Subsidy Control Bill (Sixth sitting)

Seema Malhotra Excerpts

Tuesday 2nd November 2021 Public Bill Committees

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

I thank the Minister for his remarks and the hon. Member for Aberdeen North for speaking to her amendments. I remain concerned that the provision is not nearly robust enough and I was not fully reassured by the Minister’s comments. I take on board some of his remarks. Further work and research may be needed to check that the list is complete or whether more information may be needed on the database. However, I did not understand some parts of the Minister’s response. Which bit of subsection (2)(a) to (i) would he not want included in any subsidy entry? Why are they in the Bill to start with? They all seem eminently sensible.

I would like to push two of our amendments to a vote. The first is amendment 40, which would make it mandatory for the Secretary of State to make the provisions by regulation. It would be made mandatory for information to be entered, and that is done by the amendment changing the word “may” to “must” in subsection (1). Although I will not press the other amendments, I would like to push amendment 43 to a vote. For the reasons I outlined, it is fundamental that the date on which the subsidy or scheme was entered on to the database be included in the entries. So much can be hooked on to that date and if it is not, scrutiny becomes much more fragile, as is the ability of interested parties to bring forward cases with clarity. Those are fundamental points if information is to be debated robustly. The system cannot be at all robust if those important elements are missing.

Question put, That the amendment be made.

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[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.

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[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.

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[Kirsty Blackman]

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

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

[Seema Malhotra]

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

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

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

[Paul Scully]

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

[Kirsty Blackman]

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

[Seema Malhotra]

We wish to push clause stand part to a vote.

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[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.

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[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.