 would unnecessarily tie the hands of the SAU and future Governments seeking to improve the referral process based on the experience and expertise that is gathered over time through the functioning of the new regime. As set out in clause 67, the power to change the content of the report may be exercised only for a period of one year following the publication of SAU’s first report under clause 65.

As I have set out, however, changing the form of the report is a technical matter, so it is appropriate for the regulations to be subject to the negative procedure. I therefore request that the hon. Member for Sefton Central withdraws the amendments.

[Bill Esterson]

Clause 59(4)(a) uses the phrase

“amend subsection (1), (2) or (3) to make provision about the content of the CMA’s report”.

The Minister used the terms “text” and “content” interchangeably, which highlights our concern. Using secondary legislation, the Secretary of State is able to give himself the power to amend CMA reports. That is the problem—that is what overturns the power.

Subsidy Control Bill (Eighth sitting)

Paul Scully Excerpts

Thursday 4th November 2021 Public Bill Committees

[The Chair]

Before we start the meeting, may I make a humble request? Everybody is advised to wear masks.

Clause 59

CMA report following mandatory or voluntary referral

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

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

As always, Mr Sharma, it is a pleasure to serve under your chairmanship. Clause 59 specifies the contents of the report that must be produced by the subsidy advice unit on subsidies or schemes that are referred by public authorities or the Secretary of State. The SAU’s report must contain an evaluation of the public authority’s assessment of whether the subsidy or scheme complies with the subsidy control principles, prohibitions and other requirements. This will provide an additional layer of independent and impartial scrutiny of the most potentially harmful subsidies and schemes, shining a light on the public authority’s underlying assumptions and justifications for giving a subsidy or making a scheme.

The hon. Member for Aberdeen North asked what would be in these reports, and whether the Competition and Markets Authority or the subsidy advice unit itself could add extra things. As long as those things are relevant, clearly, the subsidy advice unit can add more information. What it cannot do is directly comment on the legitimacy of a subsidy, because it is not an enforcement body: it is an advice unit, so there is a distinction there.

Question put and agreed to.

Clause 59 accordingly ordered to stand part of the Bill.

Clause 60

Post-award referrals

[The Chair]

We come now to amendment 55 to clause 60. Happy Diwali to Seema Malhotra and every other Member.

--- Later in debate ---

[Seema Malhotra]

I thank the hon. Member for her contribution in response to the challenge to us from the Government side, which I do not think is at all fair, because we have not at any point argued against this being a reserved power or the overall structure of the Bill. We have genuinely sought to amend the Bill to make sure that there is a fair and sustainable settlement that commands the confidence of all our nations.

Powers on subsidies and the regime overall should reside in Westminster, and we understand that it is crucial that subsidies under the regime do not distort the UK’s internal market—we would raise little concern on that, and we think it is vital that that is the case—but as such, devolved Administrations, such as the Scottish Parliament or Welsh Senedd, should have the opportunity to receive the CMA’s advice on subsidies that they consider could damage their national interest. It is not only Labour that thinks that. During the evidence session on 26 October, George Peretz QC, a barrister specialising in state aid, said:

“In a situation where an English local authority, the Secretary of State or another UK Government body acting as an English Department does something that is designed to benefit England but causes serious concern in Scotland or Wales, why should the Welsh or Scottish Ministers not be able to do the same thing if the concern is with competition or investment within the United Kingdom? I find it slightly hard to see what the argument against that is.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 44, Q63.]

Could the Minister share his reflections on those comments? Perhaps he will offer a robust argument for not allowing the devolved Administrations to make post-award referrals, because we fail to see a valid argument for that exclusion. Instead, it feels more like a lack of a fair distribution of powers, and something we should consider as the Bill makes progress. We therefore propose the amendment.

We hope that the Committee sees its importance in ensuring that Scotland, Wales and Northern Ireland feel that they have a fair role in the subsidy regime. I will await the Minister’s remarks before deciding what we shall do on this amendment.

[Paul Scully]

The amendment would extend the Secretary of State’s post-award referral power, set out in the clause, to the devolved Administrations. The debate is similar to one we had earlier. The Government intend to use the power in exceptional circumstances and it will be fully transparent, as a direction will be published in an appropriate place, which is usually gov.uk.

It is worth my being absolutely clear that the power simply allows for additional scrutiny and transparency of the public authority’s assessment that took place before it gave the subsidy or made the scheme in question. The measure does not make the subsidy unlawful after the fact, nor does it block the public authority from giving more subsidies under the scheme in question. I reassure the hon. Member for Feltham and Heston that any use of the post-award referral power will be transparent. When the Secretary of State exercises the power, the direction must also be published in an appropriate manner. That will make it clear that the power is being used appropriately and only in those exceptional circumstances.

Turning to the amendment, I believe that the call-in power should remain a matter for the Secretary of State only. Subsidy control is a reserved policy area, as we have heard. As I said when speaking to amendment 52 to clause 55, the Secretary of State’s responsibilities for subsidy control are UK-wide and, as in all matters, he will act in the interests of the whole of the UK. That includes responsibility for overseeing the system as a whole and ensuring that subsidies granted across the UK are compliant with our international obligations.

In the event that one or more of the devolved Administrations had serious concerns about a subsidy given or a scheme made, they would of course be able to request that the Secretary of State use the call-in power, as I said earlier. The Secretary of State would carefully consider any request from his counterparts in the devolved Administrations on that, as in any other policy matter. I stress again, as I said on the formulation of the Bill and as we will on the guidance for and the running of the regime, we will continue to engage as closely as we can with all our colleagues in Scotland, Wales and Northern Ireland.

I believe, therefore, that it is neither appropriate nor necessary for the devolved Administrations to have the same ability to trigger a post-award referral. For the reasons that I have provided, I request that the hon. Lady withdraws the amendment.

[Seema Malhotra]

I thank the Minister for his remarks. I fail to see an explanation. I understand the restatement of his position, but I feel that the argument was missing. This area is important to the effectiveness of the regime as a whole and over time, so I will press the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Kirsty Blackman]

Thank you for chairing this afternoon’s meeting, Mr Sharma. I have a brief comment about the omission of the power set out in amendment 56. I would appreciate it if the Minister could let us know what assessment he has made of its compatibility with the trade and co-operation agreement and the World Trade Organisation rules if the Bill does not contain the power that the Opposition are suggesting should be put in via amendment 56.

[Paul Scully]

Clause 60, as we have heard, provides a power for the Secretary of State to direct a public authority to refer a subsidy or scheme to the subsidy advice unit after it has been given or made. The power can be used where the Secretary of State judges that there is risk of failure to comply with the subsidy control requirements, or of negatively impacting on competition and investment within the UK. The purpose of the power is to ensure that there is an opportunity for the subsidy advice unit to provide independent scrutiny and evaluation of the public authority’s assessment of compliance with the subsidy control requirements in circumstances where the subsidy or scheme was not subject to mandatory referral before the subsidy was given or the scheme was made. That independent analysis will increase transparency and provide useful information to the Secretary of State and any potential interested parties, if they are considering a judicial review challenge to the subsidy or scheme. In circumstances whereby the subsidy is given in multiple instalments or further subsidies will be given under the scheme, it may also give the public authority advice that allows it to make adjustments for future instalments or subsidies.

Amendment 56 would add a further scenario that would permit the Secretary of State to direct a referral where they were concerned about a subsidy or scheme’s potential impact on competition and investment between the United Kingdom and other territories. Clause 60(2)(b) explicitly underlines that a referral may be made where

“there is a risk of negative effects on competition or investment within the United Kingdom.”

That is important, because it reflects the domestic character of the new subsidy control regime and emphasises our commitment to protecting our vibrant free market economy.

However, as we have heard, the subsidy control regime is also concerned with impacts on international trade and investment and, in order to comply with our international obligations, this is enshrined in the subsidy control principles. In particular, principle G requires that the benefits of a subsidy or scheme outweigh the negative effects, including those on international trade and investment.

[Kirsty Blackman]

The Minister is attempting to explain why the Government have explicitly included one of the principles, but not the other principle. It seems to me, if one principle is included, they all need to be included, or none of them. Giving extra importance to one principle suggests that the other principles are less important, and therefore amendment 56 makes a huge amount of sense to me.

[Paul Scully]

I will come back to that in a second, but let me finish talking about principle G. If the Secretary of State has concerns that a subsidy does not comply with principle G, or any other subsidy control requirement that is connected to international trade or our international obligations, then they may already direct a referral under subsection 2(a) of this clause, meaning that this amendment is redundant.

I also want to point out that the Bill deliberately refers to “trade or investment” between the UK and other territories, rather than “competition or investment”. The Secretary of State does not have any role in managing the balance of competition between nations. That is enshrined in those obligations.

Amendment 57 concerns the time limits for the referral power in clause 60. The Bill limits this power to within 20 working days from either the day in which the subsidy or scheme is entered onto the transparency database, or, where a subsidy or scheme is exempted from that requirement, 20 working days from the date the subsidy is given or made. These timeframes mean there is a significant window during which a post-award referral may be made. Most subsidies and schemes must be entered on to the database within six months of being given or made, while for tax measures, as we have discussed, the period is within a year.

Amendment 57 removes the ability to issue a post-award referral following entry on the transparency database, and would only allow a referral within 20 days of the subsidy being awarded or made. There is no loophole, as was suggested, but 20 days after the upload of the database is the end of the time period when the referral needs to be made. It does not start with the date of the upload on the database.

[Kirsty Blackman]

On the point the Minister made in relation to “competition or investment” and the disparity between that and “trade or investment”, if the Opposition amendment referred to “trade or investment”, would it be acceptable to the Minister?

[Paul Scully]

Again, the principles are enshrined, and it is the principle that complies with those international treaty obligations.

Going back to the timeframes, amendment 57 would have the effect of curtailing the power and reducing the opportunity to provide transparency on the most concerning subsidies. That would mean, in some circumstances, the deadline could have expired before the Secretary of State or any interested party had any news of the subsidy at all. The additional scrutiny and transparency offered by this measure will undoubtably be lost in some cases which may have benefited from the use of this power, and risks undermining confidence in the system as a whole. I therefore request that the hon. Member withdraw amendment 56.

[Seema Malhotra]

I thank the Minister and the hon. Member for Aberdeen North for their comments.

The Minister referred to principle G in schedule 1, which I was going to refer to in my final comments. As the hon. Member for Aberdeen North highlighted, there seems to be an asymmetry between G (a) and (b) and what is reflected in clause 60(2). I take the point that using the word “trade” better reflects the wording in principle G, but the asymmetry issue remains. It might end up causing confusion because, on one hand, there is what is implied under principle G (a) and (b), but on the other clause 60(2)(b) says

“there is a risk of negative effects on competition or investment within the United Kingdom.”

It seems almost to imply that this power covers G (a) but not G (b), and I would hate for there to be confusion about this that was not intended.

I will not push the amendment to a Division, but I would be grateful if, perhaps in writing, the Minister could clarify this, and provide a more detailed note about how and where those powers may apply to risks of negative effects on international trade or investment. It is important that there is integrity in the Bill. If we have misunderstood something, that is absolutely fine, but if there is a gap or an area that could perhaps lead to confusion about what is and is not subject to a legal challenge, it would be helpful to resolve that earlier rather than later.

[Paul Scully]

I think that it is a misunderstanding, but I am happy to write to clarify that.

[Seema Malhotra]

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 60 provides a power for the Secretary of State to direct a public authority to refer a subsidy or scheme to the subsidy advice unit after it has already been given or made.

Question put and agreed to.

Clause 60 accordingly ordered to stand part of the Bill.

Clause 61

CMA reporting period for post-award referrals

[Seema Malhotra]

I beg to move amendment 58, in clause 61, page 34, line 23, after “section 60” insert

“, or makes a decision to investigate under section [Post-award investigations],”.

This amendment is a consequential amendment linked to NC3.

--- Later in debate ---

The CMA is an independent, well-regarded institution. It can and should be trusted to undertake the necessary investigations into certain subsidies, while not wasting time and where there is good reason—there could be some discussion about the criteria that may be helpful in determining that. As such, we believe that new clause 3, which gives the CMA the power to undertake investigations on its own initiative, is an appropriate response to the loophole. Amendment 58 is consequential on new clause 3. I would be grateful for the Minister’s comments.

[Paul Scully]

Clause 61 sets out the process for the subsidy advice unit’s report following a post-award referral by the Secretary of State under clause 60. Amendment 58 provides for a new clause to be inserted after clause 61, seeking to establish a power for the subsidy advice unit to initiate a post-award referral of its own accord. The amendment inserts a reference to the new clause proposed by the hon. Member for Feltham and Heston.

I will start by setting out the policy rationale behind the specific role for the new subsidy advice unit set out in the Bill. The Government believe that subsidy control is far more than a box-ticking exercise. It is essential to protect UK competition and investment and to ensure that we are compliant with our international commitments. However, some commentators, and perhaps some hon. Members, seem to believe that the highest form—the gold standard—of subsidy control is the EU state aid regime. I entirely reject that view. Public authorities controlled by all parties have faced delays, unnecessary bureaucracy, and disproportionate prohibitions.

The Bill will establish a strong subsidy control regime that safeguards our vibrant free market economy. It also makes the most of the opportunities of exiting the EU by avoiding the complex and stifling rules and regulation that are a hallmark of EU state aid.

[Seema Malhotra]

In relation to the debates on Second Reading and others that we have had in good faith in relation to the Bill, it is important not to draw on arguments that are not relevant or pertinent to the clear point being made. There may well be public authorities that, for all intents and purposes, are granting subsidies—spending public money—without categorising them as subsidies. In doing so, they avoid being held publicly accountable and being challenged and scrutinised in relation to the subsidy control principles. If that is the case, what happens, and who can act if a challenge should be brought?

[Paul Scully]

I was just about to turn to enforcement. The role of the subsidy advice unit is one of the most important pillars of our new approach. It strikes the right balance, as part of an enabling regime that is none the less robust in its protection of competition and investment.

The unit will enhance the scrutiny and transparency of the subsidies that are most likely to lead to distortive or harmful effects. In doing so, it will provide reassurance to public authorities giving subsidies that they have appropriately considered the subsidy control requirements. I welcome that—it speaks exactly to the hon. Lady’s point.

The subsidy advice unit is not a regulator. It does not have investigatory or enforcement powers. The mechanism for enforcement of the new domestic subsidy control regime set out in the Bill is the process of a judicial review challenge in the Competition Appeal Tribunal.

I start from the position that most if not all public authorities take their statutory obligations very seriously, as they do their obligations to spend taxpayers’ money effectively, and to balance the positive effects of their interventions against the costs to UK competition and investment. Of course, there is a need for safeguards and enforcement mechanisms and, as hon. Members have emphasised, for transparency and opportunities for public scrutiny, but a statutory obligation is none the less a powerful tool.

Under the UK constitution, the normal way to challenge the actions of a public authority in respect of their statutory obligations is through judicial review in UK courts and tribunals. We have taken that path in the Bill, broadly replicating the judicial review process in part 5 of the Bill, so that cases can be brought to the Competition Appeal Tribunal, with some adjustments and additions to account for the specificities of giving subsidies. Most notably, that means that we have provided for a recovery mechanism.

New clause 3 would give an investigatory role to the subsidy advice unit that is at odds with the specific and limited role set out in the Bill. We want an agile and responsive regime that firmly places decision making and responsibility with the public authorities. That allows space for innovation and creative solutions to local policy problems, while protecting competition and investment through a measured risk-based approach to enforcement.

The hon. Member for Feltham and Heston may or may not agree with that vision, but we do not believe that the new clause represents a viable or credible alternative. It does not establish how the SAU may come by information directly that may lead it to launch an investigation. It does not establish any incentive for a public authority to comply with any such investigation, nor any consequences for failing to do so. It does not provide the means for the SAU to compel a public authority to co-operate with any such investigation, nor does it suggest in what way the SAU should analyse the information it gathers through its investigation. It does not offer any meaningful improvement to the Bill.

The hon. Lady asked what would happen with a subsidy of particular interest that has not been sent to the CMA. It is then a prohibited subsidy. That is covered in the Bill. The appropriate avenue is through the Competition Appeal Tribunal, if it has caused harm.

[Seema Malhotra]

There is a lot to work through and to disentangle about what exactly would happen. The first question that would need to be asked in such a situation is, “Is this a subsidy?” Which body does the Minister consider is the right body to confirm whether it is a subsidy within the definitions and the regime in the Bill? Is it the Competition Appeal Tribunal? Or would it be, in normal circumstances, the CMA? It would be helpful to know.

[Paul Scully]

It is the public authority. That is the whole point of the permissive approach in the Bill. The guidance that will be published and the principles that are set out in the Bill, alongside the ability to refer to the subsidy advice unit, will give the public authority the knowledge it needs.

[Seema Malhotra]

I understand that point—it is a fundamental part of how the regime will operate. In a circumstance where, either deliberately or mistakenly, a public authority does not categorise its subsidy as a subsidy and it is not entered on the database, and therefore it is not subject to the same opportunity for scrutiny and challenge, but it is then identified and raised through some other means, one of the first questions will be whether or not it is a subsidy. I do not think that in that circumstance we can go back to the public authority and have it mark its own homework, so would the institution responding to the challenge answer whether it is a subsidy, or would it be the Competition Appeal Tribunal, or would it be the CMA?

[Paul Scully]

It would be the Competition Appeal Tribunal, because the enforcement is done through judicial review.

[Seema Malhotra]

I thank the Minister for that. That is helpful for us to take away and reflect on within the context of the flow of functions in the Bill, and I think we will come back to it. He talked about some questions that our new clause might give rise to. If the Government change their mind, and consider that there might be a gap and a different way of addressing it, we would of course be very happy to make some suggestions in addition to new clause 3. Somehow this needs to be more clearly defined within the context of the whole regime. It is important for transparency, value for money and to ensure that where public authorities may, deliberately or otherwise, seek to avoid the scrutiny of the regime, it is easier to bring that back in, and for there to be transparency. 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 61 sets out the timeframe within which the subsidy advice unit must publish its post-award report on a subsidy or subsidy scheme once it has been referred to by the Secretary of State.

[Seema Malhotra]

We will support clause stand part.

Question put and agreed to.

Clause 61 accordingly ordered to stand part of the Bill.

Clause 62

CMA report following post-award referral

[Paul Scully]

I beg to move amendment 4, in clause 62, page 35, line 40, leave out paragraph (b).

This amendment modifies the content of the CMA’s post-award report to ensure consistency with the content of the pre-award report required under clause 59.

[The Chair]

With this it will be convenient to discuss Government amendment 5.

[Paul Scully]

Amendment 4 is a minor change to clause 62(4), which sets out the requirements for the SAU’s report following post-award referral. The amendment ensures clarity and consistency between the reports produced by the subsidy advice unit for both pre-award and post-award referrals. The effect of the amendment is to remove provision for the subsidy advice unit to offer optional advice on changes required to mitigate the distortive effects of a subsidy or scheme as part of its report following the post-award referral of a subsidy or scheme. On reflection, and having worked closely with SAU colleagues on the design of their functions, the Government decided that a separate provision was unnecessary for both pre-award and post-award reports.

Clause 62(4)(a) already provides for the SAU to offer optional advice on how a subsidy or scheme might be modified to better comply with the subsidy control requirements under chapters 1 and 2 of part 2 of the Bill. The subsidy control requirements include the obligation to ensure that subsidies are consistent with the principles, including principle F, which provides that subsidies should minimise

“any negative effects on competition or investment within the United Kingdom.”

Subsection (4)(a) therefore already enables the subsidy advice unit to advise on how any adverse impact on competition and investment could be mitigated to ensure consistency with the subsidy control principle. Subsection (4)(b) is therefore unnecessary. The amendment removes the redundant paragraph for the clarity and consistency that I talked about, with the pre-award referral reports detailed under clause 59, where there is no separate provision of that kind.

--- Later in debate ---

[Bill Esterson (Sefton Central) (Lab)]

It is good to see you back in the Chair, Mr Sharma. The hon. Member for Aberdeen North makes a good point, which we reiterate, about amendment 5, which we will come to because of its relation to our amendments to clause 64.

[Paul Scully]

On the point made by the hon. Member for Aberdeen North, in the previous sitting we talked about UK competition and investment. It simply emphasises the point about UK competition and investment. It does not have any significant effect, because it is already captured in the guiding principles. We want to make sure that there is absolute clarity for businesses and public authorities with clause 62.

[Kirsty Blackman]

So the principle has been removed from clause 62 but is being kept under clause 60? Is that correct? There is no Government amendment to remove that provision from clause 60, but the Government felt it was so important that they need to remove it from clause 62, even though it is literally the same—whether it is post-award referrals or CMA reports following a post-award referral. I am just baffled by the inconsistency, to be honest.

[Paul Scully]

There is no Government amendment to clause 60.

Amendment 4 agreed to.

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

[Paul Scully]

Clause 62 specifies the content of the subsidy advice unit’s report on a subsidy or scheme that is referred by the Secretary of State after being given or made. The subsidy advice unit must evaluate any assessment that the public authority has provided as to whether the subsidy or scheme would comply with the subsidy control principles, prohibitions and other requirements. If an assessment was not provided, that fact must be recorded in the report, along with any reasons provided by the public authority as to why an assessment was not provided. If the subsidy or scheme is ongoing, the subsidy advice unit may also provide advice about how the subsidy or scheme might be modified with a view to ensuring compliance with the principles, prohibitions and other requirements. Finally, the Secretary of State may make further provision by regulation as to the content and form of the post-award referral report.

Question put and agreed to.

Clause 62, as amended, accordingly ordered to stand part of the Bill.

Clause 63

Referrals in relation to subsidy schemes

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

[Paul Scully]

Clause 63 excludes individual subsidies granted through the mechanism of a subsidy scheme from being capable of referral to the subsidy advice unit under part 4. That aligns with the approach taken throughout the Bill. Public authorities may create subsidy schemes providing for the giving of individual subsidies. It is the scheme itself that must be assessed for its compliance with the subsidy control requirements, rather than the individual subsidies granted within the scheme. It is likewise the scheme that falls to be challenged in the CAT for failure to comply with the subsidy control requirements. Ultimately, it is not necessary to refer subsidies given under a scheme because they can be given only within the set parameters of that scheme, and the scheme itself is capable of being referred to the subsidy advice unit.

[The Lord Commissioner of Her Majesty’s Treasury (Michael Tomlinson)]

Very good.

--- Later in debate ---

[Paul Scully]

If a scheme can contain a subsidy of interest or particular interest, that scheme becomes a scheme of interest or particular interest, depending on the circumstances. That is therefore very much the case.

In answer to some of the points made by the hon. Member for Sefton Central on hiding subsidies and distorted payments, we have the basic level of how to treat public money—the statutory obligations on those public authorities that we discussed earlier—but the schemes themselves do not provide a back door for potentially multiple subsidies; public authorities have to consider the principles of the scheme, in the same way as they would for individual subsidies. They must not make a scheme if they judge that any subsidy within that scheme conflicts with any of the principles.

The decision to make the scheme has exactly the same risk-based scrutiny of the potential challenges as the decision to award a subsidy—especially those schemes of particular interest, which are called in by the Secretary of State and must be referred to the subsidy advice unit.

[Bill Esterson]

I want to tease out some information from the Minister. He used the phrase “risk-based scrutiny”, but I get no sense of what, if there is abuse of a scheme, the mechanism is to ensure that the subsidies within the schemes are not applied in a distorted way or in a way that misuses public money. That is the bit that I do not get.

[Paul Scully]

The scheme itself will be challengeable.

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

--- Later in debate ---

[Kirsty Blackman]

I want to raise specific concerns about the first part of this amendment—I am not concerned about the amendment, but I have concerns relating to the first part of it, which is about taking out paragraph (a). Paragraph (a) relates to streamlined subsidy schemes, which were discussed in clause 10. In clause 10, the streamlined subsidy schemes are allowed to be made only by a Minister of the Crown, rather than by anybody else. I understand the Minister’s desire for an ability to make streamlined subsidy schemes—that makes sense. Unfortunately, the amendments that were tabled to widen that out to allow the devolved Administrations to make streamlined subsidy schemes were not accepted.

The exemption of streamlined subsidy schemes from the whole of chapter 1 of part 4 bothers me. If the whole point of the streamlined subsidy schemes is in order for things to happen quickly, I understand that the Minister would not want the mandatory or voluntary referral process to apply in respect of them. However, I do not understand how he can justify the post-award referrals not taking place specifically for streamlined subsidy schemes. It is completely reasonable that, should a streamlined subsidy scheme be about a subject of interest or particular interest, a post-award referral should take place.

I understand completely that the subsidy scheme needs to go before Parliament in order to become a streamlined subsidy scheme, but Parliament is not always right. Sometimes Parliament is wrong, and sometimes it bears scrutiny from experts such as the CMA, which should have the ability to look at this as a post-award thing. I would probably not have gone quite as far as the Labour Front Bench, although I will support this amendment, but I have particular concerns about the lack of post-award scrutiny for streamlined subsidy schemes. If we have a parliamentary process, we are not getting the benefit of the CMA’s advice or its consideration.

It is the case that mistakes were made during the course of covid. Things were done too quickly, and errors were made as a result. An after-the-fact examination to find out what went wrong and whether it is possible to do better next time would be helpful, particularly around streamlined subsidy schemes. Once again, that is not about trying to remove the speed of the process—I understand why the Minister wants that speed—but about a post-award or post-subsidy scheme set-up check to ensure that things are going the way the Government intend them to go.

[Paul Scully]

Clause 64 provides for a limited number of exemptions from some or all of the provisions on the referral of subsidies and schemes to the SAU. The objective of subsections 1 and 2 is to list the types to which it is inappropriate for the SAU referral provisions to apply.

In some cases, the substantive subsidy control requirements do not apply, so it is not possible to evaluate a public authority’s compliance with those requirements. In other cases, the subsidy needs to be given so quickly, as we have heard, that it would not be appropriate to add an additional process that could delay the subsidy.

In the case of streamlined subsidy schemes, the subsidy or scheme will already be subject to additional scrutiny and transparency through other means. They will be developed by the Government through engagement with experts and other public authorities and, once made, they will be laid before Parliament. I take the point of view of the hon. Member for Aberdeen North, but it is the development beforehand that will provide the scrutiny, input and engagement that will then come to this place.

Amendment 59 would bring streamlined subsidy schemes and minimal financial assistance subsidies into the scope of part 4, chapter 1, and therefore make them subject to referrals to the CMA. Of course, the CMA’s role in this regime is to help public authorities to make assessments against the subsidy control requirements, so that subsidies do not unduly distort competition. It is not necessary for streamlined subsidy schemes or minimal financial assistance subsidies to be referred to the CMA, because these types of subsidy are those that are less likely to distort competition in the first place.

We as a Government intend to use streamlined subsidy schemes for low-risk and non-contentious subsidies, to ease the administrative burden for other public authorities of giving subsidies within those terms. The streamlined schemes are available for public authorities to use, if they choose to, when granting commonly used subsidies. As such, streamlined routes will be carefully designed to minimise distortive effects on competition. Streamlined subsidy schemes will be developed and publicised as part of the subsidy control regime. As I have already said, we will continue to engage with experts, public authorities and subsidy recipients as we prepare for implementation, and that engagement will cover streamlined subsidy schemes. If necessary, the Government will also be able to obtain advice from the experts in the subsidy advice unit in developing the schemes under existing powers. Once made, they will be laid before Parliament, so that Members will be able to examine the schemes for themselves. Finally, I should emphasise that the schemes are still subject to the subsidy control requirements. In the very unlikely event that there are grounds to think that they may not comply with the subsidy control principles, they can be challenged in the Competition Appeal Tribunal.

The subsidy control requirements do not apply to the exemption for minimal financial assistance, simply because small subsidies are not generally capable of causing serious distortions of competition. We have previously heard from the Opposition that MFA exemptions should not exist at all, but that position is fundamentally at odds with the Government’s intention that the new subsidy control regime should enable public authorities to award subsidies more quickly and easily in order to meet local needs and drive economic growth. Although the subsidy control requirements are not burdensome, they would still constitute an unnecessary barrier to giving small, less distortive subsidies, and I would draw the attention of the hon. Member for Sefton Central to the consultation, in which 92% of respondents agreed with the Government’s proposal that subsidies below the threshold of £325,000 special drawing rights, which approximates to £336,000, should be exempted from the subsidy control requirements. We have therefore proposed a threshold of £315,000 in the Bill, to account for exchange rate fluctuations.

I have already made the case for exempting minimal financial assistance from the subsidy control requirements. As I have said, the role of the subsidy advice unit is to advise public authorities in assessing subsidies against the subsidy control requirements. When those requirements do not apply, as in this case, it is illogical for there to be a possibility of referrals to the subsidy advice unit. As such, I believe it is unnecessary for streamlined subsidy schemes and minimal financial assistance to be subject to the referral provisions in part 4 of the Bill. For that reason, I urge the hon. Member for Sefton Central to withdraw the amendment.

[Kirsty Blackman]

I have a quick question for the Minister, which he does not have to answer now. I would appreciate it if he could consider when a streamlined subsidy scheme is being published and set before Parliament. He has made it clear that a number of people will be consulted and that it will be drawn up in parallel with thinking from experts and potential recipients of the subsidy scheme. That is fine, but when we are assessing those streamlined subsidy schemes, it would be helpful for Parliament to have that information, and particularly to have a view from the SAU, or from the CMA more generally, about the streamlined subsidy scheme. Even if the SAU just says, “We think this looks good,” that is at least more information for Parliament. It would give me more comfort to know that the scheme fulfils the principles, or at least that the SAU thinks the scheme fulfils the principles as they are laid out. Therefore, it would be much more reasonable for clause 64(1)(a) to be included if we were given that level of comfort.

--- Later in debate ---

[Paul Scully]

Clause 64 provides for a limited number of exemptions from some or all of the provisions on the referral of subsidies and schemes to the subsidy advice unit. Subsections (1) and (2) exempt from the provisions of chapter 1 of part 4 various subsidies or schemes where either the subsidy control principles, prohibitions and conditions do not apply or it would otherwise be inappropriate for the provisions on referrals to apply. Subsection (3) confers a reserve power on the Secretary of State to exempt subsidies or schemes from the mandatory referral requirements where there are urgent and certain exceptional circumstances that mean that it is in the public interest that the scheme or subsidy can be given without the delay that would result from a referral. The power does not exempt the subsidy or scheme from the subsidy control requirements under part 2 of the Bill. It will still be necessary for the public authority to comply with the duty to apply the principles and other requirements.

[Bill Esterson]

We have debated the amendment and the need for the change to this clause. We have tested the will of the Committee already and will not oppose clause stand part.

Question put and agreed to.

Clause 64, as amended, accordingly ordered to stand part of the Bill.

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

Subsidy Control Bill (Sixth sitting)

Paul Scully Excerpts

Tuesday 2nd November 2021 Public Bill Committees

[Kirsty Blackman]

Thank you for chairing the Committee, Ms Nokes. I came back thinking that I had notes, but I have just written two sentences on a bit of paper. Hopefully I will not ramble too much. I want to speak to amendment 19 and amendment 20, which is linked to amendment 19, and amendment 21. I think that is all, but I will speak to other amendments as we come to them.

The logic behind amendment 19 is, unsurprisingly, to try to give us a bit more certainty about what the Secretary of State will require to be included in the subsidy database. It changes “may, in particular” to “must” in subsection (2), to give us certainty that those things will definitely be included. That strengthens the clause and makes it clearer. Amendments 20 and 21 allow the Secretary of State to include anything else that they think is necessary, because if “may” is strengthened to “must”, we need to allow the Secretary of State to have a bit more flexibility to include anything else not listed.

Amendment 21 is about the purpose of the subsidy. We are concerned, having looked at the entry requirements for local authorities—sorry, I mean public authorities; I spent far too many years as a local authority councillor. This amendment has been included because I am not convinced that paragraph (b) on the policy objective of the subsidy scheme adequately covers what we would like to have in that database. People who put things in the subsidy control database need to say why they are giving the subsidy to the organisation. That is important not just for setting the policy objective, particularly in subsidy schemes, but for knowing the point of that individual subsidy—why it is given to that organisation. It will be very helpful if the Minister outlines whether he thinks additional things may be added to this list by the Secretary of State. I hope he can be clear with the Committee that this is not necessarily a prescriptive list and the Secretary of State may include other things in it. I am assuming that is why the language was chosen at the beginning of subsection (2), but if the Minister could state that, it would be helpful for us to understand.

We have discussed at some length the importance of the subsidy control database, and the fact that it is the only way enterprises or public authorities will be able to find out about subsidies that have been made that may distort competition. I agree with the shadow Minister, the hon. Member for Feltham and Heston, that it is very important that we get this right, and that we have as much information as possible, so that people can make pre-action requests and challenge a subsidy.

The subsidy control database is not a tick-box exercise, and I hope that subsidy control is not a tick-box exercise; subsidy control is necessary, and not just so that we can meet our international obligations. Presumably, the Government think that it is a good thing. It is good that we have regulations around subsidies; that is very important. If subsidy control is not to be a tick-box exercise enabling us to meet our obligations, and if we are not saying, “We’re just going to do the bare minimum,” it is key that the Government give some thought to the amendments tabled by Labour and the SNP, and consider whether it is important to strengthen the data on the subsidy control database, as well as the ability to search it and timelines, which we have talked about.

Amendment 21 would require the purpose of the subsidy to be put on the database. That is missing from the list in clause 34. It would be useful for organisations and public authorities to have information on why the subsidy was given. If the Minister believes that

“the policy objective of the subsidy or scheme”

adequately covers the purpose of the subsidy, it would be helpful if he could state that, and say that the Government will request authorities to include the purpose of the subsidy. That would give us comfort about the information that will be on the subsidy control website.

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

It is, as ever, a pleasure to serve under your chairmanship, Ms Nokes. I thank hon. Members for their interest in clause 34 and the amendments to it. As we have heard, the clause concerns the technicalities of how we will require public authorities to upload details of subsidies to the database, and allows the Secretary of State to make regulations setting up the information requirements of the database. The regulations will be technical in nature, and Parliament will have the opportunity to review them through the negative procedure.

We have thought really carefully about this, and I would like briefly to take the Committee through our rationale for taking the power. The definitions, rules and processes at the core of the proposed new regime are set out in the Bill. Further technical detail and specificity will be needed on the exact transparency requirements. Our new regime needs to be responsive to market and technological changes and to reflect future trade deals and international obligations. It is also important that it can respond to unforeseen events and developments. We need to be able to act quickly, when necessary, to events such as financial crises, covid-19, and changes in world markets and the global capacity for the production of particular materials.

The list of information that must be uploaded on the database relates to the technical, administrative reporting requirements placed on public authorities, rather than the substantive subsidy control requirements that determine which subsidies are given. For these reasons—the need to change at pace, and the fact that these are simply reporting requirements, not rules about when subsidies can be given—we have provided for the Secretary of State to have the power to make these requirements by regulation, rather than putting them in the Bill.

We share the desire to be as transparent as possible. This is a crucial part of the regime, not a tick-box exercise; I assure the hon. Member for Aberdeen North that we take it very seriously. In order to give Parliament further information about what kind of information may be provided, subsections (2) and (3) provide illustrative lists.

Amendments 19, 20, 41 and 42 concern similar matters, so I will address them together. As I have said, the Government’s intention in providing the list of requirements in subsections (2) and (3) is to illustrate the kind of information requirements that may be included in the regulations. Those regulations are not yet prepared. More work is required to gather evidence and scope out the most appropriate way of setting out the database upload requirements in legislation. These requirements need to be clear and operationally viable, and must ensure appropriate transparency and value for those interested in subsidy award data.

Our intention is to make the regulations as straightforward and concise as possible and to avoid duplication. The amendments would mean that the Secretary of State must include in the regulations all the fields listed in clause 34(2).

Amendment 41 also covers the list in subsection (3)—the lists would no longer be illustrative but would be a minimum that could be added to. The regulations would be required to include information that, on the basis of the information gathered before drafting the regulations, might be surplus to requirements. We want to ensure that the exhaustive work is done beforehand, because we have tried to avoid creating additional, unnecessary reporting requirements for public authorities in the UK’s new subsidy control regime while still being as transparent as possible. Before setting out the requirements, the Government will carry out full analysis to ensure that data fields are useful and appropriate.

[Kirsty Blackman]

Can the Minister give me some comfort that public authorities updating the database and those searching the database will be involved in the consultation, and that the majority of the decisions taken by the Government are likely to be led by consultation responses, rather than if the consultation comes back and states, “We absolutely want paragraph (f); that absolutely has to be there” the Government would be unlikely to decide not to have paragraph (f)?

[Paul Scully]

We will engage with all those bodies—with the public authorities that will have to do the reporting; with the recipients of subsidies; and with people interested in subsidy data and transparency. We have already started that engagement, and it will continue because it is important that the database is as useful as possible and is balanced by a proportionate approach so that we do not duplicate effort. None the less, these will all be taken into account as we gather the evidence.

The data required for the database needs to be available to public authorities without creating large administrative burdens, either on those authorities or on subsidy recipients. It needs to be data that is relevant to all subsidies and schemes, or to be clear in which circumstances it is required, and where it is not. It needs to be presented so that those viewing it can easily access the data available and seek out the information they need. 

In addition to getting this right for commencement of the new regime, it is important to remember, as I mentioned earlier, that the requirements may need to change over time. For these reasons, I believe it is right that the lists in subsections (2) and (3) remain illustrative—that is to say, the regulations should not be required to include all types of information listed. The ability to tailor the regulations in future is essential for ensuring that the database does what it needs to do and can allow for different requirements for different types of subsidy. 

Amendments 21, 43 and 44 seek to add further categories of information to the illustrative lists. As I have already set out, these lists should be considered illustrative of the technical requirements that the Government expect to bring forward in secondary legislation. As such, any additions are unnecessary.  

The illustrative list provided clearly demonstrates that the regulations are intended to cover the information for interested parties to understand the key facts about a subsidy or subsidy scheme, and whether it is likely to harm their interests.

Amendment 40, which stands in the name of the hon. Member for Feltham and Heston, would make it compulsory for the Secretary of State to make regulations under this power. I assure members of the Committee that the Government intend to bring forward these regulations before the commencement of the subsidy control regime. However, I do not believe it is appropriate to consider these regulations essential to the operation of the new subsidy control regime as set out in the Bill, because the regulations are essentially technical.

[Kirsty Blackman]

The Minister says that the Government intend to bring forward the regulations before the subsidy regime starts. Can he give us an assurance that it will be not a few days before but long enough for public authorities to understand their obligations and include the correct data?

[Paul Scully]

I can reassure the hon. Lady on two things. First, we want to ensure that we develop this with public authorities—that we engage with them so that they are part of the process. They will be reporting, so we want them to understand what they have to do.

Secondly, as I said in answer to the hon. Lady during a previous sitting, we want to do this in good time and ensure that public authorities, beneficiaries and everyone involved have time to digest it. That is very much the aim ahead of commencement.

The regulations are essentially technical in character and do not fundamentally change the substantive subsidy control requirements. The current practice clearly demonstrates that there is no need to have such specific requirements in force for the database to be operational as it is already up and running, although we can and will improve it.

I therefore request that the amendment be withdrawn.

--- Later in debate ---

[Kirsty Blackman]

I beg to move amendment 22, in clause 34, page 18, line 35, leave out subsection (4) and insert—

“(4) Regulations to be made under this section for the first time are subject to the affirmative procedure. (5) Any subsequent regulations made under this section are subject to the negative procedure.”

This amendment would have the regulations be considered under the affirmative procedure, in the first instance, and the negative procedure for any future tweaks.

I like to think I am not an unreasonable person. We have debated at some length what needs to be on the subsidy control database, and it was also discussed during our evidence sessions. It is fundamental to the operation of the scheme that the subsidy control database is fit for purpose and that the information that is available on it is agreed in consultation with the public authorities and the enterprises that it will affect. That relates both to what goes on to the database and to the ability to challenge anything that is happening.

When the regulations are first made, there is likely to be some disagreement. We have had plenty of disagreement already about whether a provision should say “may” or “must” and members of the Committee have brought up good points that Ministers may not have heard before. The Minister’s characterisation of some of the consultation responses has been slightly challenged by the shadow Minister on the ground that some of those responses were not as clear as the Minister suggested. For that reason, when we consider for the first time the information to be included on the subsidy control database, it is important that we do so by the affirmative procedure. Any subsequent changes can be done by the negative procedure.

As the Minister has said, this is a framework Bill, but we have not seen this part of the framework. If the scheme is to work, we need to see what it will involve. The Minister said that this section was specifically about what was included on the database and not about the regulation of subsidy because there are rules on whether or not they are awarded. He is right about that, but we will not be able to understand whether subsidies are being given unless they are on the database. We simply will not know whether they exist. The only burden on public authorities is to provide a letter to the business; it does not involve any level of check or anything that enables us to scrutinise what has happened. The affirmative procedure, in the first instance, would be the best way forward, with the negative procedure for future iterations—tweaks to ensure it is operating correctly.

[Paul Scully]

Amendment 22 concerns the procedure by which the Secretary of State can make regulations to set out the information that public authorities must upload to the transparency database.  

As we have discussed in the context of other amendments, these regulations are highly technical. They do not change the substantive subsidy control requirements or the basis on which subsidies can be given. They are also not necessary for the database to function—as demonstrated by the fact that it is already operational. 

The negative procedure is most appropriate for a technical issue such as this.  As I mentioned this morning, the Bill proposes the right parliamentary procedure for different types of secondary legislation. I mentioned the powers to amend the exemption thresholds in clause 42(1) being subject to the affirmative procedure because they affect the substantive subsidy control requirements rather than the thresholds or entries on the database that we are discussing.

The regulations will be drafted and published in good time to ensure that public authorities understand what the regulations will require of them.  I therefore request that the amendment be withdrawn.

[Kirsty Blackman]

I thank the Minister for his statement. It will be interesting to see whether the regulations come forward in the negative or the affirmative.

I do not intend to press the amendment to a vote. I say simply that, although the website is operational, it is not very functional. The Minister has admitted that it has shortcomings, a number of which would have been sorted if the intention of the regulations had been made clearer in the Bill or if they would be discussed under the affirmative procedure.

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 gives the Secretary of State the power to make regulations that stipulate what information must be provided by a public authority with respect to a subsidy scheme or subsidy award when it is recorded on the subsidy database.

The regulations will be subject to the negative procedure.

[Kirsty Blackman]

Subsection 2(g) of the clause mentions

“the amount of the subsidy or scheme or the amount budgeted for the subsidy or scheme.”

That directly contradicts what the Minister said in relation to tax measures. He said that tax measures could not be put on to the database in advance of knowing exactly how much the tax measures would be. I suggested that it would be possible to include the budgeted amount on the website. The Minister said that would not be possible—it would be important to have the final amount. This specifically states that in regulations the Government might ask for the budgeted amount—particularly for tax measures, where there is such a long time before a public authority has to upload the information, during which a business might, because of the distortive effects of the subsidy, be in serious financial difficulties and go under. It is bizarre that the argument that the Minister made is directly contradicted by subsection 2(g). It would be helpful to know why the provision is in the Bill if the Government would not even consider using it—which is what he suggested earlier.

[Seema Malhotra]

I am grateful for the opportunity to say a few words in this stand part debate.

We have discussed extensively the considerable concerns about the framing of clause 34. We will not vote against clause stand part, and there is no mechanism for us to abstain. I will make one final comment, on the content of subsection (3). It is extremely important that there is a thorough set of requests from public authorities to make sure that the criteria being used for the calculation of the subsidy are explicit, for all the reasons of transparency that we have talked about. We need to see that embedded through the Bill. To be fit for purpose, there are a number of areas where we believe that needs to be strengthened. We intend to come back to these issues at future stages of the Bill.

[Paul Scully]

To answer the question from the hon. Member for Feltham and Heston, the criteria used to determine how the figures are arrived at are part of the purpose of the subsidy, which is why that information is in the Bill, but guidance will also be provided, as will regulations on gross cash equivalents.

On the point made by the hon. Member for Aberdeen North, that, effectively, is why this is an illustrative list. Budgeted amounts can vary significantly from the final subsidy, so it might not be appropriate for them to be used in all cases, including for tax. None the less, we want to work out these issues on an evidence-led basis, having engaged with the public authorities to see how the database will work in practice. It is important we work with the public authorities to come up with the guidance and final regulations in plenty of time before commencement.

[Kirsty Blackman]

It would be very helpful if when the consultation is carried out the Government were to ask enterprises whether they would prefer to see the data earlier, or the final figure. I think the Government have got it wrong on this one.

[Paul Scully]

As I said, we will engage with enterprises and public authorities, as well as academic and legal experts, to make sure we get the balance right. We think we have a balanced and proportionate response, but that will be developed in plenty of time before commencement.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Introductory

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

[Paul Scully]

The Bill sets out a robust but flexible framework for the awarding of subsidies. As part of the regime provides the necessary flexibility for public authorities, certain types of subsidies are exempt from the framework entirely, or from different elements of it, depending on the nature and context of different subsidy decisions. For example, except for the continued application of clauses 16 and 17 in respect of goods, there is no need to apply the subsidy control requirements to lower value subsidies that have minimal distortive impacts, including those given to services of public economic interest.

Although the framework should be flexible enough to allow public authorities to provide the necessary support in emergencies, in other areas, such as monetary policy subsidies, it is entirely inappropriate for them to be within scope of the subsidy control regime. For monetary policy, it is crucial that the subsidy control framework does not undermine the Bank of England’s independence or hinder its role in the macroeconomic framework. Part 3 sets out a number of other exceptions, such as on subsidy schemes established before the regime will be enforced, where there is a need to give certain subsidies or make a subsidy scheme to maintain financial stability, and subsidies given for large cross-border co-operation projects.

[Seema Malhotra]

The clause explains this part of the Bill, which sets out where certain subsidies and schemes are to be exempt from the requirements of the regime. We do not have any specific issues with the clause, and are happy to support that it stand part of the Bill.

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

Clause 36

Minimal financial assistance

Amendment proposed: 33, in clause 36, page 19, line 17, after “requirements” insert

“with the exception of duties under section 33,”.—(Kirsty Blackman.)

This amendment requires that Minimum financial assistance under £315,000 is subject to the subsidy database requirements in clause 33, despite being exempt from the other control requirements in Part 2.

Question put, That the amendment be made.

--- Later in debate ---

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

[Paul Scully]

The exemption allows public authorities to award low-value subsidies of up to £315,000 over three years with maximum flexibility and minimal administrative burden. Subsidies given through the minimal financial assistance exemption are very unlikely to have any appreciable distortive impact on international trade and investment, or UK competition and investment, so it is appropriate to exempt them from the substantive requirements of the regime, subject to the value threshold set out in the clause and the relevant procedural requirements set out in clause 37.

[Kirsty Blackman]

I continue to believe that subsection (2) of the clause is meaningless and unpoliceable because of the way that the subsidy control database is being put together. I would very much like it if the Minister would, either now or at some future point, in writing preferably, let us know how the Government intend to ensure that public authorities are able to find out whether an organisation has had a subsidy before, what its value was, and whether the subsidy that it will potentially award to that organisation will push it over the £315,000 limit.

There is no point in the clause if there is no way in which it can work because of the Government’s decisions on how the database is run. I am very pleased that a public authority will have to write a letter to an organisation to say, “We’re giving you a subsidy under the minimal financial assistance scheme,” but that does not go far enough. It may be helpful if it had to write a letter to all granting authorities, because then they would all be aware of the subsidy that had been given, and they could take decisions. This is an unfair and not sensible burden to put on granting authorities, because there is no way that they can ensure that they are abiding by the law, or get the transparency data to prove that they have done so.

[Seema Malhotra]

We will not support clause stand part. My contribution will build on the arguments made by the hon. Member for Aberdeen North. We debated amendment 33, which I think went part way to covering some of our concerns, but our concerns are broader, in questioning the exemptions from some of the control requirements.

The clause outlines subsidies that are exempt from the subsidy control principles, stating that the principles do not apply to subsidies worth less than £315,000 to one enterprise over three years. We believe that subsidy control principles exist for a reason; we are having these debates and setting up this regime for a reason. Subsidies should help to pursue a specific policy objective. They should be proportionate. They should encourage certain behaviours. They should not fund unnecessary costs. They should not be distortive or cause overwhelmingly negative effects. They should not affect competition and investment within the UK. Those principles should stand regardless of the size of the subsidy.

A subsidy being smaller does not mean that it cannot be disproportionate or bring about negative effects. All subsidies have the power potentially to harm the economy. They should be transparent and subject to scrutiny and the potential for challenge, and therefore all should be required to be in line with the subsidy control principles. I have not heard anything from the Minister, although he may yet persuade me otherwise, about why the clause is needed and why the Bill cannot require all subsidies to be transparent and in line with the subsidy control principles—it is the Subsidy Control Bill.

[Paul Scully]

Clause 37, as we will discuss in a second, states that the public authority has to confirm with the enterprise that the subsidy is still below the threshold. That is the right balance for a proper process to confirm that the threshold is respected without applying disproportionate burdens of oversight for small subsidies that are unlikely to be distortive in any way. Although the regime is light touch, it still imposes some obligations, and it is not proportionate to impose them on very small subsidies that are unlikely to have an impact on trade and competition. For that reason, we feel that the balance is right between the transparency required to make sure that the subsidies are made and reported, and that we can understand the effect and distortion they may have, and the administrative burden that will be put on public authorities and those smaller businesses.

[Kirsty Blackman]

I appreciate the case that the shadow Minister made. I am not entirely convinced at this point; I need to think about it a bit more. I will therefore abstain if clause stand part is pushed to a vote, but I reserve the right to change my mind on Report.

--- Later in debate ---

[Paul Scully]

Clause 36 establishes the minimum financial assistance—or MFA—exemption and the value threshold for awarding subsidies under the exemption. That exemption allows subsidies to be given without having to comply with the subsidy control requirements, and clause 37 sets out the procedural requirements to use that exemption.

Before awarding an MFA subsidy, a public authority has to provide the intended beneficiary with an MFA notification. That must set out that the subsidy is proposed to be awarded as MFA, the value of the prospective subsidy and it must request confirmation that the enterprise will not exceed the MFA threshold. The public authority can only award the subsidy when it has received this confirmation. When awarding an MFA subsidy, the public authority must give the intended beneficiary an MFA confirmation, which is a written statement confirming that the subsidy has been awarded through the MFA exemption, the gross value amount of the subsidy and the date on which the subsidy was awarded. The beneficiary must keep a record of this information for three years, beginning on the date on which the subsidy was awarded.

[Stephen Kinnock (Aberavon) (Lab)]

Clause 37 refers to the enterprise needing to keep a written record. How will the public authority know that the enterprise is keeping that written record?

[Paul Scully]

That would be for challenge, should the overall subsidy be challenged in a court through judicial review. The public authority should exercise its statutory obligations.

[Stephen Kinnock]

Just to clarify, we are taking it from the enterprise based on trust?

[Paul Scully]

It works both ways. If I were an enterprise receiving a subsidy, such as minimum financial assistance, I would want to make sure that I was doing my own due diligence, and public authorities do. Any businessman would know that there are legal implications and legal requirements of running a business. It should be the case that it works both ways.

There are interlocking elements within the framework that ensure that both public authorities and enterprises are doing their own due diligence. The procedural requirements will make sure that enterprises receive subsidies only through the MFA exemption when they are genuinely entitled to do so, while still minimising the administrative burden associated with awarding a subsidy. I commend the clause to the Committee.

[Kirsty Blackman]

I have a few questions about the clause. It would be helpful if the Minister could lay out what he expects the timeline to be for these requirements. The minimal financial assistance notification has to be given in advance of the subsidy being awarded. It is an intention letter that says the body intends to give the subsidy. Presumably that has to happen at any point in advance of the actual cash changing hands or the tax measure taking place.

My second question is about the minimal financial assistance confirmation, which is the written statement confirming that the subsidy has been given, the date it has been given and the gross value of the assistance. The Minister made clear earlier in the debate that it could be up to a year, or even longer, before an enterprise actually knows what the gross value of that assistance is if it is a tax measure. Are the bodies expected to give the confirmation as soon as they give the subsidy, or are they expected to give the confirmation as soon as they know the exact amount, particularly for tax measures? The provision does not seem to add up with the details we were given on the subsidy control database.

The other questions I have are about what “written” means. If a public authority emails these details to an organisation, does that count as written? Clause 37 says that

“the enterprise must keep a written record”.

Does it have to keep these details on a piece of paper in a filing cabinet, or can it be kept in an electronic form? What if the enterprise does not have much in the way of offices? What if it operates largely online? We have seen many enterprises move towards online working. Is an electronic version acceptable? Would the enterprise be fulfilling its duties by keeping an electronic record, or do we need that bit of paper, hanging about somewhere in someone’s house or office or wherever?

If the Minister cannot give exact answers to my specific questions, it would be handy if he could supply the answers at a later date—

[Paul Scully]

In writing?

[Kirsty Blackman]

In writing would be absolutely fine—if that is by email, I am happy to receive it electronically. It would be helpful if the Minister could write to us to confirm what “written” means. For people to be able to meet their obligations, he will probably have to make some sort of statement about what the Government intend, either today or at a later stage.

[Seema Malhotra]

It is a pleasure to speak to clause stand part. The Minister could have saved himself a whole debate had he supported our arguments on clause 36, because this clause sets out the procedural requirements attached to subsidies given under the clause 36 exemption.

The clause outlines how public authorities must provide the intended recipient with a notification, stating that they cannot award a subsidy until they have received confirmation from the intended recipient in a number of areas, including that the relevant threshold will not be breached. There are a whole set of debates to be had about what is considered a subsidy and what is not—we have had that on other aspects of the Bill—and about the lack of full clarity on the interface with the freeports policy or on taxation and subsidies. Clear guidance will be needed for interpretation by the enterprise of what it needs to consider when answering the question under subsection (2)(c). I hope that the Minister will set out in his remarks how he intends that to happen, to give surety to the enterprise and to the public authority.

As I said, Labour does not support clause 36. In my view, we have not heard a convincing case for such exemptions, which seem to be beyond what is needed. Our starting principle must be and must remain transparency. Confidence in this regime is all about transparency, to ensure that there is no cronyism or potential fraud. Once we have set up an agile, simple and robust system, which it is surely not beyond our wit to do, it should be straightforward to provide that information.

The Minister said earlier that the MFA notification would not need to be published. Will he clarify whether that is still the intention if an MFA notification goes to an enterprise? Local authorities and public authorities can simply publish on their websites, for example, when they have given some form of notification. That is a common thing to do, and publishing on a website what has been given to an enterprise does not in my view involve any issue of commercial confidentiality or of not being in the public interest; it would simply be transparent.

If we do not win the argument about changing the detail of the regime, there might be a middle way: at least the notifications ought to be published. Will the Minister tell us whether that has been given consideration and, if so, what the conclusion was and why? If it has not been given consideration, perhaps he will take it away and we can look at it as part of ongoing discussions with local authorities and other public authorities on other areas in the Bill, particularly clauses 32, 33 and 34.

Given that clause 36 remains part of the Bill, however, we recognise that the regulations listed under clause 37 will be necessary to bring some procedure to minimal financial assistance. We will therefore not vote against clause stand part.

[Paul Scully]

I will cover some of the questions that have been asked. It is fine for written records to be electronic, and we expect to provide guidance on that. Those letters should be sent as soon as possible, based on the value calculation at that point. Small subsidies will be far less complex than some sort of mega tax break or anything like that, which will have a far more uncertain value. As we were discussing this morning, the subsidy will typically crystalise at the time of the tax declaration, because that will be when the value is better known, but essentially it is for public authorities to let people know as soon as possible. I will write to the hon. Member for Aberdeen North to expand on the tax situation and the tax breaks, using electronic means if she is amenable to that, rather than non-verbal communication such as interpretive dance or anything else we talked about earlier. I will get an email to her to clarify the situation.

The hon. Member for Feltham and Heston talked about having a robust situation. The reason why having the ability to grant these smaller exemptions is really key became apparent during the covid pandemic. Although there was a scheme, there were still exemptions that we had to work on really quickly, and I had so many businesses from the hospitality and retail sectors coming to me because they were incredibly hard pressed. We were having to delay what seemed like some of the easiest awards that the Government could make throughout the pandemic because of the bureaucracy of the state aid framework that we had at the time. This is why we are trying to get that proportionate approach, balanced between having something that is agile—that can work with whatever circumstances we face and minimise administrative burdens—and having a robust and appropriate situation that people can look at and address through review by the Competition Appeal Tribunal, should they so wish.

Turning to the issue of publication, if local authorities want to publish these letters, that is up to them. What we are saying is that they should be sending them to the enterprises—the recipients and the beneficiaries—in the first place.

[Seema Malhotra]

The question I was asking was whether consideration had been given to whether public authorities should publish those letters. Some may and some may not, but there is not necessarily a downside to publishing letters that are already being sent. Has active consideration been given to that question? Has advice been received? Has any consultation been done, and what was the outcome of it, or is this an area that has not yet been considered?

[Paul Scully]

It is something that we will continue engaging with local authorities and public authorities on. For local authorities, there are already other spending databases, so subsidies over £500 will already appear on those databases. Again, we will work through that kind of engagement as we come on to the guidance.

[Kirsty Blackman]

The Minister said that the letters are allowed to be sent by electronic means. Can I clarify that the written records kept by enterprises are also allowed to be electronic?

[Paul Scully]

I believe that is the legal definition of what “written” means and therefore how those records are kept, but if it is not, I will clarify that later.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Clause 38

Services of public economic interest assistance

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

[Paul Scully]

The clause establishes an exemption from the subsidy control requirements for subsidies of up to £750,000 awarded for the delivery of services of public economic interest, and this type of subsidy is called SPEI assistance. This exemption operates in a similar way to the exemption for low-value subsidies—minimal financial assistance—in the previous clauses. Services of public economic interest are public services that it is important to deliver but that would not be delivered by enterprises at the necessary level without subsidy. They include, for example, certain rural transport services.

The SPEI assistance exemption operates in a similar way to the MFA exemption, but has a higher value threshold of £725,000 within the current and previous two financial years. That is because of the importance of delivering this category of services, and the fact that SPEI subsidies in general are less likely to be distortive because they are given for services that are not supplied in an appropriate way by the market, or in some cases not supplied at all. Therefore it is appropriate to exempt them from the subsidy control requirements. If it is desired to grant a subsidy above that limit, the general procedure for the award of SPEI subsidies set out in clause 29 must be followed, and such a grant is also subject to a separate transparency threshold set out in clause 41. To ensure that the SPEI assistance threshold is correctly applied, all SPEI assistance subsidies are subject to rules that allow the cumulative total for each enterprise to be calculated.

Clause 42 defines “minimal or SPEI financial assistance”, which effectively encompasses all the different low-value exemptions through which an enterprise could receive support. For example, on MFA, set out under clause 36, aid given under the EU state aid de minimis regulations before the end of the implementation period, and exempt low-value subsidies given in the interim regime under the terms of the trade and co-operation agreement, should all be taken into account. That stops enterprises being able to receive many subsidies that are considered low value in isolation, but cumulatively could create distortions if their combined value exceeds the threshold. I commend the clause to the Committee.

[Seema Malhotra]

I thank the Minister for his opening remarks. Subsidies given through the exemption do not have to apply the subsidy control requirements if the amount of assistance received by the beneficiaries totals less than £725,000 over a three-year financial period. Clause 38 sets out that services of public economic interest are exempt from the subsidy control principles. We recognise the force of some of the arguments made by the Minister, that these are generally in relation to services that are not being provided by the market, and that the SPEI assistance is different from other subsidies. There are some areas that we would like to explore further, but overall we are not arguing against this today and therefore we will support the clause.

[Paul Scully]

I said at the beginning that it was £750,000, but I meant £725,000 throughout.

[The Chair]

Thank you for that clarification.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.

Clause 39

Section 38: procedural requirements

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

[Paul Scully]

The previous clause establishes the SPEI assistance exemption and the value threshold for awarding subsidies under the exemption. This clause sets out the procedural requirement to use that exemption.

[Seema Malhotra]

I thank the Minister for his opening remarks. He has outlined that clause 39 establishes some of the procedural requirements to be attached to SPEIs. We think, for reasons outlined in previous debates, that these requirements will be important and add necessary procedures to the granting of assistance to SPEIs. However, I think the question whether there is to be publication of notifications is a matter that the Minister might take away and consider in relation to the similar debate that we had on clause 37. I will be grateful for that and will perhaps come back to this issue during the Bill’s future stages, after we have time to further consider it.

[Paul Scully]

Duly noted.

Question put and agreed to.

Clause 39 accordingly ordered to stand part of the Bill.

Clause 40

Mergers and acquisitions

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

[Paul Scully]

The clause sets out how a subsidy given through the minimal financial assistance and service of public economic interest exemptions is to be treated following a merger or acquisition. It is important for the purposes of compliance with the relevant financial thresholds. These provisions provide clarity and ensure that exemptions cannot be exploited by enterprises restructuring themselves in such a way as to receive more exempt subsidies.

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to see you back in the Chair this afternoon, Ms Nokes. We have no objections to the clause.

Question put and agreed to.

Clause 40 accordingly ordered to stand part of the Bill.

Clause 41

Subsidy database: exemption for SPEI assistance

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

[Paul Scully]

Services of public economic interest are vital services that without Government subsidy would not be supplied in the appropriate way by the market, or in some cases would not be supplied at all. It is important that public authorities can support the delivery of vital public services using those subsidies. The clause exempts certain services of public economic interest subsidies from the transparency requirement in clause 33 to upload the subsidy on to the database. There are two categories of exemption.

First, clause 41(1)(a) provides that a subsidy for a service of public economic interest of less than £14.5 million is exempt from the obligation to upload. Secondly, even where the subsidy for a service of public economic interest is £14.5 million or more, it is exempted from transparency obligations if it has been given for certain activities listed in the clause, including hospital care, social housing or airports with fewer than 200,000 passengers annually. Subsection (2) details that, when calculating the value of the subsidy, the gross cash amount should be used, or, if the subsidy is not provided in cash, the gross cash equivalent.

[Bill Esterson]

We do not believe that the clause should stand part. That is consistent with our approach to the problems with the lack of content on the database and the lack of transparency. The clause outlines that subsidies of less than £14.5 million given to SPEIs are exempt from having to be published on the database. As my hon. Friend the Member for Feltham and Heston laid out in her comments on clause 38, we understand that the subsidies to services of public economic interest should not have to obey the subsidy control requirements, but we cannot see why they should not be published on the database. I also do not think I heard the Minister explain why the £725,000 threshold applies in clause 38. Perhaps he could answer that in his response.

The bigger question on the clause is why the Government have chosen to exclude payments to services of public economic interest from the database at all. The Minister talked about transparency. Why is there no transparency for these payments? The Government’s recent track record is—as the Public Accounts Committee put it—one of enormous sums of money being given with no apparent return in the case of Test and Trace, and hundreds and millions of pounds-worth of contracts going to people with connections to Government Ministers or other connections to Government. In the case of Andrew Mills, who was an adviser to the Board of Trade, a company that he set up last year assisted in the awarding of a £252 million contract to Ayanda Capital, but a significant proportion of the personal protective equipment that it supplied turned out to be unusable. That was very wasteful and inefficient, but the process was very lucrative for individuals with such connections.

That is why transparency is so important. Recent history has given the country the impression that the Government are reluctant to engage in proper transparency. That is not a place in which anybody on this Committee should want to be. It feels at times that the Government fail to grasp that subsidises are financed by public money and that they should therefore be subject to appropriate transparency and scrutiny. We have discussed that a number of times. Subsidies to SPEI enterprises are no exception. Although they may go towards enterprises that differ from other subsidy recipients, they are still financed by public funds and should therefore still be subject to transparency, and the public should still be able to access information about them. These are much larger sums of money.

If that does not happen, subsidies given to SPEIs risk being abused and given to inappropriate recipients—including, as we have seen over the past year and a half, those with connections to the Conservative party. During last week’s evidence session, Professor Rickard told us:

“Through transparency, we can get better compliance and better value for money”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 21, Q24.]

Does the Minister disagree with that analysis? Can he tell us what drawbacks he sees to subjecting subsidies given to SPEI enterprises to more transparency?

We agree with Professor Rickard that better transparency reduces corruption, reduces cronyism and leads to better value for money. The clause unnecessarily reduces the transparency for subsidies that could amount to tens of millions of pounds—perhaps more in some cases. As such, the clause should not stand part of the Bill and we will vote against it.

[Paul Scully]

For the sake of completeness, and with your indulgence, Ms Nokes, I go back to the question about why the threshold in clause 38 is set at £725,000. As part of the consultation response, the Government set out that we would convert the special drawing rights sums in the trade and co-operation agreement to a fixed value in pounds. Setting that exemption threshold at a fixed sterling amount is simpler than having a moving SDR threshold affected by currency fluctuations, and so it was fixed to give certainty for public authorities and recipients.

We have discussed that subsidies granted for public services are unlikely to be unduly distorted. The very reason they are needed is that other providers are unable or unwilling to provide a necessary service—for example, ferry links between Scottish islands, and bus services in rural areas—at a reasonable cost. The lower risk of distortion justifies a higher transparency threshold, which has been set at £14.5 million. SPEI subsidies for less than that amount are unlikely to be distorted.

We are striking a balance between minimising administrative burdens and requiring an appropriate level of transparency. Such services were also exempt from transparency rules under the EU state aid system. We are seeking to minimise administrative burdens where possible, and it would not be appropriate to impose new, unnecessary transparency requirements. Does that mean that they are not transparent? No, it does not. They must be awarded in a transparent manner, as clause 29 stipulates, which means that the subsidy is given through

“a written contract or other legally enforceable arrangement”.

Public authorities would normally publish those contracts, and it is good practice to do so. Indeed, the examples that the hon. Gentleman gave earlier about accusations of and concerns about the perception of cronyism were available because the spending decisions had been made public at a point in time. Spending decisions by councils, including Labour ones, up and down the country, above £500, are available on spreadsheets, which people can go to and drill down.

--- Later in debate ---

[Bill Esterson]

I beg to move amendment 45, in clause 42, page 23, line 43, at end insert—

“(1A) Before making regulations under subsection (1), the Secretary of State must seek the consent of the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland.

(1B) If consent to the making of the regulations under subsection 11(A) is not given by any of those authorities listed in subsection (1A) within the period of one month beginning with the day on which it is sought from that authority, the Secretary of State may make the regulations without that consent.

(1C) If regulations are made in reliance on subsection 1(6B5), the Secretary of State must make a statement to the House of Commons explaining why the Secretary of State decided to make the regulations without the consent of the authority or authorities concerned.”

This amendment would require the Secretary of State to seek the consent of the Devolved Administrations before making regulations under this section. Where such consent is not given within one month beginning on the day in which it is sought, the Secretary of State may make the regulations without that consent, but must publish a statement explaining their decision.

So much confusion today, in so many ways, in dealing with the Bill and in some of what is going on in the Bill, Ms Nokes, but there we are. It is all set to make the afternoon go by in a more entertaining fashion.

As with many aspects of the Bill, the clause fails to take into consideration the important role that the devolved Administrations have in state aid governance. The ability to impose regulations unilaterally by secondary legislation, without seeking the consent of the devolved Administrations, is inconsistent with the approach that Labour has sought to instil in Committee—to consider the devolved Administrations as public authorities equal in responsibility for state aid to the responsibilities of the Secretary of State.

Devolved Administrations are on balance more likely to understand what subsidies will be most beneficial for their respective nations than the Secretary of State. That includes such matters as setting the value thresholds for the minimal financial assistance and services of public economic interest assistance exemptions, as well as the transparency exemption for SPEI assistance. Last week, Daniel Greenberg told us in evidence that

‘throughout the Bill, you see “Secretary of State, Secretary of State, Secretary of State”—all powers of HMG—and you think, “Hold on, the devolved institutions are also public authorities. They appear in the list of public authorities in clause 6, so why is it that they do not also share Secretary of State powers?”’––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 61, Q80.]

We of course understand the role of the Westminster Government in the creation and operation of the UK subsidy regime, but preventing the devolved Administrations from creating streamlined schemes undermines their important role in our democratic infrastructure, as well as their responsibilities for their respective nations. We therefore seek to amend clause 42 to allow Welsh Ministers, Scottish Ministers and the Northern Ireland Department to require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. Where such consent is not given within one month, beginning on the day on which it is sought, the Secretary of State may make the regulations without it but must publish a statement explaining the decision. We believe that the amendment would help to increase the effectiveness of subsidies across the UK and respects the role of the devolved Administrations.

[Paul Scully]

The Government welcome the ongoing interest that the devolved Administrations have in the Bill, and that the Opposition have in this area. We understand how important it is to set the right thresholds for minimal financial assistance and services of public economic interest assistance, and to set the right reporting threshold for SPEI subsidies. Setting the appropriate thresholds for those categories of subsidy is key to balancing the administrative burden on public authorities, ensuring that proportionate levels of transparency are met and that we remain in line with our international obligations.

The hon. Member for Sefton Central will be aware that in the Government’s response to the consultation on subsidy control we committed to considering whether the threshold at which agricultural subsidies should be classed as minimal financial assistance should be different from that for other subsidies. That decision will be taken after further consideration, before the Bill comes into force. It is right that the regulations under the clause are scrutinised. The Bill provides for that by requiring that they will be subject to the affirmative procedure and will be debated and approved by both Houses in draft before they can be made. The UK Parliament is the right place to scrutinise any regulations made under the clause.

To reassure Members present, I reiterate that we have had numerous discussions with Ministers and officials in the Scottish Government, the Welsh Senedd and the Northern Ireland Executive while drafting the Bill, and since its introduction. We are committed to engaging regularly with the devolved Administrations, taking account of their views, as the Bill progresses through Parliament and in the run-up to its implementation. That includes engagement on the thresholds for those categories of subsidy, both in the round and on a sector-specific basis, so I ask that the hon. Member withdraw the amendment.

[Bill Esterson]

I have to pick the Minister up on this: he thanks Members for our ongoing interest in the Committee’s deliberations, and the devolved Administrations for their interest. Come on. We are supposed to have a four-nation system. I think it is a bit more than just showing ongoing interest. Perhaps he can tell us the result of the discussions and the consultation feedback on the clause. What was the devolved Administrations’ response? Did they say that they were happy with the clause, or did they want to be in a position to give their consent before the implementation of its provisions? Certainly from what I have seen, they would want the ability to give consent, notwithstanding the importance of the UK-wide system that is in place and the Westminster Government’s role. I would be interested in his response.

[Paul Scully]

I think we have established that subsidy control is a reserved matter. It will be subject to debate, but none the less it is a reserved matter, and it is therefore right that subsidy control policy is made and voted for here in Parliament, which is why I talked about the scrutiny. Parliament is the place to do this. We have engaged on a number of occasions on various aspects of the Bill—34 times at official level and 10 at ministerial level. On top of that, in response to the consultation the different devolved Administrations came up with different views on a number of issues. There was no one consistent view in a number of areas. There are provisions in the Bill that engage the legislative consent motion process, and we hope that the devolved Administrations will not only agree that the Bill is important, but give it their legislative consent.

[Stephen Kinnock]

The Minister keeps saying that the UK Parliament is the right place to deal with this, and we actually agree—that is the sentiment behind the amendment. All the amendment asks is that the UK Government adopt a collaborative approach by checking with the other public authorities, but, if the UK Government feel that they should proceed as originally intended, they should go ahead with it within one month. We are not divided on the question of whether the UK Parliament is the right place to do this. What we are saying is that a collaborative approach would deliver better results for everybody. The Minister should not use the argument that the UK Parliament is the best place to do this, because we actually agree with that.

[Paul Scully]

The devolved Administrations remain one of the key areas—perhaps the key area—where the subsidies will be given. We are not substantively changing the spending powers of the devolved Administrations, or indeed of any public authority.

[Kirsty Blackman]

The Minister specifically mentioned agricultural subsidies. Agriculture is devolved to the Scottish Parliament—it is a Scottish parliamentary competency—but he is suggesting that if Westminster intervenes in a devolved competency it is okay for it to not even run it by the Scottish Parliament in any formal way.

[Paul Scully]

We have not committed to changing the agricultural threshold. We intend to analyse carefully the full implications of lowering the threshold before making any final decision. Why would we want to do that? Because it may be desirable to effectively manage UK competition and investment as a whole. However, this was one area in which our analysis showed that there was no one single response to the consultation. I come back to the point that we will continue to engage closely with the devolved Administrations, as with all public authorities.

[Kirsty Blackman]

I disagree with the comments of the hon. Member for Aberavon. Clearly, I think that Scotland should be able to make its own decisions and have its own regime. In fact, I think it should be part of the EU and under the state aid regime, which has worked particularly well in an awful lot of areas.

I do not think that the amendment goes far enough. I am happy to support it if it is pushed to a vote, but I would have gone further in making sure that the Scottish Government, Scottish Ministers, the Welsh Senedd and Northern Irish Departments had even more of a say than that proposed by the amendment. If the amendment is pushed to a vote, I will support it on the basis of it being the minimum that I would expect, but I would prefer it to be even stronger.

--- Later in debate ---

[Paul Scully]

Clause 42 allows the Government to make certain amendments to the total value thresholds for the exemptions in chapter 2 of part 3, which have been set at the conversion rate between special drawing rights, International Monetary Fund reserved currency, and the pound. The UK-EU trade and co-operation agreement, the TCA, sets the threshold for minimal financial assistance, SPEI assistance, SPEI transparency exemptions and the total value thresholds of SPEI. That means that if the exchange rate changes significantly, the Government may need to amend the thresholds of the Bill to remain compliant with the TCA.

In addition, the EU and the UK may agree to change the special drawing rights amounts set out in the TCA, so the Government must retain the ability to amend the exemption total value thresholds. The Government must have the ability to lower the total value thresholds in response to any new international agreements. Clause 42 also provides a power to specify a lower threshold for minimal SPEI assistance and SPEI transparency exemptions for categories of subsidies. Essentially, these international obligations are why the previous debate is superfluous. Ultimately, the UK Parliament is the right place to discuss changes to thresholds to make sure that we continue to meet our international obligations. I commend the clause to the Committee.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Clause 43

Natural disasters and other exceptional circumstances

[Bill Esterson]

I beg to move amendment 46, in clause 43, page 25, line 16, at end insert—

“(3A) The Scottish Ministers, the Welsh Ministers, and a Northern Ireland department may request the Secretary of State to declare a natural disaster or another exceptional circumstance in Scotland, Wales, and Northern Ireland.

(3B) If the Secretary of State refuses a request made under section (3A), he must make a statement in the House of Commons outlining the reasons for his refusal.”

This amendment allows the devolved administrations to ask the Secretary of State to declare a natural disaster or exceptional circumstances, so that the exemptions listed in Clause 43(1) applying to Scotland, Wales, and Northern Ireland may apply. If the Secretary of State refuses a request for exemption, this amendment requires him to make a statement to the House of Commons.

Amendment 46 allows the devolved Administrations to ask the Secretary of State to declare a natural disaster or exceptional circumstances so that exemptions listed in clause 43(1) applying to Scotland, Wales and Northern Ireland may apply. If the Secretary of State refuses a request for exemption, the amendment requires them to make a statement to the House of Commons. To reiterate the point I made in the last debate, we are determined to ensure that the role for the devolved Administrations in the administration of their own nations is respected and considered. Of course, we agree that the subsidy regime sits with the Westminster Government, because it is a UK-wide system, but on matters as important as states of natural disaster, devolved Administrations should always be consulted.

Members will appreciate that natural disasters are not political by nature. A natural disaster does not discriminate who it targets and where it affects. By that logic, devolved Administrations, which are just as likely as anywhere else to experience natural disaster, should be granted powers to request that the Secretary of State declares a natural disaster or exceptional circumstance so that the exemptions listed in clause 43(1) may apply. We believe the amendment would respect the role of devolved Administrations in managing their response to disasters effectively, while still ensuring the Secretary of State has the final say.

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[Kirsty Blackman]

That is nothing to do with the subject of this amendment, which is specifically about the devolved Administrations being able to ask. If the Secretary of State wishes to declare a natural disaster, and Wales, Northern Ireland or Scotland does not want them to declare it, there is no mechanism for that—we do not have the powers to do that.

On the issue that was raised by the hon. Member for West Aberdeenshire and Kincardine, it is important that the devolved Administrations have this mechanism because, as has been stated earlier, trust is at an all-time low. We have been very clear that some of the relationships between the devolved Administrations and the UK Government are not in a particularly good place right now. Building this provision in means that there is an additional safeguard in place, so that those places that know their areas best and know the effect on those areas better than Westminster does, because they are closer, are able to make that request.

[Paul Scully]

Natural disasters such as floods, fires and other exceptional circumstances can arise that require subsidies to be given at pace, to compensate for the damages caused. The clause allows the Secretary of State to publish a notice to declare that exemptions from the subsidy control requirements apply in respect of a natural disaster or other exceptional occurrence. That will allow public authorities to give subsidies that compensate for the damage in a timely manner.

The hon. Member for Aberdeen North is right that not all such emergencies would apply across the whole of the United Kingdom. In many cases, the natural disaster in question would be localised to a specific place or region. Although it is the responsibility of the Secretary of State to declare that the exemption applies, subsidies using the exemption may be given by different public authorities, such as UK Government Departments, local authorities, agencies and, of course, the devolved Administrations. Public authorities are empowered to design subsidies in the most appropriate way to address the damage caused for their specific local needs. The Secretary of State does not need to approve the subsidies given under the exemption, once the natural disaster or other exceptional occurrence has been declared. The existing processes in the Bill already ensure that this type of subsidy can be given across the UK, by the devolved Administrations or other devolved authorities.

If a natural disaster or other exceptional circumstance occurred within the area of any of the devolved Administrations, it would of course be open to that Administration to request that the Secretary of State trigger the exemption, if the Secretary of State has not already done so. If the conditions for the exemption were fulfilled, the Secretary of State could then seek to publish a notice as soon as possible.

The clause is limited to very narrow circumstances to avoid creating an over-broad exemption to the domestic subsidy control regime that could damage UK competition and investment, and our ability to fulfil our international obligations. It is therefore appropriate that the Secretary of State has sole responsibility for determining when the criteria for triggering the exemption have been met. The Secretary of State must publish and lay in Parliament a notice to trigger the use of the exemption. That will ensure that the Secretary of State exercises the power in a transparent and accountable way. I request that the hon. Member for Sefton Central withdraws the amendment.

[Bill Esterson]

I should point out that the amendment does not seek to give the devolved Administrations the power to declare a state of emergency, which I think was implicit in the Minister’s remarks. They would ask the Secretary of State to use his or her power to do so, not have the power themselves. The hon. Member for Aberdeen North made the point about transparency well. I am satisfied that the point has been made satisfactorily and that the Minister has taken it on board, and I therefore 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 43 enables public authorities to award subsidies to compensate for the damage caused by a specified natural disaster or other exceptional occurrence without having to apply the majority of the subsidy control requirements. The subsidies awarded under the clause would be exempt from the principles, prohibitions and requirements, but the transparency requirements would still apply. Before the exemption can be used, the Secretary of State must publish a notice declaring that a natural disaster or other exceptional occurrence has happened and that this exemption applies, and that notice must be laid in Parliament.

[Kirsty Blackman]

It would be useful to know where the notice is likely to be published. Will the Minister commit to considering whether the notice could be on the subsidy control database in some way? Perhaps on the database people could see a wee link that says, “This is where natural disasters have been declared”—hopefully it will not happen very often. If would be helpful if people could see all that information.

[Paul Scully]

Clearly, the notice has to be laid in Parliament, and I hope that I explained in my letter to the hon. Member exactly what that means. Clearly, we will also publish that on the gov.uk website and in other areas. I have forgotten the second part of her question.

[Kirsty Blackman]

It was about whether that information would be on the subsidy control database website.

--- Later in debate ---

[Paul Scully]

Well, transparency is not within the exemption. It is very much about whether a public authority is allowed to give the subsidy in the first place, but the transparency rules still apply.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44

National or global economic emergencies

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

[Paul Scully]

Clause 44 enables public authorities to award subsidies to remedy a national or global economic emergency without having to apply the subsidy control prohibitions and other restrictions, like the subsidies that were necessary to respond to the 2007 financial crisis. As we saw during that crisis, the support required to respond to such an economic emergency needs to be given quickly and effectively, so the clause provides for such support to be given where the Secretary of State considers it appropriate. Before the exemption can be used, the Secretary of State must again publish a notice declaring that an economic emergency has occurred and that the exemption applies, and that notice must be laid in Parliament.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clause 45

National security

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

[Paul Scully]

Clause 45 exempts subsidies given for the purpose of safeguarding national security from the subsidy control requirements, in order to protect the UK’s valid security interests. That is in line with the approach of the national security exemptions in other UK legislation, such as the Freedom of Information Act 2000 and the Data Protection Act 2018.

--- Later in debate ---

[Paul Scully]

In answer to the hon. Member for Aberdeen North, national security is a term with a long history in domestic legislation. It covers no more than is required to safeguard the UK’s genuine national security interest in a way that is fully compliant with the UK’s wider international obligations, including trade and co-operation agreements. It is customary in international agreements, such as our free trade agreements, that we reserve the right to protect valid security interests. That is the beginning and end of the clause.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Clause 46

Bank of England monetary policy

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

[Paul Scully]

Clause 46 sets out that activities conducted by or on behalf of the Bank of England in pursuit of monetary policy are not subject to the subsidy control regime. Measures implemented by central banks in pursuit of monetary policy have always been considered to be outside the scope of EU state aid rules. The joint declaration of the European Union and the United Kingdom on monetary policies and subsidy control confirmed our mutual understanding that activities conducted by a central bank in pursuit of monetary policies are outside the scope of subsidy control requirements in the TCA. It is important that that position is put beyond doubt and into UK law.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clause 47

Financial stability

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

[Paul Scully]

Clause 47 provides Her Majesty’s Treasury with the power to give financial stability directions that set aside one or more of the subsidy control requirements for specified subsidies or subsidy schemes. This will enable the Treasury and the Bank of England to undertake financial stability interventions at sufficient pace and with the necessary legal certainty to ensure the integrity and stability of the financial system and to protect investors, depositors and policy holders.

Question put and agreed to.

Clause 47 accordingly ordered to stand part of the Bill.

Clause 48

Legacy and withdrawal agreement subsidies

[Paul Scully]

I beg to move amendment 1, in clause 48, page 26, line 42, at end insert—

“(1A) In subsection (1), the reference to the subsidy control requirements, so far as it relates to subsection (1)(a), does not include the requirements as to transparency in Chapter 3 of Part 2, except in relation to—

(a) subsidies given that are subject to the provisions of Part IV or Annex 2 of the Agreement on Agriculture;

(b) subsidies given in relation to trade in fish and fish products;

(c) subsidies given in relation to the audiovisual sector.”

This amendment provides that the transparency requirements in Chapter 3 of Part 2 apply to subsidies under legacy schemes, subject to exemptions relating to agriculture, fish and the audiovisual sector.

[The Chair]

With this it will be convenient to consider Government amendment 2.

[Paul Scully]

Amendment 1 clarifies that the transparency requirements in chapter 3 of part 2 of the Bill will apply to subsidy awards that are given after the Bill comes into force, but that are provided under legacy schemes. The transparency requirements for this class of subsidy are consistent with those for other in-scheme subsidy awards—that is, there is an obligation on public authorities to upload the details of awards given under published schemes that are of more than £500,000 in value.

The amendment provides legal certainty around the transparency obligations on public authorities, which are set out in the guidance on the UK’s international subsidy control commitments. It will impose no transparency requirements on subsidies given under legacy schemes to those sectors that are excluded from the relevant chapter of the trade and co-operation agreement. Those fall under three categories: agricultural subsidies in the scope of the World Trade Organisation agreement on agriculture, subsidies in relation to the trade of fish and fish products, and subsidies to the audio-visual sector.

Amendment 2 sets out a full definition for the agreement on agriculture, which is referred to in amendment 1. That ensures a clear exemption for subsidies subject to the relevant provision in the agreement on agriculture, which is consistent with the UK’s obligations under the trade and co-operation agreement.

Amendment 1 agreed to.

[Bill Esterson]

I beg to move amendment 47, in clause 48, page 27, line 6, at end insert—

“(2A) On the date on which the Act is passed, the Secretary of State must make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

This amendment would require the Secretary of State to make a statement to the House of Commons regarding the applicability of Article 10 of the NI Protocol on the date on which the Act is passed.

The amendment would require the Secretary of State to make a statement to the House of Commons on the applicability of article 10 of the Northern Ireland protocol on the date on which the Act is passed. Clause 48 provides that the requirements of the subsidy control regime do not apply to subsidy schemes that are subject to the Northern Ireland protocol. The Minister will suggest, I imagine, that this gives comfort to public authorities and avoids the double jeopardy of both regimes applying to a subsidy scheme—I take that from what he and the Secretary of State said on Second Reading.

If the Minister were to say that, he would be assuming that there is clarity on which subsidies and schemes are subject to the protocol. On this vital question that public authorities will need to interpret, there is no agreement between the UK Government and the European Commission. There is significant uncertainty about the extent of the reach back—that is, where EU state aid rules will continue to apply across the UK. Where a subsidy is applied in Wales, Scotland or England has consequences in Northern Ireland. George Peretz told us in last Tuesday’s evidence session,

“if I am advising a client such as a local authority or a subsidy recipient, my immediate problem is that I have to look at two sets of guidance—one issued by the European Commission and one by the Department for Business, Energy and Industrial Strategy—that in some important respects tell me very different things.”—[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 46, Q64.]

His final assessment was:

“It is all a bit of a mess.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 48, Q67.]

We should all note that the European Union published proposals to address problems with the Northern Ireland protocol a fortnight ago. That is a step in the right direction, although the proposals it put forward do not address the state aid subsidy issue. In contrast, on Second Reading on 22 September, the Secretary of State suggested

“we have proposed the change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime.”—[Official Report, 22 September 2021; Vol. 701, c. 338.]

Here we are six weeks later, and we are no clearer about the status of the negotiations with the EU. I hope the Minister will set my mind at ease and tell us what the UK proposals are to solve the problem that George Peretz set out so well in evidence last week.

Let us remind ourselves: the Government negotiated the Northern Ireland protocol and signed it, so they now have a duty to make the protocol work, just as they have a duty to make Brexit work. It is no good threatening to rip up an agreement that the Prime Minister himself signed just two years ago, and certainly not without something to put in its place. Perhaps the Minister can confirm when he last discussed these issues with his European counterparts, and the timeline on which he expects there to be clarity on article 10 of the protocol and its impact on the Bill.

The purpose of the amendment is to require the Secretary of State to provide a statement on

“the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

Public authorities and recipients need and deserve certainty on this issue.

[Kirsty Blackman]

The hon. Member for Sefton Central used the quote I was going to use from the Secretary of State, who was really pretty clear that the new subsidy control regime that we are discussing is the one that will apply across the United Kingdom. That was the point the Secretary of State was making—that this is the only subsidy control regime that will apply across the United Kingdom. That seems pretty factually incorrect, not least for Northern Ireland but, as the Opposition Front Bench spokesperson pointed out, for other parts of the UK where that trade will end up going to the EU.

The very least the Government could do is to ensure that a formal statement is made, because if we are relying on what Government Ministers have said in the course of either debates in the House or statements, we do not know the answer. We have been told a number of different conflicting things. I get that this is a movable feast and that there is no final decision on exactly how it will work. That is why the amendment is so reasonable. It specifically says that the applicability statement will need to be made on

“the date on which the Act is passed”.

Presumably, by the date on which the Act is passed we will have some idea of which regimes will apply in Northern Ireland. We have spoken very little about Northern Ireland specifically during the course of this Committee but, when the Minister talks about giving certainty to enterprises and public authorities, it seems to me that Northern Ireland is in a unique position where there is no certainty at all. People literally do not know which regime will apply.

It is all well and good to say, “We will consult with people and ensure that they see the guidelines in advance of having to put them in the subsidy control database,” but the fundamental issue of which regime they are complying with has not yet been answered in a way that would stand up to any kind of scrutiny. The amendment is completely reasonable and, if the Minister does not want to accept it, he should be clear with us and with the organisations concerned, particularly in Northern Ireland, about how he and the Secretary of State will explain to them which regime they will be operating under.

[Paul Scully]

As we have heard, amendment 47 to clause 48 would require the Secretary of State to

“make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom”,

on

“the date on which the Act is passed.”

Clause 48 excludes subsidies in the scope of article 10 of the Northern Ireland protocol from the domestic subsidy control regime, which, as the hon. Member for Sefton Central says, is to avoid double regulation of subsidies. Subsidies that are subject to the protocol and comply with the EU state aid laws will be exempt from the requirements of the new domestic regime.

I should remind hon. Members that the Secretary of State is already required, as a statutory duty, to publish guidance on the practical application of article 10 of the Northern Ireland protocol under section 48 of the United Kingdom Internal Market Act 2020. BEIS published that guidance on 31 December 2020. That is intended to help public authorities reach a view on whether article 10 applies to subsidies granted in Northern Ireland and the rest of the UK, to which they must have regard.

The guidance is based on the EU Commission’s unilateral declaration of 18 December 2020, which made it clear that article 10 would apply in Great Britain if there was a genuine and direct link back to a company in Northern Ireland. That is most likely the case of a subsidised company in Great Britain with a subsidiary in Northern Ireland. The Command Paper on the Northern Ireland protocol published on 21 July 2021 set out the Government’s position that comprehensive and robust commitments are in place on subsidy control in the trade and co-operation agreement, and that those are being further strengthened through the UK’s Subsidy Control Bill, making the existing provisions in article 10 redundant in their current form.

--- Later in debate ---

[Stephen Kinnock]

Will the Minister confirm that this legislation cannot be passed by this House until there is clarity on article 10 of the Northern Ireland protocol? There seems to be a big gap in understanding on the definition of an at-risk good. Any company headquartered in Great Britain, when deciding whether it might be at risk as regards a good going into the European Union, will be unclear on that point. Until the EU and the UK Government have come to that clarity, this legislation is unworkable.

[Paul Scully]

I disagree. This framework, which is a bare-bones framework, as I have said, has to work with whatever is in the Northern Ireland protocol, whatever is negotiated. That is why, for the reasons I have said, I talked about the reach-back provisions, which are never perfect. We know that the Northern Ireland protocol is not perfect, but it is a negotiated view. That is why, in those intensive discussions, we are looking at delivering significant changes and trying to improve an imperfect situation.

[Kirsty Blackman]

If an enterprise in Northern Ireland is given a subsidy, and that enterprise has competition in or trades with both Scotland and Ireland, which regime does it need to comply with if it gets that subsidy? Does it need to comply with the state aid or subsidy control regime, or both?

[Paul Scully]

It would first depend on what it trades in, and then on what its service is, because those are dealt with in different ways. It would then depend on the framework of the company and what structure it has in GB and Northern Ireland, because it must have genuine reach-back to Northern Ireland to be able to apply to that.

[Kirsty Blackman]

I appreciate the Minister being so indulgent in giving way. Are there any circumstances in which an organisation—an enterprise that is given a subsidy or a public authority giving out a subsidy—will have to comply with both the subsidy control and state aid regimes?

[Paul Scully]

The regime has been specifically worked through so that there is no double jeopardy, as the hon. Member for Sefton Central described at the beginning. They have to deal with one or the other. Clearly, as I said, the one they would deal with depends on the framework of the company, the ownership of the company, and whether it deals in electricity or services, because different rules clearly apply. None the less, as the negotiated provision is constituted, they would only have to apply to apply to one or the other. If it is state aid, they do not then need to worry about domestic subsidy control, and vice versa. The Command Paper clearly stated that we believe that we can bring it under domestic subsidy control, although that is not being negotiated yet, so that is clearly not the situation at this moment in time.

[Stephen Kinnock]

I am grateful for the Minister’s indulgence. On a point of clarity, clause 48(2) states:

“The subsidy control requirements do not apply to…a subsidy given, or a subsidy scheme made, in accordance with Article 10 of the Northern Ireland Protocol”.

My interpretation of that is that the only show in town is article 10 of the Northern Ireland protocol—that that trumps the subsidy control regime. Is that not the case? I thought he said in his introductory remarks that the default position in all this is the state aid regime under the Northern Ireland protocol.

[Paul Scully]

As I say, if something comes within state aid, whether it is goods or logistics, it may be the case, but neither one nor the other trumps it. There is no double regulation. Either it comes under state aid or it comes under domestic law—[Interruption.] That is what is there within the protocol, and there are certain things that just do not appear under the protocol.

Clearly, we will continue to keep the House informed of progress made relating to the Northern Ireland protocol. I do not want to go down the rabbit hole of coming out with individual examples that may then be redundant as the talks continue at pace. We want to make sure we continue to keep the House informed and, as such, I consider that section 48 of the United Kingdom Internal Market Act 2020 already makes provision for a statement of the application of article 10 of the Northern Ireland protocol by way of statutory guidance—[Interruption.] The Government have already given the guidance and I do not see any need to place an additional requirement on the Secretary of State to make a statement to the House of Commons regarding the applicability of article 10 of the Northern Ireland protocol. I request the hon. Gentleman withdraws the amendment.

[The Chair]

Before I call the shadow Minister, I remind hon. Members that your phones should be on silent, please.

--- Later in debate ---

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

[Paul Scully]

The clause provides an exemption from the subsidy control requirement for legacy subsidies and subsidy schemes—those granted or established in accordance with the subsidy control rules enforced before the Bill comes into force—and for subsidies and subsidy schemes given in accordance with the EU withdrawal agreement. That objective is to prevent double regulation. Public authorities awarding subsidies under such legacy schemes will have to comply only with the terms and conditions of the legacy scheme, as well as with the relevant guidance on their transparency obligations.

--- Later in debate ---

[Bill Esterson]

I reassure my hon. Friend that we will indeed be pressing clause stand part to a vote. He is right: businesses need certainty. We are coming out of a once-in-100-year global pandemic, and they need all the support that they can get. This regime should give that support, but it cannot do so if there is that massive uncertainty at the heart of it, whether this regime or a different one should apply. The Government have not addressed that and they need to get on and address it—

[Paul Scully]

We are—

[Bill Esterson]

No—[Interruption.]

--- Later in debate ---

[Bill Esterson]

I understand the hon. Lady’s concerns, but there is such a big problem with what is set out, it is right for us to register our objection by voting against the clause.

[Paul Scully]

All I can say is that we were asked to go through a whole load of examples, which would not be helpful in giving that certainty. What will be helpful is the negotiations that are continuing at the moment. As it happens, the subsidy control framework before us works within either system: the one that we wish to negotiate, the result that we wish to have, or the situation we have at the moment. Subsidies that fall within the scope of the Northern Ireland protocol of the withdrawal agreement and which affect Northern Ireland-EU trade, such as on goods and wholesale electricity markets, will need to comply with EU state aid rules, including on services, otherwise they come under the domestic subsidy control regime. That is about as clear as we can be, but negotiations are happening at the moment.

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

[Paul Scully]

Clause 49 sets out that the subsidy control requirements do not apply where a subsidy is permissible by virtue of article 413 of the trade and co-operation agreement. That article provides for exceptions for certain obligations in the TCA. The clause ensures that where one of those tax exceptions allows a subsidy to be given, the subsidy control requirements in the Bill do not apply.

Question put and agreed to.

Clause 49 accordingly ordered to stand part of the Bill.

Clause 50

Large cross-border or international cooperation products

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

[Paul Scully]

This clause sets specific provisions for large cross-border projects and projects of international co-operation. If a public authority is satisfied that a project that it plans to subsidise qualifies as a large cross-border project or a project of international co-operation, there is no legal requirement to assess the subsidy or subsidy scheme against the subsidy control principles.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Clause 51

Nuclear energy

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

[Paul Scully]

This clause establishes that subsidies and subsidy schemes for nuclear projects are not required to be assessed against the additional principles for energy and environmental subsidies that are set out in schedule 2.

[Kirsty Blackman]

I would just like to ask why.

--- Later in debate ---

[Bill Esterson]

Indeed. The role of China in our nuclear industry is a point well made by my hon. Friend. I hope that we will see significant investment in new nuclear as a result of the regulations, if that is what the Government intend. Perhaps the Minister will give an indication of their intentions, because without investment, we will not hit our obligations. Nuclear is, of course, a longer-term project because it takes so long to get going. I remind Members that we have significant targets to hit by 2030, and unless we are talking about small modular reactors, nuclear reaches beyond that timeframe. Can the Minister enlighten us on any plans?

[Paul Scully]

Subsidies or subsidy schemes for nuclear energy will be required to assess against the main subsidy control principles in schedule 1. Removing the clause would require those projects to be assessed against the additional energy and environmental subsidy control principles. The clause is in line with our various international obligations under the trade and co-operation agreement with the European Union.

I do not want to start speculating on what will happen with future nuclear investment, but we have legislation coming forward tomorrow.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

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

Register of Beneficial Owners of Overseas Entities Update

Paul Scully Excerpts

Tuesday 2nd November 2021 Written Statements

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

My noble Friend the Parliamentary Under- Secretary of State for Business, Energy and Industrial Strategy (Lord Callanan) has today made the following statement:



The Government committed, via section 50 of the Sanctions and Anti-Money Laundering Act 2018, to report to Parliament annually on the progress that has been made towards putting in place a register of beneficial owners of overseas entities owning land in the UK—“the overseas entities register”.

The overseas entities register is one of a number of proposed corporate transparency reforms which together will play an important role in underpinning a strong, transparent and attractive business environment in the UK while reducing the opportunities for bad actors to abuse our systems and controls.

Since last updating Parliament, in July 2020, the Government published their response to their landmark consultation on reforming Companies House. The response, published in September 2020, set out the Government’s proposals to boost Companies House’s potential as an enabler of business transactions and economic growth, while giving it a bigger role in combating economic crime. The far-reaching reforms include verification of the identity of people who manage or control companies, and anyone else submitting filings, utilising the latest technology; greater powers for Companies House to query and challenge the information submitted to it; and the effective protection of personal information provided to Companies House. Three further consultations were published in December 2020, seeking views on the finer details of the reform package.

These reforms amount to the largest change to our system of setting up and operating companies since the companies register was created over 170 years ago.

The UK continues to lead the global fight against illicit finance and this register will strengthen our already impressive controls. The Financial Action Task Force completed a landmark review of the UK’s regime for tackling money laundering in December 2018, concluding that we have some of the strongest controls in the world.

The Government intend to introduce legislation to Parliament as soon as parliamentary time allows.

[HCWS366]

Subsidy Control Bill (Fifth sitting)

Paul Scully Excerpts

Tuesday 2nd November 2021 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

It is nice to be here again, Mr Sharma. Thank you for chairing the Committee.

This is an important part of the Bill. It is vital that the database is as full as possible and that people can find the information that they need. The points that were made in the evidence sessions about searching through the database were also incredibly important. There need to be search terms that people can use so that they can look through the database to find the information that they need. The regime will work only if people can find subsidies that are relevant. Improvements to the search function need to be among the other improvements.

I got the Library to put together some figures. As of 26 October, there were 501 subsidies on the database, but 245 of them—nearly half—did not have an amount specified. I know that this is a precursor system and it is not yet fit, but that shows how important it is that we have a framework and the details in place so that public authorities know what information they need to provide and that anyone wanting to challenge the information is able to find that information on the site. So 245 entries did not specify an amount, but about £1.6 billion is currently registered on the database. In addition, 138 entries did not specify where they are from—whether that is England, Scotland, Wales or Northern Ireland—but given the way challenges are likely to work, and given principle F in schedule 1 about competition within the United Kingdom, it is incredibly important that the entries make it clear where they are from and where the subsidy has been given. The principles include a requirement that a subsidy does not affect competition between the regions. It is therefore important that that is one of the criteria that the Secretary of State specifies.

The links on the database are an absolute nightmare. If we go to any of the subsidies, it says, “Click here for more information”. Some of the links take us just to gov.uk, but other links take us to a local authority landing page. That is not right. It does not give us the details of the scheme. It would be more helpful if people were required to upload the details on to the website for the database rather than having the freedom to upload the details on to their own website. They could put them on their website and then take them down the next day. Even if there were a checking process when the information first went up, they could immediately remove it. Having the backroom systems in place so that there is enough space and server capacity on the website to store all the information would be incredibly helpful and probably provide better transparency.

I just want to pull out a couple of further things from the statistics that the Library provided. Of the subsidies recorded on the database that specify the region they are from, 30% are from England. I refuse to believe that only 30% of the subsidies that have been given in the UK since the system was started were in England. Some 21% were from Scotland, and I also refuse to believe that 21% of the subsidies that were given in the UK were given in Scotland. That just cannot be possible.

I completely agree with the amendments that have been proposed. I am not looking to argue with the Minister about the requirements set out and the strength of the database; I am just looking to ensure that the guidance that authorities have to abide by is very strong. I would rather there be too much information on the website than not enough to enable people to mount their challenges. We will come to this later, but there will be very little time for people to make a challenge. They should therefore not have to spend quite a while rummaging around trying to find the details that would enable them to make an informed challenge. I would be keen to hear the Minister make it clear that he intends a significant amount of information that is as accessible as possible to be on the website. People should be able to search the website and, if possible, a system should be in place to ensure that authorities that do not upload full information face a slap on the wrist. They should face some sort of sanction or negative consequence for failing to do their duty.

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

It is a pleasure to serve under your chairmanship, Mr Sharma.

Clause 32 sets out the obligation for the Secretary of State to provide a database for subsidies and subsidy schemes, so that public authorities can adhere to the transparency requirements set out in the Bill, including those in clause 33. We have discussed the operational subsidy database. That was put in place to ensure the UK would be able to meet its international subsidy reporting obligations from 1 January 2021. It will continue to be adapted over the coming months to ensure it is fit for purpose for the future subsidy control regime. 

The Government are committed to digital best practice in the monitoring and development of this database and all the databases that we oversee. The database uses the service standard specified by the Government Digital Service. The contract we have with our supplier is flexible—both to implement this Bill and to ensure that we can make improvements as we monitor and evaluate how it is being used.

[Seema Malhotra]

Will the Minister clarify his comments on digital standards? There are two key issues here. One is the content and the functional design of the database. The other is the technical design and the ease of use of its search facilities and so on. Will he comment on the quality of what can be searched for and on the duty to include accurate information on the database? Will he say a little more about how he sees them being delivered?

[Paul Scully]

: I will try in my remarks to develop some of the issues with public authorities and their statutory duties.

We have made minor improvements since the database came online in March and we will make changes in the coming months. We will reflect on what has been said in the Committee and throughout the Bill’s passage and by stakeholders and public authorities.

Amendment 39, tabled by the hon. Member for Feltham and Heston, and amendment 34, tabled by the hon. Member for Aberdeen North, focus on ensuring the accuracy of the information that is available on the database.

Amendment 39 would require public authorities to ensure that their database entries are accurate and complete. Amendment 34 would create a new obligation on the Secretary of State to subject the database to routine audit to ensure that entries on the database were accurate and complete. Although I agree wholeheartedly that it is important that the information on the database is correct and complete, the amendments are unnecessary for several reasons. 

First, the obligations on public authorities set out in clause 33 are clear. If an authority uploaded data that was inaccurate or incomplete, its statutory obligations simply would not have been discharged properly. Amendment 39 is therefore superfluous. 

The incentives faced by public authorities also mean that there is no need for amendment 34. If the public authority does not properly fulfil its obligation to upload the required information, the clock for the end of the limitation period does not start, so the subsidy or scheme could be challenged indefinitely. This gives public authorities an in-built incentive to ensure that the information that they upload is timely, complete and accurate.

[Kirsty Blackman]

Who decides whether the information is complete and that the clock has started, or does that happen only in the event of a challenge? How does somebody who is challenging know that, even though they are outside a month, it does not matter because the clock has not started?

[Paul Scully]

Effectively, it is for the challenge. It is a loose framework. It is not like the state aid regime, where permission has to be sought and waited for before going ahead with a subsidy. It looks back at the subsidies and schemes that have been made. I shall return to the database and the issues raised about its integrity and accuracy, which I hope will illustrate some of the points.

[Seema Malhotra]

The Minister has stated, in effect, that public authorities that do not protect information might not be in line with their statutory responsibilities. I am not clear where, in the Bill as drafted, there is a requirement on public authorities to ensure that all entries that they place on the database are accurate and complete. It is fine to say that a public authority must ensure that an entry that it makes must be maintained on the subsidy database for six years, beginning on the date the entry is made, but where is the requirement for the information to be accurate and complete?

[Paul Scully]

It is as with every statutory duty placed on a public authority. The Bill contains a statutory obligation on public authorities to upload subsidies on the transparency database—in most cases, within six months. With any breach of statutory duty—whether it is on the face of the Bill or otherwise—a public authority can be challenged in judicial review in the courts. That is why I say that the amendment is superfluous: the net effect is exactly the same.

Members referred to the Teesside scheme. The reason the database was not live on 1 April 2020 was that that was the date when the scheme was set up rather than when the subsidy was paid. Subsidies that are not part of the scheme are dealt with differently.

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[Seema Malhotra]

I am finding the logic of what the Minister is proposing quite difficult to follow. With the requirement for completeness and accuracy, we could prevent a lot of wasted time and money, possibly on the part of public authorities or enterprises that may consider a challenge on the basis that information was incomplete, where a public authority may decide not to put information on the database completely. It is important, given the functions in the Bill and the powers to be exercised, that we have as accurate and complete information as possible. There is no point in saying that judicial review or a pre-action protocol may be used later to correct information that was not provided earlier. That strikes me as building huge inefficiency into a system that could be more efficient and more accurate and could better achieve the Government’s intended outcomes. The Minister has not answered where the duty is on a public authority to ensure that its entries are accurate and complete. It is not here in writing.

I want to clarify a point that the Minister made about the Tees Valley Capital Grant Scheme. The scheme might have started on a particular date, but if the date listed on the database is eight months prior to the database existing, that is not accurate. It can be listed, but it should also be possible to say when a scheme might have started. There are different parts to the information, so ensuring its accuracy is important. Other parts of the Bill hinge on the date when something is listed, so that cannot be inaccurate—it would have a knock-on effect on the actions that can be taken and the powers that people have.

[Paul Scully]

The scheme that we are referring to was created under the state aid rules—under an entirely different regime when we were still a member of the framework. It is additional information rather than subsidy control—specifically, UK subsidy control. Payments are still being awarded, despite the fact that it was an EU state aid scheme in the first place.

On the public authority duty, we are looking at similar aims. I used the word “superfluous” because public authorities clearly have a statutory duty and a requirement to carry out statutory duties. If we put something on the face of the Bill, the net result will be the same. How do you challenge someone who does not want to adhere to their statutory duties? You judicially review them.

That is why the Bill does not provide for any sanction for the failure to upload a subsidy. There is a strong incentive to do so, because the sooner the subsidy scheme or stand-alone subsidy is uploaded, the sooner the limitation period for digital review under the cap will expire. The Bill sets out the statutory obligation on public authorities to upload subsidies on to the transparency database, in most cases within six months.

Any breach of a public authority’s statutory duty can be challenged by judicial review, which is why the amendments are, although worthy in their aims, superfluous to the requirements of the Bill. I therefore ask that amendment 34 be withdrawn.

[Seema Malhotra]

I have listened to the Minister. Our difficulty is that the amendments seem to be fundamental to the integrity of the whole regime.

The Minister alluded to obligations on local authorities. I cannot see any in writing. I shall not press amendment 39, as I would like further to explore whether there are, by proxy, obligations on which we can look to draw. If not, I would like to bring this back at a later stage.

The requirement for a routine audit to verify the accuracy and completeness—a duty of the Secretary of State under clause 32—is fundamental. That gap is not filled elsewhere and we should like to press the issue today.

Question put, That the amendment be made:

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

[Paul Scully]

The clause requires the provision of the subsidy database to ensure that the subsidy control regime is transparent and facilitates compliance with our international commitments. It must be available to the public free of charge. Public authorities will be able to upload certain subsidies to the database to meet their obligations under clause 33. The Secretary of State is clearly responsible for providing the subsidy database, and if appropriate the Secretary of State may direct the Competition and Markets Authority to carry out this function on his or her behalf.

I should clarify that the five-year reporting cycle that we discussed earlier was chosen to correspond roughly with a standard parliamentary term and, for consistency, with the monitoring reports of other bodies, such as the Office for the Internal Market. There might be circumstances when reporting within a shorter time period is desirable, such as in the early stages of the new regime, enabling the Secretary of State to assess how well it is bedding in.

The database is a key part of the new subsidy control regime, enabling the public and interested parties to see which subsidies have been awarded and to whom.

[Seema Malhotra]

I thank the Minister for his remarks. I have made a number of comments on clause 32. He will appreciate why we feel that there are areas to address, but fundamentally we think that the clause is important.

The principle of the database being accessible to the public free of charge is important, but I reiterate the points made by the hon. Member for Aberdeen North about searchability. Useability is an additional consideration alongside accessibility, and it should be referred to in further regulations or guidance.

I understand that when the Secretary of State directs the CMA to perform duties on his or her behalf, the powers go to the CMA as a whole. It might be assumed, however, that the subsidy advice unit in the CMA will take on those duties, so will the Minister clarify whether he expects that to be done by the unit or another team in the CMA?

[Paul Scully]

I thank the hon. Lady. We agree on useability. We will look at making the changes to the database, not least because of the Committee’s reflections and those in further parliamentary stages, but also because of the real-time conversations with people using the database—not only people putting data on, but people wanting to read it.

The subsidy advice unit in the CMA will be responsible for the use of the database and delegation. Expertise may be brought in, but it will be for the subsidy advice unit to work on the database on behalf of the Secretary of State.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33

Duty to include information in the subsidy database

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[Kirsty Blackman]

I will speak to not only amendment 35, but amendments 32 and 33. I want to address the logic behind the amendments. It is impossible to overstate the importance of the transparency database. It is the key place—the only place—where organisations and local authorities will be able to find information about the subsidies being granted. I imagine that a lot of organisations will be poring over the information on a fairly regular basis to work out whether the subsidies made meet the principles put forward by the Government. It is absolutely, desperately important that we get this right, and I am keen for us to do that from the beginning as far as possible, rather than having to make changes to the legislation afterwards.

I am concerned by what the Minister said earlier about the timing of pre-action information requests; it feels to me that organisations will just make those requests all over the place, no matter when the subsidy was actually registered. If there is no requirement to have full information on the subsidy database and there is no sanction for public authorities that do not do that, people may as well try their hand with the pre-action information request. This encourages the action process to happen, rather than providing people with the information in the first place so that they know that they do not need to make the request.

The logic behind amendment 32 is that subsidy schemes should be easier to implement than subsidies. It should be easier for public authorities to give them out: presumably, the schemes will have been agreed. They will be set up in a certain way, so the process of giving awards under them should be easier—that is literally the point of having subsidy schemes.

I turn to the logic of changing the figure from £500,000 to £100,000 and keeping a floor. If something under £100,000 has been approved as part of a scheme, it is probably going to be not that bad—it will probably be fine. But £500,000 is far too high, which is why we suggest £100,000. As was said in the evidence sessions, the figures are arbitrary—the figures are always arbitrary no matter which one is chosen. However, that was the logic behind having a differential system in place between subsidy schemes and subsidies on the subsidy database.

I like Labour’s amendment 35 and get where they are coming from, but I am more comfortable than them with the more streamlined process of the subsidy scheme.

I move on to our amendment 33, on minimal financial assistance. It would actually amend a future clause—clause 36 —but it makes sense to debate it at this point, as it is specifically on the amount that needs to be provided on the database. My suggestion is that all subsidies not made under a scheme should be part of the database. I am not suggesting that they should have to meet the other minimal financial assistance requirements, but I am suggesting that—this was pretty clear from our evidence sessions on Tuesday—all the subsidies not made under schemes should be registered on that database. They would not necessarily have to jump through the other hoops, but all the public authorities that we are dealing with will have done a huge amount of due diligence before giving a subsidy of any sort. They will have the information and it would not cost them much in the way of time to ensure that it is uploaded. That would increase drastically the amount of transparency and our oversight. As drafted, we will not know whether the system is working, because we will not have access to transparency data on any subsidies under £315,000 or any made in a scheme under £500,000. That is not good enough.

A new system is being set up and the Government have been clear that it is a free-market and permissive system, but neither I nor anyone else will know whether it works if we are not able to see the data and whether public authorities are making far fewer—or far more—subsidies than expected under the scheme. We will be unable to assess the adequacy of the system unless the Minister is willing to make changes to the thresholds for schemes and for general subsidies. Once again, I am not suggesting that we put other duties in place for minimal financial assistance or a requirement that other hoops have to be jumped through; I am suggesting that details are uploaded to the database so that we may scrutinise the data.

[Paul Scully]

There has been a great deal of interest in the thresholds at which the transparency obligations apply, so I will explain some of the detail and logic of those thresholds. Transparency is an important part of the subsidy control regime and key to the enforcement provisions.

As we have heard, interested parties must be able to see subsidies in order to determine whether they may be affected and whether they wish to challenge the subsidy award or subsidy scheme. Any challenge will be made in the Competition Appeal Tribunal through that judicial review. The database is a vital tool in that. To serve its purpose, the aim of the database should always be to enable interested parties to see the subsidies that they may wish to challenge. It is not designed to be a general database of public authority spending; other tools are already available elsewhere for greater financial transparency in that regard and are not limited to subsidies. The transparency requirements in the Bill have therefore been designed to focus solely on those subsidies and schemes that can be challenged on subsidy control grounds.

The Bill provides for various reasons why a subsidy or scheme cannot be challenged on subsidy control grounds, such as a subsidy award given under a published scheme not being able to be judicially reviewed in the CAT on subsidy control grounds. That is because the scheme itself is assessed against the subsidy control principles and is challengeable, rather than the award under the scheme. Another example is minimal financial assistance subsidies, which are considered too small to cause undue distortions. They therefore do not have to adhere to the subsidy control principles and other requirements. Those subsidies do not need to be on the subsidy control database.

The transparency of subsidy awards has costs as well as benefits. Providing the data would create an administrative burden for public authorities, including small local authorities, in addition to the imposed costs for those using the database if excessive, irrelevant or potentially poor-quality data is provided that interested parties have to sift through. Another thing about the impact on public authorities is the cumulative impact. We find that transparency requirements in general tend to fall on a small number of people in local authorities and other public bodies. That is why there is a relatively high bar or threshold—because of that cumulative burden on a few people in local authorities.

[Stephen Kinnock (Aberavon) (Lab)]

Does the Minister not agree that, with public trust in politics and Government at an all-time low, the more transparency that we can have in the system, the better it will be to build trust in the new subsidy control regime? Does he not recognise the serious risk of cronyism and that sunlight is the best disinfectant? Therefore, let us have the maximum transparency, and let us drop this clause from the Bill, as requested by my hon. Friend the Member for Feltham and Heston in her amendment.

[Paul Scully]

I do believe in transparency, that sunlight is the best disinfectant, and in the importance of this database being as accessible as possible. As I will come on to say, the starting point of many of the thresholds and the amounts that we have been adhering to for many years lie in EU state aid rules. They also reflect the consultation responses that we have received from all parties, which I will come back to. We need to ensure that the benefits of any approach to our database and transparency outweigh the costs, and I believe that the Bill strikes the right balance.

[Seema Malhotra]

Could the Minister define what he means by the costs of information on the database? Surely, if all the information is available to a public authority that has gone through the process of making a decision about an award, uploading entries and so on should not be an onerous process. What does he see as the cost?

[Paul Scully]

As I say, it is the cumulative costs that, in many ways, were the starting point. As a matter of principle, we should not seek to add duplicative red tape for public authorities—particularly local authorities and other small authorities—without good cause. I will expand on that as I continue.

[Seema Malhotra]

Perhaps this is an opportunity for the Minister to design a database and an extremely straightforward way of entering information. It does not seem to me that this should be onerous at all. Of course we agree that we should not add red tape, but in the interests of the integrity of the system, of public money and of preventing cronyism and people getting around controls, surely this ought to be part of a public authority’s obligation to the public. Perhaps the Minister could come back on those specific points.

[Paul Scully]

First, on cronyism, the starting point for the thresholds—as I will come to in a minute—were based on EU state aid, which we have had for the best part of 40 years.

[Seema Malhotra]

I am sorry to make this point again to the Minister: the EU state aid regime was based on information being available to the public. The whole system was different. There was pre-notification, so by the time a subsidy was awarded, a transparent process had taken place. The proposed regime will not do that. The shift in the system means that safeguards are needed for public money and so that any future scandal does not cause a crisis in the regime. Does not the Minister realise that shifting the regime to a different position from that in the EU will have consequences?

[Paul Scully]

First, moving the subsidy control scheme from pre-notification and pre-approval will mean that the subsidies can actually get to those businesses and interests at the right time, rather than when it is too late or when they would have less of an effect. The hon. Member for Aberdeen North mentioned the pre-action information requests and transparency requirements. We have based this on the consultation responses from people who will be at the cutting edge of the system, and it is also in line with other international examples. We have looked at other examples around the world, which is why I probed our witnesses on what happens in other parts of the world. We have been looking at that with this scheme.

This system, as drafted in the Bill, does strike the right balance in ensuring that people can drill down into this scheme. On the pre-action information request process, if the database is not keeping up with the ever-changing world of subsidies, businesses, environmental impact and other areas relating to subsidies, there are safeguards to ensure that it is as transparent as possible.

Let me briefly deal with some of the thresholds and give a little more information. Public authorities must upload information about all stand-alone subsidies that exceed the minimal financial assistance threshold of £315,000 cumulated over three years, unless they are subject to a specific exemption. They must also upload information about all subsidy schemes. 

The Bill provides for transparency of large awards given under schemes—those over £500,000. That was worked out roughly, allowing for currency differences, according to the EU amounts. Although these large awards cannot themselves be challenged in the CAT using the subsidy control requirements, they do provide important information about how the scheme is being used by the public authority, and their size means that the benefits outweigh the costs.

[Seema Malhotra]

Will the Minister clarify the maximum number of subsidies of, say, £450,000 that may be given under a subsidy scheme? How would anyone know about them?

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[Paul Scully]

I shall come back to that, if I may. Let me deal first with consultation.

The Government’s proposed approach to transparency was set out in the consultation on subsidy control, including the proposal to exempt minimal financial assistance and subsidies given under schemes of less than £500,000. We asked whether respondents agreed with the proposed rules on transparency, and 81% agreed. We also asked specifically whether respondents agreed that minimal financial assistance subsidies should be exempt from transparency requirements, and 65% agreed that they should be exempt. Respondents pointed to the administrative burden as a reason for not lowering the thresholds. It is clear, therefore, that the approach taken in the Bill reflects the views of those who responded to the consultation.

There is no theoretical limit to the number of subsidies of any value that may be given under the specific scheme. None the less, it will be the scheme itself that will have to be applied under the principles of the subsidy control framework.

Amendment 32 would require all subsidy awards, given under published schemes, of £100,000 or more to be uploaded to the database, lowering the threshold from £500,000. Amendment 35 would remove this threshold altogether so that a subsidy of £1 given under a scheme would need to be uploaded on to the database.

The database will already include information about the scheme under which these subsidies are given. This information will be sufficient for others to understand whether their interests will be affected by any subsidy given under that scheme and whether they should seek to challenge the scheme itself.  As such, and as I have said, the Bill does not provide for the possibility to challenge subsidies given under schemes. 

Further, the Bill provides for an exemption from the transparency requirements for small subsidies given as minimal financial assistance, which is found in clause 36. Amendment 33 would remove this exemption. It would require information about all subsidies of any size to be uploaded to the database, except for those given under a scheme or subject to another exemption. 

I believe that the costs entailed in all three amendments clearly outweigh the benefits.

[Kirsty Blackman]

Does the Minister feel that his rejection of amendment 33 renders the cumulative provisions of clause 36 unworkable? How will anyone know that somebody has received cumulative subsidies if there is no requirement for those subsidies to be registered anywhere? What is the point of those provisions if we are not going to be able to police them?

[Paul Scully]

The challenge will be to the scheme itself, not to the subsidies within it.

[Kirsty Blackman]

I was talking specifically about minimal financial assistance and the cumulative impact. An organisation cannot have more than £315,000 over a three-year period before it has to be registered, but if there is no requirement to register the 20 subsidies received —or 200,000—how is anyone ever going to know?

[Paul Scully]

A public authority awarding something that it believes will be a subsidy below that will have to publish a letter demonstrating that it is adhering to minimal financial assistance. That is therefore for businesses or the recipients of the subsidy to double-check. Although it is the public authorities that will be awarding the subsidies and they will be analysed by people checking the database, if I ran a business that was reliant on a subsidy, I would, to be frank, make sure of it. I would not want to leave it to the awarding authority to do all the paperwork. I would want to make sure that my business interests were looked after. So there is that risk of task duplication.

[Kirsty Blackman]

One more point: the duty is on the public authority to ensure that it is complying with the regime. It is the public authority’s duty to do that. The Minister made it clear earlier that the public authority has a statutory duty. However, the public authority is then having to rely on that organisation telling them that it has had a subsidy. The public authority will know that that will push the organisation over the £315,000, that it will not be eligible for minimal financial assistance and that it will have to be registered on the scheme. A duty has been placed on the public authority for something over which it has no control and because the Government refuse to put that on the subsidy database it will not be able to find out whether the law is being broken.

[Paul Scully]

All I will say is that if the public authority is issuing something that it believes to be a subsidy, albeit under MFA, it will publish a letter to explain to the recipient why that MFA exemption appears.

[Kirsty Blackman]

Who is going to get the letter? Just the business? Where does it say in the Bill that the public authority has to publish a letter when providing a subsidy? Let us say Aberdeen City Council gives a subsidy to somebody and Aberdeenshire Council gives a subsidy to that same business. How are they going to know that the other authority has done it when the only paper trail is a letter that Aberdeen City Council has given to the business?

[Paul Scully]

It is not published as such, but is sent to the recipient. That is in clause 37. I hope hon. Members agree that we have taken a proportionate, sensible and balanced approach here, first, to make sure that we can exempt small subsidies from the requirement to apply the principles of subsidy control, and secondly, to enable public authorities to assess the subsidy schemes against their principles, rather than duplicating the analysis for every individual subsidy awarded within those schemes. Publishing additional information about small subsidies would have limited value for those concerned about potentially distortive subsidies and would detract from the core purpose of the database. The requirements would lead to additional red tape for public authorities, well beyond the requirements they had to fulfil under the EU state aid regime. In a great many cases, the information would simply duplicate what those authorities already publish in appropriate formats elsewhere.

I do not doubt that, overall, both local and national Government need to make databases interoperable so they can talk to each other, data can be scraped from them and they can be read more easily alongside each other. However, I do not believe that that is for the Bill to address. The exemption from minimal financial assistance subsidies and the £500,000 threshold for subsidies given under schemes finds the right balance between the administrative burden of uploading subsidies and the transparency that the regime needs.

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We are also not clear about the justification for providing a different time period for tax and non-tax measures. I would be grateful if the Minister clarified the Government’s thinking on that. Our amendment would still provide ample time for public authorities to enter their subsidies on to the database, while ensuring that potentially damaging subsidies are not given the opportunity to go unchallenged for half a year.

[Paul Scully]

Let me start by explaining the intention behind the process of uploading the subsidies to the database. As with other aspects of the transparency requirement, we have sought to balance the objectives of minimising unnecessary bureaucratic requirements on public authorities while ensuring transparency for those interested in subsidy awards, and most importantly for those that may be subject to challenge under the Bill’s provisions. As such, we have set the deadline for uploading subsidies on to the database at six months—the deadline for most subsidies—which is the time limit that existed under the EU’s state aid system.

Special provision is made for tax subsidies, as calculating their exact value is more complex and cannot be done until tax declarations have been received and finalised. I will come back to the time limit and the definition of tax declarations.

We expect public authorities to upload subsidies promptly because they have a strong incentive to do so. Generally, the date of uploading a subsidy on the database will determine the end of the limitation period to challenge it. The sooner a subsidy is uploaded to the database, the sooner the clock for the limitation period will start running, and therefore the sooner the public authority will gain certainty that the subsidy will not be subject to a challenge. Public authorities will therefore seek to upload subsidies as soon as possible.

Amendments 18 and 38 would shorten the upload deadline for subsidy awards and subsidy schemes not given in the form of tax measures. Amendment 18 would shorten the deadline to one month and amendment 38 would oblige public authorities to upload the subsidy award or scheme as soon as possible, and within one month at the latest.

As I said, we expect public authorities to upload as soon as the relevant data are available, and to use the whole period of six months only if there is good reason. An upload deadline as short as one month would likely result in more public authorities needing to amend their entries at a later date. Although they can do so as a permitted notification within the meaning of clause 81, that creates an unnecessary administrative burden for those authorities. It also means that the information on the database is more likely to contain minor inaccuracies.

I am sure that hon. Members will agree, as their earlier amendments suggested, that accuracy is really important, so a longer deadline for uploading is not only justified but sensible. I again emphasise that the approach taken in the Bill reflects the views of those who responded to the public consultation on the approach to subsidy control earlier in the year. The consultation set out the details of the proposed approach that we are now discussing, including the six-month deadline for uploading general subsidies. Of those who responded to the question, 74% agreed with the Government’s proposed approach.

Amendments 26 and 37 seek to shorten the deadline for uploading subsidies in tax measures on to the database. Subsidies in the form of tax measures can be an effective tool for achieving policy objectives, but they are generally a more complex way of giving subsidies. They are more likely to have performance-related conditions, which means that it can take longer to determine the exact amount of the subsidy. Of course, a public authority will have an estimated value for the subsidy when it is granted for the purpose of assessing compliance with the principles, as well as for costing the measure for the purpose of managing public money. However, a final amount may not be known until the tax declaration has been completed. Even once that declaration has been submitted, further discussion between the beneficiaries of the subsidy and the public authority might be necessary, to confirm that the calculations in the tax declaration are correct.

[Kirsty Blackman]

Points were made earlier on the specific length of time. Why is the final amount required to be on there at the beginning, because they could presumably just put in how much they expect it to be? That would be much better for those organisations that may be looking to challenge it.

[Paul Scully]

They will clearly have that estimated calculation, but the database will function most effectively if the public authority uploads a subsidy when it can be confident of its accurate value. That will enable an interested party to determine whether to challenge the subsidy through a judicial review. It is important that public authorities are not then coming back and correcting those figures. It is a balance between ensuring that we get the entries in a timely fashion and in an accurate fashion. That is admittedly a difficult balance to strike, but the majority of people in the consultation agreed with our approach, which is set similarly to the EU state aid scheme.

The result of what we have set out is that a public authority will require sufficient time between the date of the tax declaration and the obligation to upload that subsidy to the database. We have determined that 12 months from the date of the tax declaration is sufficient time for public authorities and beneficiaries to calculate the exact subsidy amount. Amendment 26 would reduce that period from 12 months to just three months, and amendment 37 would reduce it to one month. That would mean a significant reduction in the time available for a public authority to make those final calculations and upload the subsidy.

As with non-tax subsidies, an upload deadline of one or three months will increase the likelihood of error. Again, I am sure that is something we want to avoid. We expect public authorities to upload subsidies in the form of tax measures as soon as they can and, as I mentioned, they will have a strong incentive to do so. That is why 12 months is an appropriate deadline to reduce the risk of inaccurate information being uploaded. Shortening the deadline would not improve subsidy transparency in our view, nor help interested persons who may wish to challenge a subsidy in the form of a tax measure.

[Kirsty Blackman]

If I had an enterprise that was being harmed by either a tax subsidy or any other kind of subsidy, I would rather know that the subsidy had been given and not know the exact amount than have no information at all until my business had gone under.

[Paul Scully]

I come back to our earlier discussions about the onus that is put on public authorities, and the impact that it will have on them, not only to put the amount on the various databases but possibly to go back and correct them. I appreciate that it is a difficult balance to strike, but none the less the balance is based on the EU state aid rules. It has gone through the public consultation and the majority agreed with it.

Amendment 27 would add a requirement to define a tax declaration in regulations before the subsidy control regime came into force. I can reassure hon. Members that, in the vast majority of cases, I would expect that the relevant tax declaration would indeed be a tax return. There are other examples: duty and certain other types of taxation treatment. That is why it is called a tax declaration rather than a tax return. But most of the time it would indeed be a tax return. The precise details would vary, depending on the specific tax and the mechanics of the measure in question.

As I have said, the Government will provide thorough guidance—I come back to the guidance that we have spoken about on a number of occasions—to ensure that public authorities are aware of their subsidy control obligations, including how to report subsidies in the form of tax measures. If it would be helpful to public authorities, subsidy beneficiaries and interested parties, that guidance will provide further explanation as to what should be considered a tax declaration. As that does not affect the substance of the law, I do not think it would be appropriate for secondary legislation. I therefore request that hon. Members withdraw or not press these amendments.

[Seema Malhotra]

I thank the Minister for his comments. There has been quite an important discussion and debate today. I want to highlight why this matter is complex and why more is needed on it. The Government quote from their consultation response, but on the specific point about the public authorities consultation question—should it be within six months?—I think it was actually quite a loaded question: “Do you agree that the obligation should be to upload information within six months of the commitment to award a subsidy?” That is hard to disagree with, even if people think that it should be one month or less. As with many of the questions, we had 15% of respondents answering this, and a majority did agree with the proposal. I do not think people would necessarily disagree with it. But even those who then did think a bit further and disagreed commented that six months was too generous and could be shorter, and apparently suggested a range of alternatives.

What is important is to get this right. The Minister made a couple of points in relation to where there may be some information that is not fully available—I do not know what specifically that would be—that would result in edits to correct some information, which could be after a month or two. I would like the Committee to have an opportunity to reflect on that and perhaps to talk to local government and other public authorities about what difficulties they might perceive if the period was to be greater than one month, or whether they did think that one month could be workable in the context of an easy-to-enter database. I think that, rather than pushing this matter to a vote today, we should see some further work done on these issues, in order to have confidence about the deadline, and come back to this on Report, with some of that information and further research being clear.

--- Later in debate ---

[Kirsty Blackman]

I have a wee comment to make on this. The Government increasing the minimum threshold required on the subsidy database is a very contentious issue that we have discussed at length, including with witnesses. A significant number of respondents to the consultation answered on the basis of the numbers put before them. It is important enough that lots of people responded to the consultation. It is important enough that we have had a length of time debating the numbers. The negative procedure does not make sense, given the Bill’s possible impact. Unless the Bill is amended, the Government could, at a stroke, change the threshold to £2 million under the negative procedure. In terms of transparency, accountability and ensuring that this makes sense and works for everybody, it would be sensible for the amendment to be accepted.

[Paul Scully]

Clause 33 sets out that the Secretary of State may change the threshold above which subsidies given under schemes are required to be uploaded to the transparency database. Amendment 36 seeks to change the procedure for these regulations from negative to affirmative. 

The regulations can be used to change the thresholds for all subsidies given under schemes, or for those matching a specific description, such as those given to a specific sector. The regulations cannot be used to make changes beyond this—for example, to change the requirement to upload all subsidy schemes to the database—and nor do they change the substantive subsidy control requirements, which are assessed at scheme level, rather than for each individual subsidy given under a scheme. As such, these regulations should be considered technical.

The Bill proposes the right parliamentary procedure for different types of secondary legislation. For example, the powers to amend the exemption thresholds in clause 42(1) are subject to the affirmative procedure because they affect the substantive subsidy control requirements rather than simply the threshold for uploading information to the database.

[Kirsty Blackman]

Does the Minister agree that if the Government were to change the threshold from £500,000 to £20 million, that would require some scrutiny?

[Paul Scully]

As I have set out, the figure of £500,000 strikes the right balance between transparency and minimising undue and unnecessary administrative requirements. We currently have no intention of changing the overall threshold. The Secretary of State has power to change the threshold if necessary—for example, because of changing market conditions or international obligations.

[Seema Malhotra]

I appreciate that the Minister has stated the Government’s position on the £500,000 threshold but he has not made the case for it, neither on the operation of the regime nor on value for money or transparency. The hon. Member for Aberdeen North powerfully made the point that the Government have the power to change the £500,000 threshold under the negative procedure. Has the Minister held discussions—with the Secretary of State or others in government—about whether there should be a maximum that the Secretary of State may propose? The consequence is much less transparency over greater amounts of public funds. That surely cannot be the right direction of travel for any Government, and certainly not for a scheme that we want to stand the test of time and enjoy the confidence of the public.

[Paul Scully]

In this instance, we are looking at adjusting the thresholds for specific sectors, such as agriculture, that are characterised by smaller businesses where a relatively small subsidy can have a distortive effect. It might be more appropriate to have a specific threshold in the future, but the focus in the transparency measures in this Bill is on enabling interested parties to see the subsidies that they may wish to challenge. We are not setting out to provide a general database of public authority spending, but the schemes are transparent because the details of a scheme itself must be uploaded on to the database. That is where the challenges may come. Transparency is set within this framework and that is why it is appropriate to use the negative procedure. I ask the hon. Lady to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. In the light of the complexity of many of the issues that we have debated, I will not push the amendment to a vote. However, the issue must be looked at in the round to ensure that clause 33 is as robust as it can be and will stand the test of time. 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 sets out the duty on public authorities to upload certain information on to the database about their subsidies and subsidy schemes. It provides public authorities with clear rules on whether a subsidy award should be uploaded to the database or not. It sets out the three rules for public authorities granting stand-alone subsidies and subsidy schemes.

[Seema Malhotra]

This is an important clause, but it requires significant improvement. We will not vote against clause stand part, but I hope that the Minister will engage positively on the issues. This is not a party political matter. It is genuinely in people’s interests to have a robust regime, and we have outlined the cornerstones of that.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Information to be included in the subsidy database

Subsidy Control Bill (Third sitting)

Paul Scully Excerpts

Thursday 28th October 2021 Public Bill Committees

[The Chair]

Before we begin, I have a few preliminary announcements. May I encourage Members to wear a face covering except when speaking or if they are exempt, in line with the House of Commons Commission’s recommendations? Hansard colleagues would be grateful if Members could email their speaking notes to [e-mail]. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings.

We now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. Please note that decisions on amendments do not take place in the order they are debated, but in the order they appear on the amendment paper.

The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates. A Member who has put their name to the leading amendment in the group is called first. Other Members are then free to catch my eye to speak on all or any of the amendments in the group. A Member may speak more than once in a single debate.

At the end of a debate on a group of amendments, I shall call the Member who moved the leading amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or seek a decision. If any Member wishes to press any other amendment in a group to a vote, they need to let me know. We will start with clause 1 stand part.

Clause 1

Overview and application of Act

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, Mr Sharma.

Clause 1 provides an overview of what each part of the Subsidy Control Bill will cover and establishes its application to other legislation. It sets out the definitions, the requirements, the exemptions, the functions of the Competition and Markets Authority and the enforcement of the control requirements. Subsections (7) and (8) specify that if a subsidy is granted or a scheme is created using powers contained in either primary or secondary legislation, the requirements will apply unless an Act of Parliament specifies otherwise. It is a straightforward, uncontroversial overview of the Bill and its application.

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

I thank the Minister for his opening remarks on clause 1 stand part. We support the clause, but I will make a few remarks on it. It provides an overview of the Bill. There are concerns that we will discuss further later, but that I want to mention in relation to the overview in clause 1.

As we said on Second Reading, we recognise the need for subsidy control legislation that establishes the framework for state aid post Brexit, but the new regime proposed in the Bill will work only if it provides transparency, oversight and scrutiny. While the Bill’s chapters reflect what the key issues are, there are areas where the Bill does not provide sufficient detail and clarity.

We are concerned about a number of areas. First, crucial aspects of the regime are yet to be defined. The Bill may establish a regulatory framework of subsidy control, but it fails to provide any real indication of how, where, and on what scale the Government plan to spend subsidies. As Alexander Rose said in his written evidence,

“there is currently no preferential system to incentivise investment into disadvantaged regions.”

The Bill also fails to provide a fair role for the devolved Administrations, and we are concerned that there is not enough balance between efficiency and oversight, particularly related to the CMA. We will debate some of these issues later, but it is important to note in our discussion of the overview why we will want further debate on the gaps in the Bill, and that we will seek to amend it in Committee.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

“Subsidy”

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

[Paul Scully]

Clause 2 is the cornerstone of the new subsidy control regime. It sets out the definition of a subsidy for the purposes of the Bill, and it is a fall-in test, so to be a subsidy, it must be given, directly or indirectly, by a public authority using public resources; it must confer an economic advantage on one or more enterprise; it must be specific, meaning it must benefit one or more enterprise over others by conferring an economic advantage; and finally, it must have, or be capable of having, an effect on competition or investment in the United Kingdom, or on trade or investment between the United Kingdom and other territories.

There is a non-exhaustive list of financial assistances that may count as subsidies in subsection (2). Subsections (3) and (4) establish that financial assistance provided by an intermediary will constitute a subsidy where the funds originated from public resources, or the nature of the relationship between the public authority and the intermediary is such that the decision is effectively that of the public authority. Subsection (5) establishes the point at which a subsidy is deemed to have been given.

[Seema Malhotra]

I thank the Minister for his remarks on clause 2. We support the clause standing part of the Bill, but there are some areas that I would be grateful for the Minister’s comments on. He described the fall-in test: where the condition in each limb of subsection (1) is met, financial assistance is defined as a subsidy. That definition applies to goods and services. Subsection (2) outlines the means by which a subsidy is given. That effectively includes a direct and indirect transfer of funds. Could the Minister outline what that means for tax reliefs? Perhaps he could provide clarity on what the boundary is, and say what is and is not regarded as a subsidy.

Subsection (3) refers to a person who is not a public authority, but could be treated as one for the purposes of subsection (1). Will the Minister clarify who this is intended to refer to? Who could fall under the scope of subsection (3)? That is important, because it defines who has the authority to bring forward and grant subsidies. We would like greater clarity about what is intended by that; it was not very clear from the explanatory notes. That also relates, to some extent, to subsection (4).

We do not have an issue with subsection (6), but would like clarification on what is defined, and on why the subsection relates to “modification for air carriers”. We do not have a major problem with that; I just thought it would be helpful to clarify it, as it is the first time it comes up in the Bill.

[Paul Scully]

Largely, the definition of subsidies in the clause has been designed to be consistent with international obligations, especially those arising from the trade and co-operation agreement with the EU, but it does lay the foundation for a bespoke domestic regime, hence the discussion about the UK internal market. A lot of the terminology included is based on domestic legal precedent, such as the definition of an enterprise and the like. On the question about the “person”, that is what I meant about the intermediary; should a public authority not have a direct payment, or if any subsidy comes through a third party, that third party is the person defined in the Bill. Largely, as is the case for tax and aviation, all these definitions sit within the framework of our international obligations under the TCA.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Financial assistance which confers an economic advantage

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

[Paul Scully]

Clause 3 establishes that financial assistance should not be considered to confer an economic advantage if it could reasonably have been provided on market terms. It is a small but necessary addition to the core definition of a subsidy for the purposes of the new regime. One example is a loan; it would not be considered to confer an economic advantage if it might have been provided by a bank on the same terms. Similarly, a public authority purchasing goods and services at market rates would not be considered to confer an economic advantage as long as the public authority follows the appropriate procurement processes.

[Seema Malhotra]

I thank the Minister for his remarks on clause 3. We have no general comments, but could clause 3(2) be brought in as a challenge if, for example, a cheaper loan could arguably have been obtained in the market? To avoid challenge, would that be something that the public authority needed to verify when granting the subsidy, and when a subsidy is posted, would there need to be some sort of confirmation that such a check had been made?

[Paul Scully]

The domestic subsidy control regime in its entirety is a bare-bones framework. It empowers public authorities in the UK to design subsidies and other policy interventions, including loans, without facing excessive bureaucracy or lengthy pre-approval processes. It does not have an EU-style regulator that acts as the gatekeeper and provides the definitive decisions on specific cases. However, we will provide guidance in due course that will help public authorities and recipients understand the practical applications of the definitions, and what authorities will need to do to comply with the subsidy control regime, including in the example that the hon. Member mentions.

[Seema Malhotra]

I hope, from what the Minister says, that there will be tighter guidance on how a public authority ensures that the subsidy it is giving is compliant, and on whether it will need to verify or confirm that—saying, “I confirm that,” or “All this complies with x”—in any entry it needs to make. During the evidence session, it was highlighted that there is a gap in auditing the quality of the checks a public authority makes; if there is no process for that to be recorded, it is not transparent.

[Paul Scully]

Clearly, anybody giving a subsidy, be they the UK Government, the devolved Administrations or a public authority, would need to keep their own internal audits in case of challenge. However, the guidance that we will develop—with full consultation and discussion with interested parties, including the devolved Administrations, businesses and public authorities, to make sure we are answering the right questions—will have that level of detail.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4

Financial assistance which is specific

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

[Paul Scully]

The purpose of clause 4 is to elaborate on the circumstances in which financial assistance is not considered to be specific where it benefits one or more enterprises over others for the purpose of the new regime. Subsection (2) confirms that financial assistance is not specific if different enterprises are treated differently in a way that can be inherently justified by the nature of the financial assistance. For example, in the case of a special levy for environmental purposes, treating certain goods or services differently can be justified by the effect that the levy aims to achieve.

Subsections (3) to (7) set out further considerations that are relevant to whether a tax measure should be considered specific, as the hon. Member for Feltham and Heston mentioned. Subsection (4) sets out the situations in which tax measures may treat enterprises differently without being considered specific by reference to the normal taxation regime. One example is that a tax relief measure by a local authority that advantages one or more local enterprises over another is likely to be considered specific, but it will not be specific if all enterprises in the local area benefit. Subsection (5) makes provision for identifying what the normal taxation regime is by reference to its overall objective, its features and the level of autonomy that the public authority has in the design of the taxation regime.

Subsection (6) confirms that a levy with a non-economic public policy objective would not be specific if treating enterprises differently can be justified by objective criteria—for example, the criterion of limiting negative impacts on public health or the environment. Subsection (7) confirms that any carve-out from the levy will also not be considered specific if the same conditions as those in subsection (6) are met. I recommend that the clause stand part of the Bill.

[Seema Malhotra]

I thank the Minister for his remarks on the clause. Will he clarify what guidance sits behind it? This is a similar issue to that raised on clause 3(2). A concern was raised by some of our witnesses about potential tax reliefs not being defined as a subsidy, but having the same outcome as a subsidy for all intents and purposes. We obviously want to ensure that there is integrity in the implementation of the regime, so that it does not give rise to concern that there are subsidies being made through the back door that are not subject to the regime’s transparency and control measures. Will the Minister confirm that guidance will be developed around this, to make it very clear what the delineations are, and will that guidance be given and explained to local authorities?

Another issue that came up in evidence was that local or other public authorities that have not been involved in granting subsidies before want to be sure that they are making the right decisions, and want to understand the regime and the intentions of the Government.

[Paul Scully]

Absolutely. First of all, the guidance will give advice on the application of provisions, including the duty to consider and act consistently with the subsidy control principles. We will develop that guidance with full consultation and discussions with other parties, so that we can all look at all the measures, including the tax-specific measures. The guidance will be published in good time to allow public authorities and other stakeholders to understand the key requirements of the new regime before it commences. It is so important that we get the transparency correct and that, as the hon. Lady rightly says, we ensure the integrity of the system.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

Section 2: modification for air carriers

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

[Paul Scully]

The clause establishes a more specific competition test to determine whether financial assistance for air carriers providing air transport services is a subsidy for the purposes of the Bill. Specifically, the clause will require that public authorities assess whether that financial assistance has an effect on competition between air carriers in the provision of air transport services, either within the UK or between air carriers of the UK and those of another country, or could have such an effect. An assessment of that kind more precisely reflects the specific characteristics of the market for air transport services provided by air carriers, as well as meeting our relevant international obligations.

[The Chair]

I call Seema Malhotra.

[Seema Malhotra]

I have no comments or questions on clause 5.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

“Public authority”

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

[Paul Scully]

Clause 6 establishes the definition of the term “public authority” for the purposes of the Bill. It sets out the standard definition of a public authority, denoting a person who exercises functions of a public nature. It is consistent with UK legislative precedent. It does not include either House of Parliament, the Scottish Parliament, the Welsh Senedd or the Northern Ireland Assembly. Provisions relating to the subsidies and schemes in primary legislation are included under clause 78 and schedule 3.

[Seema Malhotra]

I thank the Minister for his remarks on clause 6. We have no further issues in relation to it.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to be part of this Committee. I wonder whether the Minister could explain a little more the logic behind the exclusions. I have read the explanatory notes, and the intention is still not entirely clear to me. I do not think that I have a problem with it—I think it makes sense— but if he could explain it a little more that would be really helpful.

[Paul Scully]

I am very happy to respond. The provisions for subsidies given by Parliament, the Scottish Parliament, the Welsh Senedd and the Northern Ireland Assembly are set out in clause 78 and schedule 3, which provide for the giving of subsidies by means of primary legislation. They are covered separately to reflect the unique legal and constitutional position of Acts of Parliament. The legislature is considered to have given a subsidy when it is given under a duty imposed by primary legislation. Those subsidies are captured by schedule 3, but if a subsidy is given under a power in primary legislation, the relevant public authority will be the Minister exercising that power.

[Kirsty Blackman]

Just to clarify, is the logic that the devolved Administrations and the Houses of Parliament can continue to give subsidies in primary legislation, and that is why an exclusion, or a separate provision, is in place relating to them? Is it partly to do with not being able to bind future Parliaments, or is that totally separate from what we are discussing?

[Paul Scully]

It is more to do with the fact that public authorities have been added as an extra, whereas state aid did not go down that far. The public authority definition at the beginning widens the definition of who can give subsidy control, whereas it is established that the UK Government and the devolved Administrations, including the Scottish Parliament, can continue to give as they do now.

[Seema Malhotra]

This is a helpful discussion. Further to that point, is it to differentiate—I think the Minister alluded to this—who has the power to grant the subsidy? For example, the Houses of Parliament may not but the Secretary of State or Ministers may. Is that the distinction that we should read here, or am I confusing things?

[Paul Scully]

Essentially, the things that tend to be given will usually be given with the agreement of the Houses of Parliament. Although it may be the UK Government that award the subsidy, it will clearly be on the back of parliamentary powers that they do so. That is where we are coming from.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

“Enterprise”

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

[Paul Scully]

The clause establishes the definition of “enterprise” for the purposes of the Bill. Under the new regime, an enterprise is any person or group of persons under common ownership or common control offering goods or services in a market. Importantly, the definition applies only to the extent that the person is engaged in such activity. It is purposely broad, it is consistent with our international obligations and other UK legal precedents, and it will ensure that the new subsidy control rules apply widely to protect UK competition and investment.

[Seema Malhotra]

Will the Minister clarify whether that definition extends to social enterprises and co-operatives for the purposes of organisations that may be involved in economic activity? Will those organisations be within scope to potentially receive subsidies from public authorities?

[Paul Scully]

If a person is not engaged in economic activity, they will not be defined as an enterprise. Generally speaking, a charity or community group is unlikely to carry out economic activity. However, we are not explicitly excluding anyone from the definition of enterprise just because of their legal form. The hon. Lady talks about social enterprises, which are obviously different from charities, because some can be normal companies but do not make profits or have shareholders. However, that is economic activity, so those would be included within the definition.

The test looks at the activity that is proposed to be subsidised, rather than the legal form of the subsidy recipient. One organisation may be considered an enterprise in some contexts and for some activities but not others. One example might be a medical research charity that has a retail arm. Support given to the medical research activity is not a subsidy, because the research is not economic activity, even though the charity’s retail operation may be considered an enterprise.

[Kirsty Blackman]

I have a couple of questions. I am aware of social enterprises in Aberdeen that make and sell frames or make bread and run cafés and things like that. It sounds as if that would be included within the definition of economic activity, because they are selling things to the general public, even though their main purpose is to ensure that people who are disadvantaged in society are given the opportunity to get work experience and things like that. It would be helpful if the Minister could say whether he intends the clause to cover all economic activity, regardless of who is doing it, but that the subsidy relates only to the arms of those organisations that are undertaking the economic activity; and that the clause applies across the board to charitable organisations and social enterprises as well as normal businesses, so long as the thing they are doing is classed as economic activity. Have I got that right?

[Paul Scully]

The hon. Lady has got that right. Some charities have a commercial retail arm that are taxed and approached in different ways. For example, Help for Heroes has a retail arm as well as the main fundraising arm. There is clearly no intention for subsidies of cake sales or anything like that—money may be handed over, but that is fundraising—whereas retail involves the selling of things. I am not saying that that specific example will involve in any subsidy, but such an example, where a separate business is aligned to the charity, is where the enterprise comes in that covers the economic activity that we are describing.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8

Persons under common control

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

[Paul Scully]

The clause elaborates on what is meant by common control for the purpose of identifying an enterprise. It sets out the circumstances where common control arises: where one or more corporate bodies is controlled by one person or a group of persons, or where there are interconnected corporate bodies. An interconnected corporate body is where a subsidiary or subsidiaries exist.

A person, or a group of persons, is treated as having common control when, directly or indirectly, they can control or materially influence the economic activity of another corporate body, which also applies where there is no controlling interest over the corporate body. Interconnected corporate bodies or a group of persons under common control are considered to be a single enterprise for the purpose of the subsidy control regime. The clause will ensure that the rules under the regime are applied fairly, regardless of corporate structures.

[Seema Malhotra]

I thank the Minister for his comments on clause 8. For the purposes of clarity around where public resources may go, will he explain what the clause means if, in a group of companies, one of them is granted a subsidy? Could that subsidy be shared with others in the group? I am not fully clear what the clause means.

Secondly, what if one of the other companies in the group has interests abroad? Is there something in the legislation that prevents public subsidies in the UK going through company structures within the same group to then subsidise activities abroad? I would be grateful if the Minister could clarify that—it is genuinely not very clear.

[Paul Scully]

The hon. Lady gives an interesting example, which I may need to clarify afterwards. However, the essential drive behind the clause is to provide effective definitions so that public authorities can identify the characteristics of an enterprise receiving a subsidy to make sure it complies with the requirements in the first place.

A public authority should not give a subsidy to a business that is a subsidiary of a large parent company without considering that large enterprise as a whole. A subsidy designed to support a microbusiness, for example, would be inappropriate in that kind of situation. The whole group has to be considered to assess the incentives of the recipient and whether the subsidy is an appropriate and proportionate way to address that market failure.

Another example might be the minimal financial assistance exemption. Two companies under common control should not both receive subsidies of £200,000, for example, as minimal financial assistance. That would exceed the threshold of £315,000 for a single enterprise.

The measures must apply regardless of the way an enterprise is structured. The clause gives public authorities the clarity to identify where the subsidy actually ends up and whether it is being used for its intended purpose—rather than, as the hon. Lady says, the possibility of it being moved abroad or to another part of the group, which would not achieve the aims for which the subsidy was given.

[Seema Malhotra]

I thank the Minister for those points. However, there could be an unintended difference between what the Government intend and what the law and guidance, if not clear, could result in. I would be grateful if the Minister could come back in writing to explain, specifically, what the Government’s intentions are for the guidance that may be given to an enterprise receiving a subsidy as to whether, once it has been given, there are controls on where the subsidy could be passed on to. I know that somewhere else in the Bill, it says that if a company’s ownership changes, the subsidy can pass through, but this is a point about clarity and guidance regarding what controls exist once that subsidy is given.

Secondly, on this point about potential ownership of a group or the enterprise, are there any constraints or guidance—or is there an intention of producing any guidance—in relation to companies that may be, for example, foreign-owned but trading here, where some subsidies could end up going into other countries? Is there clarity about how that is potentially going to receive guidance or be regulated to ensure it does not happen, if that is the Government’s intention?

[Paul Scully]

I thank the hon. Lady for her questions, and I appreciate that clarity is required on this issue. I will give her a fuller answer in writing. What I will not be able to do, though, is pre-empt the guidance, which as I say we will be developing through discussion as we progress after the framework Bill has been approved. However, the definition of a wholly owned subsidiary can already be found in section 1159 of the Companies Act 2006, so again, this is taken from legal precedent.

[Seema Malhotra]

I thank the Minister for that. He is referring to subsection (5), but it would be of benefit to the Committee to receive a response in writing on those broader points.

[Paul Scully]

I should add, as I said in my original response, that when public authorities are giving the subsidy, it is important to ensure that that subsidy is going to the enterprises for the purposes of the market failure that they are trying to correct.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Clause 9

The subsidy control principles and the energy and environment principles

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

[Paul Scully]

Clause 9 establishes that the subsidy control principles are set out in schedule 1 to the Bill, and that the further principles for public authorities awarding energy and environment subsidies are set out in schedule 2 to the Bill. Those common-sense principles, requiring that subsidies are an appropriate, proportionate means of addressing a specific policy programme, are set out in clear terms in the relevant schedules. I commend the clause to the Committee.

[Seema Malhotra]

I thank the Minister for his comments. Labour has no further issues with this clause.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Schedule 1

The subsidy control principles

[Seema Malhotra]

I beg to move amendment 6, in schedule 1, page 51, line 8, after “concerns” insert “and areas of deprivation”.

This amendment includes areas of deprivation as an example of the equity rationales that subsidies should address.

Under EU state aid rules, subsidies could be, and indeed were, targeted at areas of economic deprivation, significantly aiding struggling regions. Labour recognises the ongoing debate about assisted areas or other ways in which there could be a successor scheme to those rules, in order to support better and more effective targeting and transparency about where public resources are going, and indeed to support the levelling up agenda. We are concerned that this is not explicit in the Bill; it is merely alluded to in guidance. This important principle needs to be explicitly in the Bill for those who might be interpreting legislation in the near future or who want it to be a regime that stands the test of time and has the confidence of all four nations.

As Professor Fothergill highlighted, as the Bill currently stands we could be treating investment in a wealthy part of Guildford on the same basis as a potential investment in a less prosperous part of Grimsby. That seems counterintuitive to the oft-quoted term “levelling up”, which highlights a policy priority for Governments of all persuasions and is a new term for what we have all talked about: increasing equality and making sure there is prosperity in all parts of our country. It is important that we all agree on the need to make sure that public resources are being used to the best effect and to achieve the best outcomes for those areas of greatest need.

Professor Fothergill went on to say:

“You would not be attempting to incentivise the levelling up of the United Kingdom. In certain places, if we really are serious about levelling up, we have to put more resources into that effort, and we have to use state aid as one of the tools for delivering new jobs.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 11, Q7.]

I would be grateful for the Minister’s response on that. Does he agree that the Bill should include a stronger mandate for reducing economic inequality? The notes on the Bill’s intention allude to levelling up, and the Government created a specific Department for levelling up. Given how much the Government have been talking about levelling up, I must say it was surprising not to see it more explicitly in the wording of the Bill. Could the Minister respond to that?

We are concerned about the overall principles. I understand that they are derived from agreements within the TCA, but they can be amended. It is not that we do not have the authority to do that. Where, if not here, do the Government intend to include and support the equity rationale that subsidies are supposed to be addressing? We believe that the amendment would make it clear that the new subsidy regime can and should play a role in reducing regional and sub-regional inequality. It is a simple way of addressing the issue within the Bill.

[Paul Scully]

As we have heard, amendment 6 seeks to include areas of deprivation as an example of the equity rationale that may be addressed through subsidies. Firstly, I would like to use this opportunity to welcome the hon. Lady’s commitment to the levelling-up agenda. The Government are clearly committed to ensuring that prosperity and opportunity is shared across all parts of the UK. The domestic subsidy control regime will facilitate this. It will allow public authorities to deliver investment in skills, local infrastructure and new technologies.

Principle A within schedule 1, as well as the wider subsidy control system, has been designed to allow public authorities to address inequality and disadvantage through the use of subsidies. The principle specifies that subsidies should pursue a policy objective that either remedies a market failure or addresses, to quote from schedule 1,

“an equity rationale (such as social difficulties or distributional concerns).”

As currently drafted, schedule 1 clearly covers investment in disadvantaged or deprived areas; as such, the amendment is unnecessary. Through guidance, we can come up with more specific clarity to public authorities, but I do not believe it is helpful to list in the Bill every policy objective that a subsidy may address. As I say, the specific examples will be covered and elaborated on in guidance, which is a more appropriate place to address the practical application of the subsidy control principles. I therefore suggest that the hon. Member for Feltham and Heston withdraws the amendment.

[Kirsty Blackman]

May I ask the Minister for some clarity on that? He says that he expects that more information about principle A will come out in guidance. Does he expect that that will encourage granting bodies to look at reducing inequality in some of the subsidies that they make?

[Paul Scully]

It will set that out in guidance. The hon. Member for Feltham and Heston talked about the evidence session, and Guildford got quite a bad rap, having come up a couple of times as the example. None the less, we want to ensure that we directly address issues of inequality and disparity through the levelling-up agenda. That will come out through guidance and ensure that we address exactly what the hon. Member for Aberdeen North was saying.

[Kirsty Blackman]

One more try on this. Does the Minister expect that the Government’s levelling-up agenda will be part of the direction of travel in the guidance, so that the guidance will encourage granting authorities to line up with the Government’s levelling-up agenda?

[Paul Scully]

In terms of levelling up, it has been designed to provide a bespoke and dynamic framework. It allows public authorities to deliver bespoke subsidies that are tailored to their local needs, which will indeed address the UK Government’s priorities, such as levelling up, but within their own areas. Public authorities are best placed to work out how to address the inequality and disadvantage within regions, as well as between regions, so we have developed an approach that ensures that disadvantaged areas have the maximum freedom and reassurance to receive the levelling-up subsidies and best meet the characteristics of the area.

[Seema Malhotra]

I will make a few remarks and then clarify whether I will push the amendment to a vote. I will respond to some of the points raised, and I thank the hon. Member for Aberdeen North for her comments. It is important to ensure that a more explicit intention is incorporated in the wording of the Bill, but I worry that that will not be achieved as explicitly as it ought to be, if it is so squarely in line with the Government’s intentions.

I want to come back on one of the points that the Minister made. We have spoken about the evidence in relation to Guildford and Grimsby, but he makes an important point. Every area has better-off, prosperous parts and others that are worse off, which is why it is important to think about levelling up not just between regions but within them, as he said. Indeed, I know that some wards in my constituency have some of the worst records in the country for children going to university. Some of them have improved, but some London wards can be as poverty stricken as other parts of the country, which is why we need to have a more mature debate about levelling up that looks at some of those issues. What is important is that this will be an ongoing discussion throughout the course of the Committee. We have not fully closed off whether, and how, there should be a successor to the assisted areas map. We take the point about the boundaries not always being clear if we do try and have a map, and I have concerns about that having unintended consequences, such as excluding areas further down the line that may have good reason to be considered for subsides. However, there is an important principle here, and I do not want us to lose it. I will not be pushing this amendment to a vote today, but I do think that it is one that with further discussion and clarity—reviewing some of the evidence—we may want to come back to at a later stage.

[Paul Scully]

I agree with many of the hon. Member’s remarks, as I am the Minister for London as well. We are talking about addressing areas of inequality within regions, as well as between regions. By having a blunt tool, we can sometimes miss out on those pockets of deprivation, as well as the wider issues—both need to be covered.

[Seema Malhotra]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Kirsty Blackman]

I got so carried away with my attempts to convince the Government to get to net zero as soon as possible that I forgot to ask questions when I stood up previously. It would be useful if the Minister could clarify why there are two schedules. Why does the treatment differ between the two areas? There is a difference in the treatment of subsidies in relation to energy and the environment compared with subsidies relating to any other area, and I do not quite understand the logic of having two different things. One set of principles could have covered everything, including moving toward net zero. If the Minister will explain why there are two separate schedules and why the two areas are being treated differently, that would be incredibly helpful.

[Paul Scully]

Let me answer that point before I speak to amendment 7. The two schedules and the additional principles are there literally just to adhere to our international obligations.

Hon. Members can rest assured that our new subsidy control regime will support the UK in meeting our net zero target by 2050, first by facilitating strategic and appropriate subsidy interventions with minimal bureaucracy and delay and secondly by ensuring that energy and environment subsidies are assessed against additional principles that promote carbon neutrality and sustainability.

The hon. Member for Sefton Central said that he could not see net zero in the Budget, but the spending review backs up the net zero strategy published the week before. The Budget will fund our strategy, which will then leverage private money and create jobs and opportunities in markets that will drive towards net zero.

Turning to amendment 7 itself, it is unnecessary explicitly to require public authorities on the face of the Bill to consider the negative effects of subsidies on the UK’s net zero commitment as part of their compliance with principle G. Public authorities will clearly need to consider the effects of subsidies in the round before awarding them, but the amendment would give undue prominence to net zero considerations with respect to subsidies that may have entirely unrelated objectives, such as high street regeneration or providing training opportunities for young people.

[Kirsty Blackman]

Does the Minister agree that this is the most important thing for every single one of us? Whether people are regenerating high streets or doing anything else, they should be ensuring that they are also moving towards net zero.

[Paul Scully]

I agree that we should be doing so, but what I am saying is that we do not need to do it in a process-driven way. It should be done, in the first place, in the devising and implementation of policy. I do not want to create two separate processes, because that might lead to public authority having to make assessments for every single subsidy that is awarded or made, even when there is no meaningful impact—just look at that bureaucracy. What we need to do is ensure that we enmesh net zero thinking in our policy development at every layer of government, rather than just listening for signals. Clearly, we need to take that leadership at COP26. We realise that this is the time to lead and to act, for all international Governments.

Unfortunately, the Bill will not have completed its parliamentary process by the time everyone leaves Glasgow. None the less, we need to ensure that we set out the strong work that we are doing. We have already announced policies that involve subsidies in some sectors, such as the clean heat grant and the contracts for difference scheme, announced by the Chancellor in the March 2020 Budget, providing up-front capital grants for the installation of low-carbon heat pumps and, in limited circumstances, biomass boilers. Those schemes will help consumers to overcome the higher up-front costs of low-carbon heat and will build the supply chains for it ahead of the introduction of regulations for existing buildings off the gas grid later in the decade. Those schemes—all schemes—will have to meet the terms of the domestic principles, which should also ensure that the money is well targeted and achieves good value for the taxpayer.

We have established the green jobs taskforce, which advises on how Government, industry and the education sector can work alongside other stakeholders to realise the opportunities of a green industrial revolution, supporting green jobs and skills, and ensuring that those opportunities are open to all. The evidence collected by that taskforce and its recommendations are being considered by Government as part of the development of the ongoing net zero strategy, which was published last week. We will develop that.

Those are the clear leadership principles that we should be promoting and pushing out to international colleagues from Governments around the world, who are coming to Glasgow this week and next, ahead of COP26. However, we do not need just this one principle, understandable as it is, in the Bill. Principle G already singles out negative effects on competition or investment within the UK and on international trade and investment. That is appropriate, as such distortions go to the very heart of what the subsidy control regime is for. By definition, a subsidy must have effect on competition, investment and trade, and distortion is common to all subsidies, regardless of what they seek to achieve.

Net zero considerations, however, are not inherent to all subsidies. Some subsidies will of course help businesses to reduce their emissions, but a great number will not have any meaningful or, importantly, measurable impact on the UK’s greenhouse gas emissions.

Amendment 8 would add to schedule 2 a requirement for energy and environment subsidies and subsidy schemes to deliver, or to incentivise the beneficiary in delivering, the UK’s net zero commitments. The intended effect is that a public authority planning to grant an energy or environment subsidy or scheme would not be able to proceed unless it was satisfied that that subsidy or scheme contributed towards net zero commitments.

It may be useful to recap that energy and environment subsidies must be assessed against a number of additional principles, which are set out in schedule 2. Those common-sense principles are designed to ensure, for example, that public authorities consider the need for energy and environmental subsidies to achieve reductions in emissions or otherwise increase the environmental protection relative to the level achieved without subsidy. They also ensure compliance with the UK’s international obligations under the trade and co-operation agreement with the European Union.

We share the commitment to the net zero agenda, as I expressed. We believe that subsidies correctly designed and targeted can be a powerful means to achieve that.

[Kirsty Blackman]

The Minister is doing a good job of explaining what is intended by some of this, putting some meat on it, which is helpful. Will he explain what environmental protection means?

[Paul Scully]

There is a wide definition of environmental protection beyond net zero, as big and important as that is. The principles in schedule 2 fully support the UK’s priorities on net zero and the wider protection of the environment. The additional requirement to assess the subsidy or scheme against the net zero priorities is therefore unnecessary and may actually discourage public authorities from granting energy and environmental subsidies designed to achieve other valuable aims, such as an affordable energy system or increasing biodiversity. I humbly ask the hon. Member for Feltham and Heston to withdraw the amendment.

--- Later in debate ---

[Paul Scully]

The schedule sets out the seven general subsidy controls, including how public authorities should consider and assess a policy objective, and make sure a subsidy is proportionate and that it incentivises and leads to a change of behaviour in a beneficiary that would not have happened had they not had the subsidy. It does not include normal business expenses. It provides that alternative policy levers that are likely to cause less distortion should be considered before a subsidy, and that subsidies should be designed in a way that meets the policy objective and minimises the impact on competition and investment within the UK’s internal market.

Finally, principle G requires public authorities to conduct a balancing test to assess the effects on competition and investment in the UK and on international trade or investment, and to determine whether the benefits of a subsidy are greater than the negative effects of providing it. I commend schedule 1 to the Committee.

[Seema Malhotra]

I thank the Minister for his remarks. Notwithstanding the debate that we have just had and our ongoing concerns, which we want to return to later in the consideration of the Bill, we support schedule 1.

[Kirsty Blackman]

I would like to ask a few questions, particularly about principle F in schedule 1, which says:

“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.”

If someone was looking to invest in the United Kingdom, create jobs, start a business or bring a specific arm of a business to a certain place, and Aberdeen were to subsidise that, which would therefore have a negative effect on Cardiff, because Cardiff was not getting the jobs and Aberdeen was, is that excluded as a result of principle F? It concerns me that pretty much every subsidy that could be given will have a potential negative effect on another part of the UK because it would be incentivising investment, or whatever, in one part of the UK.

I am concerned that principle F can be read either as not meaning anything or as something that is too restrictive for what the Government are trying to achieve with what they are doing. I am thinking about what the Government are trying to achieve because a number of Government Back Benchers stood up on Second Reading and said, “This is great, because it means we will be able to get lots more investment and put lots of subsidies into our area.” If that is the Government’s intention, which I think it probably is, I worry that the risk-averse nature of granting authorities means that they will be concerned about doing that, in case they fall foul of the principle. If the Minister gave us a bit more clarity on how the principle is intended to work, that would help granting authorities to make the right decisions in order to subsidise economic development in their areas.

[Paul Scully]

I thank the hon. Lady for that important question. The answer to her first question is no. It is more about fitting in with the levelling-up agenda, which is what hon. Members talked about on Second Reading—attracting subsidies to an area. For example, we have seen a lot of renewables investment, including offshore wind and the manufacture of equipment, in Teesside and Humber. We have seen the setting up of gigafactories in the north-east and other areas, and such inward investments provide stimulus in those areas. There are natural clusters of businesses in those areas, but it is more in this regard—the distortive effects of, say, moving companies from one area of the UK to another, and adhering to the United Kingdom Internal Market Bill, which we debated last year. It is about ensuring that that works, rather than being in some sort of race between the devolved Administrations of the nations, or between regions, to attract inward investment.

[Kirsty Blackman]

If, for example, an offshore wind farm is built off the coast of Teesside, rather than off the coast of Aberdeenshire, because of the subsidy regime that is in place, that is, by its very nature, disadvantageous to Aberdeenshire. That is what I am trying to work out here.

I think I get what the Government are intending: they are trying to stop a subsidy race. That is the intention behind the schedule, but I feel that the schedule does not achieve it. I am concerned about how the provision is worded, because any subsidy will be advantageous to one region and not to another, which is the intention behind subsidies. There could be more clarity on that principle so that it achieves what the Government want and does not preclude local authorities, or any other granting authority, from making decisions that will advantage their areas.

[Paul Scully]

Essentially, the framework and the clause minimise, but cannot eliminate, distortion. That is the purpose of the Bill.

[Andrew Bowie]

This is relevant to principle G, which says:

“beneficial effects…should outweigh any negative effects, including…competition or investment within the United Kingdom”.

I cannot see where the hon. Member for Aberdeen North is coming from when she says that more clarity might be good for local authorities and other granting bodies. That is quite clearly addressed in the Bill, so the Government are clearly trying to stop the negative effects she has described.

[Paul Scully]

My hon. Friend makes a good point. The Bill weighs up the benefits versus the disadvantages, and minimises rather than eliminates distortion—we cannot eliminate distortion. We have talked about this a number of times, and we will continue to, but the upcoming guidance will start to flesh out some of the specifics, which it is probably not appropriate to get into now.

[Kirsty Blackman]

Principle G absolutely does help, but it does not fix the problem. Ensuring that the positive effects outweigh the negative effects is good and grand, but comparing a windfarm in Teesside and a windfarm in Aberdeenshire relates to balance rather than the positive effects outweighing the negative. That just encourages the same investment and the same number of jobs in one place in the United Kingdom rather than in another. That is why I am concerned that G does not exactly fix that issue.

Question put and agreed to.

Schedule 1 accordingly agreed to.

Schedule 2

The energy and environment principles

Amendment proposed: 8, in schedule 2, page 52, line 15, at end insert—

“(c) delivering the UK’s net-zero commitments.”—(Seema Malhotra.)

This amendment would ensure that subsidies related to energy and the environment incentivise the beneficiary to help deliver the UK’s net-zero targets.

Question put, That the amendment be made.

Subsidy Control Bill (Fourth sitting)

Paul Scully Excerpts

Thursday 28th October 2021 Public Bill Committees

[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. The schedule lists the additional energy and environmental principles that energy and environment subsidies must be evaluated against, in addition to the subsidy control principles in schedule 1. These common-sense additional principles are designed to ensure, for example, that public authorities consider the need for energy and environment subsidies to achieve reductions in emissions, or otherwise increase the level of environmental protection relative to the lower level achieved without the subsidy. There are also more specific principles in schedule 2, including, for instance, those regarding subsidies for electricity generation adequacy, renewable energy and cogeneration. This schedule is key to complying with our obligations under the trade and co-operation agreement with the European Union, and I commend it to the Committee.

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

It is a pleasure to serve under your chairship, Ms Nokes. I thank the Minister for his remarks on schedule 2. I have no further comments to add—we will be supporting this schedule stand part—other than to allude to the debate we had earlier about making more explicit within the schedule the need to deliver the UK’s net zero commitment, and that subsidies should contribute to that goal. That is an area that I am sure we will come back to when debating later parts of the Bill, but we will support this schedule stand part today.

Schedule 2 agreed to.

Clause 10

Subsidy schemes and streamlined subsidy schemes

--- Later in debate ---

[Robin Millar]

No, I was observing that there is a discussion taking place within the Senedd about the number of Members, and one of the arguments for increasing that number is about improved scrutiny, because having more Members would allow for greater and more effective scrutiny of internal operation, and therefore any decision made, whether on a streamlined subsidy scheme, funding, grants or whatever, would benefit from that extra scrutiny.

[Paul Scully]

Streamlined subsidy schemes have an important role to play in supporting public authorities to deliver well-designed subsidies: subsidies that address market failures but minimise the risk of excessive distortion to competition, investment and trade and that are not subject to mandatory or voluntary referral to the subsidy advice unit under the provisions of chapter 1 or part 4. The Government intend that streamlined subsidy schemes will be a pragmatic means of establishing schemes for commonly awarded subsidies, including in areas of UK strategic priority, that all public authorities in the UK would able to use if they wish. They will therefore function best when they apply across the entire UK. The Government will design them so that they are fit to be used in all parts of the UK. In addition, clause 10 sets out the procedural requirements when making a streamlined subsidy scheme, including the requirement that it is laid before Parliament.

The practical effect of the amendment would be to require devolved Administration Ministers to lay streamlined subsidy schemes before the UK Parliament, both when they are made and if they are modified. The appropriateness of that procedure is questionable, given that devolved Ministers are not directly accountable to the UK Parliament.

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

Can the Minister give an example of a streamlined subsidy scheme?

[Paul Scully]

The streamlined subsidy schemes will be worked up as we come up to the commencement of the Bill, so I will not set out a list of streamlined moots as yet, but they are there for something that is common and not necessarily devolved in particular areas that needs to be rolled out at speed with minimum interruption to the public authorities. The obvious example––it is not necessarily a streamlined moot––in recent years is the grant scheme that we have had in covid, which came under a lot of pressure from having to ask for exemptions within the European Union to get the framework available there, which meant that we could not roll it out to the extent that we wanted to, as quickly as we wanted to.

[Kirsty Blackman]

Does the Minister think it possible that some of the streamlined subsidy schemes that will be made are likely to encroach on devolved areas, even though they are being made for the whole UK? If so, does he believe that when a streamlined subsidy scheme is laid before Parliament it should talk about the consultation that has been held with the devolved Administrations responsible and explain why, if they disagree with the scheme, the Government are going ahead anyway?

[Paul Scully]

Rather than a streamlined scheme encroaching on the devolution settlement, it is important to stress that any public authority in the UK will be free under the Bill to create a subsidy scheme for its own purposes. Schemes have many of the same attributes that streamlined subsidy schemes have in that only the scheme, and not the individual subsidies awarded under it, needs to be assessed under those principles. Schemes offer a similar administratively light touch means of awarding many subsidies that are also open to any and all public authorities, including the devolved Administrations. What we are saying is that the streamlined subsidies are best used when they are available across the UK but schemes are available to the devolved Administrations, to the public authorities and indeed to the UK Government to award. They are more bespoke and tailored. Because of that, I ask the hon. Lady to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his remarks. Perhaps it is something that I have not seen, but could he clarify where it is specified that streamlined subsidy schemes would need to be UK-wide? I could not see it in the legislation.

[Paul Scully]

What I was saying was that streamlined subsidy schemes do not need to be UK-wide. We are not putting that on the face of the Bill. They work best and are more effective when they can be rolled out across the UK, because schemes effectively do a very similar thing. It could be more bespoke and more tailored to a local area, economy or whatever the subsidy relates to.

--- Later in debate ---

[Kirsty Blackman]

Just to come back on what the hon. Member for Thirsk and Malton said, business rates are already devolved in Scotland. We already have a more generous system of allowances. People at the lower end of income, pay or value of properties pay less than they would in England anyway. So we already have that in place. It does not have to come in as part of a subsidy scheme or streamlined subsidy scheme, as far as I am aware.

The hon. Member for Feltham and Heston is correct. The Minister seems to be saying that the schemes will apply across the UK, but nothing in the Bill says that this will apply across the UK for any of the streamlined subsidy schemes that come through. The Government could create a streamlined subsidy scheme that applied only in Blackpool, for example. The fact that it is a streamlined subsidy scheme does not mean that it has to apply across the UK.

I did not get a straight answer from the Minister about devolved competencies. Is it intended that the UK Government will make streamlined subsidy schemes that trespass on areas of devolved competency and apply those across the UK? If that is the case, I am even more concerned about this than I already was. If they are going to do that only in reserved areas, that makes sense, but given the Government’s tendency to reduce the power of the Scottish Parliament and the other devolved Administrations, I am not sure that I have a huge amount of trust in the fact that the streamlined subsidy schemes will not trespass on the devolved areas.

[Paul Scully]

The streamlined schemes are not effectively the most commonly used ones. They are few and far between. The schemes will be far more tailored. They do very similar things and provide similar freedoms in terms of ease of access. A scheme, whether streamlined or not, needs to be assessed against the principles. Every streamlined subsidy scheme will be laid in Parliament after it is made. Any streamlined subsidy scheme that is amended will be laid in Parliament. That will ensure transparency for those schemes. We will publish a number of schemes and lay them before Parliament before the regime is commenced. Public authorities will therefore have sufficient time to understand the parameters of streamlined subsidy schemes before the subsidy control regime commences.

Question put, That the amendment be made.

--- Later in debate ---

[Seema Malhotra]

I beg to move amendment 10, in clause 10, page 6, line 32, at end insert—

“(4A) A streamlined subsidy scheme may be made, in particular, for the purposes of providing support to areas of deprivation.”.

This amendment would clarify that streamlined subsidy schemes may be made for the purposes of supporting areas of deprivation.

I will keep my remarks brief. As I stated earlier, the Bill provides an opportunity to target funding towards areas of deprivation. In our view, that is not made as explicit as it needs to be in the Bill. If we are looking at levelling up, tackling deprivation and equity of outcomes, we would want a streamlined subsidy scheme, in particular for the purposes of providing support to areas of deprivation. We have tabled a similar amendment to schedule 1, but are seeking here to amend subsection (4) of clause 10. The amendment would explicitly clarify that streamlined schemes can be used to support projects to tackle economic deprivation.

[Paul Scully]

As we have heard, the Government intend streamlined subsidy schemes to be a pragmatic means of establishing schemes for commonly awarded subsidies. That includes subsidies in areas of UK strategic priority that all public authorities in the UK will be able to use if they so wish.

The Government are fully supportive of action to assist areas of deprivation and to facilitate the levelling-up agenda. The new domestic subsidy control regime will give authorities the flexibility to deliver subsidies where they are needed to support economic growth, without facing excessive bureaucracy or lengthy pre-approval processes. We will also publish guidance to make clear how the principles should be applied by public authorities when considering subsidies that advance the levelling-up agenda or promote the economic development of relatively disadvantaged areas.

We would not want to pre-empt work to develop the streamlined subsidy schemes by committing here and now to privilege one specific policy objective over all the others in the Bill. In any case, the Bill does not set limits on the policy objectives that a streamlined subsidy scheme can pursue. Seeking to specify particular objectives in the Bill may lead to the power to create streamlined subsidy schemes being interpreted in an unduly narrow way in the future. I therefore ask the hon. Member to withdraw the amendment.

[Seema Malhotra]

I had wanted to press the amendment to a vote, but perhaps I can ask the Minister for further clarification. If, in the further guidance that may be coming on streamlined subsidy schemes, we can return to the question of the objectives and purposes for which those schemes are made, I am happy to withdraw the amendment today and come back to the point in future discussions.

[Paul Scully]

I am grateful to the hon. Member. It is important that we continue to talk about this issue, so I am happy to discuss it further.

[Seema Malhotra]

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]

As we have heard, the clause confirms that public authorities can create a subsidy scheme and that a Minister of the Crown can create a streamlined subsidy scheme. I have talked about the fact that they are a pragmatic means of establishing schemes for commonly awarded subsidies in areas of UK strategic priorities. All public authorities in the UK will be able to use them, if they so wish.

[Seema Malhotra]

I thank the Minister for his comments. In relation to the discussions that we have had, and our concerns about some of the areas under clause 10, I will not be proposing that we vote against it standing part. However, there are concerns. If there were some mechanism or means by which we could abstain, we would seek to do so. There are some big gaps in clarity regarding some of the clause’s powers and what they can be used for, and we would like greater definition and scrutiny.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11

Subsidies and schemes of interest or particular interest

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

I beg to move amendment 11, in clause 11, page 6, line 40, at end insert—

“(1A) Regulations under this section must be made by no later than three months after this Act receives Royal Assent”.

This amendment would require the Secretary of State to make regulations giving the meaning of “subsidy, or subsidy scheme, of interest” and “subsidy, or subsidy scheme, of particular interest” no later than three months following Royal Assent.

I am grateful for the opportunity to move amendment 11. I mentioned earlier that this Bill has many issues when it comes to devolution. We want a four-nation settlement to be integral to how the regime is implemented. It has to have the confidence of the whole nation, and it must deliver sustainable outcomes across the whole of the UK, but Professor Fothergill summarised on Tuesday:

“From the point of the view of the devolved Administrations, for example, the passage of the Bill will still leave them pretty much in the dark as to what they can and cannot do.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 12, Q8.]

Clause 11 highlights yet another devolution issue. It gives the Secretary of State the power to define schemes of interest, and of particular interest, after the Bill receives Royal Assent. How the Secretary of State chooses to define these areas will have a significant effect on the legislation and its implementation. Given the importance of these definitions, could the Minister explain why the Government have not gone further and included them in primary legislation, instead leaving them up to the Secretary of State? Does he not agree that Parliament should have the opportunity to properly scrutinise such significant definitions at this stage of the Bill?

Does the Minister also recognise that it would therefore be of concern to the devolved Administrations to be excluded from the making of these definitions? Daniel Greenberg expressed on Tuesday how the Bill falls short on

“explanation of some of the systems and mechanisms that will inevitably be required to go on underneath the surface in order to reflect the economic competencies of the devolved Administrations”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 60, Q80.]

As I have said, the devolved Administrations have an important role to play in the creation and implementation of subsidies in their respective nations. As such, there is an important part for them to play in the process of defining and setting these significant terms.

[Paul Scully]

As we have heard, amendment 11 would require the Government to make the regulations within three months. The Government fully recognise the importance of establishing clear definitions for the categories in a timely fashion, both to create certainty for public authorities and to set the parameters for the work of the subsidy advice unit.

--- Later in debate ---

[Kirsty Blackman]

To flip that on its head, if the Minister expects and hopes that the regime will be implemented in autumn 2022, will he confirm that he also expects and hopes that the regulations under this clause will be made in advance of the summer recess in 2022 to allow authorities the time to look at them properly and digest them in advance of the scheme coming in?

[Paul Scully]

Clearly, we want to make sure that the regulations go through due parliamentary process and that colleagues have plenty of time to see them, discuss them and scrutinise them. That is absolutely appropriate. We also want to give businesses time to see what is on the horizon, and to give public authorities—those awarding authorities—time to adjust to the new framework.

[Seema Malhotra]

I thank the Minister for his remarks. On the basis that we want to ensure that there is time for scrutiny—and I think he alluded to some assurances that things will move as quickly as possible—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Kirsty Blackman]

I have a couple of points on this amendment, and I want to give it my wholehearted backing. I agree that the devolved Administrations should be consulted on these regulations. I would probably go further and have them not proceed if the devolved Administrations did not agree, but we are where we are.

I am a serving member of the Procedure Committee, and we have discussed this at huge length recently in our report and our look at how the territorial constitution works, and how the devolved Administrations relate. One thing that is brought up regularly is that if the UK Government proceed with something in the absence of legislative consent, there is no clear mechanism for the UK Government to explain to Parliament why the process has happened in advance of legislative consent. For me, it seems like the very least that the UK Government should do if something proceeds without consent.

That is important in relation to legislative consent motions for primary legislation where something trips over into devolved competencies, as we have seen a number of times in recent years. When it comes to these regulations, I think it is really important that the devolved Administrations are in agreement with what happens, because, in the main, they will be guaranteed authorities implementing subsidy schemes in the devolved areas. The Scottish Parliament has authority over the local authorities in Scotland so it will oversee some of their work, particularly when it comes to directing them how to best improve their local areas. If the UK Government are to proceed without the consent of the devolved Administrations, they must come and explain to us why.

I note that the UK Government and Scottish Government, as well as the other Administrations, have regular conversations about how things could go forward, but I feel there is a significant amount of disagreement at the moment in many areas. It would be very good if we could all come to an agreement about what “particular interest” means. If we cannot, I believe that this House should know why the UK Government think that agreement has not been reached, and why they intend to proceed anyway.

[Paul Scully]

Obviously, the Government welcome the devolved Administrations’ ongoing interest in the Bill, and we continue to engage with them on a regular basis. In coming up with this framework, I think we have had at least 34 official-to-official engagements and 10 or so ministerial-to-ministerial engagements with the devolved Administrations. It is important that we continue that spirit of discussion, because we have to set the right definitions for the subsidies of schemes of interest or particular interest.

Having those appropriate definitions is really important to ensure that the subsidy advice unit is focused on the subsidies and schemes that are most likely significantly to distort competition and investment in the UK, or that may do the same to our trade with other countries. It also means, as we have heard, that regulations made under clause 11 may need to be amended quickly in the event that economic conditions change rapidly, for example. A requirement to seek the consent of the devolved Administrations each time the power is used risks introducing significant delays into the process.

[Stephen Kinnock (Aberavon) (Lab)]

I thank the Minister for his comments. As the Institute for Government has made clear in its commentary on the Bill,

“a successful system needs buy-in from all parts of the UK…any regulations should be made in consultation with the devolved administrations…government must take a collaborative approach to writing the regulations that will determine how the system will actually work.”

The Minister has made the argument himself, really. In his opening comments, he rightly praised the work that has already taken place, as well as all the conversations—the 34 official-to-official meetings and the 10 Minister-to-Minister meetings—that are happening. That precedent has already been set, and there is clearly a commitment on all sides for that to continue.

The Minister also made the point about urgency, but surely one month is a reasonable timeframe within which to check and consult that we are on the right course, and, if the Governments are still not in agreement, to proceed as the reasonable compromise in our amendment sets out.

[Paul Scully]

The spirit is certainly there, but I do not want to bind future Administrations to a requirement to respond in emergency situations.

[Andrew Bowie (West Aberdeenshire and Kincardine) (Con)]

I concur with my hon. Friend. We have seen in the past few years—with British Steel, for example—that the Government have had to move incredibly quickly to get subsidies in place. Adding that one-month period could determine the success or failure of such subsidies in supporting a specific UK industry. Time is of the essence.

[Paul Scully]

Absolutely. The Government have determined—as we did in debate on the United Kingdom Internal Market Act 2020—that subsidy control is a reserved matter, so it is right that subsidy control policy is made and voted on in Parliament. Clearly, we must ensure that those schemes are scrutinised, and we will continue to engage with the Scottish and Welsh Governments and the Northern Ireland Executive, as we have done in drafting the Bill and since its introduction. We are committed to engaging with them regularly and listening to their views during the Bill’s passage and beyond. That includes engagement on the definitions of “subsidy, or subsidy scheme, of interest” and “subsidy, or subsidy scheme, of particular interest”. I therefore ask the hon. Member for Feltham and Heston to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. I also thank other hon. Members who have contributed, particularly the hon. Member for Aberdeen North, who brought her expertise and experience from the Procedure Committee to the discussion. That was quite helpful as it highlighted a wider issue about better defining how the House can more effectively support the goals of our devolved Administrations and of Westminster in a more coherent way.

This quite measured amendment would

“require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. Where such consent is not given within one month, the Secretary of State”

can go ahead. The amendment deals with making regulations under the clause, and would ensure that the process was working properly.

--- Later in debate ---

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

[Paul Scully]

The clause will enable the Secretary of State to make secondary legislation to define subsidies or subsidy schemes of interest, or of particular interest. We know that some subsidies are more likely than others to pose a risk of distorting international trade or competition within the UK. International trade disputes, including at World Trade Organisation level, may have arisen in particular sectors. As we heard earlier, that is especially common in sectors of long-standing global over-capacity, such as steel. Subsidies to enterprises operating in sectors that have historically faced a higher proportion of disputes may therefore warrant a proportionately higher level of scrutiny before they are given.

The Bill will establish the mechanisms for the referral of those subsidies and schemes to the subsidy advice unit, but it is important that the Government have some flexibility to modify the criteria over time in response to market conditions or the periodic reviews that will be carried out by the SAU to ascertain how the domestic subsidy control regime is working. Both Houses will have the opportunity to debate any regulations in draft to ensure that the criteria for what constitutes “of interest” or “of particular interest” are robust and capture the right subsidies and schemes for additional scrutiny.

[Seema Malhotra]

I will add nothing further to the comments made during our discussion of the amendments. There are areas that we continue to be concerned about, but we will not oppose the clause standing part.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Application of the subsidy control principles

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

[Paul Scully]

The clause is central to the new subsidy control regime. It will impose a duty on public authorities to consider the subsidy control principles before deciding whether to give an individual subsidy or make a subsidy scheme. A public authority cannot go on to give the subsidy or make the scheme unless they are of the view that it is consistent with those principles. That duty does not apply when a subsidy is given under a scheme. That is because the terms of the scheme must be consistent with the principles themselves, and any subsidies must therefore comply with those terms.

[Seema Malhotra]

I thank the Minister for his comments. This is an important clause, so we obviously support it standing part of the Bill. I seek his view on a couple of points that came up in relation to earlier clauses regarding how a public authority will confirm that the subsidy is in line with the principles—we talked about that in the debates on clauses 3 and 4 standing part of the Bill—and ensure that the quality of information that is then published reflects the consideration process that the public authority went through.

Earlier, the Minister talked about the expectation that public authorities will keep their own records of how they made assessments that the subsidy being provided would not distort competition, and that there were not ways in which it could have been available in the market on more favourable terms, and so on. It is important from a transparency and public confidence point of view that it be clearer how it would need to be demonstrated, or at least confirmed, by the public authority that it had considered the subsidy control principles and what records might need to be kept should there be a concern at a later date.

[Paul Scully]

In the first instance, an interested party can request the public authority to provide information demonstrating how it has complied with the duty under clause 76. Under part 5 of the Bill—

[Seema Malhotra]

I think there will be a further debate to have on the interested parties point. The important thing is what the public authority might be expected to do.

[Paul Scully]

Absolutely. I was going to say that the interested party can, obviously, make a challenge—commence a judicial review of the decision. The duty to consider and act consistently with the principles does leave room for legitimate judgment by public authorities.

On the question of what standard will be applied when looking at that, should it be judicially reviewed, the Competition Appeal Tribunal will apply the judicial review standard when hearing challenges. None the less, the guidance that is going to be published will provide advice on the practical application of provisions, including the duty to consider and act consistently with the subsidy control principles. That guidance will be published in good time for public authorities and other stakeholders to understand the key requirements of the new regime before it commences.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Application of the energy and environment principles

[Kirsty Blackman]

I beg to move amendment 17, in clause 13, page 7, line 30, leave out

“in relation to energy and environment”.

This amendment would require public authorities to consider energy and environment principles when giving any subsidies, not just those related to energy and environment.

The reason I tabled the amendment is something that we covered earlier today in relation particularly to net zero and thinking about the obligations that we all have to ensure the protection of the environment. I think it is really important, as the Minister agreed earlier today, that in every policy decision that is being made by every authority, whether it is granting a subsidy or doing anything else, those authorities are considering the environmental principles of that decision.

This proposal would ensure that consideration was given to the energy and environment principles in schedule 2 in relation to every subsidy that was given. That is not too much for us to ask of granting authorities. They are giving subsidies, and we have to remember that the subsidies they are giving represent significant amounts of money. We are talking about hundreds of thousands of pounds; we are not talking about when a local authority gives a grant of 100 quid to a small community council to put up Christmas lights. As we are talking about big sums of money, it is totally reasonable that we expect these public authorities—which do anyway a huge amount of audit, and a huge amount of sense checking of any spend that they do and consideration of any spend that they do— to think about all that spend. They should do so not just in relation to subsidies, but in relation to the energy and environment principles.

I probably would have written schedule 2 slightly differently. I maybe would have had slightly different energy and environment principles, including the Opposition’s suggestions around net zero, but given that those are in the Bill and that schedule 2 is in the Bill, it is totally reasonable for us to say that those authorities should consider the energy and environment in everything they do. That is not explicit or even implicit in schedule 1, in terms of the concerns that authorities have to look at with regard to the principles there. This is hugely important.

--- Later in debate ---

[Seema Malhotra]

I thank the hon. Lady for her explanation of the amendment. We certainly recognise the intention behind it, which was something we looked at and gave thought to. We share the view that climate and environmental considerations should be taken into account in assessing all subsidies, and ensuring that all subsidies are assessed in the context of the UK’s net zero commitments is important. That is a real gap in the Bill—for example, transport subsidies might sit outside the scope of schedule 2, and therefore a public authority might not be required to consider the environmental questions and impact relating to those.

Labour believes that hardwiring the net zero considerations into all subsidy decisions would be better achieved by amending schedule 1, as our amendment would have done. I hope that as we proceed with our debates in the House and the period of COP26, which is just ahead of us, we can return to how we embed that principle in the legislation. These are principles of general relevance, so that is where we see a general requirement to consider net zero sitting a little more comfortably. That is why, while we support the intention behind the amendment, we would prefer to reconsider how we look at embedding the general principle of net zero more widely in the legislation.

[Paul Scully]

I remind hon. Members that the principles in schedule 2 include general matters such as requiring energy and environmental subsidies to be aimed at, or to incentivise the beneficiary in, delivering a secure, affordable, sustainable energy system, or to increase the level of environmental protection relative to that which would have been achieved in the absence of the subsidy. The schedule also includes a number of more specific principles, covering for example the decarbonisation of emissions linked to industrial activities or subsidies to electricity-intensive users to compensate for rises in electricity costs.

While I recognise the commitment shown by the hon. Member for Aberdeen North to our transition to net zero—subsidies that are correctly devised, designed and targeted can be a powerful means to achieve that—public authorities grant subsidies for many reasons and in connection with many policy objectives.

[Kevin Hollinrake]

The UK is pretty much a world leader in tackling climate change, second only to Sweden in the Climate Change Performance Index. We must look at this question in the context of what the United Kingdom does, rather than something so specific. Would not the amendment effectively open the door to a lot of judicial challenges on whether subsidies were always in the interest of energy and the environment? Is that not opening the door to a lot of problems in the granting of subsidies?

[Paul Scully]

It might be. Whether there would be a slew of judicial reviews remains to be seen, but certainly, there is a question whether subsidies for other policy objectives would be awarded in the first place, because it would be too onerous to do so. Let me take the example of subsidies for training young people. There are some valuable economic and societal purposes there, but depending on what we are training the young people for, they do not always necessarily have much connection to the energy and environmental principles.

Expanding the principles in schedule 2 to include all subsidies may discourage public authorities from granting subsidies in pursuit of otherwise valuable aims. We do not want that to happen. The additional principles in schedule 2, which apply to energy and environmental subsidies and to subsidy schemes, fully support the UK’s priorities on both net zero and protecting the environment. I want to ensure, particularly given this morning’s discussion and the fact that we are in the lead up to COP26, that we are championing those priorities and continuing to lean in and show global leadership from the front. In this instance, owing to the reasons I have set out, I ask the hon. Lady to withdraw the amendment.

[Kirsty Blackman]

I thank the Minister, the Opposition and the hon. Member for Thirsk and Malton for their comments. I agree that this amendment is not the best possible way of achieving our aim, and that other amendments moved this morning—particularly the amendment to schedule 1—would be a better way to go about embedding net zero in our commitments. Unfortunately, the will of the Committee was tested this morning, and schedule 1 went unamended. Hopefully it will be amended on Report, or the Government may choose to change it to include net zero commitments in the principles, but this is where we are in the absence of them doing so.

If we are talking about subsidies to get young people into employment, every local authority, or whoever is granting the subsidy, should ensure that they do so in a way that does not take us away from our net zero targets. That should be part of the decision-making process for every decision we make, whether it is about training young people or building an offshore wind farm. My concern, which was raised by the Opposition this morning, is that that is not embedded in everything the UK Government are doing, and it should be. I tabled this amendment because net zero should run through everything that everybody does, but 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 establishes that public authorities granting energy and environment subsidies, or establishing schemes to award such subsidies, must assess them against the additional principles in schedule 2.

[Seema Malhotra]

We support clause 13.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Introductory

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

[Paul Scully]

The clause sets out the purpose in general terms of chapter 2 of part 2 of the Bill, which prohibits several categories of subsidy from being given and establishes requirements on the giving of other categories of subsidy.

[Seema Malhotra]

We support clause 14.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Unlimited guarantees

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

--- Later in debate ---

[Paul Scully]

If the Committee will bear with me—

[The Chair]

I will try to move more slowly.

[Paul Scully]

The notes for clause 15 stand part are not in my pack but fortunately, because of technology, which does not require a subsidy, I can tell the Committee that the clause prohibits subsidies in the form of unlimited guarantees of an enterprise’s debts or liabilities if this guarantee is either unlimited in monetary terms or in its duration.

[Seema Malhotra]

I understand that the clause, as the Minister describes, provides that an unlimited guarantee for the debts or liabilities of an enterprise is prohibited. That does, as I understand it, reflect the commitments in article 12.7 of the UK-Japan comprehensive economic partnership agreement on subsidies, and article 367 of the EU-UK trade and co-operation agreement. Perhaps the Minister could confirm that these commitments are rolled over from the EU and Japan agreements.

[Paul Scully]

As I said, the clause ensures that we continue to comply with our international obligations, which have included those prohibitions on unlimited guarantees for many years.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clause 16

Export performance

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

[Paul Scully]

We are back to old-fashioned analogue for this part of the Bill Committee. The clause prohibits subsidies that are contingent, whether in law or in fact, on export performance. It permits two types of subsidies to be given for export credit support, including short-term export credit insurance for non-marketable risks, and an export credit, an export credit guarantee or an insurance programme as permitted by the agreement on subsidies and countervailing measures. It also defines key terms and specifies a list of marketable risk countries.

[Kirsty Blackman]

I have a quick question on subsection (7), which says that a direction given under subsections (4) or (6) must “be laid before Parliament” and

“be published in whatever manner the Secretary of State considers appropriate.”

It makes sense that it is laid before Parliament. I am not sure what that means, although I probably should. Does it mean that a written statement on the changes is laid before Parliament? Do the words

“be published in whatever manner the Secretary of State considers appropriate”

mean that it will be published for the public or for granting authorities to see? What method does the Minister think might be considered appropriate? Are we talking about putting it on gov.uk, for example, or about writing to organisations to let them know why the changes have happened?

--- Later in debate ---

[Paul Scully]

The clause basically allows the Secretary of State to give a direction to amend the list in order to respond to any changes in market conditions. That direction must be laid before Parliament and published.

[Kirsty Blackman]

Specifically on that point, if the Minister does not mind, does “laid before Parliament” mean a written statement or does it mean regulation? I am confused. If he does not have an answer, I would be happy to speak to him later.

[Paul Scully]

I will write to the hon. Lady.

[Kirsty Blackman]

Specifically on the words “must be published”, I would be keen to know how the Government might publish the direction. I am not asking the Minister to tie himself down, but I want clarity that it will be published in such a way that those who are affected by it are likely to see it, rather than it being hidden away somewhere in the back of gov.uk, where they would not trip across it unless by accident.

[Paul Scully]

I will clarify that, but there is no purpose in hiding it. We want to give certainty to businesses and the public authorities.

[Seema Malhotra]

I thank the Minister for his comments. It is quite a long clause. It does not appear to be one that we need to raise real concerns about today, but I would like to raise some points of clarification, because the question is whether there is anything deeper in there that could have other implications.

According to the notes, the clause establishes

“rules around subsidies for goods and services designed to be contingent, whether in law or in fact, on export performance”

which may include, for instance,

“subsidies to cover the price difference between domestic market prices and international market prices. Subsidies of this kind are prohibited unless specific conditions or terms are met, in line with the UK’s international obligations under”

various other pieces of legislation such as the TCA. The clause establishes that

“short-term export credit support, where this support is not in the form of support for marketable risk for buyers in marketable risk countries… is not prohibited.”

In the light of some of the circumstances we are seeing in relation to differences in domestic prices and international market prices, I would be grateful for greater clarity on what the overall clause is there to achieve and whether it will work in the interests of businesses in the UK and support of them.

[Paul Scully]

The significant distortive effect of export subsidies on our international trade has been recognised for many years, so except for certain types of export credit, export performance subsidies for goods are prohibited under the World Trade Organisation’s agreement on subsidies and countervailing measures. This Bill obviously complies with that agreement.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17

Use of domestic goods or services

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

[Paul Scully]

Clause 17 prohibits subsidies that are contingent on the recipient using domestic goods or services over imported goods or services. Such subsidies are generally known as local content subsidies, and since they benefit domestic businesses, they are generally regarded as being distortive to trade and therefore often result in inefficient outcomes for consumers. Again, local content subsidies for goods are prohibited under the World Trade Organisation’s agreement on subsidies and countervailing measures.

Subsidies to the audio-visual sector are exempt from that prohibition: it may sometimes be appropriate to give subsidies to that sector that require local content, in light of its contribution to our nation’s cultural objectives. That approach is in line with our international obligations and reflects the approach taken by many of our trading partners, including Canada and New Zealand.

Subsection (3) clarifies that certain types of subsidies should not be considered local content subsidies—for example, when the Government incentivise an enterprise that is not currently based here to locate production in the UK, or to train or employ workers in the UK.

The clause facilitates our international obligations under the terms of the trade and co-operation agreement with the European Union and as a member of the World Trade Organisation, and I commend it to the Committee.

[Seema Malhotra]

We support clause 17 standing part of the Bill.

--- Later in debate ---

[Kirsty Blackman]

The concerns I raised on principle F of schedule 1 are very similar to the ones being raised here. The Government have an intention here, but the clause will not achieve that intention; it is also too restrictive.

I love this amendment; it feels hugely cheeky. I know it is very serious, but I love the way it is drafted—how sad is that?—and I quite like the way both issues are put together in the same amendment. It makes sense that this measure is included alongside the amendments moved earlier by the Opposition on areas of deprivation. There is also the freeport element. The clause basically rules out freeports and the way the Government have explained they are intended to work, which is massively concerning if that is the Government’s plan.

If, for example, a Government Department was to relocate from Whitehall to Salford—I cannot think which Department might be doing that—and if there is going to be some sort of incentive for them to do that, that relocation would be prohibited. Surely that is something that the Government want; if they did not want it, they would not be doing it. They want Government Departments to be able to relocate to places outside Whitehall and to bring jobs to those areas. I am glad they are doing that, but it now would not be able to provide any subsidies for that to happen. That does not make sense.

If the Government’s stated aim and objective is to try to level up places to ensure more jobs, there is going to have to be some level of relocation. That is going to have to happen. We are going to end up in a situation where the Department for Business, Energy and Industrial Strategy does not have 400 staff here and has 400 staff in Salford instead. Surely that is a good thing, rather than a bad one. It would be helpful if the Government could clarify what is meant here.

I agree with the amendment. I agree with the report. We covered areas of deprivation this morning. The freeport thing, however, is unsolvable unless the Government provide us with more information, whether by the Minister explaining, changes being tabled for future iterations of the Bill—perhaps on Report—or the report asked for by the Opposition being provided.

[Paul Scully]

I shall cover a few of the points raised. To take the example of a local authority wanting to incentivise a business to move back to its high street or something like that, the Bill would not prevent local authorities from offering subsidies to support regeneration.

As for what constitutes an “area” in the relocation prohibition, it is not a defined term in the Bill. Public authorities will therefore have to apply common sense in their interpretation. The objective is to prevent the relocation of all, or part of, existing economic activity between different areas of the UK, but there will be circumstances in which relocation within an area may occur. For example, where a business has an existing presence in a region and moves within that region, it is unlikely to engage the prohibition. Again, that will come in guidance.

[Seema Malhotra]

The Minister might say that that will come in guidance, but the scenario that he just outlined does not seem to be consistent with the wording of the clause. Even if the local authority was to agree a move from one end of its area into a high street, and even if all the existing economic activity was relocated, that would not have occurred but for the giving of the subsidy. Activity would be carried on in an area of the United Kingdom different from where it was before. Will the Minister reflect on that? It might be helpful to read that again, even against the scenario he just outlined.

[Paul Scully]

The regenerative example that I gave would fit, but it will be fleshed out in guidance. Let me come to freeports quickly, because that issue complies with the principles and prohibitions set out in the Bill, including in the clause.

When designating freeports, bidders are required to explain how their choice of tax site locations minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. The focus of freeports, however, is to encourage new investment and to create new businesses and jobs, rather than harmful displacement, so tax sites will be designated only once the mitigation of displacement and other factors have been demonstrated by the successful bidder in its tax site. We are confident that the risk of harmful displacement has been minimised.

In summary, the subsidies will not be conditional on the relocation of existing economic activities.

[Kirsty Blackman]

The Minister has made a good case on subsidies for the purpose of regeneration, but that is not stated in the clause. At no point is it stated that the regenerative ideals or decisions to produce regeneration in an area trump the clause.

[Paul Scully]

I said that the clause does not prevent local authorities from offering subsidies to support regeneration. None the less, we will supply more support through guidance, because we want to give public authorities the confidence to apply subsidies in that scenario and similar ones.

The purpose of the clause overall is to prohibit wasteful subsidies that serve only to poach economic activity from one area to another. I must say, the ears of the good people of Guildford must be burning after their third mention in a couple of days—

[Bill Esterson (Sefton Central) (Lab)]

What about the good people of Mayfair?

[Paul Scully]

As Minister for London, I do not think that this is aimed at the good people of Mayfair.

We do not want to prevent levelling-up subsidies that attract investment to disadvantaged areas. The clause achieves that by prohibiting subsidies that explicitly require enterprises to relocate existing economic activities from one area of the UK to another, where that relocation would not have occurred without the subsidy. We have said that. The amendment, however, risks delaying the commencement of the clause, which might allow subsidies to be granted that could poach economic activity from disadvantaged areas.

[Stephen Kinnock]

I have a brief question. Why would the Government not want to make it a condition? Either the Bill is an empty vessel that will just regulate certain activities or it has a public policy objective. Schedule 1 clearly states that public authorities must explain and assess the policy objective behind the subsidy.

If the policy objective of the Bill is levelling up, why would the Government sometimes not want to actually give public authorities the opportunity and ability to make it a condition of a subsidy for an entity to relocate to another part of the country that will benefit from the investment? I can understand that sometimes it should not happen and sometimes it should, but amendment 18 offers a more nuanced position where it can be explicitly said, “For reasons of levelling up, we are driven by this policy objective and we want the opportunity to incentivise accordingly.”

[Paul Scully]

Basically because this is a framework Bill. The policy objective of the Bill specifically is not levelling up. It enables levelling up through the framework, but it is the spending and subsidy themselves that are the policy objectives we are talking about. That is why schedule 1 refers to having to explain those policy objectives. Ultimately, this is a framework Bill that allows a permissive approach to subsidy, rather than the opposite—the state aid regime that we had when we were a member of the EU. The Government are fully committed to making sure that the UK subsidy control regime does support disadvantaged areas and facilitates the levelling-up agenda.

As part of the broader consideration that public authorities are required to undertake when assessing a subsidy, the subsidy has to be compliant with the principles within the Bill, and the wider impacts of the subsidy on competition and investments in other parts of the UK must be taken into account. We will publish guidance to make clear how this requirement should be applied by public authorities when considering subsidies that advance the levelling-up agenda or promote the economic development of relatively disadvantaged areas.

I welcome the interest in freeports, which are one of the Government’s flagship programmes to support levelling up and economic recovery. They are there to encourage new investment and create new businesses. The freeports offer follows the subsidy control principles set out in the Bill. They are an example of the UK Government levelling up economic growth across the UK—a strategic interest, which the domestic regime has been designed to reflect.

[Kevin Hollinrake]

On the Minister’s earlier point about technology needing subsidy, actually touchscreens, GPS and the internet were all developed initially through public funding, both in the US and the UK. Is the clause not trying to prevent companies from gaming the system by trying to pit one local authority or area of the country against another through a bidding race to bring their jobs to a certain part of the country?

[Paul Scully]

That is exactly right. Look at subsidy control regimes around the world. Witnesses in the evidence sessions focused on America and the subsidy race between various states, which is exactly what we are trying to avoid through this sensible and proportionate measure. Accordingly, we believe that requiring the Secretary of State to report to Parliament on clause 18’s consistency with the Government’s strategic priorities to do with supporting deprived areas and freeports is not necessary. The new UK domestic regime is designed to ensure that disadvantaged areas have maximum freedom and reassurance to receive levelling-up subsidies that best suit the characteristics of the area. I request that the amendment be withdrawn.

[Bill Esterson]

It is great to see you back in the Chair, Ms Nokes.

Clause 18 is crystal clear about preventing the use of subsidies to enable businesses to move from one location within the UK to another. The example of the high street is crystal clear, as is the example of the freeports. I will come back to the point about promoting new investment in freeports shortly.

The Minister talked about issuing guidance to go with the provision. That is the way the legislation has been crafted, which I think we can all understand. However, guidance will always be open to interpretation, and what takes priority? Is it the primary legislation—the very clear statement set out in clause 18 that a subsidy is prohibited if

“the relocation of those activities would not occur but for the giving of the subsidy”?

How is that overcome by the guidance? That is the point that all Opposition Members who have spoken have tried to get to, whether with the example of the regeneration of high streets or that of freeports.

The Minister talked about the justification for freeports and the support that the Government have given. My hon. Friend the Member for Feltham and Heston made the point that freeports were not part of the consultation for the legislation, and they are ruled out by the clause. It could not be much clearer.

On the point about freeports being just about new investment, the evidence base—the report published by the UK Trade Policy Observatory, and the commentary by Adam Marshall when he was director general of the British Chambers of Commerce—shows all too clearly that they are exactly about relocation and displacement, and all the things that the Minister said that they should not be about. His point that they do not deliver displacement from one deprived area to another is undermined by the evidence base provided by the UKTPO and the British Chambers of Commerce.

I am afraid that we have not had an adequate answer from the Minister on how all those circles will be squared, and how the primary legislation of clause 18, which he wants to go through unamended, will not override attempts to use subsidies to support local areas in the examples that we have given him and that he says we should not worry about. I am afraid it comes back to a point that we have made a number of times, and will continue to make, I suspect, through the Committee’s deliberations: specific statements need to be added to the Bill to provide reassurance and to make the framework a much more workable system of subsidy.

Without that, things will be left wide open. As much as the Minister defends the Government’s freeport policy, notwithstanding the analysis that I have given from those experts, and claims that local authorities will be able to sort their high streets, and despite his response to my hon. Friend the Member for Aberavon about supporting more deprived areas otherwise, I am afraid that without additional content going in at this stage, or on Report, or in the House of Lords, we will be left in a position where the framework will leave awarding bodies open to judicial review because of the uncertainty and the contradiction that will almost inevitably be left in place between the primary legislation of clause 18 and whatever he puts in guidance.

--- Later in debate ---

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

[Paul Scully]

As we have heard, clause 18 prohibits subsidies that explicitly require enterprises to relocate economic activities from one area of the UK to another, where this relocation would not have occurred without the subsidy. I should say that the purpose of the provision is only to prevent subsidies that are explicitly contingent on a relocation—in other words, that the business ceases its economic activities in the previous area. We believe that the approach strikes the right balance: it prohibits some of the most potentially harmful subsidies without preventing levelling-up subsidies that attract investment to disadvantaged areas.

[Seema Malhotra]

I thank the Minister for his comments. He has our concerns on the record. We will not oppose the clause, but I think this is an important area. Perhaps I will write to the Minister about this, which I hope will help to make sure the provision is as positive as it can be for the purposes of the Bill.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Rescuing

--- Later in debate ---

[Bill Esterson]

Thank you, Ms Nokes. That intervention rather makes the point that I was making in the previous debate about the need for definition in the Bill around what we mean by various terms and the need to avoid leaving things open to chance in guidance and interpretation. I take the hon. Gentleman’s point, but this is why we need a bit more clarity in primary legislation.

Continuing with the steel industry, not least because we took evidence from UK Steel, if some support is not given in the short term to the UK steel sector to support its decarbonisation and reduce the massive energy costs associated with the industry, we could soon see steel, which is a vital strategic industry for the UK, facing imminent threat. I do not think anybody disagrees on the strategic importance of the steel industry at a national level.

In the evidence sessions, Richard Warren spoke about the costs of renewables and carbon taxes in relation to electricity prices:

“The UK steel sector pays between 80% and 100% more for its electricity than its counterparts in the EU. Those exemptions have reduced our electricity prices. There is a still a big gap, but they are really important to improving competitiveness in the UK.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 50, Q72.]

He made the point that it was in the national interest to support the industry. He said:

“Net zero or low-carbon forms of steel production will add anything from 30% to 50% to the costs of steel production”.

On the cost of steel production, he said:

“If other countries are not moving at precisely the same speed or putting the same constraints on their industries, you will need some sort of intervention to correct that market failure.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 57, Q77.]

That is why we think there is a very strong case for putting this provision into primary legislation.

More widely on the issue of net zero, this point is backed up by the written evidence from the Institute for Government, which says that it is

“sensible to require some additional process to ensure that the subsidy is designed well.”

That was in relation to major infrastructure that could contribute towards net zero. That is what our amendments are trying to achieve, and it is why we think they are so important.

Anything that is in the national interest or the interests of national security demands an additional level of support and attention, including attention to the way it is worded. Again, I am afraid we come back to the point that not having this set out in primary legislation creates weaknesses, and leaves the prospect of challenge and of the regime not operating as well as it should.

[Paul Scully]

As we have heard, amendment 14 relates to clause 19. The Bill provides that in order to give either a rescuing or a restructuring subsidy, the public authority giving that subsidy must be satisfied either that it contributes to the objective of the public interest by

“avoiding social hardship or preventing a severe market failure”,

or that there are

“exceptional circumstances that justify the subsidy”

despite that test not being met. The amendments would specify that those exceptional circumstances would include the protection of critical national infrastructure, industries of strategic national importance and, in the case of amendment 15, national security.

I fully agree that public authorities should be allowed to grant necessary and appropriate rescue and restructuring subsidies in order to protect critical national infrastructure, national security, and industries of strategic national importance. I am therefore pleased to be able to provide reassurance to the hon. Member that, as it stands, the Bill does so. The reasons are twofold: first, clause 45 contains a general exemption from all subsidy control requirements for the giving of a subsidy with the purpose of national security. Secondly, the conditions set out in clauses 19 and 20 will allow for rescue and restructure subsidies in order to protect critical national infrastructure and industries of strategic national importance. In my view, many hypothetical rescue and restructure subsidies for those purposes could in principle meet the first test in clause 19(4)(a) and clause 20(5)(a) of being in the public interest by

“avoiding social hardship or preventing a severe market failure”.

Where that condition is not met on the facts, but there are other exceptional circumstances in play, clauses 19(4)(b) and 20(5)(b) already provide for exactly that situation, so it is not necessary to attempt an exhaustive list of potential exceptional circumstances that could be relevant to the clause. That would risk unduly influencing public authority behaviour. On the one hand, it risks encouraging inappropriate rescue and restructure subsidies in circumstances that are not genuinely exceptional on the facts, and where they could have excessive harmful effects on domestic competition. On the other hand, it could discourage the use of rescue and restructure subsidies in circumstances that are genuinely exceptional and merit such interventions, but are not specifically listed in the Bill.

The purpose of clauses 19 and 20 is to prevent aimless bail-outs of failing enterprises, while allowing public authorities to provide temporary rescue support for enterprises that it is in the public interest to rescue and restructure. Those subsidies should not be undertaken lightly, in order to maintain a competitive free-market economy and facilitate compliance with our international obligations, including those in the TCA with the EU. As such, I ask the hon. Member to withdraw his amendment.

[Bill Esterson]

I am grateful to the Minister for drawing the Committee’s attention to where the points covered by our amendments exist elsewhere in the Bill. I have reservations about the strength of those clauses, which I explained in my speech and will not revisit, but there is reference to the protection of national security in the Bill. Whether it is adequate, time will tell. I know that the Minister or a member of his team will bring these measures forward in secondary legislation. We think they are better in primary legislation and that there should be more detail at this stage, but we accept the assurances the Minister has given, and we will not push the amendment to a vote. 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 prohibits rescue subsidies to ailing or insolvent enterprises unless the three specific conditions are met: there must be a credible restructuring plan, the subsidy must be limited to temporary liquidity support, and it must be in the public interest, unless there are exceptional circumstances.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20

Restructuring

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

[Paul Scully]

The clause prohibits restructuring subsidies to ailing or insolvent enterprises unless four specific conditions are met. This clause does not apply to deposit takers or insurance companies. Again, the enterprise must have prepared a restructuring plan and, unless there are exceptional circumstances, a restructuring subsidy must only be offered if it is in the public interest. Restructuring subsidies can only be given to enterprises that are small or medium-sized, and they must also be contingent on an enterprise’s not having received a restructuring subsidy before, or five years having passed since it did, although there are exceptions to that.

[Bill Esterson]

The Opposition do not oppose this clause.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Clause 21

Restructuring deposit takers or insurance companies

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

[Paul Scully]

The clause sets out specific conditions for subsidies for the purpose of restructuring ailing or insolvent deposit takers or insurance companies.

[Bill Esterson]

The fact that subsidies should not be given to ailing or insolvent banks, insurance companies or other deposit takers unless certain conditions are met, such as that the subsidy is given on the basis of a restructuring plan that is likely to restore long-term viability, is an eminently sensible measure that we are content to see in the Bill. We also recognise that such companies should receive subsidies only when they have contributed to their restructuring costs from their own resources. We are pleased to see the clause included in the Bill. There are some concerns relating to this clause that I will come to in clause 24, but I think they are better dealt with there.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Liquidating deposit takers or insurance companies

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

[Paul Scully]

The clause prohibits subsidies for insolvent deposit takers or insurance companies that are unable to demonstrate credibly that they can be restored to long-term viability, unless they are able to satisfy specific conditions.

[Bill Esterson]

We are happy to support clause 22.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.

Clause 23

Liquidity provision for deposit takers or insurance companies

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

[Paul Scully]

The clause sets out specific conditions for subsidies that are for the purpose of supporting liquidity provisions to ailing or insolvent deposit takers or insurance companies.

[Bill Esterson]

We support clause 23.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24

Meaning of “ailing or insolvent”

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

[Paul Scully]

The clause defines “ailing or insolvent” in relation to the giving of rescue and recovery subsidies to deposit takers, insurance companies and enterprises. The definition of ailing or insolvent in this Bill incorporates both domestic and international terminology. It combines the existing concept of insolvency in UK law with the wider concept of ailing or insolvent agreed in the TCA. The definition is compliant with our international commitments and has a strong basis in British law. Subsections (1)(b) and (c) use the existing insolvency test in the Insolvency Act 1986. Subsection 1(a) uses the TCA definition of “ailing or insolvent”. An enterprise being unable to pay its debts or the value of its assets being less than its liabilities are British tests for declaring an enterprise “insolvent”. Subsection 1(a) builds on this by extending the tests to include enterprises that are “ailing or insolvent”—those which would go out of business in the short to medium term without subsidies.

Subsection (2) allows the Secretary of State to make regulations on what is meant by

“would almost certainly go out of business in the short to medium term without subsidies”.

While the definition of “insolvency” reflects existing domestic law, “ailing” has no such domestic definition. A narrow power such as this allows the Secretary of State to make further provision on the meaning of ailing, should that be necessary.

[Bill Esterson]

We recognise the importance of clauses 21 to 27. We have some questions about the definitions of “ailing” and “insolvent”. The definitions of those terms in the Bill are arguably more demanding than those under EU state aid rules, which require an enterprise to be almost certain to go out of business in the short or medium term, and to be unable to pay its debts as they fall due; also, the value of its assets must be less than the amount of its liabilities. Why have the Government chosen broader definitions for ailing and insolvent enterprises than those in the regime that is being replaced?

Alexander Rose from DWF raised concerns that these broader definitions risk harming tech and research-and-development heavy start-ups because they require significant expenditure before they start making profits. As I am sure many Members will know, that can be months, if not years. Can the Minister explain what consideration has been given to these broader definitions where they relate to start-ups that are capital-intensive for significant periods before profits are made? What are the Government going to do with the regime to ensure that start-ups are not harmed by the legislation? I am sure that the Minister agrees that it is sensible to support our innovators and to allow them to take the time to become profitable. It will be interesting to see how he intends to do it. We need to be competitive internationally, which is crucial for an export-led recovery.

The same point applies to scale-ups, a point Rolls-Royce made in its written evidence. It has that concern about start-ups, and quoted some case law from the Supreme Court saying that courts should be careful not to leap to conclusions when asked to apply the test about insolvency, and that allowance should be made for debts when the maturity date is some time in the distance. Is the difference between liabilities that are due in the short term and long-term liabilities and debts picked up in the primary legislation? How is the Minister planning to ensure that a distinction is made between short-term and long-term liabilities?

Interestingly, Rolls-Royce made the point about national security, going back to our earlier debate. In addition to mentioning what we raised before, it asked about dual use. What is the Government’s plan on subsidies where dual use includes national security investment and non-national security investment, which is common in areas such as aerospace?

[Paul Scully]

The Bill is clear that an ailing or insolvent enterprise is one that would almost go out of business in the short to medium term without subsidies. Importantly, this definition applies only to the giving of rescue and recovery subsidies. I hope my opening remarks help the hon. Gentleman’s understanding of where we go in some of the definitions. Just to repeat: subsection (2) allows the Secretary of State to make regulations on what is meant by

“would almost certainly go out of business in the short to medium term without subsidies”.

While the definition of insolvency reflects existing domestic law, “ailing” has no such domestic definition. Therefore, there is allowance for the Secretary of State to make further provision on the meaning of “ailing”, should that be necessary. We went down that route because the EU’s “undertaking in difficulty” test is disliked by stakeholders, is highly prescriptive and in some cases prevented the giving of subsidies to viable businesses with a longer route to market and profitability. These were businesses such as medical technology firms and start-ups. The definition that we are using has a much more restricted application, but where it does apply it provides greater flexibility while also preventing the use of subsidies to bail out unsustainable companies.

The hon. Gentleman talked about national security exemptions as well. We are going to get on to—

[Bill Esterson]

Before the Minister moves on, I want to tie down the difference between short-term and long-term liabilities. From my dim and distant accountancy past, there seems to me to be quite a good definition for this from insolvency legislation—from memory. We may have other accountants with us who can confirm or deny that. Does the hon. Gentleman know that that is the kind of distinction that the Secretary of State is likely to make in regulation?

--- Later in debate ---

[Paul Scully]

Largely, we want to use insolvency legislation where it stands, so that will be the starting point of any discussion. Hopefully that has answered that point.

To respond to the security issues that the hon. Gentleman raised, the provisions in clause 45, we will get to, safeguard the UK genuine national security in a way that is fully compliant with our international obligations, including the TCA. It is obviously customary for countries, in international agreements such as free trade agreements, to reserve their right to protect their valid security interests. However, we are going to exercise that properly, and only when there is a genuine national security interest at stake that requires such protection; it cannot be used to seek an economic advantage alone.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.

Clause 25

Meaning of “deposit taker”

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

[Paul Scully]

This clause defines the meaning of “deposit taker” for the purposes of clauses 19 to 24 of this Bill.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Meaning of “insurance company”

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

[Paul Scully]

This clause defines the meaning of “insurance company” for the purposes of clauses 19 to 24 of this Bill. The clause also makes it clear that the meaning of “insurance company” may be amended in future by the Treasury by the affirmative procedure, provided that both the Financial Conduct Authority and Prudential Regulation Authority are consulted in advance.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Clause 27

Subsidies for insurers that provide export credit insurance

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

[Paul Scully]

This clause permits subsidies to be given to insurers that provide export credit insurance where two conditions are met. Subsidies that do not meet these conditions are prohibited. These are that an insurer providing export credit insurance for marketable risk countries must provide the insurance on a commercial basis, and that the subsidy is not used to directly or indirectly benefit any of the recipient’s marketable risk insurance business.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of Bill.

Clause 28

Subsidies for air carriers for the operation of routes

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

[Paul Scully]

The clause establishes conditions on subsidies granted to air carriers for the operation of routes. Subsidies not meeting one of those conditions are prohibited by the clause.

[Bill Esterson]

We recognise that subsidies to an air carrier for the operation of a route should be prohibited unless certain conditions are met, and those conditions are listed. I cannot help noting the irony of the reduction in taxes on travel for short-haul flights, and the fact that one can get a ticket from London to Glasgow for COP26 for £45 on the railway and it is about £145 to fly. That is possibly going slightly beyond the scope, other than to say that again this is not consistent with what the Minister said earlier about the intention of travel, so to speak, on moving towards net zero.

--- Later in debate ---

[Bill Esterson]

Yes, there is the irony that the Government are requiring delegates to COP26 to show their method of travel to the conference. I hope that we will see subsidies supporting rail travel. In my constituency, I have been long campaigning for a rail link from the port of Liverpool rather than a new road, and in the run-up to COP26 that would make sense, rather than concentrating on air travel. There is a serious point that we need to use the subsidies to support rail and low-carbon transport, and reduce the reliance on, and support that the Budget gave for, air travel.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Services of public economic interest

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

[Paul Scully]

The clause sets out the requirements for giving subsidies for services of public economic interest.

[Seema Malhotra]

I thank the Minister for his remarks on clause 29. Similarly to EU provisions on support to services of general economic interest, the clause relates to enterprises that are assigned with a particular task in the public interest. We recognise why the clause is needed, to outline the regulations for subsidies given to SPEIs. Labour recognises that SPEIs differ from enterprises that may normally receive subsidies, and accepts that different regulations should therefore apply to subsidies given to SPEIs. We support the regulations under clause 29. It may be important to note that we do not support the exceptions given to SPEIs under clauses 38 and 41, but that will be discussed at a later date.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Effect of prohibitions etc in relation to subsidy schemes

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

[Paul Scully]

The clause sets out how the prohibitions and other requirements in this chapter apply in relation to subsidy schemes. It ensures that public authorities cannot evade those prohibitions and requirements when establishing a subsidy scheme.

[Seema Malhotra]

We support clause 30 standing part of the Bill.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Subsidies or schemes subject to mandatory referral

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

[Paul Scully]

Clause 31 prohibits a subsidy or scheme that a public authority has failed to properly refer to the subsidy advice unit, or which has been given or made before the referral process has been allowed to conclude.

[Seema Malhotra]

Clause 31 outlines the regulations for mandatory referral of subsidies to the CMA. We support the regulations in the clause, which will be an important part of the operation of the regime, but we will seek to amend clause 54, which will be discussed at a later date.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

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

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021

Paul Scully Excerpts

Wednesday 27th October 2021 General Committees

[The Chair]

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

[Chris Bryant (Rhondda) (Lab)]

[Paul Scully]

[Mark Pawsey (Rugby) (Con)]

[Paul Scully]

[Sarah Champion (Rotherham) (Lab)]

[Paul Scully]

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

--- Later in debate ---

[The Chair]

[Paul Scully]

[Chris Bryant]

[Paul Scully]

[Seema Malhotra]

[Paul Scully]

[Chris Bryant]

[Paul Scully]

[Seema Malhotra]

[Paul Scully]

[Chris Bryant]

[Paul Scully]

[Sarah Champion]

[Paul Scully]

[Mark Pawsey]

[Paul Scully]

Committee rose.