Subsidy Control Bill (Eighth sitting)

Seema Malhotra Excerpts

Thursday 4th November 2021 Public Bill Committees

[The Chair]

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

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

I beg to move amendment 55, in clause 60, page 33, line 20, after “Secretary of State” insert

“, the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland”.

This amendment extends the post-award referral powers under this section to the Devolved Administrations.

It is a pleasure to serve under your chairship, Mr Sharma. You beat me to it: I wish you, and all who might be celebrating, a happy Diwali and Bandi Chhor Divas today. It is a very auspicious day, and it is a pleasure to be debating the Bill on such an auspicious day.

Clause 60 gives the Secretary of State the power to refer subsidies or schemes to the CMA after they have been awarded. Although Labour supports the general principle of post-award referrals, there are key problems that we wish to raise about this clause, not least the asymmetry of powers between the Secretary of State and the devolved Administrations, as well as some other key details. Amendment 55 has been tabled because, in our view, the Bill fails to provide the devolved Administrations with the proportionate and fair symmetry of powers that they should have, given that the Bill will operate across the UK.

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

Is that not the point, though? The hon. Lady said “across the UK”; this is a UK-wide scheme, so we have to have somebody in overall charge of the scheme, which is why we cannot have symmetry of powers for all the devolved regions. The Secretary of State is Secretary of State for the entire United Kingdom, so does it not have to be the case that he holds some powers that the devolved Administrations do not?

[Seema Malhotra]

I thank the hon. Member for his contribution. He will see from the contributions of Opposition Members that we are not saying that exactly the same powers should be given in all circumstances to the devolved Administrations, but that there are areas in which arguments for the devolved Administrations having similar powers make sense within the context of how the regime may operate. With a view to how issues could be raised and dealt with, there may be very good reason for doing that. We propose this not for political purposes but because we seek a regime that will work effectively and with some symmetry of powers relating to the opportunity, where it would be helpful, to challenge subsidies. I will lay out a couple of reasons why.

The clause gives the Secretary of State the power to make post-award referrals to the CMA but does not extend this power to the devolved Administrations. The specific purpose of the amendment is to extend the post-award referral powers in the clause to the devolved Administrations. As it stands, the Secretary of State can refer to the CMA subsidies granted in Scotland, Wales and Northern Ireland that may be perceived to damage the interests of enterprises in England. However, the devolved Administrations cannot bring forward an argument. They may in time have good reason to refer subsidies—English or others—to the CMA that they may perceive damage interests within the devolved Administration areas.

[Kirsty Blackman (Aberdeen North) (SNP)]

I do not intent to speak to the amendment, but I want the Opposition spokesperson to know that she has my full backing for it.

[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 ---

[Seema Malhotra]

I beg to move amendment 56, in clause 60, page 33, line 27, at end insert—

“(c) that there is a risk of negative effects on competition or investment between the United Kingdom and a territory or country outside the United Kingdom.”

This amendment provides that a post-award referral can be made where the Secretary of State considers that a subsidy or scheme risks competition or investment between the UK and a third country.

[The Chair]

With this it will be convenient to discuss amendment 57, in clause 60, page 34, line 1, leave out paragraphs (a) and (b) and insert—

“the day on which the subsidy is given or the scheme is made.”

This amendment would provide the Secretary of State with 20 working days beginning on which a subsidy is given or a scheme is made.

[Seema Malhotra]

It is my pleasure to move amendment 56 and to speak to amendment 57. We would like to address some further important gaps that we think exist in clause 60. First, as the clause stands, the Secretary of State cannot make a post-award referral on the basis that a subsidy may distort competition between the UK and a third country. In an article on 5 July entitled “UK Subsidy Control Bill—a brief summary”, George Peretz QC said that

“oddly, the Secretary of State does not appear to have that power if the possible subsidy only affects foreign countries, though such subsidies could well cause difficulty at international level.”

Labour is therefore proposing amendment 56, which would allow the Secretary of State to make post-award referrals on the basis that a subsidy or scheme is distorting international competition. We hope the Committee can understand why this is an important amendment. If the Government choose not to support it, will the Minister outline what the reason is and why the Government do not feel the need to refer subsidies that distort international competition to the CMA?

Secondly, we are proposing amendment 57, which would change the Secretary of State’s time to refer a subsidy or scheme to the CMA from 20 days after it is published on the database to 20 days after it is granted. The amendment is not intended to be used as a tool for reducing the time for post-award referrals; rather, it is intended to ensure that the Secretary of State can refer to the CMA grants that public authorities have incorrectly not categorised as a subsidy and that have therefore not been posted on the database. We hope the Minister recognises that, as the Bill currently stands, there is a loophole whereby subsidies incorrectly not identified can escape scrutiny and transparency. Amendment 57 is an attempt to close the loophole, and I therefore hope that the Government will work with us and support it.

[Kirsty Blackman]

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

--- 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.

[The Chair]

With this it will be convenient to discuss new clause 3—Post-award investigations—

“(1) The CMA may decide to conduct an investigation in relation to a subsidy that has been given or a subsidy scheme that has been made.

(2) A decision under subsection (1) may be made in relation to any subsidy or subsidy scheme in respect of which the CMA considers—

(a) that there has or may have been a failure to comply with the requirements of Chapters 1 and 2 of Part 2, or

(b) that there has or may have been a failure to comply with the transparency obligations set out in Chapter 3 of the Part 2.

(3) Where the CMA makes a decision to investigate under subsection (1), it must direct the public authority to provide it with—

(a) any assessment carried out by the public authority as to whether the financial assistance fell within the meaning of “subsidy” or “subsidy scheme” for the purposes of this Act, and the reasons for that conclusion;

(b) any assessment carried out by the public authority as to whether the financial assistance if assessed to constitute a subsidy or subsidy scheme would comply with the requirements of Chapter 1 and 2 of Part 2 and the reasons for that conclusion;

(c) any evidence relevant to those assessments;

(d) in a case where such assessments were not provided, the reasons for the assessments not being provided;

(e) any information that the public authority failed to enter in the subsidy database in accordance with Chapter 3 of Part 2; and

(f) such other information as is specified in regulations under section 60(8)(a).

(4) Where the CMA decides to conduct an investigation under subsection (1), the direction given under subsection (3) must be made before the end of 20 working days beginning with the day on which the subsidy is given or the scheme is made.

(5) The CMA must send a copy of the direction given under subsection (3) to the public authority and the Secretary of State.

(6) The public authority must provide to the CMA the information required under subsection (3) before the end of the information period as defined in section 60(7).”

This new clause provides the CMA with the power to conduct a post-award investigation where the public authority has or may have failed to comply with its requirements.

[Seema Malhotra]

It is pleasure to move amendment 58 and to speak to new clause 3. I am grateful for the opportunity to do so, because we think that this is quite an important area in which to seek some wider changes to improve the Bill.

In relation to post-award referrals, new clause 3 says that the CMA must publish a report on the subsidy or scheme within 30 working days. That reporting period may be extended by agreement between the CMA and the public authority, or the CMA may in certain circumstances request an extension from the Secretary of State. The Secretary of State may also make regulations that amend the length of the reporting period.

We support clause 61 overall and will vote for it to stand part. However, new clause 3 would extend the CMA’s powers with regard to post-award referrals. This is an issue that George Peretz outlined in his evidence to us. New clause 3 would allow the CMA to conduct post-award investigations into subsidies or schemes on its own initiative. The aim of the new clause is to ensure that, as mentioned in our previous discussion, subsidies that are, perhaps incorrectly, not categorised as subsidies and that therefore avoid scrutiny and transparency are able to be scrutinised should they come to light. George Peretz told us:

“There is an issue about the position of subsidies that are not recognised by the granting authority as subsidies.”

He added that

“it will be true under the definition of subsidy in the Bill, that there is room for considerable disagreement and argument about whether certain types of measures are subsidies at all.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 42, Q61.]

Will the Minister enlighten the Committee as to his reflections on that? It is a genuine area of concern for someone who is a distinguished lawyer in the field. Does the Minister recognise that the Bill therefore appears to contain loopholes with regard to subsidies that may deliberately not be defined as such, and are therefore not formally recognised as such?

--- 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.