Digital Markets, Competition and Consumers Bill (Tenth sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 27th June 2023 Public Bill Committees

[Paul Scully]

Let me try to cover as many of those questions as I can. The hon. Lady asked about the possibility of multiple enforcers in process at the same time. In effect, we are restating the existing arrangements, which have been working. They work with the CMA as the gatekeeper, so the CMA would have to be notified when action has been taken—it can filter anything going on in that regard—and it would have to co-ordinate the approach.

On clause 148, and court powers to make orders and penalties, the hon. Lady talked about subsection (9) on whether an undertaking may include a trader publishing it in a corrective statement and whether I, as a Minister, would always expect that to happen. It is discretionary. The enforcer may require that as appropriate.

On the penalties, the £300,000 basically sits in the middle of the pack internationally. If we look at the regimes around the world, where penalties are imposed on individuals, New Zealand’s consumer protection system has £100,000 and Canada’s consumer regime has £450,000. We sit within that, looking at the international comparators.

[Seema Malhotra]

Is the Minister saying that the decision to go with the £300,000 was just because it was in the middle of the pack?

[Paul Scully]

It was a fair balance after looking at international regimes—a fair comparison with similar regimes around the world. Similarly, the 10% penalty is reflected in penalties across other regimes.

The hon. Lady also asked about the CMA being able to enforce and why private enforcers did not have the same powers. Only the CMA may impose penalties. Private enforcers may seek a penalty in court, but the CMA is the only body able to issue penalties directly.

Finally—I have probably missed a couple of questions, but I will review them later just in case—on the interim notes, the hon. Lady made a fair point about stopping the immediate harm. I talked about domain names, as well as removing adverts and such things. It is about being able to act quickly. The whole point about the changes to the regime is to ensure that we make it not only as effective as possible in the modern world, but as fast as possible.

Question put and agreed to.

Clause 145 accordingly ordered to stand part of the Bill.

Clauses 146 to 154 ordered to stand part of the Bill.



Clause 155

Acceptance of undertakings by enforcers

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

[Paul Scully]

Clauses 155 to 160 restate and enhance provisions in part 8 of the Enterprise Act 2002 that govern the acceptance and enforcement of undertakings by enforcers and the courts.

Clause 155 provides a power for enforcers to accept, vary and release an undertaking from an infringer or accessory. Undertakings may be accepted only where they include provisions that will stop or prevent the allegedly infringing practices. The clause will allow enforcers to continue using co-operative enforcement means, which can lead to faster resolution of consumer harms and reduce the volume of applications for court orders.

Clause 156 enables enforcers to include enhanced consumer measures in undertakings accepted under clause 155. Enforcers must consider those measures to be just, reasonable and proportionate. Clause 157 sets out requirements for enforcers when varying or releasing undertakings that ensure procedural fairness for enforcement subjects. Clause 158 allows for further court proceedings for breaches of undertakings and orders made by the court, giving the court a new power to impose a civil monetary penalty for the breach of an undertaking given to the court.

Clause 159 allows a public designated enforcer to make an application to the court for a consumer protection order if it considers that an undertaking given to it has been breached. If the court is satisfied that that is the case, it may make the requested order, impose a monetary penalty or both. A penalty may be imposed only in cases where the breach was without reasonable excuse.

Clause 160 sets out the types of penalties and the maximum penalty amounts that can be imposed by the court for failure to comply with undertakings given to it or to public designated enforcers. The court has the discretion to impose a fixed amount penalty of up to £150,000 or 5% of global turnover, or a daily rate penalty of up to £15,000 or 5% of global turnover accruing over the days when non-compliance continues, or a combination of both.

[Seema Malhotra]

Clause 155 provides that where an enforcer could make an application to the court for an enforcement order or an interim enforcement order, it may accept an undertaking from the enforcement subject. Subsection (2) sets out the scope of such an undertaking, which is the infringer or the accessory agreeing not to continue or repeat the infringing practice. The Opposition strongly support the clause as it provides necessary flexibility in the consumer protection regime.

We heard during evidence, particularly from the CMA, that the ability for companies to work co-operatively with enforcers to comply with the new regime is an important part of having the fairest and best possible enforcement regime. Where possible, we should ensure that enforcement is done through co-operation. In evidence to the Committee, the CMA said:

“This is not a regime where we want to operate behind closed doors. The whole design of the regime is a participative approach where we will engage with a broad range of stakeholders, businesses and consumers as we consult on designation, design the conduct requirements, and then enforce against them.”––[Official Report, Digital Markets, Competition and Consumers Public Bill Committee, 13 June 2023; c. 6, Q2.]

As a result, we welcome the clause.

Clause 156 enables an enforcer to include enhanced consumer measures as part of an undertaking from a company, if the enforcer considers them just and reasonable. The enforcer will be obliged to consider the likely benefits and costs of the measures as part of its assessment of their proportionality. In particular, it will consider the costs of the measures themselves to the enforcement subject, as well as the administrative costs. As with clause 149, we welcome clause 156 as a further necessary element of the new consumer protection regime.

Clause 157 sets out the process to be followed when an enforcer proposes to materially vary or release an undertaking that it has previously accepted. Specifically, the process requires the enforcer to give notice to the respondent of its intention to vary or release an undertaking, and to consider any representations made in accordance with the notice. The notice must include the time by which representations may be made to the enforcer. We welcome this clause, which provides clarity for the enforcement regime, the enforcement subject and the consumer in the event of a necessary change. What timescale does the Minister expect the process to work to in most cases, or will it be entirely up to the enforcer? It would help both Parliament and the enforcement bodies to understand the timings envisaged in this process, to be sure that they strike the right balance between being flexible and proportionate and are fair to both the enforcement subject and consumers.

Clause 158 would apply in circumstances where the court makes a consumer protection order against an enforcement subject or a member of its corporate group, or where it has accepted an undertaking. In the event of a failure to comply with the order or undertaking, the clause enables the enforcer that made the original application or any other enforcer to make a further application to the same court. In effect, the court will be able to act in respect of not only non-compliance with an undertaking, but the infringing practice and any related consent or connivance with it by an accessory. The court will be empowered to impose a monetary penalty, regardless of whether the enforcement subject has a reasonable excuse for non-compliance, reflecting the serious nature of breaching an undertaking given to the court. We welcome the clause as a way of providing robust enforcement and punishment mechanisms for failure to comply with the regime, but I would welcome clarification from the Minister on subsection (8). Like clause 150, that subsection provides an enforcement subject who is required to pay a monetary penalty the right to appeal the decision to impose a penalty, its nature or amount on the merits, in relation to their existing appeal rights. I am not sure I completely grasped his previous argument on whether there is a lower appeals standard for those elements of the Bill?

Clause 159, similar to clause 158, sets out the process for when a company fails to comply with an undertaking accepted by the enforcer or the courts. The powers granted to the courts and the process by which the enforcer must apply reflect the provisions in clause 158 and, in the same way, we welcome them. However, the same question is raised about what looks like a lower threshold for appeals than in other parts of the Bill.

Finally, clause 160 sets out further details around the monetary penalties the courts may impose for failures to comply under clauses 158 and 159. We welcome any steps to improve enforcement action through the imposition of monetary penalties and therefore support the clause in principle. Despite that welcome, I must ask the Minister why, when it comes to failure to comply with undertakings, the monetary penalty in the clause, which is £150,000, is less than that in clause 150, where the court can issue penalties of up to £300,000? Similarly, clause 160 refers to 5% of the company’s turnover versus 10% in clause 150. I may not understand some of the Government’s rationale behind those different amounts. What are the reasons for the differences in the thresholds and those lower amounts?

[Paul Scully]

I picked up three questions. The reason the hon. Lady could not follow my argument about appeals from the first bit was because that was the bit I forgot to answer. I will cover that because they relate to the same thing.

Timescales will be up to the enforcer. None is set, but there is a general duty of expedition on the CMA set by the Bill overall. On appeals as they relate to both sections—

[Seema Malhotra]

Is the timescale deliberate, or has the question simply not been fully addressed? It is important to ensure clear expectations of the timing of some of these processes.

[Paul Scully]

I think the reason is the wide range of remediation events that may come before the enforcer to tackle, so they are being given that flexibility, but with an understanding that there is a general rule of expedition on the CMA. That is why we have approached this as we have.

The appeals regime is very different from the bits of the digital markets regime that we talked about earlier. In that case we were talking about a small number of firms with strategic market status, whereas any trader can be subject to this regime. The new monetary penalties that we are introducing are significant. A merits-based appeal is therefore important, because of the range of different-sized companies involved, to ensure fairness and to make sure that the issues involved relate to settled law rather than novel regulations covering digital conduct. Appeals are less likely to be disproportionately lengthy, because the digital market involves a more novel approach, which is why we were worried about extended appeal processes.

As for why thresholds are lower in this part of the Bill than for infringements, infringements, at £300,000, are clearly more serious. What we are talking about here—a breach of undertaking to a court—is still serious, but if someone is stepping down, we believe it is more proportionate to set the threshold at the slightly lower amount of £150,000.

Question put and agreed to.

Clause 155 accordingly ordered to stand part of the Bill.

Clauses 156 to 160 ordered to stand part of the Bill.

Clause 161

Notification requirements: applications

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

[Paul Scully]

Clauses 161 to 164 restate and update provisions in part 8 of the Enterprise Act 2002 that enable the CMA to perform co-ordination functions across the consumer enforcement landscape. This will help to prevent duplication of enforcement, which imposes an unnecessary burden on traders and wastes public money.

Clause 161 requires enforcers to notify the CMA of their intention to apply for certain court orders. Clause 162 imposes a requirement on enforcers to inform the CMA of any undertakings given to them. Clause 163 imposes a requirement on trading standards departments in England and Wales to notify the CMA if they intend to start proceedings for an offence under an enactment listed in part 1 of schedule 13 to the Bill. Clause 164 empowers UK courts to notify the CMA of relevant convictions and judgments. Bringing convictions and judgments to the attention of the CMA that it might not otherwise be aware of will allow the CMA to consider exercising its enforcement power under this part of the Bill.

[Seema Malhotra]

It is a pleasure to speak to clause 161 and the other clauses in this group. Under clause 161, as the Minister outlined, enforcers would be able to notify the CMA before applying for an enforcement order, and could only apply for an order 14 days later, or seven days later when applying for an interim order. The powers also allow the CMA to agree to shorten these wait times. The Bill’s explanatory notes explain:

“The policy intent underlying the notification requirement in this clause is for the CMA to be able to perform a coordinating role in relation to enforcement under this Part. The notification requirement will enable the CMA to facilitate the sharing of information between enforcers”,

and that is outlined as mitigating

“the risk of traders facing multiple actions in relation to the same infringing practice”

—a point that we have raised before. We are supportive of the clause and the principle of enabling the enforcement regime and ensuring that it is joined up and efficient in practice. I seek the Minister’s clarification on whether the Government have had discussions with other public enforcers on the provisions in the clause. Is it the case, as he has said before, that the CMA broadly has a co-ordinating role and other powers, and is that carrying on an existing practice and pattern of engagement between those enforcing bodies?

Clause 162 requires enforcers to notify the CMA of the terms of any undertaking given to it under clause 155 and of the identity of the persons giving it. Again, that is important to enable the CMA to fulfil its co-ordination role. As with clause 161, we support the provisions in the clause. Clause 163 introduces provisions requiring local weights and measures authorities, such as local trading standards bodies, to give the CMA notice of its intention to start proceedings for an offence under schedule 13, which we have debated. The authority must also notify the CMA of the outcome of those proceedings.

The policy intent, as explained by the explanatory notes, is to enable the CMA to play its co-ordinated role granted to it in previous clauses. The notes provide a potential example whereby the CMA could inform one authority that another is prosecuting, or that an enforcement order has been granted in respect of the same infringing practice. That is an important part of the co-ordinating role because it demonstrates that it is not just about the CMA being informed, but the CMA ensuring that other relevant enforcers are informed of what other enforcers are doing. That is then a streamlined and efficient process that does not hit the enforcement subject more than once on the same matter.

Clause 164 confers a power on the courts to notify the CMA of convictions and judgments it makes that may not have been bought to its attention. That is a common-sense provision. However, I would welcome further clarification from the Minister specifically on subsection (2). It states that the court

“may make arrangements to bring the… judgment to the attention of the CMA”.

We know the strain and pressures that our court system is under. I ask the Minister why the provision introduces a power as opposed to a duty. If the CMA is to have, as is intended, a co-ordinating role where it is in the picture on all the relevant information related to those enforcement subjects, are there any circumstances in which the Government believe the courts may not need to inform the CMA? In that case, could the Government clarify what those circumstances might be, or where they might consider it not necessary for the CMA to have this information if it considers it to not be relevant to the function it carries out?

We need to remember that this is not just a function being carried out for today; this is where the CMA will be able to have a record of enforcement measures, any breaches and any other information that would be relevant to any considerations in the future. I would be grateful to understand from the Minister why that important and common-sense provision is a power as opposed to a duty.

[Paul Scully]

The CMA being able to issue permission to bring enforcement procedures is consistent with the position under part 8 of the Enterprise Act 2002. We respect and understand the expertise of all enforcers, including sector regulators, so the CMA is playing a co-ordination role to effectively share information between enforcers, and guarantee that enforcement actions are not duplicated. That will mitigate the risk of a trader facing multiple actions for the same infringement practices. The Government have discussed the provisions with other enforcers, and the CMA already has memorandums of understanding with other enforcers.

On the question of why there is a new reporting requirement in clause 164, actually it is not new. It was already established under part 8 of the Enterprise Act. Again, it ensures that the CMA can consider exercising its enforcement powers where appropriate. It only gives the court the power to notify judgments and convictions to the CMA. It is already there under the Enterprise Act, and that is why we have brought it in here.

[Seema Malhotra]

Perhaps I could put the point about power versus duty to the Minister again? I understand that many aspects of the Bill have been brought together from other areas of legislation. We have to ask the question within the context of the new regime, which is different to how the situation was prior to the legislation coming in, whether that is worth reviewing. We are talking about a regime in which the CMA is now a co-ordinating body, in which there may be different ways action can be taken and where information from the court could be material. There is not as much of a duty to pass that information on under clause 164, but that could be relevant information that is not there for a matter in the future.

I again draw the Minister’s attention to the massive backlog we have in the courts, and the administrative challenges with some of those procedures. The best intentions may not be a reality, and that may then have consequences for the regime we are trying to set up to be as robust, predictable and efficient as possible.

[Paul Scully]

I take the hon. Lady’s point, but I would say that it has been directly transposed. It is a power not a duty in the Enterprise Act, and that is where we have worked from.

Digital Markets, Competition and Consumers Bill (Eighth sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Thursday 22nd June 2023 Public Bill Committees

[Paul Scully]

Government amendment 25 seeks to correct the list of “related requirements” in clause 81 to include pro-competition order directions. The Competition and Markets Authority has the power to impose directions on a firm with strategic market status to take specific action to come into regulatory compliance with a PCO, under section 87 of the Enterprise Act 2002.

As currently drafted, a nominated officer would not be responsible for a direction issued in relation to a PCO because this is not listed as a “related requirement”. The amendment will clarify that nominated officers will be responsible for directions issued in relation to a PCO to which they are assigned by the SMS firm, and that compliance reports in clause 82 will have to cover these directions. The amendment will ensure that the digital markets unit is able to monitor whether an undertaking is complying with directions issued in relation to a PCO. I hope that the Committee will accept the amendment.

Clauses 81 places requirements on SMS firms to assign appropriate senior managers as “nominated officers” to monitor compliance with specific regulatory requirements. That will help to facilitate co-operation between SMS firms and the DMU and ensure that information included in compliance reports is accurate and complete, and that reports are submitted to the DMU in a timely manner. SMS firms will be required to assign nominated officers in respect of each conduct requirement, pro-competition order or commitment made in lieu of a pro-competition order. A nominated officer appointed in relation to a conduct requirement will be automatically responsible for overseeing compliance with any subsequent orders that are imposed by the DMU in relation to that conduct requirement.

Clause 82 place requirements on SMS firms to submit compliance reports to the DMU. A compliance reporting obligation can be imposed by the DMU in relation to conduct requirements and PCOs, and can be extended to cover additional requirements related to those requirements, such as an enforcement order in relation to a conduct requirement. Compliance reports can also be imposed when a firm has had a binding commitment accepted by the DMU, in lieu of the DMU imposing a pro-competition order. A compliance report will include details of how the firm has complied and will continue to comply with the regulatory requirement and any related requirements. Reports will also set out the extent to which the nominated officer assigned to the particular regulatory requirement considers that the firm has complied with that requirement. Information in compliance reports will be essential to the DMU’s assessment of whether an SMS firm is complying with the regime, and will enable the DMU to take swift where it identifies risk of non-compliance.

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

It is a pleasure to speak to the amendment and clauses on behalf of my hon. Friend the Member for Pontypridd, and I will be brief. Government amendment makes a requirement in a direction under section 87 of the Enterprise Act, given by virtue of a pro-competition order a related requirement for the purposes of clause 82.

Labour supports clause 81, which requires a designated undertaking to assign an appropriate senior manager to the role of “nominated officer” when the CMA imposes a digital markets requirement, for the purpose of monitoring the undertaking’s compliance with that requirement. We strongly believe this level of personal liability is required for big tech firms, which have dominated for too long, to listen and engage fully with this regime. We welcome clarity such as that in subsection (2), which sets out the tasks of the nominated officer and requires them to carry out those tasks in relation to

“digital markets requirements and all related requirements”.

It makes sense that if a nominated officer is assigned to a conduct requirement, they are automatically assigned to any subsequent enforcement orders made in connection to it. We therefore support clause 81 and have not sought to amend it at this stage.

Government amendment 25 makes a change to the Enterprise Act to bring the provisions in line with the current Bill. We support its inclusion. It is vital that existing legislation is brought in line if this regime is going to work to its full effect.

Labour sees compliance reports and the formal duties outlined in clause 82, which ultimately require designated undertakings to provide the CMA with reports setting out how they are complying with requirements imposed upon them, as a natural step in the implementation of this regime. For transparency, accountability and fairness all round it is right that the CMA has a duty to notify a designated undertaking of any compliance reporting requirements and will specify in the notice when reports should be submitted, what information they should contain and what form they should take. Labour has long called for those powers, and we have also argued that they should be flexible, so we are pleased to see provisions that allow the CMA to alter the reporting requirements on a designated undertaking by giving the undertaking a further notice.

Specifically interesting to see in the Bill are the provisions around subsection (5), which permit the CMA to require a designated undertaking to publish a compliance report or a summary of that report. Will the Minister confirm the form and the location that he feels would be suitable for such reports to be published?

We recognise that the provisions in clause 82 allow for the version the designated undertaking is required to publish to be different from the version provided in private to the CMA under subsection (1). For example, some information may be redacted for confidentiality purposes. It is still unclear, though, exactly where the report will be published, so it would be helpful to have the Minister’s response on that point.

[Paul Scully]

The CMA could ask for a public version to be published on its website. It will be reported to the firm in full, but the majority of the publication in all such things will be online.

Amendment 25 agreed to.

Clause 81, as amended, ordered to stand part of the Bill.

Clause 82 ordered to stand part of the Bill.

Clause 83

Penalties for failure to comply with competition requirements

--- Later in debate ---

[Paul Scully]

Government amendment 26 seeks to clarify that the CMA can impose a penalty on a former SMS firm that no longer has strategic market status in relation to conduct that occurred before the designation ended or in relation to breaches of obligations that exist after the designation ends. With that aim, the amendment, together with its related amendments, replace the wording “a designated undertaking” with “an undertaking” in clauses 83 and 86. That ensures the change relates to penalties for failure to comply with competition requirements, as well as any penalties for failure to comply with investigative requirements. I hope the Committee will support the amendments.

[Seema Malhotra]

I thank the Minister for his remarks. We certainly support these Government amendments, and I will reserve the rest of my comments for the clause stand part debate.

Amendment 26 agreed to.

Amendments made: 27, in clause 83, page 50, line 23, leave out “a designated” and insert “an”.

See the explanatory statement for Amendment 26.

Amendment 28, in clause 83, page 50, line 24, leave out “designated”.

See the explanatory statement for Amendment 26.

Amendment 29, in clause 83, page 50, line 26, leave out “a designated” and insert “an”.

See the explanatory statement for Amendment 26.

Amendment 30, in clause 83, page 50, line 28, leave out “designated”. —(Paul Scully.)

See the explanatory statement for Amendment 26.

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

[The Chair]

With this it will be convenient to discuss clauses 84 to 90 stand part.

--- Later in debate ---

[Seema Malhotra]

It is a pleasure to speak to this group of amendments on behalf of my hon. Friend the Member for Pontypridd, who is still in the debate in the Chamber. As we know, the clause sets out that the CMA can impose monetary penalties on a designated undertaking where it is satisfied that the undertaking has breached a regulatory requirement, including for merger reporting and commitments, without reasonable excuse.

The clause’s wording affords substantial flexibility. Indeed, the provisions are in place only when the designated undertaking has failed to comply “without reasonable excuse”. None of us wants designated firms to be able to block action with excuses, so it would be helpful to hear how the Minister would quantify a reasonable excuse. That said, the Opposition welcome the clause, which is central to the regime. The ability to impose a penalty where appropriate is an important power that we hope will go some way towards encouraging companies to work with the regulator. For those reasons, we will not oppose it.

I turn to amendments 26 to 33, some of which we have already debated. It is helpful that we have made those amendments to ensure that a penalty can be imposed on an undertaking that was once designated and therefore captured by the regime but now no longer to subject to it. That will assist in capturing historical offences of failure to comply and goes to the heart of the importance of compliance.

Clause 84 outlines the maximum penalties that the CMA can impose. As we know, the CMA can impose penalties of up to 10% of worldwide turnover and, in the case of breaches of orders or commitments, of up to 5% of daily worldwide turnover for each day that a breach continues. Subsections (2) and (3) state that the CMA will, in most situations, have the discretion to choose whether to impose a fixed penalty, a daily-rate penalty or both. However, where an undertaking breaches a conduct requirement as opposed to an enforcement order or breaches any requirements under chapter 5 on mergers, the CMA will be able to impose only a fixed penalty.

The Opposition welcome these provisions. They afford the CMA flexibility and discretion, and we believe that financial penalties are an important power for any regulator to be able to impose. We therefore support the clause and do not seek to amend it. As with other formal liabilities, Labour believes that the CMA absolutely should be able to impose penalties on designated undertakings or individuals within them for failing to comply with certain investigative requirements. The powers are important to the regime and we welcome their inclusion.

In addition, clarity on exactly what will constitute, or be defined as failure to comply, is also helpful. We know that actions such as providing false or misleading information in the course of an investigation, or in relation to compliance reporting, will fall under this definition. That is a sensible approach, which we support.

Furthermore, clause 85(2) clearly sets out the circumstances in which the CMA can impose civil sanctions against either a named senior manager assigned to an information request or a nominated officer with relation to a compliance report. We feel that that personal duty is crucial to the success of the regime, as we hope that it will act as a deterrent, as companies will want to avoid personal duties, and that such a level of personal liability is crucial for SMS firms to take the CMA’s powers and regulatory regime seriously. We therefore support clause 85 and its intentions and believe it should stand part of the Bill.

Clause 86 establishes the maximum fixed and daily rate penalties that the CMA can impose under clause 85 on undertakings and individuals. As outlined in clause 86(3), under the provisions, the CMA may impose a fixed penalty on an undertaking of up to 1% of the undertaking’s worldwide turnover, or a daily penalty of up to 5% of the undertaking’s daily worldwide turnover for each day of non-compliance, or both. Similarly, subsection (6) sets out that the CMA may impose a fixed penalty on an individual of up to £30,000, or a daily penalty of £15,000, or both. We welcome that clarity on the face of the Bill. Labour has been clear for some time now that financial penalties are vital for compliance, and that the CMA must have the statutory footing to be able to impose them in the most severe cases of non-compliance.

We further note clause 86(7) to (9), setting out that the Secretary of State has the power to amend the maximum amounts of penalty that can be imposed on an individual. Naturally, that is a point that I must press the Minister on: in what circumstances does he imagine that the Secretary of State would make such changes? It is an interesting power to ascribe to one individual, therefore we welcome subsection (8), which states that the Secretary of State must consult the CMA and such other persons as the Secretary of State considers appropriate before making the regulations. We therefore support clause 86 and believe it should stand part of the Bill unamended. Labour sees clause 86 as fairly procedural, setting out which sections of the Enterprise Act 2002 apply for penalties imposed under clause 83 or clause 85 of the Bill.

I will keep my comments on clause 87 brief as we see it as clarification rather than contentious, in particular given that we agree with the Government’s approach more broadly on enforcement and appeals. My one plea to the Minister is that he and his colleagues in the Department do not bow down to likely pressure from big SMS firms.

We appreciate that in recent months we have faced headlines about some tech companies threatening to withdraw from the UK if provisions on online safety become—as they see it—too cumbersome. However, when it comes to regulating the online space more widely, whether in our digital markets or through safety provisions, we know that companies have remained unregulated for too long, and that that is having a massive impact on consumers. That applies to all of us in Committee and the hundreds of thousands of constituents across the country we represent. That said, we support clause 87 and have not sought to amend it.

Clause 88, too, we see as fairly standard, in that it sets out exactly how the CMA will calculate daily rates and turnover for the purpose of imposing a monetary penalty. This clause clarifies that daily penalties will accumulate until the person complies with the requirement—for example that the requested information is provided—or, where the penalty is incurred in relation to an overseas investigation, when the overseas regulator no longer requires assistance.

Labour further welcomes the fact that clause 88 will give the CMA the discretion to determine an earlier date for the amount payable in order to prevent that amount from accumulating. We of course hope that application of the provisions will rarely be required, but they are welcome additions to have on the face of the Bill.

Lastly, we note that clause 88(2) to (4) gives the Secretary of State the power to specify how turnover is calculated in secondary legislation. Again, I would welcome some clarity on this point. I wonder whether the Minister can further clarify in exactly what circumstances he envisions these powers will be required and, if he can confirm whether, when the Secretary of State has to draw upon those powers, what action will be taken to ensure the secondary legislation required is not subject to further delay? That point aside, we understand the need for clause 88 and welcome its inclusion in the Bill.

Clause 89 is important in that it places a statutory duty on the CMA to prepare and publish a statement of policy in relation to the exercise of powers to impose a penalty under clauses 83 and 85. In doing so, the statement must include considerations around whether a penalty should be imposed, as well as details of the nature and amount of any such penalty. We welcome the provisions in subsection (3) that confirm that the CMA may revise its statement of policy and, where it does so, must publish the revised statement.

We also feel that the requirement of the CMA to consult the Secretary of State before publishing a statement is an important step. However, Labour feels some clarity is needed here to establish exactly when and where that statement will be published. Will the Minister confirm the timelines for when the CMA will be required to publish the statements? It is important that there is no delay; any specific timelines will be gratefully received. Following those assurances from the Minister, I am sure we will be happy to support the clause standing part of the Bill.

Lastly, we see clause 90 as a standard clarification that ensures that where a person has been found guilty of a criminal offence committed under clauses 91, 92 or 93, which we will soon debate, they will not be required to pay a civil penalty for that same offence. It is also right that where a person has paid a civil penalty for an act of the kind referenced under clause 85, they cannot be criminally convicted for that same offence. We also welcome the clarity that the clause does not prevent criminal or civil proceedings from being started where, respectively, a penalty has been imposed but not paid or someone has been charged but not convicted.

Again, we hope that these clauses will never have to be enforced in reality, but they are important additions and Labour support them, given the importance of ensuring the CMA has the teeth to implement this regulatory regime in full.

[Paul Scully]

The hon. Lady mentioned “without reasonable excuse”. The onus is on SMS firms to prove that they have an excuse for committing a breach. That approach reflects the bespoke targeted nature of the regime, which means that firms should be fully aware of whether they are compliant. That same threshold is used in the competition regime already for breaches of specific directions and commitments; other prohibitions in the competition regime are more high level than any other obligations within the digital markets regime, making it harder for firms to assess their own compliance and therefore requiring a different legal threshold.

On updating penalty limits, and the Secretary of State’s power to do so, it is important that the new regulatory regime is agile, flexible and can be adapted to changing circumstances. The power is the same as is already used under the Enterprise Act 2002, which ensures consistency across the legislation and will ensure that the power remains an effective enforcement mechanism in the future. The Secretary of State must consult the DMU and other persons before making changes to the penalty levels. Importantly, proposed changes will be subject to the affirmative procedure and will need to be approved in Parliament. Another hon. Member asked about where the policy will be published; again, that will be online and in full. Clearly, that will be as soon as is practicable, because we want to keep the pace of the policy as fast as possible, in order to keep up to date with any detriment to especially challenging tech, and obviously to consumers as a consequence.

The hon. Member for Feltham and Heston asked about the power to update turnover and how that might be calculated. It is really important that in this area the regulatory regime remains agile and flexible, and granting the Secretary of State the power to specify how turnover is calculated in secondary legislation will allow any future changes in accounting principles, for example, to be taken into account to ensure that these calculations remain relevant. Again, that power is the same as that already used under section 94A of the Enterprise Act 2002, ensuring consistency across the two pieces of legislation.

Question put and agreed to.

Clause 83, as amended, accordingly ordered to stand part of the Bill.

Clauses 84 and 85 ordered to stand part of the Bill.

Clause 86

Amount of penalties under section 85

Amendments made: 31, in clause 86, page 52, line 29, leave out “a designated” and insert “an”.

See the explanatory statement for Amendment 26.

Amendment 32, in clause 86, page 52, line 31, leave out “designated”.

See the explanatory statement for Amendment 26.

Amendment 33, in clause 86, page 52, line 33, leave out “designated”.—(Paul Scully.)

See the explanatory statement for Amendment 26.

Clause 86, as amended, ordered to stand part of the Bill.

Clauses 87 to 90 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

Digital Markets, Competition and Consumers Bill (Seventh sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Thursday 22nd June 2023 Public Bill Committees

[Seema Malhotra]

I just wanted to make a general point in relation to the DMU’s powers, because they are wider and there is a question about mechanisms to address the scrutiny and accountability of DMU decisions. We support the PCI framework and the flexibility, but on the way in which decisions can be made about PCI notices, the changes to allow greater flexibility and changes to orders made, there is the potential for a lot more flexibility, but there is the balance of certainty and scrutiny. Can the Minister address how there will be greater opportunity for scrutiny, transparency and accountability over the DMU’s use of the greater powers?

[Paul Scully]

I will try to cover as many of those points as I can. On the difference between AEC and AECC and adverse effects on consumers and competition, that is effectively built into the regime, anyway. The DMU’s objective is to promote competition for the benefit of consumers, and that must shape the design of all its regulatory interventions, including for PCIs. Under the current drafting, the DMU is able to address the detrimental effects of a competition problem on consumers. The issue is terminology rather than anything else.

The hon. Lady asked about how PCIs will be published. They can be introduced after CR and can be published alongside them, because speed is important, which it is important to highlight. She also asked about where PCIs will be published, which I can summarise. A PCI notice launches an investigation and a summary of that will be published, with the firm having had the full notice.

[Seema Malhotra]

Will the Minister confirm how soon that will happen? There is a four-month timeline after that full consultation and then the pro-competition orders or alternatives. In terms of the public—

[Paul Scully]

That is a fair point. The best I can say is as soon as is practicable. I talked about the fact that speed is important, but it really depends on the complexity of the case and what needs to be in the summary, how quickly it will take to summarise and so on. There is a drive to get on with this as quickly as possible. The theme throughout the entire framework of the Bill is that detriment happens at speed in digital markets and we have to crack on and get those PCIs in place should they be required.

The decision notices for PCIs will go to the firm first. The full document will be published and an order will be introduced. A summary will be published. Should the PCI be replaced, an order revoked or should there be an acceptance of varying commitments on a PCI, the full document will be published.

The CMA can consult on an order as part of the earlier PCI decision, so the four months may not be necessary. Those timetables are there as a maximum, depending on the complexities.

[Seema Malhotra]

I would like to pick up on the point about pro-competition orders and the consultation. Clause 49(4) states:

“The provision that may be made in reliance on subsection (3) includes provision requiring an undertaking to act differently in respect of different users or customers (and such provision may be by reference to a description of users or customers, to absolute numbers of users or customers, or to a proportion of the undertaking’s total number of users or customers).”

That appears both broad and specific. Interested parties may want clarity, so is it expected that that detail will be discussed and consulted on?

[Paul Scully]

The way that consultation is done depends. If there is something starkly obvious to everyone, it may be that only minimal consultation is needed. If it is more technical, it will need to be more in depth, which is why we are not being prescriptive from the centre. It is up to the DMU to consider this.

The hon. Lady also asked about a list of PCIs and potential PCIs. It is very much for the DMU to address the recourse to a designated firm’s market dominance. Examples of PCIs that could be introduced include choice remedies that will allow users to make an active choice in the digital services that they use. PCIs could, for example, compel a designated firm to present users with different options for their preferred web browser, and we heard evidence on that from Gener8. Instead of defaulting to a particular browser, PCIs could include interoperability remedies that will enable users to use goods and services from different providers as opposed to being locked into one provider. For example, the DMU might require users of different instant messaging services to be able to communicate with one another.

The DMU could introduce data portability remedies, which would make it easier for users to switch providers. Such remedies could, for example, require a designated firm to make it possible for its users to download and export data to a new phone with a different operating system. PCIs could include data access remedies, which would level the playing field by requiring designated firms to share their data with competitors, which could include the data that large search engines have on users’ search history. Separation remedies would require designated firms to run different aspects of their businesses independently, so that dominant firms cannot use market power in one part of the business to gain power in another, which might involve requiring data stores for different services to be separated. It could require the firm to sell off a part of its business altogether.

Those are examples, but that was not a prescriptive or exhaustive list of PCIs. They are very much up to the DMU to frame depending on the technology and the market dominance that they are trying to remedy.

--- Later in debate ---

[Seema Malhotra]

It is a pleasure to speak to this group of clauses on behalf of my hon. Friend the Member for Pontypridd, who is speaking in another debate.

We support clause 77, which will give the CMA the power to require a skilled person, which could be a legal or other person, to provide a report to it on a matter relevant to the operation of the regime. That is in line with other regimes of that nature, and we therefore support its inclusion.

The clarity afforded by subsection (1), which sets out that the CMA can use this power in

“exercising, or deciding whether to exercise, any of its digital markets functions”,

is welcome. It is also right that the CMA can exercise the power only in relation to a designated undertaking or an undertaking subject to an SMS investigation.

In order to ensure no unnecessary delay, subsections (2) and (3), which will give the CMA the power to appoint a skilled person to provide a report and give notice of the appointment and other relevant matters to the undertaking in question, while also specifying the form of a report, are an important inclusion. That aligns well with subsection (12), which imposes a duty on the designated undertaking or undertaking subject to an SMS investigation, and any person connected to those undertakings, to assist the skilled person in any way reasonably required to prepare the report.

One hopes that designated undertakings would co-operate in such instances, but it is welcome and helpful to have their obligations outlined as they are in clause 77. Clarity on the consequences of failing to comply, in the form of penalties or other enforcement provisions, is also an important and positive step. Labour has therefore not sought to amend the clause at this stage; we believe it should stand part of the Bill, as drafted.

As with any regulatory regime, the CMA should of course preserve relevant evidence. Clause 78 is integral, because it places a legal duty to preserve evidence that is relevant to a digital markets investigation, a compliance report by a designated undertaking, and evidence where the CMA is providing investigative assistance to an overseas regulator. The Bill also confirms that where the CMA has made a formal request for information, there are penalties for non-compliance, or for falsifying, concealing or destroying information.

Labour supports the purpose of clause 78, which is to preserve evidence before and after the CMA has made a formal request. We believe that it is consistent with the existing duty to preserve evidence under section 201(4) of the Enterprise Act 2002 on cartel offence investigations. We note, however, that the duties within this clause do not apply

“where the person has a reasonable excuse to do so.”

I—and, I am sure, others—would welcome clarification from the Minister on that point. We support the intentions of the clause and have therefore not sought to amend it at this stage, but I would appreciate further clarity on the definition and how it will work in practice.

Clause 79 is helpful because it specifies that the CMA cannot require any information subject to legal and professional privilege, or, in Scotland, confidentiality of communications. That is an important point to make and is in line with similar regimes. We support the clarity outlined in subsection (2), which specifies that the limitation applies to producing, taking possession of, and taking copies of or extracts from a privileged communication. I do not need to elaborate much further here. Labour considers this to be a fairly standard procedure and we therefore support clause 79 stand part.

Finally, clause 80 gives the CMA the power to publish a notice of any decision to use its investigatory powers under the digital markets regime to assist an investigation by the regulator in another jurisdiction. The notice may include the regulator that the CMA is assisting, the undertaking that is the subject of investigation, and the matter for which the undertaking is under investigation. Labour welcomes the transparency measures here.

My question is about why that approach has not been afforded to the CMA’s domestic work on digital markets. If the CMA is able to support overseas regulators in ways that might identify the undertaking, I am unclear as to why the CMA is not compelled in the same way for issues that might arise in the UK. I am interested to hear the Minister’s thoughts on that point, because it is an important one for companies likely to be captured in the SMS definition and for challenger firms that might one day find themselves subject to these regulations, too.

[Paul Scully]

I thank the hon. Lady. I will probably write to her with examples of where that measure might come in. As I have said, it does not come in if there is an exemption for people with a reasonable excuse. I am not fleet enough of foot to come up with a good example for her at the moment, but I will certainly write to her.

On the domestic situation for the DMU, I will, again, probably write to the hon. Lady, but my interpretation is that it is easier to deal with the potential for defamation and so on when someone has full control of the case in one jurisdiction. If we are working across jurisdictions internationally it is more complex, so the protections need to be there.

Question put and agreed to.

Clause 77, as amended, ordered to stand part of the Bill.

Clauses 78 to 80 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

Digital Markets, Competition and Consumers Bill (Fifth sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 20th June 2023 Public Bill Committees

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

The Minister may have explained this elsewhere, but I am wondering about the thresholds of £1 billion and £25 billion. Will those thresholds be assessed over time, because firms’ turnover and so on can change from year to year? When is the point at which assessment is made, and will the threshold change subsequently if turnover drops?

[Paul Scully]

The hon. Lady makes a good point, which relates to what my hon. Friend the Member for Broadland said about fluctuation of turnover and what companies may do with their turnover. It might be a good time to tackle that.

First, the turnover of the whole corporate group needs to be considered. That approach will help to avoid complications in revenue allocation, which could result in firms avoiding investigation and designation by virtue of their corporate structure or accounting practices. The DMU will be able to consider the past two periods of 12 months, not just the more recent one when calculating turnover—that should cover fluctuations, which the hon. Member for Feltham and Heston asked about. Markets can fluctuate, and turnover is not the same as market power; it is just part of the definition. The flexibility will also reduce the likelihood of the figures being manipulated and circumvented for the purposes of the turnover threshold.

Importantly, the use of the turnover thresholds will provide certainty to the vast majority of firms that they cannot be in scope of the regime, as they will easily be able to determine that their turnover is below the thresholds. However, if a firm meets the turnover threshold that does not necessarily mean that it will be subject to an investigation. The DMU will also need to have reasonable grounds to consider that the firm meets the two SMS conditions in respect of a digital activity that is linked to the UK—that is, that it has substantial and entrenched market power, and a position of strategic significance in respect of that activity.

Clause 7 will give power to the Secretary of State to amend those thresholds. That will ensure that they remain relevant as digital markets develop, evolve and grow over time. The DMU will be required to keep the thresholds under review and advise the Secretary of State whether they are still appropriate. The Government anticipate that the DMU may take into account factors such as inflation and currency fluctuation when doing so, using its expertise and while having its finger on the pulse of digital markets. As was the case for clause 6, the affirmative resolution procedure is the appropriate mechanism, as this is a significant power that would alter the scope of the regime.

Clause 8 relates to the turnover condition and sets out further details about the meaning of global and UK turnover. Any activity of the firm will be considered when estimating global turnover. Both digital and non-digital activities will be considered, making it easier for firms to know whether they are in scope without having to distinguish between different types of activity.

For UK turnover, any activity of the firm will be considered, but the turnover must relate to UK users or UK customers. The clause also gives the Secretary of State the power to make provision about how turnover should be estimated, including provision about amounts that should or should not be regarded as comprising turnover. That level of detail would not be suitable for primary legislation. We believe a negative procedure is most appropriate because of the technical and non-controversial nature of any regulations.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clauses 4 to 8 ordered to stand part of the Bill.

Clause 9

Initial SMS investigations

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

Digital Markets, Competition and Consumers Bill (Fourth sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Thursday 15th June 2023 Public Bill Committees

[Seema Malhotra]

I will have to move on.

Christian Owens: I started Paddle about 11 years ago to help small software companies and developers to sell their products internationally. Today, we do that for around 5,000 businesses, a number of which are based in the UK. We provide payment services. We help those businesses to take payments all around the world and to pay local taxes and be compliant with the various regulations of wherever it is they sell.

For the last 10 years we have had constant inbound from our customers—who we support by processing payments and paying their taxes for them online for the web or desktop-based version of their products—saying, “Why can’t I use Paddle for my iOS or Android app?” We have tried on numerous occasions to figure out a solution to that, but we are simply prevented, on the basis of the terms and conditions of the app stores, from allowing those developers to process transactions via any mechanism that is not controlled by Apple and Google. For us, we are explicitly prevented from competing. I have no problem if Apple or Google build a better solution than us—that should win. Today, we are not even allowed to try.

[The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)]

Q I just have just a couple of follow-up questions, because I think I got most of what I need from that. On the merchandise area, you say you cannot get out the receipts. Presumably, you have another mechanism, because you have got to ascribe some of it to the authors, or do you author all the books yourself? How do you process who has bought what on that side of things, rather than the back office bit?

Kelli Fairbrother: We are monitoring, on our own side, the transactions to be able to control entitlements, because we actually have to control the rights of the books for individuals who have purchased them. The risk for us is that a lack of ability to reconcile at the level of an individual transaction actually puts us at a degree of risk, in terms of our ability to manage the 100% accuracy of what we have delivered. The other interesting thing that happens, on the returns side, is that a customer could read the entire book and go to Google and get a return. I am only getting informed of that after the fact; I cannot really challenge the fact that the return was probably invalid. That is another example.

--- Later in debate ---

[Seema Malhotra]

Q So you do not accept any of the examples we have heard of consumer harm.

Tom Morrison-Bell: Well, I think there are some things to unpack. For example, payment systems have been mentioned. We have agreed commitments with the CMA—I believe they are out to market testing at the moment—on offering a range of payment systems. When it comes to app stores, 99% of app users pay 15% or less on fees. There are important details here.

[Paul Scully]

Q Tom, it is good to see you. Thank you very much for coming in front of us. We have had some quite punchy evidence sessions before this, so it is important that we get a balanced view. Obviously you are not here to speak for all of big tech and everything that has been going on. Let me give you a minute or two to give the other side of the argument about how you are benefiting, as you see it, the kinds of companies represented in the previous session and in the session before that.

Tom Morrison-Bell: Generally speaking, Google is estimated to provide around £55 billion of economic activity a year in the UK, as a starting figure. We have multiple products. It depends where you look. Workspace is our productivity suite, with word processing and similar, and is estimated to have saved 600 million hours for workers around the UK through more effective communication and speedier software. As I have said, tools like search and maps are free, and they also support businesses across the country to be more effective. That drives £55 billion in economic activity.

There is also our Play store. Android is open source and a free operating system that is available free to mobile device manufacturers, and they can make their own versions. That has substantially driven down the cost of handsets around the world and has been a huge contributor to making sure that people can have access to the internet at lower rates. The Play store itself is estimated to support about 240,000 developer jobs in the UK alone. That drives revenues for them of about £2.8 billion. Across the board, there is substantial benefit.

Digital Markets, Competition and Consumers Bill (Third sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Thursday 15th June 2023 Public Bill Committees

[Paul Scully]

Q Because of the ongoing relationship with those companies.

Tom Fish: Exactly.

Richard Stables: I could give a bit of colour to that. When we started being hit by Google, we thought that it was just us. Eventually we realised that the whole market was suffering. We started talking to the commission. We were absolutely paranoid. We said, “Don’t tell Google because we think we might get the traffic back. If they know that we’re talking to you, that’s going to hurt us.” Eventually, they hurt us so much that it did not matter. I have spoken to so many firms—big firms as well as small firms—that have turned around and said, “We’re really glad about what you’re doing. I can’t come out and say this.” The power that these companies have is phenomenal. Companies can literally be put out of business overnight if one of these companies decides that that is what is going to happen.

Mark Buse: They believe in retribution. When we tried to offer Korean citizens in Korea a discounted price, Apple, instead of rejecting our app build, put every app build on hold. If you are not familiar with the concept of a build, it is where you update and change your app. You always get messages on your phone saying, “You need to update.” For 35 days, Apple froze every app build for every brand that we have that operates anywhere around the globe. We were unable to bring new products out, but more importantly we had bug fixes in all those builds. We have white-hat hackers: people we pay to show us what is wrong. We learned bug fixes internally. There were people who could not use the product right.

All those bug fixes sat on hold, so for UK citizens using our products, with no connection to Korea, those fixes did not take place for 35 days because Apple refused to let us move any builds. When we withdrew the build that would have given us the right to use alternative payment authorities, Apple then approved everything within 72 hours.

Tom Fish: On that point, it is important not always to get drawn into a polarised debate on these issues. It is not necessarily black and white—that big tech is good or evil. You can be a supporter of the Bill and the new regime without wanting to break up big tech. All that I am really asking for is a bit more scrutiny, oversight and transparency where obvious conflicts of interest exist.

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

Q Briefly, you were saying that the app subscriptions that you might have will be through Apple, so the relationship is between the customer and Apple. We will look at the issue of subscription traps as the Bill progresses. Will the renewal relationship be between you and the customer or Apple and the customer? How will that end up working?

Mark Buse: We believe that the relationship should be between us and the customer—that Apple should not intermediate between us and the customer. Then we will, rightly, have the responsibility to ensure that there are not subscription traps or any other issues around subscription. At this point, generally what happens is that we are still blamed but the subscription is actually with Apple. We do not think that in an ideal world it should necessarily be just us. If some of our users want to subscribe via Apple, we are more than happy to let them use our service and continue to subscribe through Apple. If they believe that that is a safer, more private way to do it, great. We want to bring as many people as possible into our business. It is not about excluding; it is about different ways to include.

Digital Markets, Competition and Consumers Bill (Second sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 13th June 2023 Public Bill Committees

[Seema Malhotra]

Professor Fletcher and Professor Furman, do you want to add anything?

Professor Fletcher: A lot of jurisdictions around the world are looking at this space. We talked earlier about how some of what we will achieve through this is stuff that can be achieved through competition law, and almost all jurisdictions have competition law. In a way, the more jurisdictions that have regulation, the easier it becomes for other jurisdictions to achieve some of the same things through competition law, because it changes the costs and benefits for the firms to change their business model.

The firms have quite an interesting decision to make on a global basis anyway about how much they do the same thing globally as they are required to do locally. I think it will vary depending on what thing it is. If it is terms and conditions, they can easily change that on a local basis. If it is interoperability, it is quite hard or rather more hard to design a system so that it has different interoperability standards in different places. We may well see an extraterritorial effect—not a deliberate one—because of the cost considerations and reputational considerations of the firms themselves. That will have a positive benefit in terms of providing a more consistent framework globally for the third parties that we are hoping to innovate. The more consistent global framework they have to compete upon, the better it is for innovation.

Professor Furman: The ideal thing would be if the whole world sat down and agreed how it was going to approach this problem and there was a single global system, or lots of countries co-ordinated and did the same thing. In practice, that is impossible, so what one should aspire towards is having essentially correlated actions in different countries, where different countries have similar rules and are looking at each other and learning from each other.

This puts the UK in a position to be a leader in that global process, and that, frankly, is the way mergers work already. It is not like there is a single global merger authority; there are merger authorities in economies around the world, but they use similar rules, are looking at similar evidence, come up with similar decisions and all, to some degree, talk to each other. That is what this is—an emerging correlation of approach.

We have seen in the United States in both the House of Representatives and the Senate legislation being put forward and in some cases being passed out of Committee that would accomplish some of the different pieces of what this legislation would do, frankly, more comprehensively than anything I have seen in the United States.

[The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)]

Q Thank you for coming before us. You are right: you cannot have a monopoly of monopolies commission. That would be wrong, but if we can have more regulatory certainty across the globe, that is good. There are three areas that I can see the different interests pushing on. There is the appeals system, whether it is judicial review or a full merits review, the final offer mechanism and the countervailing benefits exemption. On appeals, do you think judicial review is sufficient, proportionate and fast enough? That is what we are trying to do here—is it fair and fast to get that remediation? It would be interesting to hear your comments.

Professor Fletcher: I know this is something that Philip cares a great deal about. I will come in first and then let him have a go. We have talked about it being a delicate balance. I discussed the EU regulation, where they have gone very far towards ensuring administrability and enforceability by having the rules set out in the legislation with quantitative thresholds. That is how they have dealt with the need for administrability and enforceability.

We have tried to be more bespoke, as I have said, and more evidence based, but there is a real risk in terms of administrability and enforceability that we end up in the same place as we have been with competition law, whereby the cases get hugely burdensome and hard to bring to a conclusion within a sensible timescale, and there are insufficient agency resources really to do everything that is needed.

I think there is a real risk that if you play around with what might seem like tiny changes to the legislation, that could really threaten the administrability and enforceability of it, and we could lose the benefits of it over competition law and put us in a bad place relative to the EU—whereas at the moment I think we could show ourselves to be better in terms of getting the right balance by being more bespoke and evidence based. The appeals standard goes to that point. I strongly support the JR appeals standard because if we went for a full merit standard, it would be too far and would become inadministrable. I am sure the CMA would find a way to try to administer it, but I do not think it would be the right balance. I feel the same way about the customer benefits exception.

Digital Markets, Competition and Consumers Bill (First sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 13th June 2023 Public Bill Committees

[Seema Malhotra]

Q The Government have not taken forward the recommendations from the CMA on tackling consumer detriment in the secondary ticketing market. Do you think that that was a mistake and that that should be in the Bill? Finally, huge new powers are going to the CMA. Do you think that the accountability mechanisms have the right balance? That will be a concern for Parliament. Mr Lusty and Mr Hayter might want to come in.

Sarah Cardell: If I quickly take accountability, George might come in on secondary tickets. Accountability is key. The Bill gives us greater responsibility and power, and with that must come greater accountability. That comes in a number of forms. Parliamentary accountability is critical. We are accountable to Parliament. We do that already through a number of appearances and engagement with Committees, but I am sure that there is more that we could do in the design of that, and we are very keen to work with colleagues in Government and across Parliament to ensure that that happens. Accountability for our decisions through the courts is another important element, and accountability to stakeholders, going back to the previous point, is key as well.

George Lusty: On secondary tickets, the CMA has taken a lot of action in this area. It has taken Viagogo to court. We found ourselves up against some of the inherent weaknesses in the existing consumer protection toolkit when we did that. We effectively had to initiate an attempt to start contempt of court proceedings to get Viagogo to comply with the court order that we had secured. We think that many of the changes in the Bill will address those weaknesses directly by giving us civil fining powers for the first time. We set out specific recommendations back in August 2021 about other things that we think could be done, but ultimately it is a matter for the Government to decide what they want to include in the legislation.

[The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)]

Q How will the enforcement powers accelerate your enforcement action in particular? Remediation needs to come quickly in digital markets, especially with the appeals process, which has been a topic of conversation. Why do you believe that judicial review is sufficient to give proportionatality for people to push back and for keeping the speed up?

Sarah Cardell: On digital markets, the design works very well, because you have an engaged approach where we will work with businesses to secure compliance with the conduct requirements. We hope that that will be a constructive engagement, and that much of that compliance will be achieved without any enforcement activity. That is the aspiration and the goal. Of course it is important to have enforcement as an effective backstop and that that enforcement happens rapidly for the reasons that you stated. The Bill envisages a six-month time limit for enforcement, which is important so that everybody knows that that timing is ringfenced.

On appeals, let me take a minute to talk through the JR standard and why I think that it is effective, because there has been a lot of debate about that. It is critical that the CMA faces effective judicial scrutiny for our work. That should go on the record. We think that the JR standard achieves that. The JR standard applies to much of our work already, including our merger control and market investigations. It applies to a number of regulators for their regulatory work already, so there is an established approach for JR.

What JR is not, certainly in our experience, is a very light-touch procedural review. It looks at process questions, but it also looks fundamentally at whether we have applied the right analytical approach, the kind of evidence that we have reviewed, how we have weighed that evidence, and the rationality—the reasonableness—of our decision making. Take the example of the Competition Appeal Tribunal review of our merger decision, which was a review of the acquisition by Meta of Giphy. We had 100-plus pages in that judgment, with 50-plus pages looking at our analytic framework, how we looked at the effect on competition, the kind of evidence that we took into account and whether we weighed it effectively. It was a very detailed critique of our assessment.

What JR does not do is start a full merits from first instance court process. It does not say, “Back to the drawing board—we are going to set the CMA’s decision to one side and then conduct the process all over again.” That is much more similar to the full merits review that we have at the moment on Competition Act 1998 cases. Our experience there is that it results in very protracted litigation—we often have cases that are in court for five or six weeks. But, fundamentally, it also changes the incentives to the parties that we are engaging with, because all eyes are on that litigation process. That means that, in our process and our own investigations, it is a lot harder to reach constructive, collaborative outcomes, because every point that we are investigating is thrown into an adversarial contest. It means that we have to turn every stone, check every piece of evidence and make sure that every point is covered, which means that our investigations themselves are more protracted and the litigation is much longer.

The benefit of judicial review in this process is that it provides absolutely robust and effective scrutiny, but it also supports an environment that is aligned with the aspirations of the Bill more broadly—to encourage engagement early on and to encourage constructive, collaborative outcomes. Then, of course, parties absolutely have the right to challenge and appeal our decisions and, where they do so, that is resolved effectively through a JR process.

Subsidy Control Bill

Debate between Paul Scully and Seema Malhotra

Consideration of Lords amendments
Wednesday 20th April 2022 Commons Chamber

[Paul Scully]

Indeed, yes. Levelling up does not exclude any one area of the United Kingdom. It also does not exclude levelling up within regions; that is really important. This legislation only provides the framework; the levelling-up fund, the shared prosperity fund and other measures that can use the framework will, I am sure, benefit the hon. Gentleman’s constituency and Northern Ireland as a whole. It is really important that we get this right.

I am happy to report that we produced Lords amendments 1, 5 to 8, 10 to 12, 39 and 40 to respond to concerns about the Bill in the 17th report of this Session by the Delegated Powers and Regulatory Reform Committee. Lords amendment 1 addresses a concern with clause 10. Parliamentary scrutiny of streamlined subsidy schemes made under clause 10 has been strengthened by giving either House the ability to annul any streamlined schemes after they have been made, by applying the negative procedure.

Lords amendments 5 to 8 replace the direction-making power in clause 16 relating to the designation of marketable risk countries with a power to make regulations for the same purpose. Lords amendments 10 to 12 relate to the powers in clauses 25 to 27 to change definitions in secondary legislation. Those powers will be removed. Finally in this group, Lords amendments 39 and 40 address concerns raised by the DPRRC about secrecy regarding the financial stability direction-making power in clause 47. These amendments make it clear that such directions will need to be published in due course. In addition, the Economic Secretary to the Treasury has written to the Public Accounts Committee and the Treasury Committee to commit to notifying the Chairs of those Committees confidentially about the use of a financial stability direction.

I turn to Lords amendments 41 to 43 and 49, relating to the Competition and Markets Authority and the Subsidy Advice Unit. Although the Secretary of State could already direct the SAU to complete a monitoring report for a specified time period under clause 65(4), these amendments make specific provision in the Bill for more frequent scrutiny in the early years of the new regime. Instead of mandating a report within five years of the implementation of the regime, the tabled amendments require an initial report after only three years, to be followed up with a further report after another three years. After that, reporting will revert to a five-year cycle. The Secretary of State will retain the ability to direct that a report be made at a specified period after the publication of the second three-year report. The sunsetting provisions in clause 87(6) have been extended so that they take effect after the second three-year report. Lords amendments 2 to 4 and 48 are minor and technical in nature. They clarify definitions under clauses 11 and 82.

In summary, this substantial package of amendments represents an improved set of measures that will strengthen the new domestic subsidy control regime and make it more transparent and accountable. There will now be greater transparency of subsidies awarded, and improved oversight and monitoring of the regime by Parliament and the CMA. I am grateful to colleagues in both Houses for their hard work on, and attention to, this important Bill. They have helped to bring about these improvements, which I hope will be endorsed by Members from across this House.

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

It is a pleasure to speak in the debate. I start by acknowledging all the efforts in the other place, and thank the peers, staff and civil servants who have helped to move the Bill along to this stage. I also thank colleagues on both sides of this House, including all the Opposition parties.

As Labour has outlined throughout the Bill’s progress, we support the principle of a quicker, easier subsidy regime now that we have left the EU. However, we recognise that any subsidy regime must provide sufficient transparency and accountability for the spending of billions of pounds of public money each year. We have also repeatedly raised our concerns that this regime has failed to match up to the Government’s levelling-up rhetoric. We are pleased to see that many of the Lords amendments, including our amendment to Lords amendment 13, will improve the Bill in some of those areas.

I turn briefly to areas in which we would have liked the Government go further, and I would be grateful for the Minister’s comments on these issues. The first is net zero. Labour has been clear that while this is framework legislation, it should not be an empty vessel. The Government should have used the opportunity of an independent subsidy policy to design a regime that supported their wider industrial policy and our national priorities. We were also disappointed that the Subsidy Control Bill was not published alongside a subsidy strategy. Net zero is a good example of this. The climate crisis is the greatest long-term threat facing our country and the world, and we need urgent action to drive down emissions. That is why, in Committee, we called on the Government to support our amendment to hardwire net zero into the principles that public authorities have to consider when awarding any subsidy or designing any scheme. There was cross-party and cross-Bench support in the other place for a similar amendment.

--- Later in debate ---

[Paul Scully]

I thank all hon. Members for their engagement throughout the passage of this Bill and for their contributions this afternoon. I am glad that there has been broad consensus, albeit with some questions, which I will try briefly to address. The importance of that new independent subsidy control regime has been clear throughout the passage of the Bill and it was evident again today, so I thank hon. Members for their broad support.

Let me respond to the question from the hon. Member for Feltham and Heston (Seema Malhotra) about P&O and that kind of example. Clearly, we are shocked by the action of P&O Ferries and angered by the lack of empathy and consideration it has demonstrated towards its employees. The Government are continuing to work to establish whether P&O Ferries or DP World are in breach of any requirements of them as partners in the Thames and Solent freeports. Speaking more generally, I can confirm that the Bill ensures that public authorities can recover a subsidy where it has been misused, but it is important to note that the purpose of a subsidy is to achieve specific change in behaviour to facilitate a specific policy objective; it is not to give the Government ongoing leverage over how a company conducts its affairs. It is for other areas of law to set out the limits of what is acceptable corporate behaviour. None the less, because the subsidy is there to have that specific policy objective, we will make sure that that policy objective is met as best we can. However, it is difficult to enforce—

[Seema Malhotra]

I am grateful to the Minister for his consideration of this point, but will he clarify whether a company that breaks the law and does not meet minimum standards on employment law, on environmental law or in other areas could still be in receipt of public subsidies through the subsidy control regime?

[Paul Scully]

It is difficult to come up with the examples, but in essence a subsidy is there to determine a particular policy objective. We would want to partner with businesses and companies that are most likely to deliver those policy objectives: reliable partners. Clearly, ones that are in breach of the kind of examples that the hon. Lady mentions are less likely to be those reliable partners. Technically, she is correct, but this is about how we enforce something, probably after the event; similarly, had we given P&O Ferries a subsidy last year, we probably would not have been able to get that subsidy back. That is the difficulty with enforcement after the event. None the less, the sentiment is absolutely there: we do not want to be partnering with unreliable companies to achieve our policy objectives.

[Paul Scully]

We will work out how the subsidy control regime is working; it is part of what I will come back to in a moment about the CMA’s approach to reporting back how the regime is working. We have to make sure that this is watertight—excuse the pun—if we are going to go down the road of making sure that we can recover any subsidies. I suspect that other areas of law will be better suited to approaching that, rather than specifically dealing with it within this framework Bill.

[Seema Malhotra]

I am conscious of time, but let me make this brief point, for clarity. There is an important distinction between companies or businesses with which the Government may be working to achieve policy objectives, and their eligibility still to receive public subsidies, potentially to the tune of hundreds of thousands of pounds or millions, where they have explicitly even admitted to this House that they have broken employment law. There is an important distinction here about how public money could be spent and about rewarding those who have behaved badly.

[Paul Scully]

I thank the hon. Lady for her intervention. This is what I mean about using other areas of law; other areas testing the value of the use of public money will be better suited for addressing exactly those points, but I very much take the one she makes.

Oral Answers to Questions

Debate between Paul Scully and Seema Malhotra

Tuesday 29th March 2022 Commons Chamber

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

Businesses face a barrage of rising costs: inflation at a 30-year high, taxation at an 80-year high, and rocketing prices for materials, energy, food and fuel that are hitting businesses and consumers hard. This is a Government of photo ops but shuttered shops, with no clear plan to support businesses and workers, and their spring statement does not go far enough. Does that not make Labour’s call for an increase to the small business rates relief threshold even more urgent? Or is the truth not plain to see that small businesses can no longer afford the Conservatives?

[Paul Scully]

Nobody—whether in a domestic or business setting—can afford Labour. We have put £408 billion of support into wrapping our arms around jobs, livelihoods and businesses. We have 408 billion reasons to get this next bit right. The Labour party can talk about scrapping business rates, but it has not made any suggestion of what to replace them with. Fine words, but we will act.

Commercial Rent (Coronavirus) Bill

Debate between Paul Scully and Seema Malhotra

Consideration of Lords amendments
Wednesday 23rd March 2022 Commons Chamber

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

I thank the Minister for the chance to raise issues with him earlier. I also thank colleagues in this House and the other place, as well as staff and all those who gave evidence to the Public Bill Committee.

As the Opposition have laid out here and in the other place, Labour has consistently recognised the need for a fair arbitration process to deal with the significant commercial rent arrears that have accrued during the pandemic. Our amendments were intended to strengthen and clarify the legislation, so that the new regime can be effective, accessible and affordable, and can fairly balance the interests of landlords and tenants.

Throughout the Bill’s passage, we have been clear that no otherwise viable business should face an overwhelming burden as a result of rent arrears that threaten its future. Likewise, commercial landlords must have access to clear mechanisms for recouping appropriate levels of arrears. The guiding principles in the process must ultimately be fairness for landlords and tenants alike, and the long-term interests of British businesses and jobs. I pay tribute to the landlords and tenants who have not waited for the Bill to make it to the statute book, but have used the time to work together in good faith in order to come to an agreement.

We should be clear that commercial rent arrears are just one of the challenges that many businesses face. With today’s announcement that inflation is at a 30-year high, many firms up and down our country face a cost-of-doing-business crisis. Labour recognises how difficult the past two years have been for businesses up and down the country. Sectors of our economy such as aviation, live events, travel and tourism have been hit particularly hard.

The Lords amendments, which are all Government amendments, help to clarify the Bill. In our view, they also give appropriate powers to the Welsh Government; we know that discussions were undertaken. The amendments improve the Bill and we support them all, but there are still a number of areas on which I would welcome clarity and assurances from the Minister on how the Government will move forward.

First, we continue to be concerned that the Bill contains no limits on the costs of arbitration. We cannot let high arbitration fees, or concerns that fees will be prohibitive, deter landlords and tenants from using the processes established under the Bill to achieve a fair solution. That would be a failure of policy and of planning.

We have previously called for a cap on fees, but the Government did not accept that proposal. I note that the Minister in the other place said a cap could be imposed if there was evidence that it was needed, but I should be grateful if this Minister would specify his intentions in that regard. Will he update the House on when guidance on the costs of the arbitration process will be published? Will he also confirm that Lords amendment 18—which relates to schedule 1—effectively limits the liability of the arbitral bodies in the discharging of their duties under the Bill, which is what I understood from his comments?

Ensuring the quality of arbitration is important, and we have consistently called for the Government to explain how they will ensure that there are sufficient numbers of arbitrators to handle the volumes of cases under the scheme. What discussions has the Minister had with the arbitral bodies on their capacity, and on maintaining a sufficient number of arbitrators with the necessary skills and experience, and what quality assurance does he expect will be in place? It is important to have reassurances on these issues, especially in view of the limitation of liability that we have put into the Bill.

Finally on this issue, let me say that the arbitration process will not carry confidence unless the decisions are demonstrably fair and there is consistency of assessment. The Minister will know that business organisations had particular concerns about how the “viability of the business” would be established. Viability is referred to in some of the draft guidance published in February, but what review has the Minister undertaken of that guidance with stakeholders, and when will he finalise the guidance that will accompany the Act?

Let me turn briefly to the detail of the Lords amendments. The Bill, which applies largely to England and Wales, confers a number of powers on the Secretary of State in respect of Wales. Lords amendments 1, 3 and 10 are designed to ensure that different provisions can be made in relation to Welsh and English business tenancies. Lords amendment 3 clarifies that the power to extend the time limit for arbitration can be exercised separately for English and Welsh businesses, which is an improvement, while Lords amendment 10 allows the Secretary of State to reapply the Act to both England and Wales, or to just one of the nations.

Similarly, Lords amendments 4, 6 to 8 and 17 give Wales increased powers to extend the moratorium period, which is the period in which tenants have protection against enforcement action by the landlord in relation to covid rent arrears. This must, of course, be a process that works for both England and Wales, but also, looking at the Bill overall, for Scotland and Northern Ireland, in so far as there are limited provisions that apply to those nations.

Lords amendment 8 inserts a new clause requiring the Welsh Government to consent to any extension of the moratorium period for Welsh business tenancies under clause 23. It states that this moratorium period must be the same length as the arbitration period. Lords amendments 6 and 7 allow for the new clause specified in Lords amendment 8 by proposing that the current moratorium period should be six months long, rather than being tied to the arbitration period. This change allows for different moratorium periods to apply in England and Wales. We support those changes because we recognise that the Welsh Government should have a say in the extension of the moratorium period in Wales.

Lords amendments 12 to 14 were tabled in response to the report by the Delegated Powers and Regulatory Reform Committee. Lords amendment 12 removes the Government’s power to specify certain parts of the legislation that would not apply if the Bill itself were reapplied. Previously, the Minister would have had the power to pick and choose which parts of the Bill were reintroduced or reapplied, but Lords amendment 13 ensures that the Government can make modifications to a reapplication of the Bill only if they are “necessary”. That is important for the role of Parliament and the Welsh Senedd.

Lords amendment 15 allows the Minister to reapply the Bill in Wales only with the consent of the Welsh Government. Lords amendment 14 allows different provisions to be made in England and Wales during reapplication. Labour supports these amendments, and it is important that the Government have listened to the concerns of the Delegated Powers and Regulatory Reform Committee, which is a respected voice on these matters.

We are also pleased to see Lords amendments 5 and 19, which ensure that neither the tenant nor guarantors nor previous tenants are liable for any protected rent debt that an arbitrator has cancelled. Similarly, Lords amendment 20 ensures that neither the tenant nor guarantors nor previous tenants can be subject to winding-up petitions or bankruptcy orders for protected rent during the moratorium period. On Second Reading, I raised Labour’s concerns about ensuring that not only tenants but anyone liable for their rent are protected during the moratorium period, so I am pleased that these amendments support that protection.

Lords amendment 2 ensures that the provisions in clause 4, specifying closure requirements, apply to the closure of businesses and premises. On Third Reading, I raised concerns that businesses that no longer occupied the premises—because, for example, the pandemic had made a particular location unprofitable—would not be able to access the arbitration process. We are pleased to see this amendment, which ensures that the Bill explicitly allows such businesses to benefit from the provisions in this legislation.

In conclusion, the Lords amendments make some important changes to the Bill. They rightly increase the powers of the Welsh Government over this legislation, provide appropriate constitutional limits to the Government’s powers on reapplying the Bill, and ensure that tenants, guarantors and previous tenants are all protected during the moratorium period. However, Minister should provide further assurances in connection with these amendments—for example, on the cost of the arbitration process, and on ensuring that arbitrators apply the measures consistently across cases. Nevertheless, Labour supports all the Lords amendments. We support the Bill’s passage to Royal Assent and look forward to its implementation as soon as possible.

[Paul Scully]

I thank the hon. Lady for her contribution today, and for the way in which she has engaged with me and the Bill team. I also thank other Members across the House for their contributions. The Bill’s passage through both Houses has been a positive and collaborative process, and that is testament to its importance in supporting businesses in recovering from the ongoing impacts of the pandemic. The amendments made in the other place were made for good reason and will serve only to improve the Bill. Let me spend a couple of minutes trying to answer the questions that she has rightly and understandably raised.

The hon. Lady talked about the cost of arbitration. We want to ensure, as best we can, that arbitration fees are predictable and affordable. We have discussed this at length at various stages of the Bill, with good reason. The Bill aims to support both tenants and landlords in resolving rent debt, and it is therefore important that the scheme remains affordable and accessible. Approved arbitration bodies will have the function of setting arbitration fees, and they have the expertise to set them at a level that will ensure that the scheme is affordable while also incentivising arbitrators to deliver the scheme in good time. In the interests of transparency and accessibility, the bodies must publish the details of the arbitration fees on their websites, so that the applicant will know in advance how much it will cost to go to arbitration.

We will monitor the affordability of the scheme by engaging regularly with arbitration bodies, as well as with tenants and landlords. We will be able to judge how things are going by those early cases going through the process. The Secretary of State has the power to cap fees, should they become unaffordable. That power can be used where necessary, but it cannot used prematurely, because we do not want to reduce the number of arbitrators available to act, thereby risking the delivery of the scheme.

The hon. Lady talked about guidance on costs and the viability of businesses. I assured the House that we would bring forward guidance for arbitrators, and we are looking to expedite that, so that it happens within a couple of weeks of the Bill receiving Royal Assent. I am pleased to say that we have published the draft guidance, which is on the Government website, in order to gather feedback from the arbitrators. That addresses viability clearly by setting out a non-exhaustive list of evidence that an arbitrator could have regard to in assessing viability. The final version of the guidance will be published shortly after Royal Assent. Viability is deliberately not defined, because of the vast array of different business models, both within and between sectors.

Economic Crime (Transparency and Enforcement) Bill

Debate between Paul Scully and Seema Malhotra

Committee stage
Monday 7th March 2022 Commons Chamber

[Paul Scully]

We will be moving on it so that it does apply in Northern Ireland. It is really important that we get this running so that there is no hiding place in any part of the UK for dirty money. It is important that we all work together on this, and I am really pleased about the positive nature of that work.

In that spirit of working together to strengthen and accelerate this package, I urge all parties to accept our Government amendments. I commend them to the Committee.

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

On my own behalf and on behalf of my hon. Friend the Member for Halifax (Holly Lynch), it is a pleasure to speak in support of the amendments tabled in our names and the name of the Leader of the Opposition. I echo the sentiments that the Minister expressed about the horror of what is happening in Ukraine and about the importance of today’s debate. We stand in solidarity with the people of Ukraine.

We need the Bill to succeed and to achieve its goals. The Government have dragged their feet on stopping dirty money flowing through our economy. These measures were first promised six years ago, and even now the Bill will be implemented too slowly and with serious loopholes. I thank the Minister for our conversation last week and for tabling amendments that recognise Labour’s concerns about the Bill, but key problems remain.

Time is tight, so I will keep my remarks brief on our amendments and our concerns about the Bill. Part 1, “Registration of overseas entities”, establishes a public register of beneficial owners of foreign entities that own or buy land in the UK. Far too many corrupt individuals are currently hiding their identity behind a foreign company. Under the Bill, a foreign entity need only annually update its entry on the register. We are concerned that that gives the opportunity to register an entity in a non-controversial individual’s name, change the beneficial owner the following day and have 12 months before having to declare the change, by which time property can be sold and money laundered without a record.

The integrity and quality of the data on the register will matter. From the start, the register needs a framework of rules that commands confidence and ensures the completeness and accuracy of information, so our amendments 5 and 6 to clause 7 would require that entries on the register be updated within 14 days of any trigger event, namely the change or removal of a beneficial owner. UK companies have clear obligations to notify Companies House in the days after an ownership change, so why do overseas entities have a year to do the same? Have the Government considered that issue? What measures will they take to address it?

Our amendments 7 and 8 to clause 8 relate to the £500 fine that the Bill would impose on entities that fail to update the register. The idea that such a fine would deter those who fail to comply is frankly ridiculous, so we support Government amendments 45 and 46, which directly replace ours and will raise the fine to at least £2,500 a day.

Our amendments 10 to 12 focus on verification. The Government have accepted Labour’s argument that a verification process needs to be established before the register is operational, so they have tabled amendment 49, which we support. It was unacceptable that the register would have become operational without verification regulations. Will the Minister therefore confirm when the secondary legislation that is needed to design that verification process will be published?

Labour has a wider concern that the Government have not yet addressed. The Bill does not stipulate that verification must take place between an application being made and the registrar entering the overseas entity on the register and allocating an overseas entity ID. We are clear that the regulations that the Government introduce must specify that the registrar must take action to verify the registrable beneficial owners before an entity is put on the register; it is not good enough to rely on the compliance of the entity itself. I would be grateful if the Minister confirmed that point.

Our amendments 15 to 17 would shorten the transitional period. We urgently need to close in on Putin’s cronies who have illicit money in our economy. This is about not just oligarchs, but money launderers and tax evaders. We need to know where the money is and who owns what in Britain. Transparency is vital and the register is essential.

The Government have seen some sense and have reduced the transitional period from 18 months to six months, but we are not being unreasonable in saying that it should be 28 days. As my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) said, this legislation was promised by David Cameron in 2016 and began its passage in 2018, so when we say 28 days, we really mean 28 days plus the preceding six years. Six months still provides ample time for criminals to sell properties and find other assets in which to invest—a concern that has rightly been raised by hon. Members, including in today’s manuscript amendments. Labour’s amendments 15, 16 and 17 to schedules 3 and 4 would reduce the transitional period to 28 days, which in our view would provide enough time for overseas entities to get documents in order, while recognising the need to act urgently.

But that is not enough. It is unacceptable to say that the Bill applies not to all properties owned by overseas entities, but only to those bought after 1999 in England and Wales and after 2014—just eight years ago—in Scotland. It does not matter whether corrupt oligarchs bought property four weeks or four decades ago; the point is that UK property should not be used as a vehicle for money laundering. Under Labour’s amendments 9, 13 and 14, all foreign-bought properties would fall within the Bill’s scope, regardless of when they were purchased. We recognise that registering properties bought before 1999 in England and Wales or 2014 in Scotland may take more time, for reasons that the Minister has discussed, so our new clause 6 would allow an 18-month transitional period for such properties, but it is important that we make sure that they are included in the scope of the Bill.

I turn to reform of Companies House. Changes to Companies House’s regulation are long overdue. It beggars belief that despite how long the issue has been on the agenda, all we have had from the Government in the past week is a White Paper. I know that the Minister knows this is urgent. The legal framework in which Companies House operates needs an overhaul. It has been called for by business, by law enforcement agencies and by civil society. Companies House is a key tool in our fight against economic crime. That is why Labour has tabled new clause 7, which would require that the Secretary of State lay draft legislation on Companies House reform within 28 days of this Act coming into force. I acknowledge the arguments being made by the hon. Member for Glasgow Central (Alison Thewliss) in new clause 4 on some of the areas associated with Companies House reform and verification.

Let me turn briefly to parts 2 and 3 of the Bill, which relate to unexplained wealth orders and the Sanctions and Anti-Money Laundering Act 2018. Since their introduction in January 2018, UWOs have failed to live up to expectations. The Government expected them to be used 20 times a year, but the National Crime Agency has so far obtained only nine, with none in the past two years. We welcome measures to make these orders more effective. Clause 40 grants enforcement agencies the ability to apply for more time to consider the information related to UWOs. The Government have accepted the principle of Labour’s new clause 8, which would require an annual update to be made to the House on the use of UWOs, in their new clause 31. However, these changes on their own will not lead to more effective use of UWOs.

The Prime Minister announced the creation of a combating kleptocracy cell in the NCA, which is welcome. However, money laundering prosecutions have dropped by 38% in the past five years and the NCA’s budget has dropped by 4.2% in real terms since 2016. As the Treasury Committee made clear in January, on financial crime there is a “mismatch” between the scale of the problem and the Government’s response. We all recall as well the Business Secretary’s suggestion that fraud is not a crime affecting most people—he could not be more wrong. Economic crime affects us all, and the Government must match the reforms with adequate resources. So our new clause 30 calls on the Government to create a funding plan that sees enforcement and investigative agencies benefit from the assets seized. The Government have so far failed to adequately resource this vital work, but this new clause would allow for a rebalancing of the risk appetite, which the Government are seeking to address with their cost capping proposal in clauses 46 and 47.

The Government have also accepted, with their amendments 59 to 62 and new clauses 32 and 40, Labour’s argument that the designation process under the 2018 Act was not fit for purpose. It cannot be right that the UK is slower at targeting oligarchs who prop up Putin than the EU, where unanimity is required across 27 member states. It is also worth noting that in all four of the NCA’s high-profile dirty money cases brought in the past two years, all of those under investigation had entered the UK with a golden visa. We have not tolerated dirty money but courted it. We must amend the Act to remove the barriers that stop the UK keeping pace with allies on Russian sanctions. We are pleased that the Government have agreed with us on that, and we expect to see the raft of promised designations soon.

Finally, important amendments have also been tabled by my hon. Friends the Members for Rhondda (Chris Bryant) and for Walthamstow (Stella Creasy), my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the right hon. Member for Haltemprice and Howden (Mr Davis). I thank colleagues, including my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne), for their commitment and work on tackling economic crime. We support amendments 26, 27, 37 and 38, new clauses 2 and 9, and new clause 29, among others. They would tighten up the register requirements and enforcement; address the issue of a lack of resources; and strengthen the effectiveness and powers of the registrar.

This Bill is long overdue and we support its passage. We acknowledge that the Government have taken on board a number of our amendments in the past few days, but we know that a lot more needs to be done. I cannot stress enough how important it is that the UK acts now and acts effectively to start to put right our embarrassing reputation as an international soft touch on fraud and money laundering. Putin and those who prop him up should have nowhere to hide, least of all in the UK. I hope that Members from across the House will support us in the proposals we have put forward to improve the Bill.

Post Office: Horizon Compensation Arrangements

Debate between Paul Scully and Seema Malhotra

Thursday 24th February 2022 Commons Chamber

[Paul Scully]

I thank my hon. Friend for his work in the campaign for both his constituent and for many other sub-postmasters across the country, and I thank the right hon. Member for North Durham (Mr Jones), whom my h F mentioned, and James Arbuthnot—Lord Arbuthnot—to whom I spoke earlier this week. I have spoken to Nick Read, the chief executive of the Post Office, and officials about this because, as I was quoted as saying in The Times last week, this, of all my wide range of responsibilities, is the one area that keeps me awake at night and absolutely drives me to get resolution.

My hon. Friend asked about the 555 and our commitment. As I have said, the 555 have been pioneers in this area, and I will absolutely work at speed. I do not want this to go on a moment longer than necessary, which is why we have tried to do everything we can to short-circuit any bureaucratic processes to be able to get on and compensate everybody fairly. The 555 postmasters who secured the group litigation order exposed this whole scandal by taking the Post Office to the High Court, and they performed a massive public service by doing so. I have written to the Select Committee with details of the costs and the preparations we have made with the Treasury.

When talking about this legally complex issue, we must remember the timeline of this and the timescale with which we are working. Horizon was installed in 1999, and the prosecutions started in 2000. In 2004, Alan Bates set up the Justice for Subpostmasters Alliance, and in 2009 press reports really started to look into the concerns about those prosecutions. Over this 20-year period, many different Ministers have been involved and there have even been Post Office reorganisations, but now—after this 20-year scandal, frankly—we want to make sure, at pace, that everybody, including the 555, get justice, answers and fair compensation.

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

I, too, thank the hon. Member for North West Leicestershire (Andrew Bridgen) for securing this important urgent question, and I really pay tribute to my right hon. Friend the Member for North Durham (Mr Jones) for all his work on this issue.

The Horizon scandal is perhaps the most devastating miscarriage of justice in British history, damaging the lives of over 700 wrongly convicted sub-postmasters and their families, and the lives of so many who have been affected but have not been convicted. I join the Minister in paying tribute to those postmasters who have been relentless in their quest for justice. As the judge-led inquiry into this scandal has just begun, we have now been hearing extremely moving and devastating testimonies. I recommend that every Member spends time listening to the accounts just to understand how widespread this injustice has been.

Last week’s very important Select Committee report shows that, 12 years on, we are still painfully far from all the sub-postmasters receiving the compensation they deserve. Sadly, 33 of them have died before receiving any recompense. My thoughts and those of the whole House will be with their loved ones.

Given the cripplingly slow pace of justice, I want to press the Government on a few issues. First, without the extraordinary efforts of the 555 litigants, much of what we know would not have come to light. The Minister expressed his sympathy, but as Labour has pushed for time and again, will he now confirm that this group will be able to claim the compensation that is due, as he has hinted, and if so, when? Secondly, a year on from the historical shortfall scheme closing—I understand that over 2,500 have applied—only 30% of claims have been processed. Can the Minister outline what steps he is taking to hold the Post Office to account in urgently getting through this backlog, and can he clarify the definition of “eligible” that he stated? Finally, could he provide the House with an update on how long it will be before we get closure on compensation for all those affected?

The Minister is right that we will need to learn the lessons, understand the causes and ensure that this never happens again. The devastating reality of this scandal will be felt by so many families for years. The Government have taken some of the right steps, and we do appreciate that, but justice is not happening quickly enough and it is not going far enough.

[Paul Scully]

I thank the hon. Lady, and I sympathise and empathise with everything she said. I know that for everybody affected, whether the 555 or those who were not prosecuted but lost money, nothing will be quick enough, and there is nothing we can do to restore up to 20 years of hurt and distress. On the 555, yes we want to ensure that those people who broke open the case and were the pioneers get full compensation. I am not yet able to outline a resolution for them, but I am working at pace within my Department, and with our legal representatives, Post Office legal representatives, and those of the Justice For Subpostmasters Alliance. I hope to have news for the hon. Lady as soon as possible.

Again, the historic shortfall scheme is not moving as fast as anybody would like. The Post Office has paid the de minimis cases and the most straightforward, smaller amounts. For the rest, it is working through the early cases, which will then benchmark the value of compensation for others. That will then allow the Post Office to start rattling through these cases a lot quicker. The Post Office says that it wants this to be 95% finished by the end of the year. I want to say 100% by the end of the year, and that is the kind of timescale I am working on.

Commercial Rent (Coronavirus) Bill

Debate between Paul Scully and Seema Malhotra

Wednesday 12th January 2022 Commons Chamber

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

Before I respond to the Opposition amendments, I would first like to thank the hon. Members for Feltham and Heston (Seema Malhotra) and for Brentford and Isleworth (Ruth Cadbury) for their continued constructive engagement with the Bill and for their contributions to date.

The Bill is key to ensuring we support viable businesses that will continue to thrive and contribute to our economy in a way that does not risk the insolvency of their commercial landlords. We remain committed to these principles. The arbitration system is designed to be a quick, effective and impartial solution for rent debts that cannot otherwise be resolved, and we currently expect that all applications for arbitration will be made within six months and that cases should be resolved as soon as practicable afterwards.

Requiring a review of the arbitration process within three months of the Bill being enacted could slow down the process by adding additional steps and requirements for arbitrators that have already proved their suitability for the role. It might also delay the resolution of cases while arbitrators await the findings of the review before making awards.

Under the Bill’s existing provisions, the Secretary of State can already request a report from approved arbitration bodies covering the exercise of their functions under the Bill, including details of awards made and the application of the principles set out in the Bill in the arbitrations they oversee.

Additionally, there is a requirement for arbitrators to publish the detail of awards made, including the reasons behind them. This will show how arbitrators have applied the principles of the Bill in coming to their decisions. We will carefully monitor the position, and if there is a need to revise the guidance, such as to clarify or add new information for arbitrators, the Secretary of State is already able to do so.

I believe that requiring a review would not benefit the aims of the Bill or, indeed, the people who would want to use the new arbitration system to resolve rent disputes, and I therefore hope new clause 1 will be withdrawn.

On amendment 9, as hon. Members will be aware, the Bill defines a business tenancy as a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies—that is to say it is a tenancy comprised of property that is or includes premises that are occupied by the tenant for business purposes. I reassure hon. Members that the Government intend such property to be considered occupied even if it has been mandated to close for some time in full or in part. A tenant will still be in occupation if they are operating their business remotely and intend to return, so I do not believe amendment 9 is necessary. I hope it will be withdrawn.

I should say that we also anticipate courts will take a pragmatic view of occupancy, given the underlying rationale behind the Bill to introduce a system of binding arbitration for businesses that have built up rent debt as a result of Government-mandated closures.

On amendment 13, the operation of approved arbitration bodies follows a market-based policy approach, leaving it to arbitration bodies to manage their internal capacity processes. Our engagement with arbitration bodies suggests that this is the right approach. Looking purely at the number of arbitrators disregards the fact that an arbitrator will be able to take on more than one case at a time. Although the application process will contain a question on the number of arbitrators available, we recognise that this will provide an under-representative picture of capacity in the market, so I am not able to accept the amendment.

On amendment 10, I am grateful to the hon. Members for Feltham and Heston and for Brentford and Isleworth for seeking to ensure consistency between the Bill and the code of practice. I reassure them that the Government’s intention under both the Bill and the code is for the Bill, including the arbitration system it establishes, to come into force as soon as possible. We want the arbitration system to start as soon as possible given its importance to supporting resolution of protected rent debt and a return to normal market operation. The aim remains to bring the Bill, including the arbitration system, into force by 25 March 2022. That is reflected in the code of practice, as updated on 9 November 2021. I am happy to consider whether clarification would be useful within the code. The code outlines the processes and principles that we are seeking to introduce through the Bill. It has given, and continues to give, businesses the opportunity to negotiate in line with those principles until the Bill comes into force.

The March timing is linked to the expiry of the moratorium on forfeiture and the restrictions on use of the commercial rent arrears recovery regime. The Government have been clear that they intend such measures to remain in place until the Bill is passed, if that is earlier than their expiry.

I turn to amendment 14. Clause 11 as it stands must be read with section 34 of the Arbitration Act 1996, which states:

“It shall be for the tribunal to decide all procedural and evidential matters”.

That provides arbitrators with the discretion to call for further evidence where that is considered necessary. There is also no express limit in the Bill on the types of evidence that parties can put forward to support their proposals. We are aiming for a quick and efficient process to restore businesses to normality. The aim of requiring supporting evidence is therefore to help focus participants’ minds on the most pertinent evidence that will support their proposals. It will have to be sufficient to show why the proposal is consistent with the principles and should be adopted. That will help arbitrators to resolve cases quickly. A widening of the clause could lead the paper-based arbitration process to become lengthy, inefficient and costly for the parties, who must meet their own legal and other costs.

I turn to amendment 15. As I have previously explained, clause 17 establishes the timeframe for making awards, requiring arbitrators to make an award as soon as is practicable, or within 14 days in the case of an oral hearing. While we expect that most cases will be resolved quickly, the clause also provides arbitrators with the necessary flexibility to take additional time to make decisions on more complicated cases. One or both of the parties may each simply submit one formal proposal that is final, or one or both may decide to submit revised proposals as final proposals. They may also agree to extend the time limit for submitting initial or revised proposals. That means that it is hard for an arbitrator to know exactly when final proposals have been submitted and when the clock on the 14-day time limit would start running.

Arbitrators may need to request further information after receiving proposals. It would therefore be impractical to impose a time limit. Imposing a 14-day time limit for issuing awards following an oral hearing, as the Bill does—although the time limit can be extended—is less problematic because the arbitrator will have seen the final proposals and had time to consider them before the hearing. They also have an opportunity to ask questions about them during the hearing, which would conclude on that set date.

On amendment 16, I agree that fee levels are an important consideration. The Bill adopts a market-based approach. Arbitration bodies are best placed to decide on fee levels given their experience in costing arbitration schemes to make it affordable for all and attractive enough for arbitrators to want to take on cases. The Secretary of State’s powers are intended to be used only when circumstances determine that to be appropriate. Setting a limit on fees at this point could reduce the number of arbitrators able to act, which could undermine the arbitration mechanism in the Bill. There is no evidence that such a limit is needed. However, if it is, the Secretary of State is prepared to exercise the power as appropriate based on the available evidence.

On amendments 11 and 12, I agree that it is important to encourage behaviour in line with the code of practice and the Bill’s general principles. A key aim of the Bill is to restore businesses to normality as quickly as possible. We have carefully designed the process with arbitrators to make it quick and cheap to navigate, and accessible without further support. The amendments, however, could result in prolonged arguments on costs, appeals and enforcement, delaying a return to that normality that we all seek. They could also encourage the use of legal and other support where that is not needed, lengthening the time to resolution and potentially increasing costs for all parties.

The amendments could create a situation in which one party’s viability or solvency could be endangered through having to pay costs other than arbitration fees. Widening the discretion to include other costs could also lead to an uneven playing field, especially for smaller businesses who could end up paying high legal costs for larger companies. Under the Bill, the arbitrator has discretion to deviate from the general rule of evenly splitting the costs of arbitration fees between parties where appropriate, based on the circumstances of the case, such as when one party has not reasonably co-operated.

On amendment 17, the Bill as drafted allows for a stay of debt claims that include ringfenced debt and are issued between 10 November 2021 and the Bill coming into force. The Bill enables ringfenced debt under those claims and under judgments made in respect of such claims to be subject to arbitration. I understand the concern about the date, but it is not an arbitrary date, because 10 November 2021 follows the Bill’s introduction and the Government’s announcement of the policy. The Bill seeks to introduce proportionate measures that address the interests of both landlords and tenants, whereas the amendment would allow for arbitration of protected debt which was subject to earlier proceedings or judgments when the parties could not have known that this was proposed at the time when the proceedings were issued, so reopening those situations.

Let me now deal with the technical amendments tabled by the Government and the substantive amendment that we are tabling at the request of the Northern Ireland Assembly. Amendments 1 and 2 are technical amendments to make it clear that the definition of “service charge” in clause 2 covers both fixed and variable costs, as well as costs incurred by the landlord insuring against loss of rent. That has always been our intention, and the amendments help to make it clear, ensuring that all relevant costs and charges are within the scope of the arbitration process.

Technical Government amendments 3 and 8 make it clear that the provisions of clauses 10 and 24, in so far as they relate to company voluntary arrangements or certain restructurings, apply to limited liability partnerships. That is in addition to their usual application to companies. These are minor clarificatory amendments to improve the technical drafting of the Bill.

Amendments 4 to 7 are minor and technical, and clarify the operation of arbitration and all hearing fees and expenses. Amendments 4 and 7 make it clear that the general rule is that the party that has paid fees is to be reimbursed half the amount by the other party, but where appropriate, the arbitrator may determine a different proportion, including zero. Amendment 5 makes a small correction to clause 19(6) to make it clear that except for reimbursement of arbitration or oral hearing fees, a party must meet its own legal or other costs. Amendment 6 makes it clear that costs incurred in connection with arbitration are not recoverable under an existing clause in the lease. Allowing cost recovery via the lease concerned would undermine the specific provisions in the Bill on fees, expenses and costs. It would also put the party able to rely on the lease terms at an advantage, as they could be more confident about investing money in their case, in the knowledge that the costs could ultimately be recovered from the other party. In addition, allowing this could potentially put the viability of the other party at risk, even when an arbitral award had been handed down in that other party’s favour.

I turn now to amendments 18 and 19. The Northern Ireland Department of Finance and Department for the Economy have requested the removal of the existing delegated power for them to make regulations for purposes corresponding to the purposes of the Bill, set out in clause 28. This decision was taken for several reasons, which include the availability of existing dispute resolution facilities, plus a lack of compelling evidence that rent debt in Northern Ireland is on a scale to require additional measures. The rationale for the policy in England and Wales remains strong, and this is where our evidence of rent arrears threatening jobs and business insolvency is focused. The removal of clause 28 necessitates an amendment to the Extent provision in clause 30(2), which currently refers to this provision.

Amendments 20 and 21 ensure that clause 24(4) extends to Northern Ireland in relation to company compromises and arrangements, but not company voluntary arrangements. That reflects the territorial extent of the Companies Act 2006 referred to in this provision.

I commend the amendments to the House.

[Seema Malhotra]

On the basis of the Minister’s comments, particularly those relating to ongoing review, and other comments relating to the amendments, I beg to ask leave to withdraw new clause 1.

Clause, by leave, withdrawn.

Clause 2

“Rent” and “business tenancy”

Amendments made: 1, page 2, line 19, leave out sub-paragraph (ii) and insert—

(ii) which is a fixed amount or an amount that varies or may vary according to the relevant costs (or a combination of the two),”.

This amendment clarifies that the expression “service charge” includes any amount payable under the terms of a tenancy for something mentioned in clause 2(2)(c)(i), whether it is a fixed amount or a variable amount (or a combination of a fixed part and a variable part).

Amendment 2, page 2, line 22, leave out from “costs”” to “in” and insert

“includes costs incurred by the landlord in connection with insuring against loss of rent or”.

This amendment clarifies that the costs of insurance against loss of rent are within the expression “service charge”, in addition to insurance costs relating to the demised premises and any common parts.

Clause 10

Requirements for making a reference to arbitration

Amendment made: 3, page 8, line 12, at end insert

“(as well as to companies).”

This is a drafting amendment to make clear that clause 10(6) (which applies provisions of the clause to LLPs) operates in addition to the rest of the clause

Clause 19

Arbitration fees and expenses

Amendments made: 4, page 12, leave out lines 14 to 18 and insert

“(subject to subsection (5A)) also make an award requiring the other party to reimburse the applicant for half the arbitration fees paid under subsection (4).

‘(5A) The general rule in subsection (5) does not apply if the arbitrator considers it more appropriate in the circumstances of the case to award a different proportion (which may be zero).’”

This amendment clarifies that the rule in the current clause 19(5)(a) (that the party paying the arbitration fees is to be reimbursed half of the amount) is the general rule, although the arbitrator is able to determine a different proportion, including zero, where appropriate.

Amendment 5, page 12, line 19, leave out “Otherwise” and insert

“Except as provided by subsection (5) and section 20(6),”.

This corrects a small error in clause 19(6). The word “Otherwise” at the start of clause 19(6) currently refers back to clause 19(5), but it also needs to take account of the provisions of clause 20(6) which makes provision corresponding to clause 19(5) for oral hearing fees.

Amendment 6, page 12, line 19, at end insert —

“(6A) Legal or other costs incurred in connection with arbitration (including arbitration fees) are not recoverable by virtue of any term of the business tenancy concerned.”

The amendment clarifies that arbitration costs are not recoverable under a tenancy term enabling recovery of enforcement costs relating to a breach of covenant under the tenancy. The parties’ rights and obligations in relation to arbitration costs are governed by clauses 19 and 20.

Clause 20

Oral hearings

Amendment made: 7, page 12, leave out lines 36 to 40 and insert

“(subject to subsection (6A)) also make an award requiring the other party to reimburse the applicant for half the hearing fees.

‘(6A) The general rule in subsection (6) does not apply if the arbitrator considers it more appropriate in all the circumstances to award a different proportion (which may be zero).’”

This amendment clarifies that the rule in the current clause 20(6)(a) (that the party paying the oral hearing fees is to be reimbursed half of the amount) is the general rule, although the arbitrator is able to determine a different proportion, including zero, where appropriate.

Clause 24

Temporary restriction on initiating certain insolvency arrangements

Amendment made: 8, page 14, line 37, at end insert

“(as well as to companies).”

This is a drafting amendment to make clear that clause 24(4) (which applies provisions of the clause to LLPs) operates in addition to the rest of the clause.

Clause 28

Power to make corresponding provision in Northern Ireland

Amendment made: 18, page 15, line 33, leave out clause 28.

The responsible Northern Ireland minister has informed Her Majesty’s Government that the powers to be conferred by clause 28 are no longer needed. This amendment would omit the clause, which would otherwise require the approval of a Legislative Consent Motion in the Northern Ireland Assembly.

Clause 30

Extent, Commencement and Short Title

Amendments made: 19, page 16, leave out lines 14 and 15.

The reference in clause 30(2) to clause 28 is no longer correct if clause 28 is left out of the Bill. The rest of clause 30(2) (which provides that Part 4 of the Bill extends to the whole of the UK) is reproduced in Amendment 20, so the whole of clause 30(2) can be omitted.

Amendment 20, page 16, leave out lines 18 and 19 and insert—

“(a) in section 24—

(i) subsections (1), (2)(c) and (3), and

(ii) subsection (4) so far as relating to a compromise or arrangement under section 899 or 901F of the Companies Act 2006,

(b) Part 1 so far as relating to the provisions mentioned in paragraph (a), and

(c) this Part.”

This amendment and Amendment 21 secure that clause 24(4) extends to Northern Ireland in relation to company compromises and arrangements, but not company voluntary arrangements. This is for consistency with the extent of the legislation covering those matters.

Amendment 21, page 16, leave out line 21 and insert—

“(a) in section 24—

(i) subsection (2)(a), and

(ii) subsection (4) so far as relating to a company voluntary arrangement,”.—(Paul Scully.)

See the explanatory statement for Amendment 20.

Third Reading

Queen’s consent signified.

Oral Answers to Questions

Debate between Paul Scully and Seema Malhotra

Tuesday 11th January 2022 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

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

Tory failures on the economy now show all too clearly that the Tories are no longer the party of business. Business taxes and costs are rising, revenues and profits are falling, and businesses face a cliff edge in March as support is withdrawn. Yet when hospitality businesses were losing, on average, £10,000 a week, the Chancellor was in California, with the Business Secretary nowhere to be seen. Does the Minister agree that hospitality businesses, hit hard by covid and Government chaos, need more than the one-off grants finally announced, and will he now back Labour’s calls for the Government to consider extending the VAT discount for hospitality?

[Paul Scully]

This Government continue to be the Government and the party for businesses, and that includes the hard-pressed hospitality sector, which is such a crucial part of the ecosystem of our high streets, our cities, and our coastal and rural areas. The Secretary of State and I spoke to hospitality sector representatives of all kinds within hours of the announcement of the move to plan B ahead of Christmas, and we will continue to support them as best we can.

Commercial Rent (Coronavirus) Bill (Fourth sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 14th December 2021 Public Bill Committees

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

As usual, Mr Hosie, it is a pleasure to serve under your chairmanship.

The clause sets out what awards an arbitrator may make following a reference to arbitration. It provides clarity to arbitrators and parties considering arbitration about the criteria for successful referral.

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

It is pleasure to serve under your chairship, Mr Hosie.

Subsection (3) requires an arbitrator to dismiss a reference if they find that the tenant’s business “is not viable” and

“would not be viable even if the tenant were to be given relief from payment”.

Will the Minister say more about what constitute viable and unviable businesses? Groups representing the hospitality sector, for example, have made it clear that the seasonal nature of their businesses should be reflected in the viability test. As well as being provided with guidance, arbitrators should also have the right level of flexibility.

[Paul Scully]

I am happy to give the hon. Lady that assurance. The reason why we do not have a specific definition of what constitutes viability or affordability is that businesses models vary greatly, including with seasonality, and within and between sectors. Under clause 16, which we will consider later, we include factors that the arbitrator should consider when assessing the viability of the tenant’s business.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Arbitrator’s award on the matter of relief from payment

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

[Paul Scully]

The Bill contains principles that are key to ensuring that rent debt is resolved in a proportionate way for tenants and landlords. The clause sets out how arbitrators must consider those principles when making an award under the Bill.

[Seema Malhotra]

I have a couple of questions about the clause. First, will the Minister clarify why the Government have chosen to make the repayment time under subsection (7) 24 months? Has he concluded that that will be sufficient time for businesses to repay what they owe, even if further covid restrictions are put in place? The current circumstances are a cause for concern to businesses that have seen revenues drop while costs continue. Secondly, reflecting the concerns of stakeholders including the Pubs Advisory Service, will the Minister clarify whether subsection (2) implies that the arbitrator will consider only the final proposal when making the award, or will they consider all proposals made by both parties in the round?

[Paul Scully]

In awards that give tenants time to repay the debt, tenants will have no longer than 24 months to do so. That recognises that additional time to repay may help businesses to recover and start to trade as normal, while ensuring that the issue of rent debts does not drag on unnecessarily. As for how it works, the scheme uses a key aspect of pension arbitration, by which each may propose a financial solution to pay protected rent, and the arbitrator will select the proposal that is most consistent with the principles set out in the Bill, assuming that one at least follows those principles. Otherwise, the arbitrator must make whatever award the arbitrator considers appropriate when applying the principles.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Arbitrator’s principles

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

--- Later in debate ---

[Seema Malhotra]

New clause 1 is a probing amendment. It would require the Secretary of State to conduct a review of awards to assess whether sections 15 and 16 of the Act have been interpreted consistently and to publish or amend guidance as necessary. We have heard issues raised about the interpretation of viability of businesses and making sure there is enough experience with arbitrators to ensure a consistent approach to resolving rent debt. In tabling the new clause we are seeking a review. It is helpful to know if the Secretary of State is seeking feedback on how the system is working and whether there are inconsistencies identified, which may require further guidance to be given to arbitrators about the exercise of their functions under the Bill. That is in the interest of strengthening the regime and trust in it among tenants and landlords alike. I would be grateful for the Minister’s comments on what feedback process he is expecting to see otherwise, so that we can make sure there is learning through the system and that it works effectively.

[Paul Scully]

We are committed to the principles in the Bill. That is why we have included them in the legislation. We will require arbitrators to follow them in their work. Arbitration bodies will only appoint arbitrators that are considered suitable to carry out arbitration as set out in the Bill. These bodies also have the power to oversee any arbitration when an arbitrator is appointed.

The arbitration system is designed to be a quick, effective and impartial solution to rent debts that cannot otherwise be resolved. Requiring a review of the arbitration process within three months of the Bill being in force could slow that process down. It may add additional steps and requirements for arbitrators who have already proven their suitability and impartiality for the role. It may postpone the appointment of arbitrators, further delaying cases if arbitration bodies must await the findings of the review before acting.

If new or revised guidance were required following a review, it would take additional time to produce and would not be in place for many cases referred to arbitration. We currently expect that all applications to arbitration would be made within six months and that cases should be resolved as soon as practicable afterward. Under the Bill’s provisions, the Secretary of State can also request a report from approved arbitration bodies covering the exercise of their functions under the Bill, including details on awards made and the application of the principles set out in the Bill on arbitrations they oversee.

There is a requirement for arbitrators to publish details of awards made, including the reasons behind it. That will show how arbitrators have applied the principles in the Bill to come to their decision. If there is any need to revise the guidance, for example to clarify or add new information for arbitrators, the Secretary of State is already able to do so. In summary, the Bill already contains several ways of monitoring the application of its principles. If the need arises, guidance can be updated to ensure that arbitrators have the information required to carry out their work. I do not believe that a required review would benefit the aims of the Bill. Therefore, I hope the hon. Member will withdraw her new clause.

[Seema Malhotra]

On the basis that there are other mechanisms that the Minister will—I use the word will—be using to ensure that there is feedback from the system, we will not push the new clause to a vote today. However, I do think it will be important to keep this under review. I expect that on Report in the new year, when circumstances might be different, we may want to look again at some of these amendments.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clause 16

Arbitrator: assessment of “viability” and “solvency”

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

[Paul Scully]

The clause is important because it relates to the key principles of viability and solvency that underpin the arbitration process. Arbitrators must ensure that an award maintains or restores a business’s viability as long as it is considered that it would be preserving a landlord’s solvency.

[Seema Malhotra]

Subsection (2) lists factors to which an arbitrator may have to have regard when assessing landlord solvency, so far as the information is known. Could the Minister confirm whether further details about this evidence will be released by the Government? Again, I am just asking about consistency in the arbitration process.

Subsection 3 states that the arbitrator must disregard the possibility of either party borrowing money or restructuring their business. We support this measure and think it will contribute to ensuring that the arbitration process is fair. However, if would be helpful to hear some clarification on the regulations outlined in clause 16, and what further guidance will be forthcoming.

[Paul Scully]

I have talked about the fact that in this clause there are a number of factors when assessing the viability of a tenant’s business. I would also point the hon. Lady to the code of practice, which is not only for the use of the arbitrator, but for people who fall outside the scope of the Bill. It contains a non-exhaustive list of evidence that can be considered when determining viability and affordability, including existing and anticipated credit debt balance; business performance since March 2020; the tenant’s assets, some of which may be liquid, others of which may be plants or machinery; the position of the tenant with other tenancies; insolvency of a major customer; unexpected retentions or knowledge of a lack of working capital; or loss of key personnel or staff redundancies. Further factors can be found in annex B of the code of practice.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17

Timing of arbitrator’s award

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

--- Later in debate ---

[Seema Malhotra]

We recognise that both businesses and landlords will benefit from prompt solutions to rent debt. Can the Minister explain why a different time frame is appropriate for the making of the award depending on whether an oral hearing is held or not? It would also be helpful if he could explain what

“as soon as reasonably practicable”

means in this context. What would be a reasonable period of time for the award to be made?

Stakeholders have suggested to us that under the pubs code, awards and adjudications can take up to a year to be published. Presumably the Minister can confirm that this would certainly not be reasonable. He has talked in general terms about time limits before, but given that there is no stipulated time limit under clause 17(1), what recourse would the parties have where no award is forthcoming in a timely manner?

[Paul Scully]

Although the applicant making a reference to arbitration must submit a formal proposal, there is the option for the respondent to also submit a formal proposal. Both parties also have the option to submit revised proposals. In addition, some cases may be more complex than others, and the arbitrator may need to ask for further information. The Bill therefore provides that the arbitrator must make the award as soon as reasonably practicable, which will allow for any additional work required because of the complexity of the case. I assure the hon. Lady that we are indeed hoping and expecting such cases to be resolved within a matter of months rather than, as she described in relation to the pubs code, anywhere approaching a year.

When there is a long period, there is a clear date on which the hearing concludes and evidence has been given, so that is why the Bill provides that the arbitrator has 14 days from the day on which the hearing concludes to issue such an award. Some cases that go to oral hearings may have added complexities, so the arbitrator may need more than 14 days to consider arguments, facts and evidence that have arisen. There is a discretion there for the arbitrator to extend the time limit if they consider that it would be reasonable, in all circumstances.

--- Later in debate ---

[Paul Scully]

The arbitrators will be required to publish awards and the reasons for making them in the interest of transparency, but they will also be required to exclude confidential information for anything published, unless notified by the person to whom the information relates that they consent to its publication. Landlords and tenants can ask for confidential information to be redacted.

[Seema Malhotra]

We support the clause and the exclusion of confidential or personal information that may cause harm or concern. Labour believes that the arbitration process established under the Bill should be subject to appropriate transparency, with appropriate safeguards for commercially sensitive or other confidential information. The publication of awards should also support a consistent approach being taken across cases heard under the regime.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Arbitration fees and expenses

--- Later in debate ---

[Seema Malhotra]

I am pleased to move amendment 4, which relates to limits on arbitration fees, and speak to amendment 5, which relates to the accessibility and affordability of the process. We recognise that parties have to meet their legal and other costs, but we believe that arbitration fees and expenses should be proportionate to the arrears that are the subject of the dispute, and that they should not create a significant cost for the parties. I am sure the Minister recognises the harmful effect that a high arbitration cost would have on businesses that are already struggling, and it is only those in very difficult circumstances that are going into the process in the first place.

Clause 19 gives the Secretary of State the discretion to specify ceilings for arbitration fees in secondary legislation. We believe the Secretary of State should make such regulations to provide a cap, which would be the effect of amendment 4. We have also tabled amendment 5, which

“would require the Secretary of State to consider the accessibility and affordability of the arbitration process when specifying limits on arbitration fees.”

That is to ensure that, when setting new limits, the Secretary of State explicitly takes into account how the limits will affect the ability of business tenants and landlords to enter the arbitration process. I hope the Minister recognises the importance of ensuring that arbitration is not too costly for either landlords or tenants, particularly as businesses are again seeing falls in revenues at this stage. There is a cross-party desire to tackle rent debt, but we want the arbitration process to work. For that, businesses must be able to afford to enter the process.

I would be grateful if the Minister could respond to a concern raised by a stakeholder about the fees and costs that the arbitration bodies may apply. I understand that there is a £750 fee associated with a complaint under the rules of certain arbitration bodies. Would such a cost be included within the cap? I thank the Minister in advance for his response.

[Paul Scully]

As the clause stands, the Secretary of State will have the delegated power to make regulations specifying limits on the fees and expenses of arbitrators, but if the power is exercised, approved arbitration bodies will still have the discretion to set fee levels up to the cap limit. We have adopted a market-based approach that enables arbitration bodies to set fee levels for themselves, because they are best placed to decide, given their experience of costing arbitration schemes to make them affordable for parties and attractive enough for arbitrators to take on cases. The Secretary of State’s powers are intended to be used only when circumstances determine that it is appropriate.

We have designed the arbitration scheme to be affordable, and we are working with arbitrators to agree the cost schedules, which may answer the hon. Member’s question. Setting fee levels at this stage would be counterproductive, because we do not know what the market rate is while discussions are ongoing. A market-based approach is the optimum way to ensure that, on one hand, there is enough capacity in the system to deal with the case load and that, on the other hand, fees are affordable. Hon. Members have also asked that an express requirement be inserted that would require the Secretary of State to have regard to the accessibility and affordability of the arbitration process when specifying those limits. As I said, affordability is an important consideration in our discussions. It will be an important factor that will determine accessibility. We will take it into account when deciding if and how to exercise this power.

--- Later in debate ---

[Paul Scully]

Clause 19 concerns the fees and expenses of the arbitrators of approved arbitration bodies. We want to make sure that we have capacity and that it is affordable. If the cost does indeed prove to be a barrier, we can cap the fees to ensure that it remains affordable.

[Seema Malhotra]

Notwithstanding the concerns we have just raised, which we will continue to pursue, we support clause 19.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20

Oral hearings

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

[Paul Scully]

Being mindful of European convention on human rights considerations and the right to a fair trial, it is important that landlords and tenants have the option of a hearing. Any hearing would be in public unless the parties agreed otherwise. An oral hearing would add time and costs to the arbitration process, and the parties would be responsible for meeting those costs. This clause is important, as it gives the parties the right to an oral hearing and establishes the process for doing so.

[Seema Malhotra]

Labour generally supports these measures, but it would be helpful to understand whether the Minister expects oral hearings to be the exception rather than the rule. As the Chartered Institute of Arbitrators made clear in evidence about the business arbitration scheme, there was an assumption against oral hearings, with a document-only approach, which keeps costs and time low and, as it would say, allows for a more efficient process. Will guidance set out when oral hearings might be necessary or appropriate? We would like to understand more about the cost of oral hearings. Can the Minister say what he might expect the cost of oral hearings to be? Would he explain what action the Government will take to ensure that all hearings are affordable?

[Paul Scully]

I can reassure the hon. Lady that we would expect oral hearings to be very much the exception, because we want to make sure that we get through the process for landlords and tenants as quickly as possible. Under clause 21, the Secretary of State will provide arbitrators with guidance on the process of the scheme, including in relation to their function and exercise under the Arbitration Act 1996, as modified by the Bill.

There are a number of areas, such as what evidence the parties should provide when attending any oral hearings, where there is a risk of being too prescriptive, as what is relevant may differ between cases. Guidance would therefore be more helpful than strict rules. However, the ability to go for an oral hearing will very much depend on the arbitrator’s skills and experience, and will take into consideration the landlord and the tenant—as I said, they do have a right to a fair trial. The costs would depend on the complexities of the case.

Question put and agreed to.  

Clause 20 accordingly ordered to stand part of the Bill.  

Clause 21 

Guidance

[Seema Malhotra]

I beg to move amendment 6, in clause 21, page 13, line 3, leave out “may” and insert “must”.

This amendment would require the Secretary of State to publish guidance on the exercise of arbitrators’ functions and the making of references to arbitration.

[Seema Malhotra]

I will speak briefly to these amendments, which relate to viability. As we have outlined several times, we are asking how arbitrators would assess viability, and what skills and experience they would have to do that. We have tabled these probing amendments to seek guidance with information on the interpretation of viability.

There is benefit in having some flexibility, while still commanding the confidence of both sides, so that judgements can be made with the information available, but there is also a question of trust. We need confidence that the definition around viability will be interpreted consistently across arbitrators and arbitration bodies. Amendment 7 would reflect the concerns of stakeholders that guidance must address the meaning of viability and the timeframe over which it would be assessed.

[Paul Scully]

As the clause stands, the Secretary of State already has a delegated power to issue guidance. Hon. Members have asked that amendments be made to place a duty on the Secretary of State to issue that guidance. As I have explained, it is not necessary to require the Secretary of State to issue guidance, and it is neither necessary nor appropriate to be more prescriptive in the clause is.

Clause 16 already sets out a list of evidence that the arbitrator must have regard to when assessing viability. We have also set out a detailed, non-exhaustive list of the types of evidence that tenants, landlords and arbitrators should consider when assessing the viability of a tenant’s business, and the impact of any relief on the protected rent debt on the landlord’s solvency in annex B of the revised code of practice.

We are in ongoing discussions with arbitration bodies and landlord and tenant representatives to gauge what further guidance they need. We want to be informed by those discussions in deciding whether further guidance is needed and, if so, what precisely it should contain. If further guidance on viability is needed, we are prepared to produce it, but that is clearly covered by the clause as it stands.

It is essential that arbitrators maintain flexibility in assessing the viability of a tenant’s business, including the types of evidence required to make those assessments, so that they can be made in the context of each individual business’s circumstances. If guidance is too prescriptive, there is a risk of depriving arbitrators of that necessary flexibility, potentially resulting in unfair arbitration outcomes.

[Seema Malhotra]

I thank the Minister for his remarks. That was a very helpful set of comments, in light of what he has also outlined in relation to the ongoing discussions, which we are pleased to hear of—indeed, we have had discussions as well—as that is important.

Looking particularly at the pubs and hospitality sector, and other businesses with great variation in income, their repayments may need to happen over a more reasonable period of time. It is helpful to know that the Minister is considering where there may be differences between sectors, and recognises a system that takes into account the circumstances of individual businesses, because they can differ in how they are affected by slowdowns and so on.

I thank the Minister for his comments. It is certainly an area that we will keep under review. We will not press our amendment to a vote today. 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 provides the power for the Secretary of State to issue statutory guidance to arbitrators or to tenants and landlords.

[Seema Malhotra]

We support the clause standing part of the Bill.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Modification of Part 1 of the Arbitration Act 1996

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

[The Chair]

With this it will be convenient to consider that schedule 1 be the First schedule to the Bill.

Commercial Rent (Coronavirus) Bill (Third sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Thursday 9th December 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, Mrs Murray.

Many businesses are still on the long road to recovery following the pandemic, particularly in the sectors that have been hit hardest, such as hospitality and retail. The most recent data indicates that rent collections for this year’s third quarter are much higher than they were for last year’s third quarter, but they are still not at pre-pandemic levels. An estimated total of just under £7 billion of rent was deferred over the pandemic.

Although we have provided an unprecedented package of support to businesses, we have also been clear that we expect landlords and tenants to come together and negotiate. Agreements have been reached for many businesses, but for others negotiations have stalled, leaving rent arrears to build up, which could threaten many of the valued jobs that those businesses provide.

The statutory arbitration process that the Bill introduces should be used as a last resort, where landlords and tenants have been unable to reach their own agreements. For those tenancies, the Bill will ring-fence rent debt accrued during the pandemic by businesses required to close, and set out a process of binding arbitration that will resolve rent disputes and help the market return to business as usual. The Bill will temporarily restrict remedies available to landlords in relation to rent debt built up during the pandemic. To respect the primacy of the landlord-tenant relationship wherever possible, the arbitration process will not be available where legal agreements are reached between landlords and tenants over the payment of a protected rent debt.

I commend the clause to the Committee.

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

It is a pleasure to serve under your chairship today, Mrs Murray.

I am grateful to the Minister for his opening remarks, in which he set out why the Bill is needed. Indeed, some of the estimates of the deferred rent debt that has been built up are around £7 billion, with some as high as £9 billion. That is why we called for action earlier this year, so that there was clarity about how some rent disputes would be resolved, and resolved fairly, because we know that the impact of the pandemic is ongoing.

I have concerns that may be outside the scope of the Bill, unless we decide to accept some amendments on Tuesday. In the light of the announcements yesterday and the guidance coming out today, there may need to be a review if there is a risk of further rent arrears if income drops for businesses in the period ahead. So I hope that there will be ways in which we can keep matters under review, in the light of recent developments.

Clause 1 indeed provides an overview of the Bill, and it is in part 1 of the first three short parts. Part 1 is about “Introductory Provisions”, including important definitions; part 2 provides the framework for statutory arbitration between landlords and tenants; and part 3 provides for the ongoing restrictions on “Certain remedies and insolvency arrangements” in relation to protected rent debt.

Importantly, clause 1 also confirms that nothing in the legislation affects the ability of parties to a business tenancy to reach a negotiated settlement outside the arbitration process. That is important because the arbitration process is a backstop; it is a last resort. It is preferable—in terms of time, cost and the relationship between the parties—that they can be supported to reach a negotiated settlement without the need to resort to arbitration.

Labour will continue to encourage landlords and tenants to negotiate settlements, and it is good to see that most of them have already done so; indeed, that was an important part of the feedback from witnesses this week. It is a sign that most commercial landlords and tenants have worked closely together to get through the crisis, and I pay tribute to them for doing that, because it is a recognition that we have all been in this together and that everybody needs to play their part in bringing flexibility where it is needed.

UK Hospitality estimated that around 60% of its members reached agreement with their landlords on any outstanding debt, but there is an estimate that around one in five have yet to reach a negotiated settlement. Perhaps some settlement discussions are still in progress.

We support clause 1 and we will vote for it to stand part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

“Rent” and “business tenancy”

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

[Paul Scully]

The clause provides clarity with regard to which payments owed by a business tenant to their landlord under their tenancy contract will be considered to be rent for the purpose of the Bill. Rent includes contractual payments owed by the tenant to the landlord for occupation and use of the property, as well as payments collectively described as service charges and interest on any unpaid amount. Including both service charges and interest on any unpaid amount within the definition of rent will allow the arbitrator to consider a broad range of arrears that may be owed by the tenant to the landlord, rather than only the payments for occupation and use. The arbitrator will then consider whether relief should be awarded in respect of some or all of the amount owed.

The definition of business tenancy in the Bill is broadly consistent with the definition of business tenancy under section 82 of the Coronavirus Act 2020, which served to temporarily prevent landlords from evicting tenants. However, the Bill focuses on business tenants and their immediate landlords.

I commend the clause to the Committee.

[Seema Malhotra]

I thank the Minister for his opening comments on the clause.

Clause 2 defines the key terms that are central to the operation of this legislation, notably rent and business tenancy. Rent is stated to include the cost of using the premises and service charges, as well as interest on unpaid amounts relating to either, with VAT included. We have no concerns about this definition; it seems sensible and we hope that it is widely accepted.

Business tenancy means a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies. That Act applies to any tenancy where property is or includes premises that are occupied for the purposes of business. The Minister will have heard the concerns of the British Retail Consortium, raised on Tuesday, about the definition of the business tenancy. It has concerns that any tenancy contracted out of the 1954 Act would fall outside the scope of these protections. Will the Minister confirm the assurances that he gave the British Retail Consortium on that point?

As Kate Nicholls of UK Hospitality said in her evidence, also on Tuesday:

“It is important that this piece of legislation sits within the existing canon of property law”––[Official Report, Commercial Rent (Coronavirus) Public Bill Committee, 7 December 2021; c. 5, Q3.]

and that definitions are consistent with that existing canon. Subject to meeting the BRC’s concern about business tenancies, the definitions in clause 2 would in our view meet that test. I look forward to the Minister’s response. We support the definitions and will support the clause.

--- Later in debate ---

[Paul Scully]

The clause defines “protected rent debt”, a key concept of the Bill, so that landlords and tenants have certainty about what is in the scope of arbitration. The definition for protected rent includes rent that is owed to the landlord under the tenancy if the tenancy was adversely affected by coronavirus, and excludes rent that the tenant owed to the landlord either before the pandemic or after businesses were allowed to open for business. That is in line with the Government’s expectation that the market should now return to normal, with the contractual arrangements once again adhered to.

The clause also states that if all or part of the protected rent debt was satisfied by the landlord by drawing down from the tenancy deposit, the sum that was paid for the deposit should be considered protected rent debt and should still be considered unpaid.

[Seema Malhotra]

I thank the Minister for his opening comments on clause 3, which defines “protected rent debt”. Rent is protected if the tenant was adversely affected by coronavirus within the meaning of clause 4 and the rent is attributable to a period that is protected within the meaning of clause 5.

Subsection (3) states that rent consisting of interest due on an unpaid amount is

“attributable to the same period of occupation…as that unpaid amount.”

That means that if a tenant is paying interest on rent due, the interest is also considered to be from the same period of occupancy as the rent. Subsection (5) sets out that if rent due is only partly attributable to a period of occupation, only the rent due that is attributable to that period qualifies as protected rent. That means that if there is rent due that is attributable to occupation by the tenant both outside and within the protected rent period, only that which was within the protected period is regarded as protected rent. It is likely there will be some confusion around that. Perhaps the Minister intends to have clear examples and guidance so that those who use the legislation will be clear about how they need to do their calculations.

Clause 3 does clarify what is meant by protected rent debt. We support the definition and will vote for the clause.

--- Later in debate ---

[Paul Scully]

Clause 4 is essential. It establishes which businesses can access arbitration and the Bill’s temporary moratorium on other measures. We appreciate that the pandemic has been difficult across the economy, but we are seeking to target this measure at those businesses most directly affected so that we can resolve cases quickly, providing businesses with certainty while protecting jobs in our most vulnerable sectors, such as hospitality, retail and leisure. That is important not only for eligible businesses, but for the individuals who contribute to them.

Clause 4 provides that a business was adversely affected by coronavirus, and therefore its rent may be in scope, if it was required by regulations to close all or part of its business or premises for any of the time while closure requirements were in place: from 21 March 2020 until 18 July 2021 for England, or until 7 August 2021 for Wales. If a business was subject to a closure requirement for any period within those times, it meets the test, regardless of whether it was allowed to carry out other limited activities such as takeaways. Without that targeted approach, we could see rent issues from the pandemic unresolved for a significant amount of time, so I urge the Committee to support the clause.

[Seema Malhotra]

I thank the Minister for his remarks. As he described, clause 4 clarifies what is meant by businesses “adversely affected by coronavirus”. It states that a business can be categorised as adversely affected if part or all of it was obliged to close due to coronavirus restrictions during the relevant period. It also states that any specific limited activities that the business was able to take part in during its forced closure can be disregarded as immaterial for the purposes of the Bill. We think that is very important, otherwise we will have situations in which one side or the other says that a business is not eligible for the scheme for the purposes of arbitration, so we support having that clarity in the Bill.

The clause also defines the relevant period as 21 March 2020 to 18 July 2021 for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. We do not object to those dates—there are clear reasons why they have been chosen, given that Government policy changed around those times. My only concern is that the tail end of recovery has been slower in some sectors, such as aviation, travel and tourism, than in others. The dates on which some businesses were able to reopen and start to do much better did not apply in the same way to all businesses in all sectors.

Although we have not tabled any amendments to those dates and we support clause 4, it will be important for the Minister to keep this Bill under review, bearing in mind that there has not been an equal recovery for businesses. If concerns are raised with him about businesses that may or may not be eligible, but have been impacted by coronavirus closures or consequences, it is important that some amendments could be made in due course, should they be required.

[Paul Scully]

I think we all acknowledge the fact that this is not a perfect science: some businesses that were suffering through the lockdown will continue to have a slow recovery. This is a focused Bill dealing with a particular kind of ring-fenced debt, and we want to make sure that we encapsulate this issue, so that we do not make the Bill and the process of arbitration too big in a way that benefits nobody. I think the Bill is proportionate, and will have the right effect.

In terms of a long tail of recovery, we obviously need to look at the support from a holistic point of view, and at the additional measures that we have put in place to support businesses, including the sectors that the hon. Lady mentioned. Importantly, we will continue to flex. I have been on calls today, and over the past few days—especially with plan B being announced—with representative organisations, and people from hospitality in particular, which is hard pressed. We will continue to listen and respond.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

“Protected period”

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

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his remarks. Clause 5 defines what is meant by the protected period and specific coronavirus restrictions for the purposes of the Bill. He has outlined the dates for the protected period, and that a specific coronavirus restriction means any requirement other than a closure requirement that regulated any aspect of the way that a business was to be carried on. Requirements to provide information on premises, or requirements that applied more generally to businesses, are not included under the specific coronavirus restrictions.

Clearly, as we have discussed, many businesses continued to experience significant covid impacts beyond the end of the protected period. However, we recognise the need to strike the right balance between the interests of landlords and tenants, and therefore the need to limit the protected period to one that is clear about how arbitrators will look at and assess claims and that is clearly aligned with policy. I hope that the Minister will have heard the reflections of stakeholders, including Andrew Goodacre from the British Independent Retailers Association, that businesses that were not forced to close—essential businesses—may still have suffered significant economic consequences.

We want to ensure that there is fairness, and that all viable businesses that suffered an impact will be supported to continue through the ongoing recovery. Overall, we support the measures and definitions in clause 5, and will support it standing part.

[Paul Scully]

The hon. Lady is right: this is a focused Bill, looking at the first period of the pandemic. However, as I have said, we will continue to listen to various sectors and work with them to ensure that we can recover equally.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

“The matter of relief from payment”

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

[Paul Scully]

The clause sets out the two questions that the arbitrator must decide before considering what, if any, relief should be given to the tenant. That is important because it ensures that arbitration capacity and relief are targeted at those who need it most, namely those whose rent has been impacted by closures and restrictions within the ring-fenced period. The first question is whether there is any protected rent debt. The second is whether the tenant should be given any relief in respect of the payment of that debt and, if so, what type of relief.

The clause also sets out clearly the types of relief that an arbitrator can award in respect of protected rent debt: writing off part of or all of the debt; giving more time to repay the debt; or reducing or writing off any interest on the debt. Setting those clear boundaries will help arbitrators to reach awards quickly and provide adversely impacted businesses with the certainty they need to recover from the pandemic.

[Seema Malhotra]

I thank the Minister for his opening remarks. Clause 6 clarifies references to the matter of relief from payment—that is, the subject to be dealt with by an arbitrator under the legislation. It relates to whether there is protected rent debt and, if so, whether the tenant should be given relief from the payment of that debt. The Minister has outlined what that means but, to summarise again, it is the writing off of the whole or part of the debt, giving time to pay the whole or part of the debt, and reducing any interest payable on the debt. It is right that arbitrators are given the flexibility to provide for a form of relief that is appropriate for the specific circumstances of a case. Indeed, one or more forms of the relief may be appropriate depending on the circumstances of the landlord and the tenant. We support these measures and clause 6 standing part of the Bill.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

Approval of arbitration bodies

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

[Paul Scully]

The arbitration scheme will be delivered by independent arbitration bodies. The clause gives the Secretary of State the power to approve arbitration bodies for that purpose. Arbitration bodies will have to demonstrate that they are suitable before being approved. Further information on what constitutes “suitable” and how to become an approved body will be published on gov.uk.

The Secretary of State can also withdraw approval status if the body is no longer suitable to deliver arbitration services. The Secretary of State must notify the body if that is the case, and the body will have an opportunity to make representations. Under the clause, a list of approved arbitration bodies must be maintained and published by the Secretary of State, enabling parties to a dispute to know to whom an application for an arbitration may be made. The clause is therefore crucial to enable a high-quality, independent and accessible service to be delivered to landlords and tenants.

Commercial Rent (Coronavirus) Bill (Third sitting)

Debate between Paul Scully and Seema Malhotra

Thursday 9th December 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, Mrs Murray.

Many businesses are still on the long road to recovery following the pandemic, particularly in the sectors that have been hit hardest, such as hospitality and retail. The most recent data indicates that rent collections for this year’s third quarter are much higher than they were for last year’s third quarter, but they are still not at pre-pandemic levels. An estimated total of just under £7 billion of rent was deferred over the pandemic.

Although we have provided an unprecedented package of support to businesses, we have also been clear that we expect landlords and tenants to come together and negotiate. Agreements have been reached for many businesses, but for others negotiations have stalled, leaving rent arrears to build up, which could threaten many of the valued jobs that those businesses provide.

The statutory arbitration process that the Bill introduces should be used as a last resort, where landlords and tenants have been unable to reach their own agreements. For those tenancies, the Bill will ring-fence rent debt accrued during the pandemic by businesses required to close, and set out a process of binding arbitration that will resolve rent disputes and help the market return to business as usual. The Bill will temporarily restrict remedies available to landlords in relation to rent debt built up during the pandemic. To respect the primacy of the landlord-tenant relationship wherever possible, the arbitration process will not be available where legal agreements are reached between landlords and tenants over the payment of a protected rent debt.

I commend the clause to the Committee.

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

It is a pleasure to serve under your chairship today, Mrs Murray.

I am grateful to the Minister for his opening remarks, in which he set out why the Bill is needed. Indeed, some of the estimates of the deferred rent debt that has been built up are around £7 billion, with some as high as £9 billion. That is why we called for action earlier this year, so that there was clarity about how some rent disputes would be resolved, and resolved fairly, because we know that the impact of the pandemic is ongoing.

I have concerns that may be outside the scope of the Bill, unless we decide to accept some amendments on Tuesday. In the light of the announcements yesterday and the guidance coming out today, there may need to be a review if there is a risk of further rent arrears if income drops for businesses in the period ahead. So I hope that there will be ways in which we can keep matters under review, in the light of recent developments.

Clause 1 indeed provides an overview of the Bill, and it is in part 1 of the first three short parts. Part 1 is about “Introductory Provisions”, including important definitions; part 2 provides the framework for statutory arbitration between landlords and tenants; and part 3 provides for the ongoing restrictions on “Certain remedies and insolvency arrangements” in relation to protected rent debt.

Importantly, clause 1 also confirms that nothing in the legislation affects the ability of parties to a business tenancy to reach a negotiated settlement outside the arbitration process. That is important because the arbitration process is a backstop; it is a last resort. It is preferable—in terms of time, cost and the relationship between the parties—that they can be supported to reach a negotiated settlement without the need to resort to arbitration.

Labour will continue to encourage landlords and tenants to negotiate settlements, and it is good to see that most of them have already done so; indeed, that was an important part of the feedback from witnesses this week. It is a sign that most commercial landlords and tenants have worked closely together to get through the crisis, and I pay tribute to them for doing that, because it is a recognition that we have all been in this together and that everybody needs to play their part in bringing flexibility where it is needed.

UK Hospitality estimated that around 60% of its members reached agreement with their landlords on any outstanding debt, but there is an estimate that around one in five have yet to reach a negotiated settlement. Perhaps some settlement discussions are still in progress.

We support clause 1 and we will vote for it to stand part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

“Rent” and “business tenancy”

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

[Paul Scully]

The clause provides clarity with regard to which payments owed by a business tenant to their landlord under their tenancy contract will be considered to be rent for the purpose of the Bill. Rent includes contractual payments owed by the tenant to the landlord for occupation and use of the property, as well as payments collectively described as service charges and interest on any unpaid amount. Including both service charges and interest on any unpaid amount within the definition of rent will allow the arbitrator to consider a broad range of arrears that may be owed by the tenant to the landlord, rather than only the payments for occupation and use. The arbitrator will then consider whether relief should be awarded in respect of some or all of the amount owed.

The definition of business tenancy in the Bill is broadly consistent with the definition of business tenancy under section 82 of the Coronavirus Act 2020, which served to temporarily prevent landlords from evicting tenants. However, the Bill focuses on business tenants and their immediate landlords.

I commend the clause to the Committee.

[Seema Malhotra]

I thank the Minister for his opening comments on the clause.

Clause 2 defines the key terms that are central to the operation of this legislation, notably rent and business tenancy. Rent is stated to include the cost of using the premises and service charges, as well as interest on unpaid amounts relating to either, with VAT included. We have no concerns about this definition; it seems sensible and we hope that it is widely accepted.

Business tenancy means a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies. That Act applies to any tenancy where property is or includes premises that are occupied for the purposes of business. The Minister will have heard the concerns of the British Retail Consortium, raised on Tuesday, about the definition of the business tenancy. It has concerns that any tenancy contracted out of the 1954 Act would fall outside the scope of these protections. Will the Minister confirm the assurances that he gave the British Retail Consortium on that point?

As Kate Nicholls of UK Hospitality said in her evidence, also on Tuesday:

“It is important that this piece of legislation sits within the existing canon of property law”––[Official Report, Commercial Rent (Coronavirus) Public Bill Committee, 7 December 2021; c. 5, Q3.]

and that definitions are consistent with that existing canon. Subject to meeting the BRC’s concern about business tenancies, the definitions in clause 2 would in our view meet that test. I look forward to the Minister’s response. We support the definitions and will support the clause.

--- Later in debate ---

[Paul Scully]

The clause defines “protected rent debt”, a key concept of the Bill, so that landlords and tenants have certainty about what is in the scope of arbitration. The definition for protected rent includes rent that is owed to the landlord under the tenancy if the tenancy was adversely affected by coronavirus, and excludes rent that the tenant owed to the landlord either before the pandemic or after businesses were allowed to open for business. That is in line with the Government’s expectation that the market should now return to normal, with the contractual arrangements once again adhered to.

The clause also states that if all or part of the protected rent debt was satisfied by the landlord by drawing down from the tenancy deposit, the sum that was paid for the deposit should be considered protected rent debt and should still be considered unpaid.

[Seema Malhotra]

I thank the Minister for his opening comments on clause 3, which defines “protected rent debt”. Rent is protected if the tenant was adversely affected by coronavirus within the meaning of clause 4 and the rent is attributable to a period that is protected within the meaning of clause 5.

Subsection (3) states that rent consisting of interest due on an unpaid amount is

“attributable to the same period of occupation…as that unpaid amount.”

That means that if a tenant is paying interest on rent due, the interest is also considered to be from the same period of occupancy as the rent. Subsection (5) sets out that if rent due is only partly attributable to a period of occupation, only the rent due that is attributable to that period qualifies as protected rent. That means that if there is rent due that is attributable to occupation by the tenant both outside and within the protected rent period, only that which was within the protected period is regarded as protected rent. It is likely there will be some confusion around that. Perhaps the Minister intends to have clear examples and guidance so that those who use the legislation will be clear about how they need to do their calculations.

Clause 3 does clarify what is meant by protected rent debt. We support the definition and will vote for the clause.

--- Later in debate ---

[Paul Scully]

Clause 4 is essential. It establishes which businesses can access arbitration, the Bill’s temporary moratorium, and other measures. We appreciate that the pandemic has been difficult across the economy, but we are seeking to target this measure at those businesses most directly affected so that we can resolve cases quickly, providing businesses with certainty while protecting jobs in our most vulnerable sectors, such as hospitality, retail and leisure. That is important not only for eligible businesses, but for the individuals who contribute to them.

Clause 4 provides that a business that was adversely affected by coronavirus and its rent may be in scope if it was required by regulations to close all or part of its business or premises for any of the time while closure requirements were in place: from 21 March 2020 until 18 July 2021 for England, or until 7 August 2021 for Wales. If a business was subject to a closure requirement for any period within those times, it meets the test, regardless of whether it was allowed to carry out other limited activities such as takeaways. Without that targeted approach, we could see rent issues from the pandemic unresolved for a significant amount of time, so I urge the Committee to support the clause.

[Seema Malhotra]

I thank the Minister for his remarks. As he described, clause 4 clarifies what is meant by businesses “adversely affected by coronavirus”. It states that a business can be categorised as adversely affected if part or all of it was obliged to close due to coronavirus restrictions during the relevant period. It also states that any specific limited activities that the business was able to take part in during its forced closure can be disregarded as immaterial for the purposes of the Bill. We think that is very important, otherwise we will have situations in which one side or the other says that a business is not eligible for the scheme for the purposes of arbitration, so we support having that clarity in the Bill.

The clause also defines the relevant period as 21 March 2020 to 18 July 2021 for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. We do not object to those dates—there are clear reasons why they have been chosen, given that Government policy changed around those times. My only concern is that the tail end of recovery has been slower in some sectors, such as aviation, travel and tourism, than in others. The dates on which some businesses were able to reopen and start to do much better did not apply in the same way to all businesses in all sectors.

Although we have not tabled any amendments to those dates and we support clause 4, it will be important for the Minister to keep this Bill under review, bearing in mind that there has not been an equal recovery for businesses. If concerns are raised with him about businesses that may or may not be eligible, but have been impacted by coronavirus closures or consequences, it is important that some amendments could be made in due course, should they be required.

[Paul Scully]

I think we all acknowledge the fact that this is not a perfect science: some businesses that were suffering through the lockdown will continue to have a slow recovery. This is a focused Bill dealing with a particular kind of ring-fenced debt, and we want to make sure that we encapsulate this issue, so that we do not make the Bill and the process of arbitration too big in a way that benefits nobody. I think the Bill is proportionate, and will have the right effect.

In terms of a long tail of recovery, we obviously need to look at the support from a holistic point of view, and at the additional measures that we have put in place to support businesses, including the sectors that the hon. Lady mentioned. Importantly, we will continue to flex. I have been on calls today, and over the past few days—especially with plan B being announced—with representative organisations, and people from hospitality in particular, which is hard pressed. We will continue to listen and respond.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

“Protected period”

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

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his remarks. Clause 5 defines what is meant by the protected period and specific coronavirus restrictions for the purposes of the Bill. He has outlined the dates for the protected period, and that a specific coronavirus restriction means any requirement other than a closure requirement that regulated any aspect of the way that a business was to be carried on. Requirements to provide information on premises, or requirements that applied more generally to businesses, are not included under the specific coronavirus restrictions.

Clearly, as we have discussed, many businesses continued to experience significant covid impacts beyond the end of the protected period. However, we recognise the need to strike the right balance between the interests of landlords and tenants, and therefore the need to limit the protected period to one that is clear about how arbitrators will look at and assess claims and that is clearly aligned with policy. I hope that the Minister will have heard the reflections of stakeholders, including Andrew Goodacre from the British Independent Retailers Association, that businesses that were not forced to close—essential businesses—may still have suffered significant economic consequences.

We want to ensure that there is fairness, and that all viable businesses that suffered an impact will be supported to continue through the ongoing recovery. Overall, we support the measures and definitions in clause 5, and will support it standing part.

[Paul Scully]

The hon. Lady is right: this is a focused Bill, looking at the first period of the pandemic. However, as I have said, we will continue to listen to various sectors and work with them to ensure that we can recover equally.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

“The matter of relief from payment”

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

[Paul Scully]

The clause sets out the two questions that the arbitrator must decide before considering what, if any, relief should be given to the tenant. That is important because it ensures that arbitration capacity and relief are targeted at those who need it most, namely those whose rent has been impacted by closures and restrictions within the ring-fenced period. The first question is whether there is any protected rent debt. The second is whether the tenant should be given any relief in respect of the payment of that debt and, if so, what type of relief.

The clause also sets out clearly the types of relief that an arbitrator can award in respect of protected rent debt: writing off part of or all of the debt; giving more time to repay the debt; or reducing or writing off any interest on the debt. Setting those clear boundaries will help arbitrators to reach awards quickly and provide adversely impacted businesses with the certainty they need to recover from the pandemic.

[Seema Malhotra]

I thank the Minister for his opening remarks. Clause 6 clarifies references to the matter of relief from payment—that is, the subject to be dealt with by an arbitrator under the legislation. It relates to whether there is protected rent debt and, if so, whether the tenant should be given relief from the payment of that debt. The Minister has outlined what that means but, to summarise again, it is the writing off of the whole or part of the debt, giving time to pay the whole or part of the debt, and reducing any interest payable on the debt. It is right that arbitrators are given the flexibility to provide for a form of relief that is appropriate for the specific circumstances of a case. Indeed, one or more forms of the relief may be appropriate depending on the circumstances of the landlord and the tenant. We support these measures and clause 6 standing part of the Bill.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

Approval of arbitration bodies

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

[Paul Scully]

The arbitration scheme will be delivered by independent arbitration bodies. The clause gives the Secretary of State the power to approve arbitration bodies for that purpose. Arbitration bodies will have to demonstrate that they are suitable before being approved. Further information on what constitutes “suitable” and how to become an approved body will be published on gov.uk.

The Secretary of State can also withdraw approval status if the body is no longer suitable to deliver arbitration services. The Secretary of State must notify the body if that is the case, and the body will have an opportunity to make representations. Under the clause, a list of approved arbitration bodies must be maintained and published by the Secretary of State, enabling parties to a dispute to know to whom an application for an arbitration may be made. The clause is therefore crucial to enable a high-quality, independent and accessible service to be delivered to landlords and tenants.

Commercial Rent (Coronavirus) Bill (First sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Seema Malhotra]

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

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

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

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

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

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

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

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

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

Commercial Rent (Coronavirus) Bill

Debate between Paul Scully and Seema Malhotra

2nd reading
Wednesday 24th November 2021 Commons Chamber

[Paul Scully]

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

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

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

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

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

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

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

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

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

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

“such other amount as the arbitrator considers appropriate”.

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

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

[Seema Malhotra]

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

[Paul Scully]

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

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

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

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

Subsidy Control Bill (Eleventh sitting)

Debate between Paul Scully and Seema Malhotra

Thursday 18th November 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, as ever, Ms Nokes. Clause 78 applies the provisions in the Bill to subsidies made by means of primary legislation, as set out in schedule 3. Because of the specific nature of the subsidies given by means of primary legislation, the obligations on those responsible for subsidies in primary legislation needs to be set out separately, rather than being included in the scope of the core clauses of the Bill.

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

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

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

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

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

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

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

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

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

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

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

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

[Paul Scully]

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

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

Question put and agreed to.

Clause 78 accordingly ordered to stand part of the Bill.

Schedule 3

Subsidies provided by primary legislation

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Schedule 3 accordingly agreed to.

Clause 79

Guidance

--- Later in debate ---

[Paul Scully]

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

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

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

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

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

[Seema Malhotra]

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

[Paul Scully]

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

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

[Seema Malhotra]

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

Amendment, by leave, withdrawn.

--- Later in debate ---

[Paul Scully]

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

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

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

[Seema Malhotra]

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

--- Later in debate ---

[Kirsty Blackman]

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

[Seema Malhotra]

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

[Paul Scully]

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

Question put and agreed to.

Clause 79 accordingly ordered to stand part of the Bill.

Clause 80

Disclosure of information

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 80 accordingly ordered to stand part of the Bill.

Clause 81

Modifications to subsidies and schemes

--- Later in debate ---

[Seema Malhotra]

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

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

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

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

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

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

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

[Paul Scully]

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

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

[Paul Scully]

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

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

[Seema Malhotra]

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

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

[Paul Scully]

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

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

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

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

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

[Seema Malhotra]

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

[Paul Scully]

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

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 81 accordingly ordered to stand part of the Bill.

Clause 82

Gross cash and gross cash equivalent amount of financial assistance

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

[Paul Scully]

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

[Seema Malhotra]

The clause is important and we support it.

Question put and agreed to.

Clause 82 accordingly ordered to stand part of the Bill.

Clause 83

Minor amendment to the Financial Services Act 2021

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 83 accordingly ordered to stand part of the Bill.

Clause 84

Financial provision

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

[Paul Scully]

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

[Seema Malhotra]

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

Questions put and agreed to.

Clause 84 accordingly ordered to stand part of the Bill.

Clause 85

Crown application

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 85 accordingly ordered to stand part of the Bill.

Clause 86

Power to make consequential provision

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 86 accordingly ordered to stand part of the Bill.

Clause 87

Regulations

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 87 accordingly ordered to stand part of the Bill.

Clause 88

Directions

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 88 accordingly ordered to stand part of the Bill.

Clause 89

Interpretation

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 89 accordingly ordered to stand part of the Bill.

Clause 90

Extent

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 90 accordingly ordered to stand part of the Bill.

Clause 91

Commencement

--- Later in debate ---

[Seema Malhotra]

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

Amendment, by leave, withdrawn.

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

[Paul Scully]

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

[Seema Malhotra]

We support the clause.

Question put and agreed to.

Clause 91 accordingly ordered to stand part of the Bill.

Clause 92

Short title

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 92 accordingly ordered to stand part of the Bill.

New Clause 1

Subsidy Control Principles: statement to Parliament

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

(2) The statement must include details of—

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

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

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

Brought up, and read the First time.

--- Later in debate ---

[Seema Malhotra]

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

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

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

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

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

[Paul Scully]

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

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

[Seema Malhotra]

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

Clause, by leave, withdrawn.

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Subsidy Control Bill (Ninth sitting)

Debate between Paul Scully and Seema Malhotra

Tuesday 16th November 2021 Public Bill Committees

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

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

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

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

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

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

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

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

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

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

[Seema Malhotra]

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

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

[Paul Scully]

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

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

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

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

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

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

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

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

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

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

Question put, That the amendment be made.

--- Later in debate ---

[Seema Malhotra]

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

Amendment, by leave, withdrawn.

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 65 accordingly ordered to stand part of the Bill.

Clause 66

CMA Annual Report

--- Later in debate ---

[Paul Scully]

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

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

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

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

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

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

[Seema Malhotra]

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

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

--- Later in debate ---

[Seema Malhotra]

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

Amendment, by leave, withdrawn.

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 66 accordingly ordered to stand part of the Bill.

Clause 67

information-gathering powers

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

[Paul Scully]

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

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

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 67 accordingly ordered to stand part of the Bill.

Clause 68

Subsidy Advice Unit

--- Later in debate ---

[Seema Malhotra]

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

[Paul Scully]

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

--- Later in debate ---

[Seema Malhotra]

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

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

[Paul Scully]

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

[Seema Malhotra]

And the devolved Administrations?

[Paul Scully]

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

[Seema Malhotra]

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

[Paul Scully]

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

[Seema Malhotra]

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

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

Question put, That the amendment be made.

--- Later in debate ---

[Kirsty Blackman]

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

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

[Seema Malhotra]

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

[Paul Scully]

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

[Seema Malhotra]

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

[Paul Scully]

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

Question put and agreed to.

Clause 68 accordingly ordered to stand part of the Bill.

Clause 69

References to subsidy control groups

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 69 accordingly ordered to stand part of the Bill.

Clause 70

Review of subsidy decisions

[Seema Malhotra]

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

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

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

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

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

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

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

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

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

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

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

[Paul Scully]

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

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

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

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

[Seema Malhotra]

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

[Seema Malhotra]

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

[Paul Scully]

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

[Seema Malhotra]

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

[Paul Scully]

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

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

Amendment, by leave, withdrawn.

--- Later in debate ---

[Seema Malhotra]

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

“whose interests may be affected by”

and insert

“who has sufficient interest in”

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

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

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

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

“a person whose interests may be affected”.

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

“has a sufficient interest in”.

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

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

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

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

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

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

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

[Paul Scully]

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

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

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

[Seema Malhotra]

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

Amendment, by leave, withdrawn.

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

Subsidy Control Bill (Tenth sitting)

Debate between Paul Scully and Seema Malhotra

Tuesday 16th November 2021 Public Bill Committees

[Paul Scully]

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

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

“person whose interests may be affected”

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

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 70 accordingly ordered to stand part of the Bill.

Clause 71

Time limits for applications under section 70

--- Later in debate ---

[Seema Malhotra]

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

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

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

[Paul Scully]

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

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

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

--- Later in debate ---

[Seema Malhotra]

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

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

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

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

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

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

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

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

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

[Paul Scully]

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

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

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

It is also important to note that an interested party can make a pre-action information request to a public authority. The limitation period is then extended until one month after the public authority has responded. Since the pre-action information request gives the public authority up to 28 days to respond, in practice, the limitation period can run for two or three months after the publication of the subsidy or scheme on the database.

Clause 71 also makes it clear that in exceptional circumstances, the tribunal may extend the time limits for bringing a challenge, but this amendment would extend the general window for bringing a challenge from one month to three months. That is too long. It is longer than the challenge periods available in other areas where business decisions are dependent on the decisions of public bodies, such as procurement and planning decisions, where the limitation periods are 30 days and six weeks respectively. In those areas, the harmful effects of prolonged uncertainty have been recognised through the shorter challenge periods available. The same reasoning applies in the subsidy control context. If the general limitation period for challenging subsidy decisions were extended to three months, as the amendment proposes, public authorities and subsidy beneficiaries could, in practice, have to wait as long as five months before having reasonable legal certainty about a subsidy. That is far too long. It is important to allow sufficient time for those affected by subsidy decisions to submit their claim, while ensuring that public authorities and beneficiaries can proceed to implement subsidy decisions with certainty once they are made. The Government believe that the timings provided for in the clause strike an appropriate balance between those two objectives. I therefore request that the hon. Member withdraw the amendment.

[Seema Malhotra]

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

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

Amendment, by leave, withdrawn.

--- Later in debate ---

[Seema Malhotra]

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

Question put and agreed to.

Clause 71 accordingly ordered to stand part of the Bill.

Clause 72

CAT powers on review: England and Wales and Northern Ireland

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

[Paul Scully]

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

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

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clause 73

CAT powers on review: Scotland

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

[Paul Scully]

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

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 73 accordingly ordered to stand part of the Bill.

Clause 74

Recovery orders

[Seema Malhotra]

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

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

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

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

She went on:

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

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

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

[Paul Scully]

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

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

--- Later in debate ---

[Paul Scully]

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

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

[Seema Malhotra]

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

[Seema Malhotra]

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

[Paul Scully]

Not a chance, he says from a sedentary position.

[Seema Malhotra]

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

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

--- Later in debate ---

[Seema Malhotra]

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

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

Amendment, by leave, withdrawn.

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

[Paul Scully]

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

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clause 75

Appeals against decisions of the CAT

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

--- Later in debate ---

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Clause 76

Duty to provide pre-action information

--- Later in debate ---

[Seema Malhotra]

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

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

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

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

[Paul Scully]

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

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

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

[Seema Malhotra]

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

[Paul Scully]

Yes, I will come to that.

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

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

[Seema Malhotra]

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

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

[Paul Scully]

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

[Seema Malhotra]

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

Amendment, by leave, withdrawn.

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

[Paul Scully]

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

[Seema Malhotra]

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

Question put and agreed to.

Clause 76 accordingly ordered to stand part of the Bill.

Clause 77

Misuse of subsidies

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

--- Later in debate ---

[Paul Scully]

I will come to that in a second.

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

[Seema Malhotra]

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

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

[Paul Scully]

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

Subsidy Control Bill (Seventh sitting)

Debate between Paul Scully and Seema Malhotra

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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

[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]

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]

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

Subsidy Control Bill (Eighth sitting)

Debate between Paul Scully and Seema Malhotra

Thursday 4th November 2021 Public Bill Committees

[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 ---

[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 ---

[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.

Subsidy Control Bill (Fifth sitting)

Debate between Paul Scully and Seema Malhotra

Tuesday 2nd November 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, 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.

--- Later in debate ---

[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.

--- Later in debate ---

[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:

--- Later in debate ---

[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

--- Later in debate ---

[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?

--- Later in debate ---

[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 ---

[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 (Sixth sitting)

Debate between Paul Scully and Seema Malhotra

Tuesday 2nd November 2021 Public Bill Committees

[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.

--- Later in debate ---

[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 ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

[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.

Subsidy Control Bill (Fourth sitting)

Debate between Paul Scully and Seema Malhotra

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 ---

[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 ---

[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 ---

[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.

--- Later in debate ---

[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 ---

[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.

--- Later in debate ---

[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

--- 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.

--- Later in debate ---

[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]

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.

--- Later in debate ---

[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.

--- Later in debate ---

[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 ---

[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.

--- Later in debate ---

[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 ---

[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.)

Subsidy Control Bill (Third sitting)

Debate between Paul Scully and Seema Malhotra

Thursday 28th October 2021 Public Bill Committees

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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 ---

[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.

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021

Debate between Paul Scully and Seema Malhotra

Wednesday 27th October 2021 General Committees

[Paul Scully]

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

--- Later in debate ---

[Paul Scully]

[Seema Malhotra]

[Paul Scully]

[Paul Scully]

[Seema Malhotra]

[Paul Scully]

Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021

Debate between Paul Scully and Seema Malhotra

Wednesday 27th October 2021 General Committees

[Paul Scully]

The hon. Gentleman says that we are not, and that is fine, but I want to be able to go back to businesses and say that we are four-square behind them in helping them through the crisis.

On what we have done for businesses, which was mentioned in a couple of contributions, we have been in close dialogue with businesses, professional groups and other organisations such as the Insolvency Service right the way through the process of these regulations about their likely impact. Indeed, on insolvencies, I am not sure of the exact figures now, but throughout the majority of the emergency they were at a 40-year low. We were clearly supporting businesses. However, that will have an impact down the line when business that would probably have been insolvent in normal times but have been held up by the suite of Government’s emergency measures start to fall by the wayside. That is the normal business cycle and landscape. None the less, there are clear signs from our feedback from businesses, business representative groups and the Insolvency Service that this measure has been useful and helpful.

The hon. Member for Feltham and Heston asked about what happened within the two-day window. When we spotted the drafting error, we laid the new SI. There were no winding-up petitions within those two days. On what happens if a repayment proposal is rejected, a court cannot force a company to accept a repayment proposal, but it will be able to refuse to issue a winding-up order where a creditor may be attempting to abuse the winding-up process, for example.

We continue to work with businesses on a number of measures. The hon. Lady asked what other support we are giving to small businesses, especially as we go through the winter. We are continuing to flex with, and listen to, businesses. Indeed, once I leave this sitting I will speak to really hard-pressed businesses from the hospitality sector, to listen to them and see how they are getting on. We regularly check in to see what businesses conditions are like. Clearly, the Budget is coming up shortly; we will see what their feedback is afterwards, and how it will affect them. We continue to ensure that we can flex our support, help and measures within that sphere, having had that feedback.

Importantly, what we are doing is extending these measures. We picked a six-month extension. To date, we have been going in three-month chunks, so that creditors in particular do not feel that we are only looking after debtors, and not looking after their interests as well. As I said, it is really important that we get a balanced, proportionate view between the two sides.

[Seema Malhotra]

May I remind the Minister about the question on court fees? It would be helpful if he could come back to me on that. Also, no statutory review clause was introduced as part of the instrument. The explanatory memorandum says that

“the Government will continue to monitor the need for these measures”

and that

“the provisions in this instrument will automatically expire”,

I think on 25 March. Would it not be helpful to have a statutory review clause? Otherwise, it feels like we get bounced at the end, and sometimes after the event. It would be helpful to have some time to consider the changes made in advance.

[Paul Scully]

As I say, it is ongoing. We will not set a particular arbitrary date for a statutory review because things can change very quickly. We have seen that right the way through the past 18 months. We do not want to be bounced, as clearly happened at points last year when we were chasing the virus, which affected the decisions made. We have learned a lot of lessons from that, but putting in an arbitrary review date is not particularly helpful when we are ensuring that we continue to speak to businesses on a day-to-day basis. On court fees, this is a modification of the usual court process for winding up, so no new fees are involved.

The hon. Member for Rhondda asked about Northern Ireland. It has laid its own regulations extending the same temporary consultancy measures as the rest of the United Kingdom.

[Paul Scully]

We laid the SI before then, and there is a clear direction from the Insolvency Service and other business groups on the intention of what is happening. The courts are obviously aware of the landscape. Yes, the measures are coming to us for discussion only today, but they were laid before the House and are known to business groups, with which, as I say, we continue the conversation so that they can see the constant direction. Clearly, when the measures end on 31 March 2022 it is envisaged that the insolvency regime will return to its normal operation; however, as I have been stressing, as the effects of the pandemic continue to be felt the Government will keep the requirement for the measures, as we do for all measures, under review.

[Seema Malhotra]

May I just clarify the dates? I think some things have been 25 March, but this says 31 March. Are today’s measures retrospective, so from 1 October, and will they expire on 31 March?

[Paul Scully]

We have re-laid the SI so that there is no gap in provision. That is the key thing. It goes to 31 March 2022. I should say to the hon. Member for Rotherham, who spoke about debts—

Oral Answers to Questions

Debate between Paul Scully and Seema Malhotra

Tuesday 21st September 2021 Commons Chamber

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

For months, the Government have ignored warnings about supply chain issues from the Food and Drink Federation, UKHospitality and other businesses. August saw Nando’s temporarily close 50 stores. McDonald’s ran out of milkshakes and now the HGV shortage has been compounded by a CO₂ crisis that the Government should have foreseen. With Iceland warning of food shortages in days, jobs at risk as businesses deal with this utter chaos, and looming costs for consumers who are now paying the price, will the Minister now tell the Chancellor that universal credit must not be cut? Is Professor Haszeldine not right to say today that, with only two to three days’ of methane stored rather than months’ of supply that other countries have, we should have been far better prepared?

[Paul Scully]

The hon. Lady started talking about supply chains and ended up talking about welfare, but let me tackle the supply chains issue. We are working closely with sector leaders to understand how we can encourage more people to work in these areas. Through our plan for jobs, we are also giving people the skills and qualifications that they need to quickly take up roles in key sectors. That is why we are inviting employers from a range of sectors, including farming and hospitality, into local jobcentres, as one of the most effective ways to promote vacancies is for employers to come out and market their opportunities directly to our work coaches and jobseekers

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Debate between Paul Scully and Seema Malhotra

Tuesday 6th July 2021 Public Bill Committees

[Paul Scully]

[Seema Malhotra]

Oral Answers to Questions

Debate between Paul Scully and Seema Malhotra

Tuesday 6th July 2021 Commons Chamber

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

Many businesses on our high streets face financing their reopening in July while dealing with quarterly rents, emergency loan repayments, business rates and VAT deferrals, all while furlough support is being withdrawn. UKHospitality has now warned that the sector faces coming out of lockdown with more than £6 billion of Government debt. Not all sectors are going to bounce back overnight; they need a Government who are on their side at this crucial time. Does the Minister think it is fair for hospitality businesses to pay a £100 million business rates bill from 1 July? Why do the Government not extend the relief period, as the Labour-led Welsh Government have done, and what discussions is he now having on the root-and-branch reform of business rates to allow the reintegration of the high street that was promised in the Conservatives’ 2015 manifesto but has still not been delivered?

[Paul Scully]

Different businesses and sectors have different views on furlough. UKHospitality is explaining that furlough is starting to become a problem, while other sectors want it extended further. On business rates and other support, the Chancellor deliberately went long in his Budget; he erred on the side of generosity. It was always about data, not dates, so that was always going to be flexible. The fundamental business rates review that we are conducting will report back this autumn.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Debate between Paul Scully and Seema Malhotra

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Paul Scully]

Q Finally, in terms of your role in credit management, what do you think this will do for the confidence of lenders and supply chains, in particular SMEs in those supply chains?

David Kerr: Generally, if the system is seen to be working well and those who abuse it are brought to account, then it helps enhance the confidence of those engaged in providing credit, whether it is through loans, trade credit or anything else. In that sense, it is a welcome provision that, if resourced and used as intended, should have the desired effect.

[Seema Malhotra]

Q To follow up on a couple of points, there have been critics of the proposals in this small piece of legislation. From your experience and that of your members, how long can it take for companies that have been dissolved to be restored to the register? In 2019, over half a million UK companies were dissolved but only 33 restored. In terms of the time it takes in practice, what could that look like?

David Kerr: I think the cost issue is the bigger disincentive for creditors that previously might have wanted to take steps to try and get somebody appointed to investigate. The service itself has made the point that there are legal costs and other costs associated with that process, and it would not be practical for creditors to mount that kind of action alone or, in many case, at all, given the amounts of their own debts.

The bigger disincentive is probably the cost and this avoids that. You are right in the sense that if there is a lengthy time process and if it takes several months, that eats into the three-year time limit that we have talked about, so that could be a problem. I think here, with this measure, we avoid that because the Department can have the ability to make appropriate inquiries and take action, without the need to go through that process.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Debate between Paul Scully and Seema Malhotra

2nd reading
Monday 28th June 2021 Commons Chamber

[Paul Scully]

A lot of messages can go out and have gone out over the past year so that we can flex in our ability to work with businesses. I think I can boil down my relatively long job title to “Minister for unintended consequences”. We are always trying to make sure that we can flex and get clear messages out to businesses. The hon. Lady makes an interesting point. We have heard a lot about the £1.5 billion and when the guidance will be out. Clearly that is dependent on the passage of this Bill, but we want to make sure that we can work with the LGA and councils to give the clearest guidance so that they can get the money out as quickly as possible. The argument made by Members on both sides of the House is countered by the fact that by not having to go through so many appeals we can speed up the process and get the money out within weeks rather than, in certain cases, if we had to go through the entire process, years. That is why we can provide certainty to local authorities, which rely on income from business rates to fund their vital local services. It is on that basis that the Public Accounts Committee has welcomed the approach taken by the Government in the Bill.

Members have raised questions relating to when ratepayers will be able to benefit from the £1.5 billion relief that was announced on 25 March. We will work with all areas of local government to deliver the new relief scheme as soon as possible, once the Bill is passed, so that local authorities can set up their local relief scheme. The allocation of the £1.5 billion among local authorities will be made according to which sectors have suffered most economically rather than on the basis of temporary falls in individual property values. That will ensure that the support is provided to businesses in the fastest and the fairest way possible.

[Seema Malhotra]

Does the Minister have any clarity at all on the timetable so that local authorities know what to expect and when?

--- Later in debate ---

[Paul Scully]

The answer is as soon as possible, once this Bill has passed. I am looking forward to working with the hon. Lady in Committee to make sure that we can work through this as quickly as possible. Clearly, work will be done in consultation and conversation with the LGA and local councils to ensure that we can get comprehensive guidance in place. That is how we have been working over the past 14 months with local authorities on the other grant schemes.

Let me briefly cover a couple of quick points. The hon. Member for Manchester, Withington (Jeff Smith) asked whether there will be a blanket ban on MCCs. I can absolutely confirm that there is no blanket ban. On airports, it is a core principle of the business rates system that a material change of circumstances should be used between rate revaluations, so the drop in demand for airports in light of the pandemic is exactly the sort of market-wide economic change affecting property values that can and should only be considered at revaluation. We have been supporting airports with their fixed costs over the past year from the airport and ground operations support scheme. In his recent Budget, the Chancellor announced a further six months of support up to the equivalent of their business rates liability for the first half of the 2021-22 financial year, subject to certain conditions, and a cap per claimant of £4 million.

[Seema Malhotra]

Will the hon. Gentleman give way?

[Paul Scully]

I will not give way, but I will happily come back to the hon. Lady if I have not answered her question. I do want to get through a few areas.

Let me quickly turn to the disqualification of directors of dissolved companies. The issue of insolvency funding came up a few times. Clearly, we will be working with the Insolvency Service to ensure that it has the resources to do its job. It employs its finite resources to the maximum effect by prioritising cases in which there has been most harm to the public and the wider marketplace. Clearly, its resources are not limitless.

The hon. Member for Strangford (Jim Shannon) asked about insolvencies. Actually, the number of insolvencies has been at a 40-year low over the past few months because, effectively, in many areas, the economy has been held in stasis. That is why it is so important that, having put £352 billion-worth of support into the economy, we now have 352 billion reasons why we have to get the next bit right—why we have to help shape the recovery through these mitigations. We need to make sure that we continue to flex and continue to extend the support. That is why furlough carries on until September and why we have ensured that the winding-up proceedings have been extended for another nine months as well, so that we can get conversations going with landlords and tenants. It is so, so important to continue these measures.

I am glad that we have had broad support for the measures. In terms of compensation, directors can obviously be held personally liable for debt, and where there are breaches, there is disqualification.

Beauty and Wellbeing Sector Workforce

Debate between Paul Scully and Seema Malhotra

Wednesday 23rd June 2021 Westminster Hall

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

It is a pleasure to see you back in the chair, Sir Roger, and to serve under your chairmanship. I congratulate the hon. Member for Swansea East (Carolyn Harris) on securing today’s important debate, and I congratulate her and others, including the hon. Member for Bradford South (Judith Cummins) and other members of the APPG, on the work that they are doing in support of this important sector.

Today’s debate is important because the beauty and wellbeing sector is so important. It is important because of its contribution to the economy, its pivotal role in high streets and communities in every corner of the UK, its showcasing of female entrepreneurship, as we have heard, and its role in improving our health and wellbeing. We have heard a little about high streets. We have to remember that high streets are an ecosystem. It is not just about retail, hospitality or the beauty and wellbeing sector; they all work together to make our high streets vibrant. It is important that we protect all of that as we reimagine the future of the high street.

I was keen, as we looked to the end of this lockdown and at the Prime Minister’s road map, that we should secure the reopening of the beauty and wellbeing sector at an earlier stage than last time. The sector was last to open after previous lockdowns, but among the first to open this time. That is testament to the appreciation that we were able to get across to the Government and the understanding that people’s wellbeing is so important, as well as the economic situation and the recovery. Today’s debate has highlighted the key role that the sector plays in our economic society and I hope it will go some way to strengthen the perception of the sector as highly skilled, entrepreneurial and accessible.

As we have heard, the personal care sector consists of over 280,000 businesses employing about 561,000 people and adding £21 billion to the economy. Over 95% of the businesses are small or medium sized. As for levelling up, 30% of all hair and beauty enterprises are based in local authorities that fall into the ninth and tenth deciles of multiple deprivation. Although its economic contribution is significant, what is arguably even more valuable is its impact on society and its role in communities. It plays a key role in supporting jobs, as was eloquently shared by my right hon. Friend the Member for Romsey and Southampton North (Caroline Nokes), especially jobs for women and young people. Some 82% of hair and beauty businesses are female owned, 60% of workers are self-employed and around 20% of hair and beauty workers are under the age of 25.

The pandemic has had a major impact on our mental health and we need to recognise how the sector can help the nation’s recovery by improving people’s physical and mental wellbeing. Whether it is feeling fresh after a new haircut, catching up with the local beauty therapist or getting a massage to relax, as the hon. Member for Swansea East said, the beauty and wellbeing sector provides the services needed to make people feel better.

The sector tells us that 68% of British adults who get their hair done professionally agree that having their hair done supports their mental health and wellbeing, and it is interesting to hear the hon. Member for Feltham and Heston (Seema Malhotra) tell us about how she had to bring out her hairdressing skills. There was no way that I was going to try that. I know that some people thought that I was taking my loyalty to our Prime Minister to the nth degree with the hair that I sometimes brandished in the Chamber, and I am glad that I have been able to get it cut since.

As we have heard, the sector also plays a key role for some people with serious medical needs, such as those with cancer. We therefore allowed treatments to continue during lockdown for those with health issues when they could not be deferred—for example, some people undergoing cancer treatment were able to visit spas and salons to receive specific treatment tailored to their comfort. Throughout the pandemic, I have worked really closely with the sector to understand the issues, so that I can best represent its interests within Government. Although it has always been represented in Government, we had a dedicated personal care sector support team back in January, and we look forward to working with organisations within the sector, the APPG and other interested parties in the coming months and years.

However, this has been a really tough year for personal care businesses, which have been closed at various points of the year and faced restrictions for the remainder. That is why, in recognition of the impact that the pandemic and the restrictions have had on the sector, we put in place an unprecedented package of support worth £382 million. That is the largest peacetime support package in history, and it included the job retention measures that we have talked about, support for the self-employed, access to the highest grants, the restart grants of up to £18,000 and loans. Indeed, the restart grants are a testament to the sector. Although it was able to restart at an early stage of this part of the road map, the restart grants are a testament to the extra costs that the sector had to bear by getting the PPE and other mitigation measures in place. As we have heard, we have also provided business rates relief and a moratorium on commercial rent evictions.

The business support programmes have helped many businesses and protected many jobs, but they cannot substitute for operating in an open market. The road map that I have talked about has always been cautious and gradual, but it has to be irreversible. To help the sector reopen, we developed guidance that could get it to reopen safely. Through compliance with that, it has been able to operate since 12 April. The road map laid out the timing for easing restrictions, and it is an approach that is being led by data, not dates. We have obviously had the announcement by the Prime Minister that we are taking a four-week pause at step 3, meaning that restrictions, including social distancing measures, are still in place. That will still have an impact on the beauty and wellbeing industry, because operating at reduced capacity is extremely challenging—not only for revenue, as we have heard, but by making certain roles in the workforce redundant—but by pausing step 3, we will further improve protection in the population and reduce the need for stringent restrictions to control the virus.

[Seema Malhotra]

The Minister has just mentioned the extension of the restrictions in line with the required public health measures, based on the data. Can he explain—the Government have not explained this—why furlough support has not been extended in line with public health measures? There seems to be a mismatch, and there is no explanation that does not leave the most vulnerable businesses continuing to pay and having a greater gap between their revenues and costs.

[Paul Scully]

I will cover support in a bit more detail in a few minutes. In his Budget, the Chancellor essentially went long by extending furlough to September, which allowed a cushion within the road map. It was about data, not dates, so it was never on the June date specifically—it was not before the June date. That is the essential thing, but I will cover support in a second, including the VAT request that has been made by number of hon. Members.

Over the next few weeks, we obviously want to ensure that the pause allows us to get more people vaccinated, but I hope that our unprecedented package of financial support will continue to go some way towards reducing the impact of the pause. As I say, we erred on the side of generosity, as well as going long, in the Budget in March, specifically to accommodate short delays to the road map. Most of the schemes do not end until September or after in order to provide continuity and certainty to businesses. It is fantastic that the sector is looking at ways to boost consumer confidence to maintain the high demand—for example, the Oh Hello Beauty campaign, which I have supported.

Until then, it is critical that we all continue to follow advice on safe behaviours, including social distancing, wearing a face covering when required, washing hands, and letting fresh air into indoor spaces. It is so important that hands, face, space and fresh air are really there, because we will not get to that July date to find that suddenly the baddie has been killed and it is the end of the film—roll credits. We will still be living with covid for some time, but we want to ensure that the social distancing measures can melt away, in order to allow capacity to increase in the personal care sector and others.

[Seema Malhotra]

May I probe the Minister a bit further? He will know that quarterly rents, for example, are due today and that other support measures, such as furlough, are being reduced from next week. From 1 July the level of grant will be reduced and businesses will have to pay a contribution to those wages. Those decisions were made assuming that lockdown measures would be lifted on 21 June. That has not happened, yet there has not been a corresponding change to the economic measures. Nothing that he has said so far has answered that question, which is a matter of real concern to employers across my constituency. I am sure that employers across the country have raised the same concern with their MP.

Draft Conformity Assessment (Mutual Recognition Agreements) and Weights and Measures (Intoxicating Liquor) (Amendment) Regulations 2021

Debate between Paul Scully and Seema Malhotra

Thursday 10th June 2021 General Committees

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

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

[Paul Scully]

Financial Assistance to Industry

Debate between Paul Scully and Seema Malhotra

Monday 24th May 2021 General Committees

[Paul Scully]

I welcome the hon. Lady to her place. I know that there will be plenty of opportunities for she and I to discuss this and many other issues in the time to come. I also send my best regards to her predecessor, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), with whom I had fruitful debates, often in this very room. The hon. Lady and I will get to know each other and Committee Room 10 quite well in the coming months.

This is not considered to be a coronavirus-related measure. It looks at the wider aspect of productivity under the Act. I hope that answers the hon. Lady’s question in that regard. The course is 32 hours of formal training, to be delivered over three months, accompanied by peer learning and one-to-one mentoring, and participants will also be able to join an alumni community. I therefore believe that the course offers value for money for the recipient, who will be asked to pay 10%—£750—as a joining fee. Equivalent executive education programmes can cost up to £10,000 per participant.

[Seema Malhotra]

The 32 hours has been published in the description of the programme, but there are also other taught hours, perhaps for case studies. I was just trying to understand what the full expectation would be of tuition hours—where an academic or speaker will be involved in delivering some of that tuition, whether in groups or lectures. Secondly, to clarify, I understand that the Minister is saying that the course offers value for money, but an exercise must have been carried out to come to the costing of £7,500. If he does not have that information, I would be grateful if he could write to me with it. It is quite significant in terms of ensuring that we are delivering value for money for the taxpayer, as well as value for the small businesses that need the support.

[Paul Scully]

Indeed, and if there is anything that I do not cover today, I am happy to follow up on it. As I say, we have worked with business schools across the country; 33 are accredited at the moment and another 33 are seeking accreditation. By the end of that, we will have quite an extensive list—well beyond the existing cohort—that will be able to provide coverage across the country.

[Seema Malhotra]

I am grateful for the Minister’s generosity in giving way. A number of business schools contacted me because they were not clear about this. Is the expectation that other business schools may be able to participate in the programme if they feel that they have either the resources or the opportunity to do so? That might be in parts of the country where there do not seem to be as many courses advertised at the moment, because I have been looking at the regional advertising of what is available. Will it be the case that other business schools could participate, but they would have to become accredited to do so?

--- Later in debate ---

[Paul Scully]

I can give the hon. Lady an absolute yes. We are encouraging more business schools to apply to the Chartered Association of Business Schools for accreditation to the SBC, and CABS will seek to complete that accreditation process within two months. As soon as schools gain accreditation, they will be able to deliver the programme. We want to ensure that there is a clear framework. I know that there are plenty of excellent business schools up and down the country, but we want to ensure that we can work within that framework to achieve the value for money that the hon. Lady rightly asks about, and to ensure that we have a consistent approach across the country.

The best description that I have heard of levelling up is that potential is equally distributed across the country, but opportunity is not, so we need to try to tackle that. Similarly, on business advice, we said in our manifesto, which we are trying to deliver, that the UK should be the best place to start, grow and scale a business, but we want to go further. I have seen this myself with my own business, and certainly in the last year working up and down the country. I want to ensure that we have a degree of consistency so that no matter where someone is in the UK, that should be the best place to start, grow and scale a business. That involves access to finance, mentoring, peer-to-peer networking and infrastructure, and this programme plays a major role within that.

The hon. Lady raised a really good point about not only geographical differences, but differences among the people whom the approach might benefit. We are working through our communications plan to ensure that we can get this out. We are converting registrations of interest into actual places and, similarly, making more registrations of interest available. What I am more interested in is the kind of businesses that we can speak to. Exactly as she said, it is female entrepreneurs, ethnic minority-led businesses and young people, whom I speak about and listen to on a regular basis.

The themes tend to be the same regarding what the barriers are for those businesses, but the answers are very different. With a tailored programme of work such as this, we can start to tackle that. However, we need to make sure that we do not go solely through the same people—the CBIs and the Institutes of Directors. Someone with an informal network will not necessarily be aware of those institutions or feel that they can engage clearly with them. What more can we do? I am always keen to hear more about how to reach those groups.

When we were handing out the first grants for retail, hospitality and leisure small businesses in the early stages of the pandemic—it was seemingly one of the easiest areas of support, because we knew exactly who qualified—we were still struggling with the relationship between the local authority and those businesses, because we did not have bank account details. Why? The businesses did not have a close transactional relationship with their local authority, so we had to do quite a lot of outreach through accountants, intermediaries and the local media in order to access the people who were running businesses based, as I say, on their informal networks. I am really keen to see what more we can do to drill down, because they are the people for whom this scheme will have the biggest effect.

The hon. Lady rightly talks about how we measure this. Frankly, there is little point in our subsidising someone who would pay the full £10,000 to go on a course over someone who perhaps could not afford it, would not be aware of it or would not think it was for them, although it actually would be very much for them. We ask for £750 because, frankly, if someone has a stake a scheme, they tend to get more out of it in the first place. I am really keen that we do more about finding those hard-to-reach people, and we will direct the funding more at places where productivity is lowest geographically. That is really important in the work that we are doing.

[Seema Malhotra]

I am grateful to the Minister for explaining that that is indeed a priority for the Government. It is important for the House to be kept updated, because we want this to be successful. If places are not being reached, it will show in the numbers of those registering interest and the regions in which people are registering interest. I hope the Minister will keep the House updated on the numbers, including by region.

May I probe the Minister on one point? He rightly talked about consistency, and I have a great deal of sympathy with the idea that we want to make sure that the programme has the same quality, standard and consistency across the country, but will he respond to my point about whether a proportion of the curriculum could be more tailored? For example, it is English Tourism Week. We know that the tourism sector has been very hard hit—

[Seema Malhotra]

I would be grateful if the Minister could consider whether that could be part of the way in which the programme is refined.

[Paul Scully]

The programme is sector-agnostic, but the peer networking within it means that there can be a certain degree of tailoring towards a particular business leader’s business or sector. Clearly, the alumni aspect, as it develops and expands, will be really productive. I know from courses that I have done in the past—in politics and in the business world—that such learning is often the most beneficial to business leaders.

The hon. Lady asked about charities. Unfortunately, the programme is not available to charities. It is a business-led programme, based on business productivity, but social enterprises clearly are well within the remit, so we want to make sure that we can deliver on that.

[Seema Malhotra]

I also asked why the programme is not available to charities, which I do not think the Minister has fully answered. If that is the case, what is the alternative? Leadership, management and innovation capability within the charity sector is also extremely important as such organisations play an enormous role in our local economies and are great employers.

[Paul Scully]

Charities are indeed great employers. Many of them do fantastic work, and there are always interesting things that we can do to support charities. This scheme answers a particular question. It is an outcome-driven thing: how do we increase productivity? It is especially aimed at businesses and social enterprises that have that sort of outlook, and that is the outcome that we are after. The hon. Lady asked how we will measure that, which is a really important point. On all of the productivity measurements that we already do, we want to make sure that we can see a company’s turnover and the prospects improving. The measurements that we want to make will be covered.

We need to drill down further into how we measure overall outcome, and therefore how we report it. The hon. Lady will undoubtedly ask questions, and rightly so. The easiest thing in the world would be to just give this to a young hotshot whose business is expanding anyway. We want to make sure that we can find the hard-to-reach people and increase their productivity, because that will be of use to the levelling-up agenda, and productivity will help the prosperity of communities as well as businesses. Businesses can be a force for good for not just UK plc, but communities, cities and towns.

The hon. Lady asked about the curriculum. As I have said, the curriculum has been run through business support specialists, including existing courses such as the Goldman Sachs 10,000 and formal learning at business schools, as well as other organisations that run their own schemes. We want to make sure that we learn from the best and get the best in. That means not only doing these informal comms, but working through banks, accountants and intermediaries. Every business has an accounts package such as Sage, Intuit and Xero. Small businesses know that they can work through these areas, and I am keen to make sure that we work with them to get to the harder-to-reach businesses, because we continue to be a champion of the needs of business and industry. That is why we have published “Build Back Better: our plan for growth”.

The supporting strategies will put the UK at the forefront of opportunities and give businesses the confidence to invest, boosting productivity across the UK and enabling our green industrial revolution, which is so important. “Build Back Better” can mean a wide number of things to a wide number of people. Building back better will not only increase productivity, but will build back fairer so that people working in such organisations can feel that they have productive jobs and careers.

--- Later in debate ---

[Seema Malhotra]

The Minister is right about building back better, fairer and greener. We need to make sure that businesses are supported in the growth sectors that might be coming, particularly around the decarbonisation of our economy. I hope that there will be a connection, when future growth is planned within the industrial strategy, to help to support businesses to take advantage of some of those opportunities, too.

I am aware of the Goldman Sachs programme. Indeed, that has seen considerable success. There will be other initiatives that are important to learn from regarding how grassroots businesses have been supported to grow. Have the Government learned from other programmes in the development of the scheme and its curriculum?

[Paul Scully]

I used that as an example, but we have been working with business schools and the schemes that I have dealt with over the last year. In my 14 months as a Minister, I have spoken to about 5,000 or 6,000 businesses. A lot of those have gone through various schemes such Goldman Sachs’s, and also Be the Business, which is a Government-sponsored organisation doing fantastic work up and down the country. We will continue to work and learn from them, but we do not want to replace what is already there. We want something that is additional, that adds value and a degree of consistency, and that allows Britain to be proud, and to be the best place to start to grow and scale up a business that will attract investment, increase productivity for the UK and help us to build back better. I commend the motion to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the motion, That this House authorises the Secretary of State to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, compensation to Business Schools in respect of a proportion of the indirect costs of funding the Help to Grow Management Programme up to a limit of £220 million over three years.