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.

--- Later in debate ---

[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?