Subsidy Control Bill

Seema Malhotra Excerpts

2nd reading
Wednesday 22nd September 2021 Commons Chamber

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

Let me start by saying that it is good to see the Secretary of State still in his place after last week’s reshuffle. I also wish to congratulate the new Ministers in his team on their appointments. However, I am sure I am not the only Member of this House who has noticed that there are now no female BEIS Ministers. While businesses across the country recognise the importance of balanced leadership at the top of their organisations, it is remarkable that BEIS seems to be moving in the opposite direction, and overlooking the important contribution that women Ministers make to ministerial teams and indeed to our economic debate.

To turn to the Bill, let me start by thanking the Secretary of State for his opening remarks, in which he laid out the subsidy control principles and talked about the need for autonomy, transparency and accountability in the new regime. Labour recognises the need for subsidy control legislation which establishes the framework for the UK’s post-Brexit regime. As of 1 January this year, EU state aid rules largely no longer apply in the UK. The EU-UK trade and co-operation agreement requires that the EU and the UK maintain their own independent systems of subsidy control. The UK also has to continue to comply with the World Trade Organisation’s subsidies and countervailing measures agreement. The Bill is therefore necessary for us to comply with our international obligations. More than that, however, it is necessary to protect the UK’s internal market and to ensure that public funds are being made available to businesses with the appropriate safeguards in place. That is why we will not be opposing the Bill tonight, but we are seeking to address significant gaps of concern during the passage of the Bill.

[Jonathan Edwards]

As my right hon. Friend the Member for Dwyfor Meirionnydd (Liz Saville Roberts) alluded to and as the hon. Lady will be aware, the Labour Government in Wales are taking the British Government to court on this issue. Will she explain why the Labour party here in Westminster is not showing solidarity with its colleagues back in Cardiff?

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[Seema Malhotra]

I thank the hon. Member for his comments. I will be making a considerable contribution on the issues associated with devolution and our grave concerns about this Bill, which we would want to see corrected. They need to be addressed because we want legislative consent to be given and the concerns being raised by devolved Administrations to be addressed.

Much in this proposed regime reflects EU state aid rules, including the definition of a subsidy, the prohibition of unlimited state guarantees and the condition that subsidies should be justified on public interest grounds. Where the Bill significantly differs from the EU’s rules is in its departure from a pre-notification system, where subsidies had to be approved before they were granted. The Bill offers the potential of a quicker system where subsidies are not required to be approved in advance of being implemented, but are subject to a review and appeal system. We want this regime to be robust and to stand the test of time, but the new system will work only if it provides transparency, oversight and scrutiny, and there are key areas of the Bill where those are missing.

First, there are huge gaps in the Bill and crucial aspects are yet to be defined. The Bill may establish a regulatory framework of subsidy control, but it fails to provide any clear indication as to how and where the Government plan to see those subsidies being spent and at what scale. Labour is in favour of a subsidy system that backs British businesses and our economy, but it must operate in the context of a strong UK-wide industrial strategy, which for all intents and purposes is not nearly where it needs to be. Furthermore, there is no clear plan for how the new subsidy control regime will be used to support national priorities such as net zero. Much more needs to be joined up and coherent in the new regime.

Secondly, the Bill in its current form does not provide a fair role for devolved Administrations—we have heard that in hon. Members’ interventions—in developing and implementing the new regime. We believe that changes must be made.

Thirdly, we are concerned that the Bill does not strike the right balance between efficiency and oversight, particularly regarding the role of the Competition and Markets Authority. Transparency is also severely lacking in the case of some subsidies, putting the country at risk of allowing damaging subsidies on the scale of hundreds of thousands of pounds, and allowing the use of public money to continue unknown and therefore unchallenged.

Although the Bill may propose a quicker subsidy regime, we want to understand further how the Government plan for those subsidies to be used, what will be brought forward from the contributions to the Government’s consultation and the response to it, and how that will manifest in the guidance to come.

We have heard the concerns about support for assisted areas or key British sectors and foundation industries, such as steel. As the Minister for Finance and Local Government in the Senedd asked in her letter to the Government:

“If areas that have suffered historical economic disadvantage will no longer have the right to greater flexibility of subsidy over other regions… what alternative approach does the Government propose to ensure that disadvantaged areas can compete on a level playing field?”

Is the equivalent to an assisted areas policy implied under the seven principles, for example, equity rationale or specific policy objectives? In that case, will the Government make that clear in the guidance? Public authorities that will transition to the new regime in our devolved Administrations need that clarity.

Parliament is right to be concerned that the Conservatives are more interested in levelling-up rhetoric than in actually levelling up. In March last year, the regional deprivation fund highlighted that clearly, which led to considerable debate in the House. The Government appeared to direct money not to areas that needed it most, but to areas that seemed to serve their interests. If the Government are truly committed to their levelling-up agenda and their plan for growth, they need to show it. The Secretary of State should publish their plans and detailed guidance on how the subsidy control regime will direct public funds to the communities and businesses that need it most, in the interests of genuinely levelling up in deprived areas and our wider economy.

We also know that the UK has historically spent far less on subsidies than its international counterparts. For example, in 2019 the UK spent just 0.38% of GDP on state aid, far lower than Germany, which spent more than three times that or Hungary and Denmark. Indeed, we were seventh lowest in the EU.

The Secretary of State does not have the strongest record on industrial strategy, given that he scrapped his predecessor’s plan and wound up the Industrial Strategy Council in March.

[Dame Andrea Leadsom]

Why does the hon. Lady equate the fact that the UK has an excellent track record of allowing businesses to stand on their own two feet rather than being bailed out with state aid with not having an industrial strategy? Surely we are backing capitalism as the way for everybody to become richer and be in work.

[Seema Malhotra]

I will just leave the right hon. Lady with the Institute for Government’s feedback on the Government’s plan for growth, which was that it seemed more like a shopping a list than a prospectus. If those who independently look at what the Government are producing in terms of a plan and our industrial strategy make such comments, the Government would be wise to heed some of that feedback, in the interests of our country. I would like to be having a different debate. I would prefer to have a debate that was much more about content than on whether there is a clear plan.

Let me come back to my speech. We recognise the debate about whether the Government have a strong record on industrial strategy. Last week, the Confederation of British Industry urged the Government to

“build an economy of the future through catalytic public investments”

and to re-find its “role as market maker”. On research and development, innovation, regional growth and hydrogen—on which, perhaps, a strategy has since come forward—the CBI said that further action was needed for the UK

“to remain internationally competitive against peer nations where business investment levels–and public spending…far outstrips our own.”

Sufficiency of strategy is important here; it is not just about the publication of a document. There has been feedback on that, too.

We want to see well-designed, proportionate subsidies as part of the wider industrial strategy that we need to grow the businesses and industries of the future and to invest in our transition to net zero. Labour has also said that we must buy, make and sell more in Britain, as called for by our shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves). That is part of how we can ensure resilience in our economy—the need for which has been highlighted only too starkly by the gas-price challenge and the CO₂ challenge of the past week.

The Bill lacks in not only vision but key details and scrutiny. The Institute for Government has expressed concerns about the ability of this House and the other place properly to scrutinise the new subsidy control regime, given the important issues that are being left to secondary legislation or guidance. The Institute for Government claims that the gaps left in the Bill by the Government

“could deny Parliament a proper chance to scrutinise how the new system will work”.

The Government’s own impact assessment says:

“There are considerable unknowns—because key features of the regime will be defined later in secondary legislation or statutory guidance. The analysis of the regime’s impact is also based on historical data when UK public authorities had to comply with the EU State aid regime.”

The impact assessment also says:

“We should expect the behaviour of public authorities”—

perhaps the Secretary of State was alluding to this when he talked about culture change— “and the resulting distribution of subsidies to change under the new regime—although it is not possible to forecast how this will change.”

We are yet to hear how the Government plan to define categories such as subsidies “of interest” and “of particular interest”—categories that will determine which subsidies are voluntarily or mandatorily referred to the Competition and Markets Authority. Such definitions are to be determined not now, but through secondary legislation, in respect of which Parliament is given less opportunity to scrutinise the Government’s decisions. To aid scrutiny, which I believe the Secretary of State will want to be to the standards we would want in this House for a regime that will stand the test of time, he should set out the timeline for consultation on and the publication of secondary legislation that covers critical aspects of the new system.

[Simon Baynes (Clwyd South) (Con)]

Will the hon. Lady say why no Labour Back Benchers are present in the Chamber? If this issue means so much to the Labour party, why is it not properly represented in the debate?

[Seema Malhotra]

I have been involved in extensive discussion with my colleagues, and they will want to make significant contributions in Committee to address the gaps in the Bill. We continue to work on that.

As I was saying, the Secretary of State should set out the timeline for consultation on and the publication of secondary legislation that covers critical aspects of the new system. I know the House will want to see that in good time.

Public bodies have faced significant difficulties since the start of this year precisely because of the lack of guidance on how to interpret the subsidy control principles agreed in the trade and co-operation agreement, so clarity on how public authorities should demonstrate that their subsidies comply with those principles will be an important part of the subsidy regime. I am sure the Secretary of State will agree that we will want to see some decisions being made in the interests of how we recover and how we are to grow our economy for the future.

On the important issue of devolution, most importantly of all we are concerned that the Bill has not taken the four-nations approach that is essential for an effective UK-wide subsidy control regime. For example, the balance of the power to challenge between the Secretary of State and the devolved Administrations is asymmetric. I am sure that the Secretary of State has heard those representations made to him directly. Twelve months ago, the shadow Secretary of State stood at this Dispatch Box and warned the Prime Minister of the risks of undermining with policy decisions the devolution settlement that has been part of our constitution for two decades and is vital to our Union. However, on the evidence of the legislation before us, it appears that a shift in mindset and thinking has not been a part of how the Government have brought forward this legislation, and we hope that they are going to listen to the concerns that we and other Members are raising.

[Stephen Flynn (Aberdeen South) (SNP)]

Let me make a point that almost follows on from the intervention of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). If Labour Members are so concerned about the devolution settlement, why do they not vote against the Bill?

[Seema Malhotra]

The hon. Member will have heard my earlier remarks; although we have considerable concerns, we believe that the Bill is vital to us meeting our international obligations and we want it to pass. However, there are significant gaps and issues that must be addressed in Committee. I hope that he will work with Labour on those matters, so that the regime that comes out of this process is one that reflects the four-nations approach that I just articulated.

[Stephen Flynn]

I appreciate the hon. Member’s remarks and I admire her confidence in being able to get the Government to address Labour’s concerns, but let me just be clear: is it the Labour party’s position that this Bill—irrespective of the damage it does to devolution—should pass?

[Seema Malhotra]

Perhaps the hon. Member will allow me to continue with my remarks, because he has not quite represented our position. It is important that we continue the debate and detailed scrutiny of the Bill. The remarks that I am about to make may provide him with some reassurance on this issue.

[Sammy Wilson]

Does the hon. Member accept that a regime of control is important for all the devolved areas of the United Kingdom: first, because it is a safeguard against richer regions being able to subsidise more heavily than poorer regions; and secondly, because it is a safeguard against central Government issuing subsidies that could affect the devolved regions? We need a strong regulatory regime.

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[Seema Malhotra]

The right hon. Member makes an important point. I will make some points in that regard later in my remarks.

As I was saying, on the evidence of the legislation it appears that the Government have not reflected in the Bill a true four-nations approach in order that we have a UK-wide subsidy regime that commands the confidence and support of all parts of the UK. We do not contest that subsidy control is a reserved matter, but we recognise and support the requirement on public authorities to consider the impact of a subsidy on competition or investment within the UK. It is important for the Secretary of State to make it clear to the House why there is such a limited role for the devolved Administrations in the development of this new regime. They are not even required to be consulted beforehand on advice given by the Secretary of State on the implementation of subsidies.

Under the legislation, the Competition and Markets Authority’s new subsidy advice unit will play an important role in protecting the UK’s internal market, yet the Bill provides no formal role for the devolved Administrations in appointing members to the new unit. Remarkably, the Bill is even less generous than the United Kingdom Internal Market Act 2020, which at least requires the Secretary of State to seek the consent of the devolved Administrations before making an appointment to the Office for the Internal Market. Can the Government not see how this flies in the face of a four-nations approach?

It is imperative that the devolved Administrations be involved in the development of secondary legislation and in the amendments to the Bill. Even more worryingly, the powers given to the Secretary of State and First Ministers are significantly asymmetric. Although the Secretary of State is explicitly able to challenge Scottish, Welsh and Northern Irish subsidies that may damage English interests, no complementary power is given to First Ministers. Unlike the Secretary of State, the devolved Administrations seem unlikely to be able to challenge English subsidies that may be perceived to be causing harm to Scottish, Welsh and Northern Irish interests. Will the Secretary of State clarify whether this is correct, or is it his intention that First Ministers would be considered as interested parties for the purposes—

[Dame Andrea Leadsom]

Will the hon. Lady give way?

[Seema Malhotra]

I have given way to the right hon. Lady already and I hope she will not mind if I continue my remarks.

Will the Secretary of State clarify whether it is the Government’s intention that First Ministers, or public interest groups, be considered interested parties for the purposes of being able to bring forward a challenge to a subsidy decision—if so, why will the Government not put that in the Bill?—or will a challenge have to be made via the Secretary of State?

This is not where the devolution challenges end. Perhaps the Secretary of State could clarify his remarks on Northern Ireland, because, as I understand it, under article 10 of the Northern Ireland protocol, EU state aid rules must apply to subsidies that affect trade between Northern Ireland and the EU. This affects not only subsidies granted in Northern Ireland but subsidies granted throughout the UK. There is a risk—unless the Secretary of State wants to correct me—that article 10, taken alongside the new subsidy regime, could cause legal or practical difficulties, particularly if the UK and EU disagree on what affects EU-Northern Ireland trade.

[Kwasi Kwarteng]

I thought that I could not have been clearer on this precise point in my opening speech. I repeat: it is clearly no longer necessary for Northern Ireland to be subject to the EU state aid regime, and that is precisely why we proposed a change to the Northern Ireland protocol in order to bring all subsidies within scope of the domestic regime.

[Seema Malhotra]

I thank the Secretary of State. Indeed, I did hear those comments in his opening remarks. I was seeking to clarify the issue because I do not think it is clear across the House, and it is important that it is tested and made clear in the course of the passage of the Bill.

Crucially, what is the Government’s intention if the Bill does not receive legislative consent from Scotland, Wales and Northern Ireland, as has been requested?

[Deidre Brock (Edinburgh North and Leith) (SNP)]

Is the hon. Lady suggesting a four-nation approach whereby any one of the nations has a veto over decisions taken by those four nations that they feel are not in their interest?

[Seema Malhotra]

I am not clear why the hon. Lady refers to a veto. I think we are talking about the symmetry of powers in terms of being able to bring forward a challenge. I hope that makes the point clear.

[Deidre Brock]

rose—

[Seema Malhotra]

If it is okay, I want to move on because I am conscious of time, but the hon. Lady may want to make her point in her own remarks.

Finally, on the issues of oversight and enforcement, while well-designed subsidies can support Government objectives and foster growth and opportunity, there are risks too. Subsidies can distort markets, undermine competition and unfairly discriminate between businesses. Effective oversight and enforcement are critical to the success of our subsidy control regime, yet they are lacking in certain areas of the new regime. The Bill does not provide enough certainty as to the definition of “interested parties” that are able to challenge a subsidy. Does that definition extend to local authorities and devolved Administrations?

There are also concerns about the limited powers of the CMA’s new subsidy advice unit under the Bill. We are pleased that a trusted independent regulator is being given key responsibilities. However, as the Bill stands, the CMA lacks any power to instigate an investigation on its own initiative or to take enforcement action. This requires careful consideration, particularly when transparency issues around the Bill are taken into account.

[Jonathan Edwards]

Will the hon. Lady give way?

[Seema Malhotra]

I am sorry but I will move on. I have taken an intervention from the hon. Member, so perhaps he can make his own contribution.

The Government have stipulated that subsidies under £315,000 over three years will not have to be reported on the subsidy database. However, there is an issue, also raised by the hon. Member for Thirsk and Malton (Kevin Hollinrake), about the threshold and reporting. In the consultation on the Bill, the Government asked whether there should be a minimum threshold of £50,000 below which no subsidies would need to be reported, and 64% of those who responded agreed on that threshold of £50,000. On that general point, what are the Government’s plans for reporting, oversight and accountability arrangements for subsidies below that threshold? I am sure they will want to ensure transparency in how public money is being spent and to whom it is going.

On the decision made for a six-month time limit to upload subsidies to the subsidy database, there was a discussion in the consultation on whether that period should be shorter, or three months. What was the reason for deciding on six months? That seems rather a long time for a decision to be uploaded and therefore in the public domain. If interested parties and the Secretary of State are not made aware of smaller subsidies or those that are uploaded—they have a month to bring a challenge—there will be no opportunity to prevent them going forward, even if they are harmful. The CMA may be able to produce reports on such subsidies, but it will not be able to enforce any of its recommendations. Does that not expose a significant transparency gap in the Bill? The Government could choose to have further reporting requirements. I urge them to review the CMA’s role alongside the necessary transparency requirements for subsidies.

Labour recognises the need to develop a post-Brexit subsidy control regime in line with the UK’s international commitments. There are benefits from a more flexible and speedy subsidy regime, but we have serious concerns about gaps in the Bill that we will look to address during its passage. Those include unanswered questions on the operation of the new regime, its enforcement and oversight, and the role of the devolved Administrations. We want to see legislation that establishes an effective UK-wide subsidy regime that commands confidence across the country. The Bill gives the Government and other public authorities greater powers to provide subsidies. It is an important Bill, but the gaps in it must be addressed.

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[Kirsty Blackman (Aberdeen North) (SNP)]

It is great to hear the thoughtful contributions from that Tory Bench, although not from the Treasury Bench, I hasten to add. The hon. Member for Amber Valley (Nigel Mills) and I have spoken in many debates together, and I always appreciate his forensic assessments of the details in the Bills before us. I hope that he will be on the Committee, and I hope that I will be too.

First off, I want to ask a couple of questions about what the Secretary of State said, because I am immensely confused by a couple of the things that he said. First, he said that the devolved Administrations were broadly happy with the Bill. If they are broadly happy, why have the Welsh Government said that they object to five of the six parts of the Bill? One out of six does not equate to “broadly happy”. In fact, I get the impression that they really do not like it and are not happy about it.

We have not seen what the Scottish Government are saying about the legislative consent motion, but I cannot imagine that they will be terribly happy with the power grab that is occurring as a result of the Bill. So I am quite confused by what the Secretary of State said. Does he mean that the devolved Administrations are broadly happy with having a state aid regime? Does he mean that they are broadly happy with the detail of the Subsidy Control Bill? I do not know. I do not understand what he is saying, because it does not seem to be coherent with what the Welsh Government have said in public about this.

The other thing that I am really confused about is what the Secretary of State said about the EU state aid provisions no longer applying to Northern Ireland. I thought he said something about article 21 of the Northern Ireland protocol, but maybe he meant article 16. I am not sure what he meant. In terms of the planned changes to state aid application in Northern Ireland, he seemed to be saying that the new subsidy control regime would apply there and that the UK Government were seeking some sort of change to an article in order to ensure that that happened. I am not aware of any publicity around the UK Government asking the EU for a change, but if that has happened, why have we not heard about it?

Could we please have a bit more information on this? We have the trade and co-operation agreement and we have the Northern Ireland protocol, but how do the UK Government expect these measures to apply in Northern Ireland without us breaking either the agreement or the protocol? That does not make sense. If the Secretary of State was making that important an announcement, you would think he would do it in a ministerial statement rather than as an aside during the Second Reading of this Bill. I would be really keen to hear a bit more information about what this actually means.

[Seema Malhotra]

The hon. Lady is absolutely right about the confusion that has been raised. Does she agree that it is important that the Government clarify what they are suggesting has changed in relation to article 10 of the Northern Ireland protocol and whether it has been dropped on the basis of this Bill? Should they not also tell us whether their proposal has been negotiated with the EU, and what the status of those discussions and any agreement might be?

[Kirsty Blackman]

Absolutely. If we as a country can suddenly renege on our international obligations and agreements, why cannot Scotland hold an independence referendum next week? The UK has agreed to these agreements and it would be great, when the Minister speaks at the end of the debate, if he could explain exactly what is going on. This is serious enough for a Minister to be making a separate statement to the House, because it is such an important matter for the people of the UK and particularly for the people of Northern Ireland.

My hon. Friend the Member for Aberdeen South (Stephen Flynn) spoke eloquently about the levelling-up agenda, and I agree that the red wall Tories elected in the north of England should be jumping up and down about this—we are jumping up and down about it, as the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) suggested—because it explicitly excludes us from doing anything that may disadvantage any other area of the UK. In schedule 1, principle F says:

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

And principle G says:

“Subsidies’ beneficial effects…should outweigh any negative effects, including in particular negative effects on competition or investment within the United Kingdom; international trade or investment.”

That reference to international trade or investment confuses me.

The principles try to level the playing field across the UK, so there can be a subsidy in Manchester only if a person in the south of England would not move their company as a result.

Subsidy Control Bill

Seema Malhotra Excerpts

3rd reading
Monday 13th December 2021 Commons Chamber

[Sarah Olney]

I absolutely do, which is why it is so important to get this level of oversight at the much smaller threshold that the hon. Gentleman is proposing. Potentially, within the gap between the £500 that he is proposing and the £500,000 that the Government are proposing, there will be a great deal of market-distorting subsidy, and it will be up to competitors who have been disadvantaged to challenge or to bring their own court cases against those subsidies. If they do not have knowledge about how they are personally being disadvantaged, what can they possibly do about it? That is why that point is so important.

My new clause 2 is about climate change. I welcome the comments made by the hon. Member for Aberdeen North (Kirsty Blackman) about the importance of this matter in her excellent opening speech. There are the seven principles against which the subsidies will be assessed, and also the nine energy and environmental principles. What I am disappointed about is that they do not add up to a broader commitment to using public money to fight climate change. I can only amplify what the hon. Lady said about it being our key public challenge at this time, covid notwithstanding.

The Liberal Democrats would have welcomed the opportunity to put the transition to net zero at the heart of the UK’s subsidy regime, and for the Government to have used every tool at their disposal to make the transition as swiftly and painlessly as possible, and we can see how public subsidies can help to achieve that.

New clause 2 provides for an annual report to Parliament detailing the climate change impacts of subsidies granted that year. This would have been an important mechanism for reviewing the extent to which subsidies are being used to stimulate or to de-risk investment in the green economy. We look to the private sector to drive much of the innovation that we need to see and to create the consumer markets for our net zero future, but the Government must do all they can to encourage the private sector to prioritise reducing emissions alongside creating economic value.

Public subsidies are an important part of the levers available, and taxpayers need to see that they are being used effectively. Let us take, for example, the nine environmental and energy principles. In the past few months, we have seen a tremendous concern about our energy sector, and it is easy to imagine a scenario where subsidies are being granted to improve energy resilience and energy supply. Such goals might make sense in the short term as they are in line with the principles, but when we are making short-term decisions about subsidy use, it is really important that we step back and look at the longer-term impact of some of those decisions. We need to take the opportunity every year to make sure that, regardless of the short-term decisions that sometimes need to be made, we are nevertheless continuing along the path towards net zero—the challenge that the Government have set for themselves. To have that separate net zero/climate change consideration of the total use of all of our subsidies would be an important check for the Government to make sure that they are progressing towards net zero in the way that they should

In short, this Bill would have been much improved by enabling greater scrutiny of the subsidies granted. I regret that the Government are not doing more to enable that.

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

It is a pleasure to follow some powerful speeches on Report tonight. I share the frustration of the hon. Member for Aberdeen North (Kirsty Blackman) that we could well have moved forward with some of the issues we debated in Committee with some amendments brought forward by the Government. Some of the robust debate we had in Committee led to looking at how we could address those issues more quickly. I acknowledge the contributions from the hon. Members for Weston-super-Mare (John Penrose) and for Thirsk and Malton (Kevin Hollinrake). I will be talking about their amendments later in my speech, but we have discussed at length transparency and the ways in which we need to reform this regime in order for it to be the most effective it can be. I wish to make a brief remark about new clause 1 before carrying on further. I hear the concerns raised by the hon. Members for Aberdeen North and for Edinburgh North and Leith (Deidre Brock), and the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts), because they are important, particularly in relation to legacy subsidies in agriculture, as well as future subsidies. The Minister will need to make sure that he can respond clearly to the concerns that have been raised, and we will certainly be listening closely on that.

It is a pleasure to speak to our amendments—new clause 3, on post-award referrals, and amendments 15 to 27. I will also speak in support of similar and, in some cases, identical amendments to those tabled by Labour in Committee, which I was pleased to see have been influential in colleagues’ consideration of the Bill. I refer in particular to amendments 1 to 8, which were tabled by the hon. Members for Weston-super-Mare and for Thirsk and Malton, and amendments 10 and 12, which were tabled by the hon. Member for Aberdeen North. There are only slight differences from our position in Committee, and I am sure that today’s debate will also help consideration of the Bill in the other place. Amendments 13 and 14 are similar to amendments 2 and 7, and are consistent with our significant concerns on transparency and accountability, which we raised in Committee. New clause 2, tabled by the hon. Member for Richmond Park (Sarah Olney), is also consistent with the position on net zero leadership that we set out on Second Reading and in Committee. We are not actively supporting two amendments—we are more neutral on them: amendment 11, which has similar intentions and principles but is slightly weaker than our amendment 16 and which runs the risk of being unclear for local authorities to implement; and amendment 9, where we understand the intention to broaden what the Competition and Markets Authority reports on. However, arguably it would not have the information on all subsidies, as most would not be notified to it, so this provision could be impractical and create a significant burden. However, in Committee we also provided suggestions on how the CMA’s annual report could be strengthened and what areas it could report on. We had a considerable debate on that, including in respect of the CMA reporting on where it had identified non-compliance with the principles and examining the geographical spread of subsidies that had been notified to it.

Labour recognises the need for this legislation, which establishes the framework for the UK’s post-Brexit subsidy control regime. It indeed allows for quicker subsidies to be granted to businesses, which we support. We recognise that a system of subsidy control is important to ensure that public funds are made available to businesses, but with appropriate safeguards in place. Where we departed from the Scottish National party in Committee is that we also believe that the Bill is necessary to protect the UK’s internal market. We are speaking to our amendments today on two main strategic areas: the purpose of subsidies; and the way in which the new regime will operate. I will deal first with the purpose and the use of subsidies. Subsidies and their controls should be an integral part of a strong, long-term industrial strategy, promoting growth and supporting industry, jobs and prosperity across the country. We want to see our foundation industries such as steel supported, and we want to see a plan for how we can buy, make and sell more in Britain.

[Stephen Kinnock (Aberavon) (Lab)]

It was an honour and pleasure to serve with my hon. Friend on the Bill Committee. Does she agree that the strategic purpose of a Bill such as this must be about supporting areas of greater economic deprivation and that therefore there is a glaring hole at the middle of this Bill, which is that it does not have that clear, proactive strategic purpose?

[Seema Malhotra]

I thank my hon. Friend for his contributions in Committee and for that very important point, which I will come on to. We know that the assisted areas map is not part of the UK’s regime, but there has to be a way to deal with the principle of that, which is how to ensure resources are targeted to the areas where they are most needed.

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[John Penrose]

I am listening carefully to the hon. Lady. I am sure everybody here would agree with the principle of trying to level up, particularly in parts of the UK outside London and the south-east, but can she address the point I was making about politicians having a long and really pretty awful record in picking losers? How does she think that, under her proposal, things are going to be different this time?

[Seema Malhotra]

I do not think it is about us picking losers or winners at all. This is about us using the data, understanding where there are areas of greatest need and having that as part of a data-led levelling-up agenda. Given that the Government have created a specific Department for levelling up, Labour is surprised that that mandate is not clear and that the hon. Gentleman does not have the answers he needs to have a framework that gives confidence that we are applying resources to areas of greatest need. To be frank, the Government’s record on that is not very strong. The Bill should be explicit that supporting areas of deprivation should fall squarely within the subsidy control principles.

On improving the way the new regime will operate, there is a serious lack of transparency in the Bill on how public money is spent and how value for money can be assessed.

[Kevin Hollinrake]

Does the hon. Lady not agree that the problem with amendment 16—the net zero amendment —is judging what is consistent with the net zero commitments? I have a Westminster Hall debate tomorrow —at 4 o’clock if anybody has nothing better to do and wants to tune in. On greenwashing, for example, it is incredibly difficult to ascertain what complies with net zero when there is so much noise around this. We need to improve in that area. Is this not really a charter for lawyers to take these subsidies to court time and again? Is not that the problem with her amendment?

[Seema Malhotra]

I thank the hon. Member for his intervention. We have agreed with many of his amendments. What he has just said actually lends even greater weight to wanting to make sure that that is a consideration and that we have the resources to support that. Perhaps he will talk to those on his own Treasury Bench about this, because we would have hoped that by now there would be a clearer road map for how the country is supposed to move forward to achieving our net zero commitments. He will know as well as I do that many small businesses have been crying out for a road map to net zero to know what can make the most difference, how to assess it and how to look at whether they have a decarbonisation strategy that is fit for purpose. So I think he is lending weight to our argument that we need something in the legislation to help drive the processes behind that. People want answers and want to know they are doing the right thing and making the right investments on our road map to net zero.

I was referring to the serious lack of transparency in the Bill around how public money is spent and value for money can be assessed. There is no requirement to report subsidies below £315,000 over three years. An unlimited number—an unlimited number—of subsidies up to £500,000 could be made under a scheme and not one would need to be reported, as long as the scheme itself apparently is reported. That is not good enough. The argument that this is in order to be consistent with the EU fall because the thresholds in the EU state aid regime were in the context of a very different regime; they were in the context of a scheme of pre-notification, where scrutiny took place before the allocation of the subsidy, not a permissive regime that challenges subsidies after they have been granted. In that context, we must think differently about what we seek to import; we are not importing the whole environment around how those decisions were made in the past.

The Minister has previously stated that we are in a position to be able to change those thresholds—it is not a matter of can’t; it is a matter of won’t. The hon. Member for Weston-super-Mare (John Penrose) said very cleverly: if this is so obvious and the Minister agrees with transparency, why are we not doing it?

During covid, we have seen Ministers wasting money on crony personal protective equipment contracts. I could spend my entire speech talking about this, but my main point is that that would have remained hidden from the public and from Parliament without ongoing freedom of information requests. Transparency on public expenditure—who is paying out, how much is being given, who it is going to and what it is being used for— are basic questions that we should know answers to as a matter of routine on subsidies being paid by our Governments, local authorities or other public authorities. Greater transparency, not less, should underpin the system of self-assessment by public authorities that sits at the heart of the Bill and our responsibility to the taxpayer.

The Centre for Public Data has made it clear that greater transparency would help ensure the honesty, consistency and efficiency of the system. It is also essential that interested parties—be they competitors, other public authorities or groups acting in the public interest—are able to challenge subsidies that they believe are distortive or unfair.

On the subsidy database, we support amendments 1 to 8 on transparency and reducing the threshold for the requirement to report on the database. This includes subsidies made under a scheme referred to in amendment 1. As the Bill stands, subsidies made under a scheme with a value of less than £500,000 do not have to be entered on to the database. There is no convincing reason for that, and it is in the public interest that all subsidies under a scheme be published. Worse still, a scheme can be registered with little information so that there will be no overall transparency for a scheme under which millions of pounds of taxpayers’ money could be spent without scrutiny.

Amendment 8 in the names of the hon. Members for Weston-super-Mare and for Thirsk and Malton amends clause 70, which currently provides that, where a subsidy is made under a scheme, the decision to grant an individual subsidy cannot be reviewed. The amendment suggests that the response given by the Minister in Committee was not reassuring enough.

This set of amendments also reduces the timeframes in which subsidies must be entered on to the transparency database and the timeframes in which any modifications must be uploaded. Members will be aware that the Bill currently requires subsidies or schemes to be entered on to the database within six months of being made or within one year in the case of a tax measure. We argued in Committee that there was a need to reduce those timeframes. Having longer makes it more likely to result in an incomplete or inaccurate entry, because officials may leave or records may be lost. We heard evidence from Jonathan Branton, a legal expert in the area, who said,

“I have yet to hear a…persuasive case for why you need that long to publish…an award.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 58, Q79.]

Amendments 21 and 22 were intended to bring all services of public economic interest subsidies with a value of more than £500 into the scope of transparency requirements. We do not understand why such subsidies—those up to £14.5 million or all those in the case of hospital care, adult social care and certain public transportation services—should be excluded from transparency requirements. With respect to amendment 6, we firmly support the need for the date of the subsidy to be entered on to the database. There should be no ambiguity about the day that the clock starts to tick for the period in which a challenge can be brought.

If the Minister wants to try to argue that greater transparency would lead to higher costs and more red tape for public authorities, that does not hold up to scrutiny either, because they have that information and they are used to reporting their expenditure above £500. That point was made on Second Reading as well by the hon. Member for Weston-super-Mare. When giving evidence in Committee, Dr Roger Barker of the Institute of Directors said that

“there should be transparency at every level of subsidy”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 37, Q48.]

A transparent system is important, but so is the quality of the data contained in it. That is why we tabled amendment 20, which would require the Secretary of State to ensure that the subsidy database is subject to routine audit to verify the accuracy and completeness of entries. That would incentivise complete and accurate reporting and provide a mechanism for putting errors right.

In Committee, we heard clear evidence that the database in its current form contains significant inaccuracies and gaps in the data entered. Expert witnesses suggested that not all subsidies were being entered, as just 501 subsidies were recorded in the best part of 10 months. Of those entries that had been recorded, more than half had a zero or nil value, so either the database is not fit for purpose or the entry of data by public authorities has not been up to scratch—or both.

If the database is not subject to any oversight or control, and if inaccurate or incomplete information entered on to it is not checked, poor-quality information is likely to lead to misguided legal challenges or to harmful subsidies failing to be addressed. We want to be constructive on this point, which is why the amendment is drafted in a way that permits the Secretary of State to decide who should undertake the audits and how they can be done most effectively.

On devolution, this is not a fair four-nations Bill. As it stands, regulations and guidance can be developed without seeking the consent of the devolved Administrations; only the Secretary of State can call for subsidies to be assessed by the CMA; and there are no requirements for the devolved Administrations to be represented on the CMA’s new subsidy advice unit. That is important because we need a system that commands the confidence of all four nations.

The devolved Administrations should be given a genuine voice in developing and implementing the new regime. The Minister’s response in Committee to our concerns and those of the devolved Administrations was that he had had a number of meetings with the devolved Administrations and would keep talking to them. I would be grateful if he could provide an update on those discussions.



Amendments 23 to 25 would provide Scottish, Welsh and Northern Irish Ministers with the power to call in subsidies or schemes under clause 55. Currently, only the Secretary of State has the power to issue a call-in direction, triggering a report to the CMA. On that basis, the CMA’s reports are not binding on a public authority. The harm of extending the call-in power to the devolved nations is not clear to us. Why is the Secretary of State empowered to call in Scottish, Welsh and Northern Irish subsidies that may damage economic interests in England but the Scottish, Welsh and Northern Irish leaders cannot call in subsidies that they believe can cause economic harm in their nations?

Subsidy Control Bill

Seema Malhotra Excerpts

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.