Subsidy Control Bill (Seventh sitting)

Seema Malhotra Excerpts

Thursday 4th November 2021 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I beg to move amendment 28, in clause 52, page 28, line 10, at end insert—

“(c) where the granting authority for a subsidy scheme is the Government department responsible for the operation of the subsidy control regime, or

(d) where the granting authority for a subsidy is the Government department responsible for the operation of the subsidy control regime and the subsidy value is over £2 million.”

This amendment makes provision for situations for mandatory referrals in cases where the department responsible for the operation of the subsidy control regime is a granter of subsidies or subsidy schemes.

Thank you for chairing the Committee today, Chair; we very much appreciate it. I am pleased that the hon. Member for Mid Dorset and North Poole is delighted to see me here. He made very clear this morning that he was worried that the debate might be truncated without my presence. I am here to oblige by standing up and making my first speech of the day.

The amendment is about mandatory referrals to the Competition and Markets Authority. Clause 52 specifically focuses on those mandatory referrals and the criteria under which a subsidy would mandatorily be referred and therefore given an additional level of scrutiny. The mandatory referral considerations in subsection (1) of the clause say that a public authority must request a report from the CMA if it is giving a subsidy or a subsidy scheme “of particular interest” or if it is

“directed to do so by the Secretary of State”.

It goes on to say in subsection (3) that the Secretary of State may

“specify further information that must be included in a request”,

and

“make provision as to the form of a request.”

That is all well and good, but it seems to me that every single criterion for mandatory referral to the CMA relies on the decisions being made by the Secretary of State. The Secretary of State will decide what is a subsidy or subsidy scheme of particular interest and what class it falls into. That is a decision that will be made, but those details are not in the Bill.

If a subsidy is only mandatorily referred if it is of particular interest, which is defined by the Secretary of State, or if the Secretary of State chooses to refer it, there is a gap in terms of a conflict of interest, where the subsidy may be given by the Secretary of State’s Department and, given the limited criteria we have for interested parties, for example, which have not yet been expanded on—we will discuss them later on in the Bill—it would make sense for large grants made by the Secretary of State’s Department to mandatorily be referred to the CMA for a report. That would not cause a huge amount of additional work for the CMA, but it will provide an additional check and balance to the system. We do not want the Government marking their own homework on that; we would rather there was an additional level of scrutiny here.

Amendment 28 says that

“where the granting authority for a subsidy scheme is the Government department responsible for the operation of the subsidy control regime, or”—

that should be “and”, not “or”—

“where the granting authority for a subsidy is the Government department responsible for the operation of the subsidy control regime and the subsidy value is over £2 million.”

Once again, I do not feel I am being unreasonable. I am not asking for a mandatory referral every time. Sorry—I just reread the amendment, and it is right, it should be “or”. It is about a subsidy scheme that is made by the Secretary of State’s Department, so scrutinising all the subsidy schemes made by the Secretary of State’s Department, or the scrutiny of an individual subsidy where that is more than £2 million. I apologise to the Clerks for doubting them; this is how I intended the amendment to be.

This is not an unreasonable ask, but it is an extra check and balance, ensuring that the Government are appropriately scrutinised and that there is a look at all those subsidies. It is just an additional look; it will not delay the granting of the subsidy or mean that it will take longer. The subsidy will still be able to be granted fairly quickly and subsidy schemes will be able to be set up fairly quickly. However, it means that the CMA will look at those with an inherent conflict of interest because the Secretary of State’s Department is granting or setting up the subsidy scheme.

Later in the clause is a provision for the Secretary of State to make changes by regulations, but that specifically relates to the form of the request and the further information that may be included in the request. It does not relate to further criteria as to which public authorities must request a report from the CMA. If there were such a provision, I would push for the Secretary of State to make regulations and ensure that the criteria were widened. As that has not been included in the clause, I feel that I have to move the amendment.

If the Minister could give me some level of comfort, that would be very helpful. I think that that check and balance needs to be there to get rid of the inherent conflict of interest.

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

It is a pleasure to serve under your chairship, Ms Nokes. I thank the hon. Member for Aberdeen North for her remarks. She raises a number of important and pertinent issues around scrutiny, in particular about subsidies introduced by the Secretary of State.

The clause deals with the mandatory pre-award referrals to the CMA. It outlines that:

“A public authority must request a report from the CMA…before giving a subsidy, or making a subsidy scheme, of particular interest, or…where directed to do so by the Secretary of State”.

We have highlighted our concerns about the definitions of subsidies “of particular interest”. It is a glaring gap in our debates on the detail of the legislation. We think that the definition should be included in primary legislation, and I hope the Minister has listened to our concerns. I am sure that the issue will come back at future stages and, at the very least, our expectation will be that the definition is published very soon after the Bill receives Royal Assent. Things that we could be dealing with now should not end up delaying the ability to make decisions and implement the regime.

Although we are concerned about the definition, we support the overall importance of the measures outlined in the clause and the function of mandatory referral to the CMA, in the interests of checking compliance with the principles, bringing assurance on value for money and confirming that there will be no distortion or harm to the economy.

On amendment 28, the hon. Member for Aberdeen North makes an important continuing reference to the Government marking their own homework. Although we recognise the intention and some of the arguments behind the amendment, we do not think that producing a report on a subsidy every time one is given by the Department for Business, Energy and Industrial Strategy—as a sort of blunt tool—would necessarily be the most effective use of the CMA’s time.

Rather, we have argued very strongly for all subsidies, regardless of whether they are below a particular amount or given to a certain recipient, to be posted on the database to ensure sufficient transparency. We will also seek to ensure that there are greater rights on call-in powers or that the CMA can investigate itself, if it deems that there a reason to do so. We think that any assurances, which are, in part, the intention behind the amendment, could be better delivered through the Bill in other ways. On that basis, we will abstain on amendment 28. We support clause 52 standing part of the Bill.

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

As always, it is a pleasure to serve under your chairmanship, Ms Nokes. Before I begin, I would like to make a general point about today’s debate and address a question raised during our discussions on Tuesday. Throughout the discussion of clauses in part 4 of the Bill, Members will hear me refer to the subsidy advice unit, which will be a new sub unit of the Competition and Markets Authority established by this Bill. Technically speaking, the provisions in part 4 confer various responsibilities on the CMA, and it is for the CMA to decide which of its responsibilities it will delegate to the SAU. The mechanics of that process will be discussed later when the Committee considers clause 67. While the decision on how to organise its work rests with the CMA, in practice it is likely that most if not all of the responsibilities under part 4 will be delegated to the SAU. Therefore, for consistency and ease, I will be referring to the SAU throughout these debates.

Clause 52 sets out that two categories of subsidy and scheme will be subject to referral to the CMA. The first is subsidies and schemes of particular interest, which we discussed in the context of clause 11 on Thursday 28 October, and the second is the subsidies and schemes that are referred by the Secretary of State under the provisions that we will shortly discuss under clause 55. Amendment 28, as we have heard, would add to that list of subsidies subject to mandatory referrals, requiring the Department responsible for the subsidy control regime to refer individual subsidies above £2 million and all subsidy schemes to the SAU. In practice, the BESI, my Department, is the Department with responsibility for subsidy control. I can reassure hon. Members that BEIS takes its subsidy control commitments very seriously. BEIS subsidies, like those of all other public authorities in the UK, will be subject to the “subsidies of particular interest” regime. There is no special treatment in this regime for my Department: indeed, BEIS can already ask advice of the CMA where necessary, using the powers in the Enterprise Act 2002.

The Bill establishes the two categories that we have talked about: subsidies and subsidy schemes of interest, which can be voluntarily referred to the SAU, and subsidies and schemes of particular interest, which must be referred to the SAU. The Government will set out in regulations definitions for both of those categories, and those regulations will be subject to the affirmative procedure, so there will be opportunity for parliamentary scrutiny of them. Those definitions will capture subsidies that are more likely to give rise to trade disputes, as well as subsidies that are more likely to distort UK competition and investment. BEIS subsidies and subsidy schemes will be subject to the same requirements and procedures as all other subsidies. I assure hon. Members that my Department really will not get any special treatment on this issue.

However, routinely requiring BEIS to be referred to the SAU when it offers subsidies and subsidy schemes would be a disproportionate approach to managing the risk of those highly distortive subsidies. It is important for the SAU to focus its attention and casework on genuinely distortive subsidies, not to focus unduly on subsidies and schemes made by BEIS in particular. The Government fully agree that subsidies and schemes of particular interest merit a proportionately higher level of scrutiny than other less distortive subsidies and subsidy schemes, but those subsidies are, in principle, better captured through a robust and well-evidenced set of thresholds and criteria. Those criteria will be set out in regulations defining the subsidies and schemes of particular interest, rather than placing a discrete requirement on a single public authority on the face of the Bill.

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[Seema Malhotra]

We support clause 52. I am not concerned about the detail of the clause, but how it will be effective as part of the regime. This comes back to why the rules around what can be referred under the definition of a subsidy of particular interest and who has what call-in powers will be a fundamental question to come back to. It would be a shame to have a good clause and not use it to best effect to support the best outcomes of the regime.

[Kirsty Blackman]

I agree with the hon. Lady. My concern, which I mentioned briefly when talking about the amendment, is that subsection (1) is not flexible enough. It mentions particular interests and

“where directed to do so by the Secretary of State”,

but I would prefer to see an additional category that says, “other reasons”, with regulation to follow if that is what the Minister suggests. There are probably more reasons why things could be referred mandatorily to the CMA without having to go through the affirmative process of changing the particular interest subsidy section in clause 11. There could have been a little more flexibility in that clause, and it would be useful if the Minister agreed to think about that.

[Paul Scully]

Clause 53 sets out the timeframe within which the subsidy advice unit must publish its report on a subsidy or subsidy scheme once a mandatory referral has been made to it by a public authority. The subsidy advice unit has an initial five-day working period in which to tell the public authority whether it has provided the information required by clause 52. It then generally has 30 working days in which to publish a report on the subsidy or subsidy scheme. That is the reporting period.

There are a couple of situations where it might be extended on a case-by-case period, whether by mutual agreement with the SAU and the public authority or directed by the Secretary of State following a request made by the SAU. Extensions are intended to be used sparingly—for example, when the SAU has been asked to report on a particularly complex case.

[Seema Malhotra]

It is a pleasure to respond to the Minister’s comments. The clause sets out the CMA’s reporting period for mandatory referrals. It specifies that the CMA has 30 working days to issue a report, unless the reporting period is extended under subsections (4) or (6). There is also the important five-day period for the CMA to respond to a request for a referral.

Labour Members recognise the importance of a relatively quick reporting period to give public authorities the confidence they need when granting subsidies under what is designed to be a quicker and easier system. However, it should not be without safeguards and, sometimes, extra safeguards, bearing in mind that pre-notification brings checks earlier in the process. We have to continue to be very mindful of that. We want subsidies that are given for the right reasons to be granted, without an extra onerous delay from the reporting taking too long, so it is important that some targets and mandatory deadlines are in the legislation.

We are concerned about whether the CMA will have the necessary capacity to produce the initial response within five days, and then the report within the 30 working-day period. Can the Minister offer reassurances about how the Government will monitor, review and work with the CMA on whether it has the capacity? There may be a spurt of requests, particularly perhaps earlier on in the process, as public authorities are starting to feel their way through it. They may even request, for good reason, voluntary referrals. What process is he putting in place to ensure that the CMA has the necessary resource to carry out its reporting adequately and in a timely manner?

We want that reporting to be to the required standard. Corners should not be cut in order to meet a deadline. We need the work to be done effectively and with the confidence of all interested parties and the public. We would also like clarity on what exactly would constitute an exceptional circumstance to allow the Secretary of State to extend the reporting period. Will the Minister provide further clarity on what might fit that definition? Despite those concerns—there may need to be some tightening up later—the clause lays out the necessity of the measures for the effectiveness of the regime. We will therefore agree that it stand part.

[Paul Scully]

The purpose of the referral process is not for the subsidy advice unit to duplicate the public authority’s assessment of whether the subsidy complies with the subsidy control requirements. The SAU provides the evaluation of the assessment based on the information that is already provided by the public authority, so it is not duplicating work. We therefore believe that 30 working days is reasonable, given that specific role, but for exceptional or complex cases where more time may be necessary, as I said, the SAU may extend the reporting period, either through agreement with the public authority or by a request to the Secretary of State.

When that extension is agreed by mutual consent, the SAU has to publish a notice stating how much the reporting period has been extended by and why that has happened. If it cannot be agreed by mutual consent, the SAU can request that the Secretary of State directly extend the reporting period. That can be requested and, in turn, granted only in exceptional circumstances. We chose the CMA in the first place to host the SAU because of its expertise and experience in protecting competition and investment, making it a natural fit for those broad aims. We are already working closely with the CMA to plan for the delivery of the new SAU, ready for the implementation of the regime.

Question put and agreed to.

Clause 53 accordingly ordered to stand part of the Bill.

Clause 54

Cooling off period following mandatory referral

[Paul Scully]

I beg to move amendment 3, in clause 54, page 30, line 8, leave out “on or”.

This amendment ensures that a public authority may give a subsidy after the reporting period expires, but not on the final day of that period.

The amendment consists of a very minor change that is nevertheless necessary to ensure the public functioning of the mandatory referral process. Clause 54 requires that the public authority waits for a cooling-off period to elapse following the subsidy advice unit’s report on a mandatory referral before giving a subsidy or making a subsidy scheme. That is intended to ensure that public authorities have a minimum window for considering the contents of such a report before giving the subsidy or making a scheme. Subsection (3) applies where the subsidy advice unit has not produced a report before the statutory reporting period of 30 working days. The reporting period is usually 30 working days. Here there is no need for a cooling-off period since there is no report for the public authority to consider. Instead, the public authority should be able to give the subsidy or make the scheme any time after the reporting period has expired.

As currently drafted, subsection (3) allows the public authority to make the subsidy on the last day of the SAU’s 30 working-day reporting period, before it has technically expired. That gives rise to the theoretical possibility of a public authority being able to give a subsidy or make a scheme on the last day of the reporting period, when there is still a short time left for the SAU to publish its report—that is not the intention. This amendment clarifies that the full reporting period must have expired before the public authority can give a subsidy or make a scheme without having to wait for a cooling-off period to elapse.

[Seema Malhotra]

We support Government amendment 3, which provides clarity as to exactly when the cooling-off period ends. I will reserve my other comments on the clause for the next stages.

Amendment 3 agreed to.

[Seema Malhotra]

I beg to move amendment 48, in clause 54, page 30, line 10, leave out “Secretary of State” and insert “CMA”.

This amendment provides that the power to extend the cooling off period should sit with the CMA rather than the Secretary of State.

The Labour party accepts the necessity of the cooling-off period to ensure that appropriate consideration is also given to the CMA’s report. However, we do have some concerns about subsection (4) of the clause. We believe that the power to extend the cooling-off period should lie not with the Secretary of State but with the CMA. Given that the extension of the cooling-off period could have a significant effect on the granting of the subsidy and the effectiveness of its intended purpose, we should not risk it being seen as a politically charged, or political, decision. As such, we believe that it would be better for the CMA, an independent organisation whose judgment is trusted, to make that decision. Amendment 48 would make that change.

[Paul Scully]

As we have heard, clause 54 provides for a cooling-off period of five working days that have to expire before the authority can give a subsidy or make a subsidy scheme that has been subject to the mandatory referral process. The clause further provides that the Secretary of State may direct an extension to that cooling-off period if they judge that the report published by the SAU at the end of the mandatory referral process shows serious deficiencies with the public authority’s assessment against the subsidy control principles. Amendment 48 would remove that power from the Secretary of State and give the SAU the power to direct an extension to the cooling-off period. However, that would be at odds with the advisory role of the SAU, as laid out elsewhere in the Bill. We will discuss that in a more holistic way in the context of other amendments, particularly amendment 58 and new clause 3.

For now, I emphasise the Government’s view that the SAU is not a regulator or a gatekeeper, but rather acts as that impartial adviser for the most potentially harmful subsidies and schemes. Its reports are non-binding, and it will provide an important way of scrutinising the underlying assumptions in the design of subsidies and schemes, as well as identifying potential weaknesses. Granting a power to the SAU to extend the cooling-off period after it has published its report risks muddying the water between the role of adviser and enforcer.

[Seema Malhotra]

If there is a concern, does the Minister envisage the CMA being able to recommend extending the cooling-off period?

[Paul Scully]

Part of the CMA’s regular reporting on how the system works will look at the scheme holistically, and it may wish to look at that period as well. Ultimately, it is the Secretary of State who is responsible for the subsidy control system and its consequent effects on competition and investment across the UK. Although the SAU will be created to help facilitate the effective operation of the regime, it does not have the same overarching responsibilities as the Secretary of State, so it is right that the Government bear the responsibility for intervening in the subsidy control regime where necessary. In drawing the SAU into the space for that decision making and matters of public spending, even in a limited way, the amendment would risk the CMA’s hard-earned reputation for independence and political neutrality.

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[Paul Scully]

There is not going to be a rating, because the SAU is not a regulator or enforcer, but it is responsible for making sure that the situation is made as clear as possible so that people, not least the Secretary of State, can understand it. That is why we have left this matter to the CMA—its staff are experts and have great experience of doing exactly that.

[Seema Malhotra]

This has been a very helpful debate. The Minister is right: we will discuss some contextual powers in the debates on later clauses and new clause 3. Clarifying the roles, expectations and powers for the CMA, the Secretary of State and other bodies, such as devolved Administrations, is an important point to come back to, but I will not press the amendment at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Seema Malhotra]

I beg to move amendment 50, in clause 54, page 30, line 18, at end insert—

“(5A) The Secretary of State must by regulations define ‘serious deficiencies’ for the purposes of this section.”

This amendment requires the Secretary of State to define “serious deficiencies” for the purposes of directing that the cooling off period is extended.

[The Chair]

With this it will be convenient to discuss amendment 51, in clause 54, page 30, line 26, after “subsection” insert “(5A),”.

This amendment is linked to Amendment 50.

[Seema Malhotra]

It is a pleasure to move amendment 50 and, with that, to speak to amendment 51, to which it is related.

Clause 54(4) states that the Secretary of State can extend the cooling-off period if he or she considers that the CMA’s report has identified “serious deficiencies”. The hon. Member for Aberdeen North has referred to that point. Yet again, the Bill is lacking a key detail—namely, what would constitute a serious deficiency. We have had a brief discussion on this point. Clarity is necessary for public authorities, the CMA and interested parties, in order to have confidence in the new regime and the timing of subsidies.

The amendment would require the Secretary of State to define serious deficiencies for the purposes of directing that the cooling-off period is extended. It would be helpful to the Committee if the Minister could confirm how and where we will reach a definition of serious deficiencies and when we are likely to get that definition. My comments apply to both amendments 50 and 51.

[Paul Scully]

The meaning of the term “serious deficiencies” is intended to mirror the common understanding of those words, so we do not believe the requirement to define it further is necessary. Defining it further, either in the Bill or through regulations, risks leading to a situation where the Secretary of State judges that there is a serious problem with a public authority’s assessment, but is prevented from taking action because the specific problem is not exactly set out in those regulations.

[Seema Malhotra]

I am slightly surprised, because serious deficiencies is being used as a trigger for the Secretary of State to be able to use a power. I would be very surprised if there was a common understanding that was so common that even the members of this Committee, if they were to secretly write it down on a piece of paper and compare notes, would have exactly the same definition of serious deficiencies. I am not sure that suggesting there is a common understanding, as if that is fact, is the right way to address this particular point. We need this defined, and we need to know when and where it will be defined.

[Paul Scully]

One of the problems is that, if we define it in the way I think the hon. Lady is after, we then lose some of the flexibility. I was just about to say that the exact situation will vary on a case-by-case basis. A serious deficiency could arise, for example, if the subsidy advice unit identified that the proposed subsidy or scheme might have significant negative effects on UK competition and investment but the public authority had not considered any of the options for mitigating those effects. Another example might be if the SAU identified significant technical flaws in or omissions from the public authority’s assessments of compliance with the requirements of chapters 1 and 2 of part 2, such as the analysis of how the subsidy incentivised a change in the beneficiary’s behaviour or the impact on international trade.

[Paul Scully]

Absolutely—that is exactly what I was going to come on to. The hon. Lady has obviously seen the next paragraph I was going to read. The Secretary of State would not be taking that view on his own. It would not be an arbitrary judgment; it would be acting on the basis of a published report by the SAU, which is obviously independent.

As the hon. Member for Feltham and Heston said on Second Reading and has reiterated this week,

“the new system will work only if it provides transparency, oversight and scrutiny”.—[Official Report, 22 September 2021; Vol. 701, c. 341.]

This amendment only serves to undermine those aims slightly—unintentionally, I am sure—by limiting the circumstances in which the Secretary of State can act to extend the cooling-off period and ensure that a public authority has more time to consider the SAU’s comments. I therefore request that she withdraw her amendment.

[Seema Malhotra]

I thank the Minister for his comments. I will not press the amendment to a vote, but I want to repeat this point. In light of what the Minister has said, some of the examples or scenarios that he has started to outline suggest that there is more that can be done to scope out, set out some expectations or perhaps put something in guidance so that there starts to be a sense of scope around what sorts of scenarios could result in a consideration of serious deficiencies.

I say that not because I am trying to create an issue that is not there, but because where we have something in legislation that is a basis on which a power is to be exercised, it is incumbent on the Government to ensure that there is greater clarity about what the expectations might be. That might not be a complete list, defined A to H, but it may be a broad set of guidance, for use both by the subsidy advice unit in making assessments, and by the Secretary of State in making a clearer and more transparent decision that could also be open to scrutiny. I hope the Minister will confirm to the Committee that he would be prepared at least to look at some of those areas he has outlined—perhaps there will be more and we might need to come back to this in the regulations—to provide clarity on what could be quite an important use of the power. We would hate for the use of the power to be challenged on the basis of people not agreeing that something was a serious deficiency. We do not want the process to be subject to unnecessary delays that could be dealt with by planning ahead for different interpretations. There is perhaps not the common understanding that the Minister thinks of “serious deficiencies”.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Paul Scully]

Clause 54 establishes the cooling-off period that must elapse before a public authority may give a subsidy or make a subsidy scheme that has been referred to and reported on by the subsidy advice unit, following a mandatory referral.

[Seema Malhotra]

We have no further comments other than the issues we have raised already. We support clause stand part.

Question put and agreed to.

Clause 54, as amended, accordingly ordered to stand part of the Bill.

Clause 55

Call-in direction

[Bill Esterson (Sefton Central) (Lab)]

I beg to move amendment 52, in clause 55, page 30, line 29, after “Secretary of State” insert

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

This amendment extends the call in powers under this section to the Devolved Administrations.

It is great to see you back in the Chair, Ms Nokes, bright and early this time.

The amendment addresses the call-in powers as they relate to the devolved Administrations. We think that the power to call in is a good power to have in the Bill, but it needs to be consistent and apply to the devolved Administrations, not just to the Secretary of State.

Clause 55 allows the Secretary of State to request an assessment of a subsidy or subsidy scheme if the Secretary of State believes it could be breaking regulations or having negative effects on competition and investment in the United Kingdom. As we have said a number of times, it is important that the First Ministers and the Northern Ireland Department responsible have those same powers. It makes no sense that the Secretary of State should be empowered to call in Scottish, Welsh and Northern Irish subsidies that may damage English interests, but the Scottish, Welsh and Northern Irish leaders cannot call in subsidies that may damage the interests of their own nations. That is what we heard in the evidence sessions.

I start with the evidence from Thomas Pope, deputy chief economist at the Institute for Government, who told us that subsidy control

“affects devolved competence and the operation of policy in all four nations of the UK. I therefore think it is appropriate that there be better devolved representation.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 31, Q43.]

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[Kirsty Blackman]

Let me just imagine that I made an excellent speech.

The concerns that I raised a few moments ago still stand. I think there should be more flexibility in the first part so that it is made clear to public authorities that they can refer something should it not fall under the specific definition of “schemes of interest”. I would appreciate it if the Minister considered tabling an amendment to that effect. I do not feel that that would make additional work.

I genuinely feel that public authorities would use that flexibility only in circumstances where they feel that “schemes of interest” has been defined too narrowly to cover the scheme that they would like to refer to the CMA. That flexibility would not be overused; nobody would be daft enough to overuse it. There seems to be no ability for public authorities to refer anything unless it is classed as a scheme of interest or particular interest, or is something deemed by the Secretary of State to meet various criteria. I would appreciate it if the Minister looked at that.

[Seema Malhotra]

The clause does indeed allow public authorities to

“request a report from the CMA before giving a subsidy, or making a subsidy scheme, of interest.”

We have had some interesting and helpful discussion so far, but our main concern remains the lack of clear definitions in the legislation, particularly the definition of “interest”. Such clarity would provide some necessary assurance to public authorities, the CMA and subsidy recipients about how the regime will work in practice.

We could have pre-empted this issue and had clearer definitions to ensure that more was done upstream by public authorities, meaning fewer referrals. More referrals will create more burden on the subsidy advice unit. Referrals will be made for good reason, however, so we absolutely need the provision. It is likely that there will be greater demand for referrals in the earlier stages of the regime’s implementation, but as people become familiar with the process and judgments become clearer, and the CMA gets some case studies to use, the system will improve.

It is important that there is clarity from Government. We may come back to some of this, but the referring public authority will also need clarity on what it will and will not get back. Guidance on that would be extremely helpful to make the legislation work effectively.

[Paul Scully]

I take on board the hon. Lady’s point about guidance and ensuring that public authorities know what to provide and what to expect back. That is absolutely fair. In terms of where we go and how wide we make this, it is not our intention to replicate the needlessly complicated and slow processes under the state aid scheme; this will be focused on the most potentially distortive subsidies, to provide scrutiny where it is most needed, so it would not be proportionate to have the extra step for every subsidy regardless of size or impact.

The SAU itself will have discretion on whether to accept voluntary referrals based on the CMA’s existing and published prioritisation criteria, because we want to ensure that it can do its job effectively, but none the less offer that advice.

[Seema Malhotra]

The Minister is starting to go a little bit further in implying that there will be, perhaps not trade-offs, but decisions that will need to be made about whether to have the review done by the subsidy advice unit and what that might be intended for. What the clause might be intended for may not be the same as what public authorities may feel in wanting to seek a voluntary referral. Can he perhaps clarify whether, for example, undertaking a voluntary referral may be used to seek to provide reassurance so that there is less likelihood of a challenge later on? Decisions that are taken will bear some relationship to other parts of the Bill and the ability to bring challenges. What status would receiving a report back from the subsidy advice unit have? Could that be used if, for example, there was a challenge later on?

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[Paul Scully]

Clause 57 sets out the timeframe within which the SAU must publish its report on a subsidy or subsidy scheme. Once it has accepted a voluntary referral made by a public authority, it has an initial period of five working days to tell the public authority whether it will produce a report in response to the request. It will then generally have a reporting period of 30 working days in which to publish its report on the subsidy or subsidy scheme.

The clause also enables the Secretary of State to make regulations to amend either the period of five working days or the reporting period itself, which will allow the Government to amend those periods, should longer or shorter periods prove to be necessary based on experience of how the regime is working in practice. Any regulations would be subject to the affirmative procedure and therefore would need to be approved by Parliament in draft.

[Seema Malhotra]

I thank the Minister for his comments on clause 57 stand part. The clause outlines the CMA’s reporting period for subsidies and schemes that are voluntarily referred to it. We have no issues with this clause, but I wanted to raise one small point in relation to subsection (6).

I would be grateful for clarity about how the Minister expects any extensions of the reporting period to be reported, because we do not just need to know that it is taking longer because there is complexity: we need to know whether it is taking longer because there is a resourcing issue, or because public authorities are not completing the paperwork correctly and there is some confusion over some information that might be provided. Understanding those reasons would inevitably be useful when seeking improvements to the system and making the process more efficient.

More efficiency also means less cost and better value for money, because it is public money that goes into the CMA and the subsidy advice unit, so we need to make sure those resources are used effectively and improve the quality of both the applications and the process. I would be grateful to understand how the Minister envisages that being done.

[Paul Scully]

It is in the interests of the SAU and everybody else that this system works. If the quality of evidence that public authorities are giving is causing complexities, feedback to those public authorities would be incredibly helpful in making sure the framework works, but it is also the kind of thing that would be covered in the CMA’s reporting when it says how the framework is working in itself.

[Seema Malhotra]

Would that be in the annual report, or in the five-year review? Five years is rather a long time.

[Paul Scully]

It would be in both. That reporting is there to say what subsidies exist and how the framework is working, but those conversations would also be happening all the time through the advice to public authorities and BEIS’s communications with the CMA on a regular basis, making sure that the framework works. As I said, it is in everybody’s interests that we get that exchange right.

Question put and agreed to.

Clause 57 accordingly ordered to stand part of the Bill.

Clause 58

Call-in direction following voluntary referral

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

[Paul Scully]

Clause 58 sets out what would happen if the subsidy advice unit agreed to report on a subsidy or scheme that has been voluntarily referred, and that subsidy or scheme is then called in by the Secretary of State. The clause streamlines the pre-award reporting process that would apply when the subsidy is called in following a voluntary referral, because the SAU should already have some familiarity with the subsidy or scheme that has been called in, due to its already having been voluntarily referred.

Three scenarios are dealt with within this clause. The first is where the SAU has not published its report on a subsidy or scheme that was voluntarily referred, and the statutory time limit for doing so has not yet expired. The second is where the SAU has not published its report on a subsidy or scheme that was voluntarily referred, and the statutory time limit has expired. The final scenario is where the SAU has already published its report on a subsidy, but that subsidy has not yet been given or made. This clause ensures that the processes for scrutinising subsidies and subsidy schemes by the SAU are as efficient and timely as possible.

[Seema Malhotra]

We agree that in such cases, the subsidy or scheme in question should be treated as if it were part of a mandatory referral to the CMA. We have no issues with this clause, and will vote for it to stand part.

Question put and agreed to.

Clause 58 accordingly ordered to stand part of the Bill.

Clause 59

CMA report following mandatory or voluntary referral

[Bill Esterson]

I beg to move amendment 53, in clause 59, page 33, line 13, leave out paragraph (a).

This amendment removes the power for the Secretary of State to amend this section by regulation.

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.

Subsidy Control Bill (Fifth sitting)

Seema Malhotra Excerpts

Tuesday 2nd November 2021 Public Bill Committees

[The Chair]

We now continue the line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room. It shows how the amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue.

Clause 32

Subsidy database

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

I beg to move amendment 34 in clause 32, page 17, line 10, at end insert—

“(c) the subsidy database is subject to routine audit to verify the accuracy and completeness of entries.”

This amendment requires the Secretary of State to ensure that the database is subject to routine audit.

[The Chair]

With this it will be convenient to take amendment 39 in clause 33, page 17, line 27, at end insert—

“(3A) A public authority must ensure that all entries made under this section are accurate and complete”.

This amendment would require public authorities to ensure that all entries on the subsidy database are accurate and complete.

[Seema Malhotra]

It is a pleasure to serve under your chairship, Mr Sharma, and to debate amendments 34 and 39.

The clause provides that the

“the Secretary of State must make arrangements for the provision of a database of subsidies and subsidy schemes for the purposes”

of transparency as required by the trade and co-operation agreement—the TCA. The database must be accessible to the public free of charge, and public authorities who are obliged to upload details of subsidies or schemes should be enabled to do so. The Secretary of State may direct the Competition and Markets Authority to take on responsibilities for maintaining the database in the future.

Clause 32 mandates the Secretary of State to arrange for the database to be set up, and we support the creation of the database. We recognise that it is vital for there to be transparency over subsidies in the new regime. However, we are again concerned that key details are missing from the Bill. In order for it to function effectively, the legislation should require public authorities to make sure that their entries on to the database are accurate and complete. This is particularly important given that interested parties will use information on the database to assess whether subsidies meet the subsidy control principles and, if not, whether they should be challenged before the Competition Appeal Tribunal. Surprisingly, the Bill does not contain any obligations on local authorities or public authorities to make accurate and complete declarations. I hope the Minister will agree that that is a gap in the legislation and is one that we need to see addressed.

To resolve the problem, Labour has proposed amendment 39, which would establish an explicit duty on public authorities to ensure that their entries on the database are accurate and complete. That is the least we should expect, but I am afraid that the evidence suggests that not all entries entered even over the past 11 months have been accurate or complete. In many cases, they have not been either.

Secondly, the Bill does not place the database under any order or control mechanism. Whose responsibility is it to verify that the information on the database is accurate and complete? Again, given that the information entered on the database is crucial for effective transparency of the regime, does the Minister not agree that this is a significant gap? If the database does not have any regular audit function and if inaccurate or incomplete information entered on to it is not checked, this poor information may lead to misguided legal challenges or, indeed, to harmful subsidies failing to be addressed. The other consequence is that it reduces overall confidence in the database and the information in it. Over time, that would undermine the regime.

In the evidence given on Tuesday 26 October, Alexander Rose of DWF said that since 11 pm on 31 December 2020 only 501 subsidies had been entered on the database. He highlighted that

“of those 501, some 257 are recorded as having a zero or nil value. —[Official Report, Subsidy Control Bill Public Bill Committee, 26 October 2021; c. 52, Q73.]

He gave some frankly shocking examples of schemes that had not been accurately reported. He also questioned the database’s completeness and said that there was no way that only 501 subsidies had been awarded since the entries began.

The Minister may also remember the example of the Tees Valley Capital Grant Scheme. It was listed as having been posted on the website on 1 April 2020, but the website did not even exist on 1 April 2020. Given how vital subsidy entries will be to ensuring that subsidies meet the principles, it is clear that such complacency cannot be allowed to govern the new database under this regime. We need to get it right from the start. Expectations therefore need to be clear and they need to be defined in law. Let us remind ourselves that this is public money. Faith in the system requires good-quality information that is accurately reported, and we need to ensure that there will be a value for money check on the subsidies being proposed.

As the current database is clearly not working for those purposes, it is vital to address that point. Part of this may be about the design of the website for data entry itself, but the expectations of Parliament need to be clear on public authorities. It should be understood that there will then be real consequences if the database contains inaccurate information. We cannot control that if it is deliberate, but we need to put the safeguards in place so that the subsidies are used as intended.

Amendment 34 would ensure that the database was subject to routine auditing. We are open to discussions with the Government and stakeholders on which body is best placed to conduct such an audit. However, we believe that ultimately the responsibility lies with the Secretary of State to ensure that the database contains accurate information and is fit for purpose. I hope that the Government recognise the importance of both amendments in ensuring that the new regime is effective and transparent.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is nice to be here again, Mr Sharma. Thank you for chairing the Committee.

This is an important part of the Bill. It is vital that the database is as full as possible and that people can find the information that they need. The points that were made in the evidence sessions about searching through the database were also incredibly important. There need to be search terms that people can use so that they can look through the database to find the information that they need. The regime will work only if people can find subsidies that are relevant. Improvements to the search function need to be among the other improvements.

I got the Library to put together some figures. As of 26 October, there were 501 subsidies on the database, but 245 of them—nearly half—did not have an amount specified. I know that this is a precursor system and it is not yet fit, but that shows how important it is that we have a framework and the details in place so that public authorities know what information they need to provide and that anyone wanting to challenge the information is able to find that information on the site. So 245 entries did not specify an amount, but about £1.6 billion is currently registered on the database. In addition, 138 entries did not specify where they are from—whether that is England, Scotland, Wales or Northern Ireland—but given the way challenges are likely to work, and given principle F in schedule 1 about competition within the United Kingdom, it is incredibly important that the entries make it clear where they are from and where the subsidy has been given. The principles include a requirement that a subsidy does not affect competition between the regions. It is therefore important that that is one of the criteria that the Secretary of State specifies.

The links on the database are an absolute nightmare. If we go to any of the subsidies, it says, “Click here for more information”. Some of the links take us just to gov.uk, but other links take us to a local authority landing page. That is not right. It does not give us the details of the scheme. It would be more helpful if people were required to upload the details on to the website for the database rather than having the freedom to upload the details on to their own website. They could put them on their website and then take them down the next day. Even if there were a checking process when the information first went up, they could immediately remove it. Having the backroom systems in place so that there is enough space and server capacity on the website to store all the information would be incredibly helpful and probably provide better transparency.

I just want to pull out a couple of further things from the statistics that the Library provided. Of the subsidies recorded on the database that specify the region they are from, 30% are from England. I refuse to believe that only 30% of the subsidies that have been given in the UK since the system was started were in England. Some 21% were from Scotland, and I also refuse to believe that 21% of the subsidies that were given in the UK were given in Scotland. That just cannot be possible.

I completely agree with the amendments that have been proposed. I am not looking to argue with the Minister about the requirements set out and the strength of the database; I am just looking to ensure that the guidance that authorities have to abide by is very strong. I would rather there be too much information on the website than not enough to enable people to mount their challenges. We will come to this later, but there will be very little time for people to make a challenge. They should therefore not have to spend quite a while rummaging around trying to find the details that would enable them to make an informed challenge. I would be keen to hear the Minister make it clear that he intends a significant amount of information that is as accessible as possible to be on the website. People should be able to search the website and, if possible, a system should be in place to ensure that authorities that do not upload full information face a slap on the wrist. They should face some sort of sanction or negative consequence for failing to do their duty.

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

It is a pleasure to serve under your chairmanship, Mr Sharma.

Clause 32 sets out the obligation for the Secretary of State to provide a database for subsidies and subsidy schemes, so that public authorities can adhere to the transparency requirements set out in the Bill, including those in clause 33. We have discussed the operational subsidy database. That was put in place to ensure the UK would be able to meet its international subsidy reporting obligations from 1 January 2021. It will continue to be adapted over the coming months to ensure it is fit for purpose for the future subsidy control regime. 

The Government are committed to digital best practice in the monitoring and development of this database and all the databases that we oversee. The database uses the service standard specified by the Government Digital Service. The contract we have with our supplier is flexible—both to implement this Bill and to ensure that we can make improvements as we monitor and evaluate how it is being used.

[Seema Malhotra]

Will the Minister clarify his comments on digital standards? There are two key issues here. One is the content and the functional design of the database. The other is the technical design and the ease of use of its search facilities and so on. Will he comment on the quality of what can be searched for and on the duty to include accurate information on the database? Will he say a little more about how he sees them being delivered?

[Paul Scully]

: I will try in my remarks to develop some of the issues with public authorities and their statutory duties.

We have made minor improvements since the database came online in March and we will make changes in the coming months. We will reflect on what has been said in the Committee and throughout the Bill’s passage and by stakeholders and public authorities.

Amendment 39, tabled by the hon. Member for Feltham and Heston, and amendment 34, tabled by the hon. Member for Aberdeen North, focus on ensuring the accuracy of the information that is available on the database.

Amendment 39 would require public authorities to ensure that their database entries are accurate and complete. Amendment 34 would create a new obligation on the Secretary of State to subject the database to routine audit to ensure that entries on the database were accurate and complete. Although I agree wholeheartedly that it is important that the information on the database is correct and complete, the amendments are unnecessary for several reasons. 

First, the obligations on public authorities set out in clause 33 are clear. If an authority uploaded data that was inaccurate or incomplete, its statutory obligations simply would not have been discharged properly. Amendment 39 is therefore superfluous. 

The incentives faced by public authorities also mean that there is no need for amendment 34. If the public authority does not properly fulfil its obligation to upload the required information, the clock for the end of the limitation period does not start, so the subsidy or scheme could be challenged indefinitely. This gives public authorities an in-built incentive to ensure that the information that they upload is timely, complete and accurate.

--- Later in debate ---

[Paul Scully]

Effectively, it is for the challenge. It is a loose framework. It is not like the state aid regime, where permission has to be sought and waited for before going ahead with a subsidy. It looks back at the subsidies and schemes that have been made. I shall return to the database and the issues raised about its integrity and accuracy, which I hope will illustrate some of the points.

[Seema Malhotra]

The Minister has stated, in effect, that public authorities that do not protect information might not be in line with their statutory responsibilities. I am not clear where, in the Bill as drafted, there is a requirement on public authorities to ensure that all entries that they place on the database are accurate and complete. It is fine to say that a public authority must ensure that an entry that it makes must be maintained on the subsidy database for six years, beginning on the date the entry is made, but where is the requirement for the information to be accurate and complete?

[Paul Scully]

It is as with every statutory duty placed on a public authority. The Bill contains a statutory obligation on public authorities to upload subsidies on the transparency database—in most cases, within six months. With any breach of statutory duty—whether it is on the face of the Bill or otherwise—a public authority can be challenged in judicial review in the courts. That is why I say that the amendment is superfluous: the net effect is exactly the same.

Members referred to the Teesside scheme. The reason the database was not live on 1 April 2020 was that that was the date when the scheme was set up rather than when the subsidy was paid. Subsidies that are not part of the scheme are dealt with differently.

--- Later in debate ---

On the other issues—geography or some of the information that the hon. Lady was talking about earlier that may want to be challenged—any person who wants to challenge a scheme or subsidy or to find out more about data that is not on the database can put in a pre-action information request. Again, that stops the clock. The six-month period is not affected by that, because someone can make such a request, get that information and judicially review it later.

[Seema Malhotra]

I am finding the logic of what the Minister is proposing quite difficult to follow. With the requirement for completeness and accuracy, we could prevent a lot of wasted time and money, possibly on the part of public authorities or enterprises that may consider a challenge on the basis that information was incomplete, where a public authority may decide not to put information on the database completely. It is important, given the functions in the Bill and the powers to be exercised, that we have as accurate and complete information as possible. There is no point in saying that judicial review or a pre-action protocol may be used later to correct information that was not provided earlier. That strikes me as building huge inefficiency into a system that could be more efficient and more accurate and could better achieve the Government’s intended outcomes. The Minister has not answered where the duty is on a public authority to ensure that its entries are accurate and complete. It is not here in writing.

I want to clarify a point that the Minister made about the Tees Valley Capital Grant Scheme. The scheme might have started on a particular date, but if the date listed on the database is eight months prior to the database existing, that is not accurate. It can be listed, but it should also be possible to say when a scheme might have started. There are different parts to the information, so ensuring its accuracy is important. Other parts of the Bill hinge on the date when something is listed, so that cannot be inaccurate—it would have a knock-on effect on the actions that can be taken and the powers that people have.

[Paul Scully]

The scheme that we are referring to was created under the state aid rules—under an entirely different regime when we were still a member of the framework. It is additional information rather than subsidy control—specifically, UK subsidy control. Payments are still being awarded, despite the fact that it was an EU state aid scheme in the first place.

On the public authority duty, we are looking at similar aims. I used the word “superfluous” because public authorities clearly have a statutory duty and a requirement to carry out statutory duties. If we put something on the face of the Bill, the net result will be the same. How do you challenge someone who does not want to adhere to their statutory duties? You judicially review them.

That is why the Bill does not provide for any sanction for the failure to upload a subsidy. There is a strong incentive to do so, because the sooner the subsidy scheme or stand-alone subsidy is uploaded, the sooner the limitation period for digital review under the cap will expire. The Bill sets out the statutory obligation on public authorities to upload subsidies on to the transparency database, in most cases within six months.

Any breach of a public authority’s statutory duty can be challenged by judicial review, which is why the amendments are, although worthy in their aims, superfluous to the requirements of the Bill. I therefore ask that amendment 34 be withdrawn.

[Seema Malhotra]

I have listened to the Minister. Our difficulty is that the amendments seem to be fundamental to the integrity of the whole regime.

The Minister alluded to obligations on local authorities. I cannot see any in writing. I shall not press amendment 39, as I would like further to explore whether there are, by proxy, obligations on which we can look to draw. If not, I would like to bring this back at a later stage.

The requirement for a routine audit to verify the accuracy and completeness—a duty of the Secretary of State under clause 32—is fundamental. That gap is not filled elsewhere and we should like to press the issue today.

Question put, That the amendment be made:

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[Paul Scully]

The clause requires the provision of the subsidy database to ensure that the subsidy control regime is transparent and facilitates compliance with our international commitments. It must be available to the public free of charge. Public authorities will be able to upload certain subsidies to the database to meet their obligations under clause 33. The Secretary of State is clearly responsible for providing the subsidy database, and if appropriate the Secretary of State may direct the Competition and Markets Authority to carry out this function on his or her behalf.

I should clarify that the five-year reporting cycle that we discussed earlier was chosen to correspond roughly with a standard parliamentary term and, for consistency, with the monitoring reports of other bodies, such as the Office for the Internal Market. There might be circumstances when reporting within a shorter time period is desirable, such as in the early stages of the new regime, enabling the Secretary of State to assess how well it is bedding in.

The database is a key part of the new subsidy control regime, enabling the public and interested parties to see which subsidies have been awarded and to whom.

[Seema Malhotra]

I thank the Minister for his remarks. I have made a number of comments on clause 32. He will appreciate why we feel that there are areas to address, but fundamentally we think that the clause is important.

The principle of the database being accessible to the public free of charge is important, but I reiterate the points made by the hon. Member for Aberdeen North about searchability. Useability is an additional consideration alongside accessibility, and it should be referred to in further regulations or guidance.

I understand that when the Secretary of State directs the CMA to perform duties on his or her behalf, the powers go to the CMA as a whole. It might be assumed, however, that the subsidy advice unit in the CMA will take on those duties, so will the Minister clarify whether he expects that to be done by the unit or another team in the CMA?

[Paul Scully]

I thank the hon. Lady. We agree on useability. We will look at making the changes to the database, not least because of the Committee’s reflections and those in further parliamentary stages, but also because of the real-time conversations with people using the database—not only people putting data on, but people wanting to read it.

The subsidy advice unit in the CMA will be responsible for the use of the database and delegation. Expertise may be brought in, but it will be for the subsidy advice unit to work on the database on behalf of the Secretary of State.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33

Duty to include information in the subsidy database

[Seema Malhotra]

I beg to move amendment 35, page 17, line 18, leave out subsection (2).

This amendment requires all subsidies to be entered onto the subsidy database.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 32, page 17, line 21, leave out “£500,000” and insert “£100,000”.

This amendment reduces the threshold for subsidies granted under subsidy schemes to be registered in the database.

Amendment 33, page 19, line 17, after “requirements” insert “with the exception of duties under section 33,”.

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.

[Seema Malhotra]

The clause details the specific obligations of a public authority in uploading subsidies and subsidy schemes on to the subsidy database, as it stands in the Bill. It is right that a public authority must ensure that an entry is made in respect of any subsidy scheme unless any agreed relevant exemption applies. The clause also states that a subsidy or scheme must be uploaded within six months of the confirmation of the decision to grant or make a subsidy or scheme, except for tax measures which must be uploaded within one year. Subsection (2) exempts a subsidy from the requirement to be uploaded when the individual award is less than £500,000.

As I said on Second Reading, Labour welcomes the subsidy regime, which will enable subsidies to be granted more speedily while requiring stronger checks to be in place. The Bill presents us with an opportunity to create a more responsive subsidy regime but, as we move away from the EU system of pre-notification, it is vital to ensure that the new regime, which grants subsidies first and then allows them to be challenged after, has appropriate mechanisms for oversight and transparency.

Clause 33, which outlines the obligations that public authorities have in respect of the subsidy database, demonstrates how the Bill seems to fail to provide the checks that we need for subsidies under the new regime. As the Bill stands, subsidies made under a scheme that are worth less than £500,000 do not have to be entered on to the database. I would like to understand the Minister’s justification for that and how the figure of £500,000 was decided on. Amendment 35 would leave out subsection (2) so that there is a requirement to be transparent.

The provision in the Bill is staggering. The sum of £500,000 is significant and could be given multiple times under a scheme without that being transparent. How are we then able to challenge what is being done and, as an interested party, make the possible case against? Does the Minister not agree with Professor Rickard, who said in our evidence sitting last week:

“Through transparency, we can get better compliance and better value for money”?––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 23, Q25.]

I am sure the Minister will agree that we always want to see value for money and that we can help to ensure that the subsidies that are being granted meet the goals that we are setting out to achieve.

I am sure the Minister will also agree that subsidies worth £500,000 or less can have a significant effect on the market. They can distort competition. As such, public authorities should be obliged to enter them on to the database to ensure that their aims and the subsidies can be fairly scrutinised. That is why Labour is proposing amendment 35, which would stipulate that all subsidies should be entered on to the database. We have not suggested setting a minimum threshold for publication; there are proposals on that from the hon. Member for Aberdeen North.

In the system of appeal rather than pre-notification, comprehensive transparency is vital. With the right system, entering subsidies on to the database need not be cumbersome or complicated for public authorities. It can be a straightforward task that is well worth completing for the transparency it provides in the context of every subsidy. We can search the database for the amounts that we might want to scrutinise, but every subsidy should be on the database. That is our starting point.

Amendment 35 would mandate that subsidies given under a scheme are individually also quoted under the scheme’s entry. There will be an amount associated with that subsidy under the scheme; there is no reason why that amount should not be able to be entered and should not be required to be entered.

The amendment would ensure full transparency of all subsidies under the regime and that interested parties had the relevant information needed to scrutinise any subsidy, whether given alone or under a scheme.

[Kirsty Blackman]

I will speak to not only amendment 35, but amendments 32 and 33. I want to address the logic behind the amendments. It is impossible to overstate the importance of the transparency database. It is the key place—the only place—where organisations and local authorities will be able to find information about the subsidies being granted. I imagine that a lot of organisations will be poring over the information on a fairly regular basis to work out whether the subsidies made meet the principles put forward by the Government. It is absolutely, desperately important that we get this right, and I am keen for us to do that from the beginning as far as possible, rather than having to make changes to the legislation afterwards.

I am concerned by what the Minister said earlier about the timing of pre-action information requests; it feels to me that organisations will just make those requests all over the place, no matter when the subsidy was actually registered. If there is no requirement to have full information on the subsidy database and there is no sanction for public authorities that do not do that, people may as well try their hand with the pre-action information request. This encourages the action process to happen, rather than providing people with the information in the first place so that they know that they do not need to make the request.

The logic behind amendment 32 is that subsidy schemes should be easier to implement than subsidies. It should be easier for public authorities to give them out: presumably, the schemes will have been agreed. They will be set up in a certain way, so the process of giving awards under them should be easier—that is literally the point of having subsidy schemes.

I turn to the logic of changing the figure from £500,000 to £100,000 and keeping a floor. If something under £100,000 has been approved as part of a scheme, it is probably going to be not that bad—it will probably be fine. But £500,000 is far too high, which is why we suggest £100,000. As was said in the evidence sessions, the figures are arbitrary—the figures are always arbitrary no matter which one is chosen. However, that was the logic behind having a differential system in place between subsidy schemes and subsidies on the subsidy database.

I like Labour’s amendment 35 and get where they are coming from, but I am more comfortable than them with the more streamlined process of the subsidy scheme.

I move on to our amendment 33, on minimal financial assistance. It would actually amend a future clause—clause 36 —but it makes sense to debate it at this point, as it is specifically on the amount that needs to be provided on the database. My suggestion is that all subsidies not made under a scheme should be part of the database. I am not suggesting that they should have to meet the other minimal financial assistance requirements, but I am suggesting that—this was pretty clear from our evidence sessions on Tuesday—all the subsidies not made under schemes should be registered on that database. They would not necessarily have to jump through the other hoops, but all the public authorities that we are dealing with will have done a huge amount of due diligence before giving a subsidy of any sort. They will have the information and it would not cost them much in the way of time to ensure that it is uploaded. That would increase drastically the amount of transparency and our oversight. As drafted, we will not know whether the system is working, because we will not have access to transparency data on any subsidies under £315,000 or any made in a scheme under £500,000. That is not good enough.

A new system is being set up and the Government have been clear that it is a free-market and permissive system, but neither I nor anyone else will know whether it works if we are not able to see the data and whether public authorities are making far fewer—or far more—subsidies than expected under the scheme. We will be unable to assess the adequacy of the system unless the Minister is willing to make changes to the thresholds for schemes and for general subsidies. Once again, I am not suggesting that we put other duties in place for minimal financial assistance or a requirement that other hoops have to be jumped through; I am suggesting that details are uploaded to the database so that we may scrutinise the data.

--- Later in debate ---

[Paul Scully]

I do believe in transparency, that sunlight is the best disinfectant, and in the importance of this database being as accessible as possible. As I will come on to say, the starting point of many of the thresholds and the amounts that we have been adhering to for many years lie in EU state aid rules. They also reflect the consultation responses that we have received from all parties, which I will come back to. We need to ensure that the benefits of any approach to our database and transparency outweigh the costs, and I believe that the Bill strikes the right balance.

[Seema Malhotra]

Could the Minister define what he means by the costs of information on the database? Surely, if all the information is available to a public authority that has gone through the process of making a decision about an award, uploading entries and so on should not be an onerous process. What does he see as the cost?

[Paul Scully]

As I say, it is the cumulative costs that, in many ways, were the starting point. As a matter of principle, we should not seek to add duplicative red tape for public authorities—particularly local authorities and other small authorities—without good cause. I will expand on that as I continue.

[Seema Malhotra]

Perhaps this is an opportunity for the Minister to design a database and an extremely straightforward way of entering information. It does not seem to me that this should be onerous at all. Of course we agree that we should not add red tape, but in the interests of the integrity of the system, of public money and of preventing cronyism and people getting around controls, surely this ought to be part of a public authority’s obligation to the public. Perhaps the Minister could come back on those specific points.

[Paul Scully]

First, on cronyism, the starting point for the thresholds—as I will come to in a minute—were based on EU state aid, which we have had for the best part of 40 years.

[Seema Malhotra]

I am sorry to make this point again to the Minister: the EU state aid regime was based on information being available to the public. The whole system was different. There was pre-notification, so by the time a subsidy was awarded, a transparent process had taken place. The proposed regime will not do that. The shift in the system means that safeguards are needed for public money and so that any future scandal does not cause a crisis in the regime. Does not the Minister realise that shifting the regime to a different position from that in the EU will have consequences?

[Paul Scully]

First, moving the subsidy control scheme from pre-notification and pre-approval will mean that the subsidies can actually get to those businesses and interests at the right time, rather than when it is too late or when they would have less of an effect. The hon. Member for Aberdeen North mentioned the pre-action information requests and transparency requirements. We have based this on the consultation responses from people who will be at the cutting edge of the system, and it is also in line with other international examples. We have looked at other examples around the world, which is why I probed our witnesses on what happens in other parts of the world. We have been looking at that with this scheme.

This system, as drafted in the Bill, does strike the right balance in ensuring that people can drill down into this scheme. On the pre-action information request process, if the database is not keeping up with the ever-changing world of subsidies, businesses, environmental impact and other areas relating to subsidies, there are safeguards to ensure that it is as transparent as possible.

Let me briefly deal with some of the thresholds and give a little more information. Public authorities must upload information about all stand-alone subsidies that exceed the minimal financial assistance threshold of £315,000 cumulated over three years, unless they are subject to a specific exemption. They must also upload information about all subsidy schemes. 

The Bill provides for transparency of large awards given under schemes—those over £500,000. That was worked out roughly, allowing for currency differences, according to the EU amounts. Although these large awards cannot themselves be challenged in the CAT using the subsidy control requirements, they do provide important information about how the scheme is being used by the public authority, and their size means that the benefits outweigh the costs.

[Seema Malhotra]

Will the Minister clarify the maximum number of subsidies of, say, £450,000 that may be given under a subsidy scheme? How would anyone know about them?

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his comments, but I must say that I do not feel that they have so far moved us forward in tackling the very serious issues that the debate has started to uncover. I also want to refer to his consultation as an illustration of how complex this is and how it requires further considered discussion, also in the light of the risks of things going wrong. A system works well when we plan for things to go wrong. When we do that, things will largely go better, because we have managed the risks and taken them seriously. As an example, page 45 of the consultation states:

“The consultation also asked for views on whether there should be a minimum threshold of £50,000 below which no subsidies have to be reported. 14% of respondents answered this question. Of those that responded, 64% agreed there should be a minimum threshold of £50,000.”

It goes on with differing views across differing areas. That comes back not just to how the regime will be used by those who use it in good faith but to where things can go wrong. We must ensure that there are measures, boundaries and transparency in place to prevent things going wrong and to protect the public purse. Value for money surely must be a consideration—more than it seems to be for the Government from the comments that we have heard so far. This requires a much more considered debate. We need to consider some of the evidence and the risks again.

[Robin Millar (Aberconwy) (Con)]

I think that it is important that we pay attention to those matters, so I am grateful for the discussion, which I am following with interest. However, I have some familiarity with grant schemes in local authorities. One of the first questions that we, as a subsidy-awarding body, were asked was, “Has anybody else given you money?” It seems sensible for any subsidy-awarding body to ask a potential recipient of a subsidy whether they have applied for or received a subsidy elsewhere. If they fail to declare it, that is a case of fraud.

[Seema Malhotra]

I thank the hon. Gentleman for his comment. If he thinks that there should be such a requirement or that that should be in the guidance, perhaps he might raise it with his own Front Bench. It is important to have some of those checks in place. However, where fraud might be taking place, or there is an impact of—perhaps genuine—cumulative subsidies, whose responsibility is it? If an enterprise has been in receipt of multiple subsidies and does not declare them, where are they declared? If feedback to the local authority or the public authority is incomplete, how do we find out, unless subsidies are on the database and it is then much easier to search and identify them?

There is a lot more to be taken away from this discussion in terms of inefficiency and higher risk of fraud—or, if not fraud, perhaps some forms of maladministration or error. A transparent and full database would reduce the risk of many of those issues arising, and would then reduce the cost of seeking pre-action information or judicial review. Why must we clog up our tribunals with matters that could have been avoided had we had better control systems in the first place? A transparent and full database would ensure the value for money not just of the subsidy but of what the system demands and who pays for checks and balances later in the process.

The complexity of some of those issues requires us to think them through in more detail. I will not be pushing amendment 35 today, but we certainly plan to return to it in later stages of the Bill.

[Kirsty Blackman]

On a point of order, Mr Sharma, if I wanted to push amendment 33 to a Division, would it happen now or during the debate on clause 36?

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[The Chair]

Ms Malhotra, would you like to withdraw amendment 35 or to press it to a Division?

[Seema Malhotra]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Kirsty Blackman]

I beg to move amendment 26, in clause 33, page 17, line 24, leave out “one year” and insert “three months”.

This amendment would reduce the length of time public authorities have to enter a subsidy in the database from one year to three months, with respect only to tax measure subsidies.

--- Later in debate ---

[Kirsty Blackman]

This is one of the most important parts of the Bill that the Government have got wrong, and I am massively concerned. A number of witnesses raised concerns about the length of time. Some of those time lengths might have come from the trade and co-operation agreement, but my understanding is that those are minimum thresholds. It is entirely proper for us to put in stricter thresholds, should we desire to do so. It is important that those times be changed, for the sake of transparency and to protect organisations that might be harmed by subsidies being given to somebody else.

Amendment 26 would

“leave out ‘one year’ and insert ‘three months’”.

That is specifically about tax measures. The logic behind having a three-month period, rather than the one-month period I have suggested for normal measures, is that tax measures may be more complex, and it may take authorities longer to make that registration on the database. That should give them enough slack to be able to put that information on the database.

My big concern about tax subsidies is followed up in amendment 27 on the meaning of “tax declaration”. That meaning is not clear to me and, when I asked a tax professional, they did not know what “tax declaration” means in this case. It is important that the Government make clear what that means because, if “tax declaration” is the tax return, that return is made after the financial year in which that happens. It could possibly take up to two years for a requirement for that to be registered on the database. By that time, a competing organisation might have gone under. It was made clear to us in the evidence sessions that six months was a fairly long time; nearly two years is a very long time. It is completely unacceptable for the Government to choose to do that.

If the Minister says that “tax declaration” means the tax return, that would be helpful in making clear the meaning of “tax declaration”. My understanding, from the evidence given by Daniel Greenberg, is that that would be enough for everybody to understand the implementation of the legislation. The length of time is a massive concern for me. That is why I am proposing on tax measures that the length of time be changed from one year to three months, which is reasonable.

Where measures do not relate to tax, I am proposing that six months be changed to one month. That is again to protect businesses where the subsidy has distorted competition to the extent that they are in serious difficulties. I understand what the Minister said about time being paused if a subsidy has not been uploaded properly on the database, or if a pre-action request is made, but my concern is that people will make pre-action requests left, right and centre, no matter the date put in. It is also far too long a period of time.

The public authority that is granting money to an organisation has to go through a number of hoops in order to do so. It is completely reasonable to ask it to upload that as close to that point in time as possible, rather than let it potter about for six months, because it is already doing lots of paperwork. It is already jumping through hoops in relation to that subsidy, so it makes sense for us to reduce the time. It builds much more protection into the system, which is important. Surely that is the point of having a system. If we did not have international agreements and did not have to have any system in place, it would be different, but we do have to have a system. Therefore, the system that we have should make sense and should work.

I will just speak briefly about the Opposition amendments that have been put forward. They are along a similar line and try to do very similar things. Should the Opposition decide to push the amendments to a vote, I would be quite happy to back them, because it is really important to get this right.

[Seema Malhotra]

It is a pleasure to speak to our amendments 37 and 38, and to the other amendments in this group. I thank the hon. Member for Aberdeen North for the persuasive arguments that she has outlined. She has mentioned that our amendments are on similar lines. Ours perhaps go slightly further, and I will lay out our arguments as to why we have tabled the amendments in this way.

Amendments 37 and 38 would change the period that public authorities have to enter their subsidies on the database to one month, including for subsidies given in the form of a tax measure. Schedule 1 highlights the intention for subsidies to be proportionate, fair and targeted. However, the extensive time period described in clause 33 allows public authorities to have six months to publish on the database, or one year if the subsidy is given in the form of a tax measure. That is notwithstanding the important comment made by the hon. Member for Aberdeen North, which I think also came up in some of the evidence sessions, about what is intended by “tax declaration” within the context of the Bill and what time could elapse between the equivalent of the subsidy being made and that being public. An understanding of that would be very helpful for the purposes of scrutinising that aspect of the Bill and whether there needs to be a change.

Having one year to enter tax measures into the database means that subsidies that do not meet the regulations can still be granted and be spent over that significant amount of time. As subsidy details are not entered into the database, interested parties do not have the necessary information to scrutinise or challenge the subsidies. That means there could be a six-month period in which a highly damaging subsidy can be granted without any challenge. Does the Minister recognise the damage that extensive publication periods could have on the fairness and transparency of the regime, and the extra cost to the public purse of ceasing to recoup some of the subsidies that may be subject to a successful challenge but may already be spent by then? What are the Government’s reasons for making the publication period so long? In last Tuesday’s evidence session, Jonathan Branton, partner at DWF Group, said:

“I have yet to hear a really persuasive case for why you need that long to publish the fact that you have made a award. Why do you need six months to get yourself together to publish that something has been done?”––[Official Report, Subsidy Public Bill Committee, 26 October 2021; c. 58, Q79.]

That was a powerful point. Can the Minister enlighten us? We in Parliament have a responsibility to the public to try to ensure value for money and transparency in public expenditure. That question is at the heart of how we ensure that the proposed regime commands the confidence, credibility and trust of all four nations of the UK and our constituents.

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[Paul Scully]

I come back to our earlier discussions about the onus that is put on public authorities, and the impact that it will have on them, not only to put the amount on the various databases but possibly to go back and correct them. I appreciate that it is a difficult balance to strike, but none the less the balance is based on the EU state aid rules. It has gone through the public consultation and the majority agreed with it.

Amendment 27 would add a requirement to define a tax declaration in regulations before the subsidy control regime came into force. I can reassure hon. Members that, in the vast majority of cases, I would expect that the relevant tax declaration would indeed be a tax return. There are other examples: duty and certain other types of taxation treatment. That is why it is called a tax declaration rather than a tax return. But most of the time it would indeed be a tax return. The precise details would vary, depending on the specific tax and the mechanics of the measure in question.

As I have said, the Government will provide thorough guidance—I come back to the guidance that we have spoken about on a number of occasions—to ensure that public authorities are aware of their subsidy control obligations, including how to report subsidies in the form of tax measures. If it would be helpful to public authorities, subsidy beneficiaries and interested parties, that guidance will provide further explanation as to what should be considered a tax declaration. As that does not affect the substance of the law, I do not think it would be appropriate for secondary legislation. I therefore request that hon. Members withdraw or not press these amendments.

[Seema Malhotra]

I thank the Minister for his comments. There has been quite an important discussion and debate today. I want to highlight why this matter is complex and why more is needed on it. The Government quote from their consultation response, but on the specific point about the public authorities consultation question—should it be within six months?—I think it was actually quite a loaded question: “Do you agree that the obligation should be to upload information within six months of the commitment to award a subsidy?” That is hard to disagree with, even if people think that it should be one month or less. As with many of the questions, we had 15% of respondents answering this, and a majority did agree with the proposal. I do not think people would necessarily disagree with it. But even those who then did think a bit further and disagreed commented that six months was too generous and could be shorter, and apparently suggested a range of alternatives.

What is important is to get this right. The Minister made a couple of points in relation to where there may be some information that is not fully available—I do not know what specifically that would be—that would result in edits to correct some information, which could be after a month or two. I would like the Committee to have an opportunity to reflect on that and perhaps to talk to local government and other public authorities about what difficulties they might perceive if the period was to be greater than one month, or whether they did think that one month could be workable in the context of an easy-to-enter database. I think that, rather than pushing this matter to a vote today, we should see some further work done on these issues, in order to have confidence about the deadline, and come back to this on Report, with some of that information and further research being clear.

[Kirsty Blackman]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Seema Malhotra]

I beg to move amendment 36, in clause 33, page 18, line 7, leave out “negative” and insert “affirmative”.

This amendment makes the regulations set out in Clause 33(8) subject to the affirmative procedure.

This amendment would ensure that any future changes made to the minimum threshold for publication were decided through the affirmative rather than the negative procedure. We have said throughout the passage of the Bill that too many aspects of it are set to be decided at a later date by the Secretary of State. Decisions that could and will have a significant impact on the new subsidy regime, such as those that would change authorities’ database obligations, should be afforded appropriate parliamentary scrutiny. The decision to change the minimum threshold for publication on the database is one example that would alter the transparency and clarity of the new regime. It is not right for it to be nodded through Parliament or go under the radar. It should be given parliamentary scrutiny and the vote that it demands.

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[Paul Scully]

As I have set out, the figure of £500,000 strikes the right balance between transparency and minimising undue and unnecessary administrative requirements. We currently have no intention of changing the overall threshold. The Secretary of State has power to change the threshold if necessary—for example, because of changing market conditions or international obligations.

[Seema Malhotra]

I appreciate that the Minister has stated the Government’s position on the £500,000 threshold but he has not made the case for it, neither on the operation of the regime nor on value for money or transparency. The hon. Member for Aberdeen North powerfully made the point that the Government have the power to change the £500,000 threshold under the negative procedure. Has the Minister held discussions—with the Secretary of State or others in government—about whether there should be a maximum that the Secretary of State may propose? The consequence is much less transparency over greater amounts of public funds. That surely cannot be the right direction of travel for any Government, and certainly not for a scheme that we want to stand the test of time and enjoy the confidence of the public.

[Paul Scully]

In this instance, we are looking at adjusting the thresholds for specific sectors, such as agriculture, that are characterised by smaller businesses where a relatively small subsidy can have a distortive effect. It might be more appropriate to have a specific threshold in the future, but the focus in the transparency measures in this Bill is on enabling interested parties to see the subsidies that they may wish to challenge. We are not setting out to provide a general database of public authority spending, but the schemes are transparent because the details of a scheme itself must be uploaded on to the database. That is where the challenges may come. Transparency is set within this framework and that is why it is appropriate to use the negative procedure. I ask the hon. Lady to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. In the light of the complexity of many of the issues that we have debated, I will not push the amendment to a vote. However, the issue must be looked at in the round to ensure that clause 33 is as robust as it can be and will stand the test of time. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Paul Scully]

The clause sets out the duty on public authorities to upload certain information on to the database about their subsidies and subsidy schemes. It provides public authorities with clear rules on whether a subsidy award should be uploaded to the database or not. It sets out the three rules for public authorities granting stand-alone subsidies and subsidy schemes.

[Seema Malhotra]

This is an important clause, but it requires significant improvement. We will not vote against clause stand part, but I hope that the Minister will engage positively on the issues. This is not a party political matter. It is genuinely in people’s interests to have a robust regime, and we have outlined the cornerstones of that.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Information to be included in the subsidy database

[Seema Malhotra]

I beg to move amendment 40, in clause 34, page 18, line 9, remove “may” and insert “must”.

This amendment makes the regulations listed in subsection (2) mandatory for entries on the subsidy database.

[The Chair]

With this it will be convenient to take amendment 19 in clause 34, page 18, line 12, leave out “may, in particular,” and insert “must”.

This amendment seeks to ensure the Secretary of State will include all these measures in the regulations.

Amendment 41, in clause 34, page 18, line 12, leave out from “The” to “particular,” and insert

“Regulations made under subsection (1) must”.

This amendment makes it a requirement for subsidies entered into the database to include the information set out in paragraphs (a) to (i) of subsection (2).

Amendment 20, in clause 34, page 18, line 27, at end insert—

“(j) any other matter which the Secretary of State deems necessary”.

This amendment is linked to amendment 19.

Amendment 21, in clause 34, page 18, line 27, at end insert—

“(j) the purpose of the subsidy”.

This amendment would allow the Secretary of State to include a requirement in regulations that a public authority’s entry in the database details the purpose of the subsidy.

Amendment 43, in clause 34, page 18, line 27, at end insert—

“(j) the date the subsidy or scheme was entered onto the database.”

This amendment requires the date on which the subsidy or scheme was entered onto the database, to be included in entries on the database.

Amendment 42, in clause 34, page 18, line 34, at end insert—

“(3A) The Secretary of State may by regulations make provision about further information that must be included in a public authority’s entry in the subsidy database in relation to a subsidy or subsidy scheme.”

This amendment allows the Secretary of State to make regulations setting out further information required to be published on the subsidy database.

Amendment 44, in clause 34, page 18, line 34, at end insert—

“(d) the date the public authority confirms the decision to give each subsidy under the scheme;

(e) the duration of each subsidy under the scheme;

(f) any time limits or other conditions attached to the use of each subsidy under the scheme;

(g) the amount of each subsidy or the amount budgeted for each subsidy under the scheme;

(h) the date each subsidy under the scheme was published.”

This amendment requires that the information required to be entered into the subsidy database for subsidy schemes includes much of the same information required for subsidies.

[Seema Malhotra]

It is a pleasure to move our amendments to clause 34, which is about the information to be included on the subsidy database. The clause outlines that the Secretary of State can make regulations about what public authorities must include in their entries on the database and it lists certain regulations that the Secretary of State may make provision for. As well as ensuring that subsidies are published on the database and with accurate information, it is important that public authorities are obliged to include all the necessary information in their entries. It is therefore strange that the Bill does not contain minimum requirements that must be included in the subsidy entries. An explanation of why that is the case would be welcome from the Minister, particularly following Jonathan Branton’s assertion that,

“a national transparency register has been established, but when you look at that register and at the relevant rules around it, you do not see that it is functioning well.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 51, Q72.]

The Government must surely recognise that the information included on the database will be crucial for the effectiveness of the regime, and that there should be a common standard—one that is an obligation—for public authorities to enter that information, rather than yet again leaving it to the Secretary of State, a very busy person, to decide later what should be included in subsidy entries. The Bill should mandate those requirements now. I am sure the Secretary of State would appreciate the Minister making changes in Committee that could make his life, or her life in future, easier. That is in the public interest.

The requirements should also be put to the whole House rather than nodded through Parliament through a process with less scrutiny. They should be included more firmly in the primary legislation to allow public authorities and interested parties a strong, clear message from Parliament about what information as a minimum should be prepared and uploaded on the database. That is why we propose amendments 40 and 41 to make the regulations listed in subsection (2) mandatory, rather than obligations that the Secretary of State may or may not include in future regulations. It is also why, if they decide to put it to a vote, we will support amendment 19 tabled by the hon. Members for Aberdeen North and for Aberdeen South, which achieve similar outcomes. The amendments would ensure that entries onto the database include the information necessary for transparency and for interested parties to make informed decisions about whether subsidies obey the control principles. As Jonathan Branton summarised:

“If you cannot see what is going on, you do not know what to challenge, or even if to challenge.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 51, Q72.]

Amendment 43 would include the date that the subsidy or scheme was entered on to the database as part of the mandatory information that public authorities must include. Given that the legislation states that interested parties have just one month from the date of publication on the database to challenge subsidies, it seems odd that the information required by the amendment is not already included in the Bill. It is a critical piece of information. As Alexander Rose stated,

“the key piece of information on that website”—

—the database—

“is the date the entry is made, and the reason that is so important is that the challenger has as little as a month to challenge once that information is placed on the website.”—[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 52, Q73.]

Will the Minister explain why the Government do not think the database needs explicitly to include and mandate publication dates, even though the dates are so crucial to the challenge process?

I hope the Committee can see how necessary amendment 43 is, as it includes the publication date on the database. Without it, I fail to see how the interested parties will be able to exercise their power in the ways intended in the Bill to bring challenges within the timeframe to damaging subsidies or those they consider of concern.

Amendment 44, on similar lines, sets out mandatory requirements that public authorities need to meet when entering information. We recognise that subsidy schemes will provide public authorities with a surer framework under which to grant subsidies. However, that does not mean that subsidies granted under them should escape scrutiny and transparency. The amendment seeks to ensure that the date each subsidy under a scheme is granted is published on the database, as well as the duration of each subsidy under a scheme, any time limits as might relate to the conditions and each subsidy’s amount. I cannot see any reason in the public interest that that should not be so.

The amendment would ensure that not only the schemes, but each individual subsidy under them, was subject to appropriate transparency. It would enable the Secretary of State, the CMA and interested parties to check that subsidies given under the schemes, as well as the schemes themselves, are consistent with the principles laid out in schedules 1 and 2. To quote Jonathan Branton:

“It is really difficult to argue against transparency and say, ‘Why wouldn’t you have transparency about the dispensation of public money in this way?’”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 55, Q76.]

Finally, to change the substance of the Bill, Labour also proposes amendment 42, which would allow the Secretary of State still to make the regulations on the content of the database. I hope that the Government can therefore see that the amendments, taken together, do not seek to make the provisions stated in subsection (2) static and would rather ensure that the database is necessarily informative, to ensure that the regime can run effectively and that subsidies can obey the control principles.

Ordered, That the debate be now adjourned.—(Michael Tomlinson.)

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.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his opening remarks. Subsidies given through the exemption do not have to apply the subsidy control requirements if the amount of assistance received by the beneficiaries totals less than £725,000 over a three-year financial period. Clause 38 sets out that services of public economic interest are exempt from the subsidy control principles. We recognise the force of some of the arguments made by the Minister, that these are generally in relation to services that are not being provided by the market, and that the SPEI assistance is different from other subsidies. There are some areas that we would like to explore further, but overall we are not arguing against this today and therefore we will support the clause.

[Paul Scully]

I said at the beginning that it was £750,000, but I meant £725,000 throughout.

[Paul Scully]

The previous clause establishes the SPEI assistance exemption and the value threshold for awarding subsidies under the exemption. This clause sets out the procedural requirement to use that exemption.

[Seema Malhotra]

I thank the Minister for his opening remarks. He has outlined that clause 39 establishes some of the procedural requirements to be attached to SPEIs. We think, for reasons outlined in previous debates, that these requirements will be important and add necessary procedures to the granting of assistance to SPEIs. However, I think the question whether there is to be publication of notifications is a matter that the Minister might take away and consider in relation to the similar debate that we had on clause 37. I will be grateful for that and will perhaps come back to this issue during the Bill’s future stages, after we have time to further consider it.

[Paul Scully]

Duly noted.

Question put and agreed to.

Clause 39 accordingly ordered to stand part of the Bill.

Clause 40

Mergers and acquisitions

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

Subsidy Control Bill (Third sitting)

Seema Malhotra Excerpts

Thursday 28th October 2021 Public Bill Committees

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

I thank the Minister for his opening remarks on clause 1 stand part. We support the clause, but I will make a few remarks on it. It provides an overview of the Bill. There are concerns that we will discuss further later, but that I want to mention in relation to the overview in clause 1.

As we said on Second Reading, we recognise the need for subsidy control legislation that establishes the framework for state aid post Brexit, but the new regime proposed in the Bill will work only if it provides transparency, oversight and scrutiny. While the Bill’s chapters reflect what the key issues are, there are areas where the Bill does not provide sufficient detail and clarity.

We are concerned about a number of areas. First, crucial aspects of the regime are yet to be defined. The Bill may establish a regulatory framework of subsidy control, but it fails to provide any real indication of how, where, and on what scale the Government plan to spend subsidies. As Alexander Rose said in his written evidence,

“there is currently no preferential system to incentivise investment into disadvantaged regions.”

The Bill also fails to provide a fair role for the devolved Administrations, and we are concerned that there is not enough balance between efficiency and oversight, particularly related to the CMA. We will debate some of these issues later, but it is important to note in our discussion of the overview why we will want further debate on the gaps in the Bill, and that we will seek to amend it in Committee.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

“Subsidy”

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

[Paul Scully]

Clause 2 is the cornerstone of the new subsidy control regime. It sets out the definition of a subsidy for the purposes of the Bill, and it is a fall-in test, so to be a subsidy, it must be given, directly or indirectly, by a public authority using public resources; it must confer an economic advantage on one or more enterprise; it must be specific, meaning it must benefit one or more enterprise over others by conferring an economic advantage; and finally, it must have, or be capable of having, an effect on competition or investment in the United Kingdom, or on trade or investment between the United Kingdom and other territories.

There is a non-exhaustive list of financial assistances that may count as subsidies in subsection (2). Subsections (3) and (4) establish that financial assistance provided by an intermediary will constitute a subsidy where the funds originated from public resources, or the nature of the relationship between the public authority and the intermediary is such that the decision is effectively that of the public authority. Subsection (5) establishes the point at which a subsidy is deemed to have been given.

[Seema Malhotra]

I thank the Minister for his remarks on clause 2. We support the clause standing part of the Bill, but there are some areas that I would be grateful for the Minister’s comments on. He described the fall-in test: where the condition in each limb of subsection (1) is met, financial assistance is defined as a subsidy. That definition applies to goods and services. Subsection (2) outlines the means by which a subsidy is given. That effectively includes a direct and indirect transfer of funds. Could the Minister outline what that means for tax reliefs? Perhaps he could provide clarity on what the boundary is, and say what is and is not regarded as a subsidy.

Subsection (3) refers to a person who is not a public authority, but could be treated as one for the purposes of subsection (1). Will the Minister clarify who this is intended to refer to? Who could fall under the scope of subsection (3)? That is important, because it defines who has the authority to bring forward and grant subsidies. We would like greater clarity about what is intended by that; it was not very clear from the explanatory notes. That also relates, to some extent, to subsection (4).

We do not have an issue with subsection (6), but would like clarification on what is defined, and on why the subsection relates to “modification for air carriers”. We do not have a major problem with that; I just thought it would be helpful to clarify it, as it is the first time it comes up in the Bill.

[Paul Scully]

Largely, the definition of subsidies in the clause has been designed to be consistent with international obligations, especially those arising from the trade and co-operation agreement with the EU, but it does lay the foundation for a bespoke domestic regime, hence the discussion about the UK internal market. A lot of the terminology included is based on domestic legal precedent, such as the definition of an enterprise and the like. On the question about the “person”, that is what I meant about the intermediary; should a public authority not have a direct payment, or if any subsidy comes through a third party, that third party is the person defined in the Bill. Largely, as is the case for tax and aviation, all these definitions sit within the framework of our international obligations under the TCA.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Financial assistance which confers an economic advantage

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

[Paul Scully]

Clause 3 establishes that financial assistance should not be considered to confer an economic advantage if it could reasonably have been provided on market terms. It is a small but necessary addition to the core definition of a subsidy for the purposes of the new regime. One example is a loan; it would not be considered to confer an economic advantage if it might have been provided by a bank on the same terms. Similarly, a public authority purchasing goods and services at market rates would not be considered to confer an economic advantage as long as the public authority follows the appropriate procurement processes.

[Seema Malhotra]

I thank the Minister for his remarks on clause 3. We have no general comments, but could clause 3(2) be brought in as a challenge if, for example, a cheaper loan could arguably have been obtained in the market? To avoid challenge, would that be something that the public authority needed to verify when granting the subsidy, and when a subsidy is posted, would there need to be some sort of confirmation that such a check had been made?

[Paul Scully]

The domestic subsidy control regime in its entirety is a bare-bones framework. It empowers public authorities in the UK to design subsidies and other policy interventions, including loans, without facing excessive bureaucracy or lengthy pre-approval processes. It does not have an EU-style regulator that acts as the gatekeeper and provides the definitive decisions on specific cases. However, we will provide guidance in due course that will help public authorities and recipients understand the practical applications of the definitions, and what authorities will need to do to comply with the subsidy control regime, including in the example that the hon. Member mentions.

[Seema Malhotra]

I hope, from what the Minister says, that there will be tighter guidance on how a public authority ensures that the subsidy it is giving is compliant, and on whether it will need to verify or confirm that—saying, “I confirm that,” or “All this complies with x”—in any entry it needs to make. During the evidence session, it was highlighted that there is a gap in auditing the quality of the checks a public authority makes; if there is no process for that to be recorded, it is not transparent.

[Paul Scully]

Clearly, anybody giving a subsidy, be they the UK Government, the devolved Administrations or a public authority, would need to keep their own internal audits in case of challenge. However, the guidance that we will develop—with full consultation and discussion with interested parties, including the devolved Administrations, businesses and public authorities, to make sure we are answering the right questions—will have that level of detail.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4

Financial assistance which is specific

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

[Paul Scully]

The purpose of clause 4 is to elaborate on the circumstances in which financial assistance is not considered to be specific where it benefits one or more enterprises over others for the purpose of the new regime. Subsection (2) confirms that financial assistance is not specific if different enterprises are treated differently in a way that can be inherently justified by the nature of the financial assistance. For example, in the case of a special levy for environmental purposes, treating certain goods or services differently can be justified by the effect that the levy aims to achieve.

Subsections (3) to (7) set out further considerations that are relevant to whether a tax measure should be considered specific, as the hon. Member for Feltham and Heston mentioned. Subsection (4) sets out the situations in which tax measures may treat enterprises differently without being considered specific by reference to the normal taxation regime. One example is that a tax relief measure by a local authority that advantages one or more local enterprises over another is likely to be considered specific, but it will not be specific if all enterprises in the local area benefit. Subsection (5) makes provision for identifying what the normal taxation regime is by reference to its overall objective, its features and the level of autonomy that the public authority has in the design of the taxation regime.

Subsection (6) confirms that a levy with a non-economic public policy objective would not be specific if treating enterprises differently can be justified by objective criteria—for example, the criterion of limiting negative impacts on public health or the environment. Subsection (7) confirms that any carve-out from the levy will also not be considered specific if the same conditions as those in subsection (6) are met. I recommend that the clause stand part of the Bill.

[Seema Malhotra]

I thank the Minister for his remarks on the clause. Will he clarify what guidance sits behind it? This is a similar issue to that raised on clause 3(2). A concern was raised by some of our witnesses about potential tax reliefs not being defined as a subsidy, but having the same outcome as a subsidy for all intents and purposes. We obviously want to ensure that there is integrity in the implementation of the regime, so that it does not give rise to concern that there are subsidies being made through the back door that are not subject to the regime’s transparency and control measures. Will the Minister confirm that guidance will be developed around this, to make it very clear what the delineations are, and will that guidance be given and explained to local authorities?

Another issue that came up in evidence was that local or other public authorities that have not been involved in granting subsidies before want to be sure that they are making the right decisions, and want to understand the regime and the intentions of the Government.

[Paul Scully]

Absolutely. First of all, the guidance will give advice on the application of provisions, including the duty to consider and act consistently with the subsidy control principles. We will develop that guidance with full consultation and discussions with other parties, so that we can all look at all the measures, including the tax-specific measures. The guidance will be published in good time to allow public authorities and other stakeholders to understand the key requirements of the new regime before it commences. It is so important that we get the transparency correct and that, as the hon. Lady rightly says, we ensure the integrity of the system.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

Section 2: modification for air carriers

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

--- Later in debate ---

[The Chair]

I call Seema Malhotra.

[Seema Malhotra]

I have no comments or questions on clause 5.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

“Public authority”

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

[Paul Scully]

Clause 6 establishes the definition of the term “public authority” for the purposes of the Bill. It sets out the standard definition of a public authority, denoting a person who exercises functions of a public nature. It is consistent with UK legislative precedent. It does not include either House of Parliament, the Scottish Parliament, the Welsh Senedd or the Northern Ireland Assembly. Provisions relating to the subsidies and schemes in primary legislation are included under clause 78 and schedule 3.

[Seema Malhotra]

I thank the Minister for his remarks on clause 6. We have no further issues in relation to it.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to be part of this Committee. I wonder whether the Minister could explain a little more the logic behind the exclusions. I have read the explanatory notes, and the intention is still not entirely clear to me. I do not think that I have a problem with it—I think it makes sense— but if he could explain it a little more that would be really helpful.

--- Later in debate ---

[Paul Scully]

It is more to do with the fact that public authorities have been added as an extra, whereas state aid did not go down that far. The public authority definition at the beginning widens the definition of who can give subsidy control, whereas it is established that the UK Government and the devolved Administrations, including the Scottish Parliament, can continue to give as they do now.

[Seema Malhotra]

This is a helpful discussion. Further to that point, is it to differentiate—I think the Minister alluded to this—who has the power to grant the subsidy? For example, the Houses of Parliament may not but the Secretary of State or Ministers may. Is that the distinction that we should read here, or am I confusing things?

[Paul Scully]

Essentially, the things that tend to be given will usually be given with the agreement of the Houses of Parliament. Although it may be the UK Government that award the subsidy, it will clearly be on the back of parliamentary powers that they do so. That is where we are coming from.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

“Enterprise”

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

[Paul Scully]

The clause establishes the definition of “enterprise” for the purposes of the Bill. Under the new regime, an enterprise is any person or group of persons under common ownership or common control offering goods or services in a market. Importantly, the definition applies only to the extent that the person is engaged in such activity. It is purposely broad, it is consistent with our international obligations and other UK legal precedents, and it will ensure that the new subsidy control rules apply widely to protect UK competition and investment.

[Seema Malhotra]

Will the Minister clarify whether that definition extends to social enterprises and co-operatives for the purposes of organisations that may be involved in economic activity? Will those organisations be within scope to potentially receive subsidies from public authorities?

[Paul Scully]

If a person is not engaged in economic activity, they will not be defined as an enterprise. Generally speaking, a charity or community group is unlikely to carry out economic activity. However, we are not explicitly excluding anyone from the definition of enterprise just because of their legal form. The hon. Lady talks about social enterprises, which are obviously different from charities, because some can be normal companies but do not make profits or have shareholders. However, that is economic activity, so those would be included within the definition.

The test looks at the activity that is proposed to be subsidised, rather than the legal form of the subsidy recipient. One organisation may be considered an enterprise in some contexts and for some activities but not others. One example might be a medical research charity that has a retail arm. Support given to the medical research activity is not a subsidy, because the research is not economic activity, even though the charity’s retail operation may be considered an enterprise.

--- Later in debate ---

[Paul Scully]

The clause elaborates on what is meant by common control for the purpose of identifying an enterprise. It sets out the circumstances where common control arises: where one or more corporate bodies is controlled by one person or a group of persons, or where there are interconnected corporate bodies. An interconnected corporate body is where a subsidiary or subsidiaries exist.

A person, or a group of persons, is treated as having common control when, directly or indirectly, they can control or materially influence the economic activity of another corporate body, which also applies where there is no controlling interest over the corporate body. Interconnected corporate bodies or a group of persons under common control are considered to be a single enterprise for the purpose of the subsidy control regime. The clause will ensure that the rules under the regime are applied fairly, regardless of corporate structures.

[Seema Malhotra]

I thank the Minister for his comments on clause 8. For the purposes of clarity around where public resources may go, will he explain what the clause means if, in a group of companies, one of them is granted a subsidy? Could that subsidy be shared with others in the group? I am not fully clear what the clause means.

Secondly, what if one of the other companies in the group has interests abroad? Is there something in the legislation that prevents public subsidies in the UK going through company structures within the same group to then subsidise activities abroad? I would be grateful if the Minister could clarify that—it is genuinely not very clear.

[Paul Scully]

The hon. Lady gives an interesting example, which I may need to clarify afterwards. However, the essential drive behind the clause is to provide effective definitions so that public authorities can identify the characteristics of an enterprise receiving a subsidy to make sure it complies with the requirements in the first place.

A public authority should not give a subsidy to a business that is a subsidiary of a large parent company without considering that large enterprise as a whole. A subsidy designed to support a microbusiness, for example, would be inappropriate in that kind of situation. The whole group has to be considered to assess the incentives of the recipient and whether the subsidy is an appropriate and proportionate way to address that market failure.

Another example might be the minimal financial assistance exemption. Two companies under common control should not both receive subsidies of £200,000, for example, as minimal financial assistance. That would exceed the threshold of £315,000 for a single enterprise.

The measures must apply regardless of the way an enterprise is structured. The clause gives public authorities the clarity to identify where the subsidy actually ends up and whether it is being used for its intended purpose—rather than, as the hon. Lady says, the possibility of it being moved abroad or to another part of the group, which would not achieve the aims for which the subsidy was given.

[Seema Malhotra]

I thank the Minister for those points. However, there could be an unintended difference between what the Government intend and what the law and guidance, if not clear, could result in. I would be grateful if the Minister could come back in writing to explain, specifically, what the Government’s intentions are for the guidance that may be given to an enterprise receiving a subsidy as to whether, once it has been given, there are controls on where the subsidy could be passed on to. I know that somewhere else in the Bill, it says that if a company’s ownership changes, the subsidy can pass through, but this is a point about clarity and guidance regarding what controls exist once that subsidy is given.

Secondly, on this point about potential ownership of a group or the enterprise, are there any constraints or guidance—or is there an intention of producing any guidance—in relation to companies that may be, for example, foreign-owned but trading here, where some subsidies could end up going into other countries? Is there clarity about how that is potentially going to receive guidance or be regulated to ensure it does not happen, if that is the Government’s intention?

[Paul Scully]

I thank the hon. Lady for her questions, and I appreciate that clarity is required on this issue. I will give her a fuller answer in writing. What I will not be able to do, though, is pre-empt the guidance, which as I say we will be developing through discussion as we progress after the framework Bill has been approved. However, the definition of a wholly owned subsidiary can already be found in section 1159 of the Companies Act 2006, so again, this is taken from legal precedent.

[Seema Malhotra]

I thank the Minister for that. He is referring to subsection (5), but it would be of benefit to the Committee to receive a response in writing on those broader points.

[Paul Scully]

I should add, as I said in my original response, that when public authorities are giving the subsidy, it is important to ensure that that subsidy is going to the enterprises for the purposes of the market failure that they are trying to correct.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Clause 9

The subsidy control principles and the energy and environment principles

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

[Paul Scully]

Clause 9 establishes that the subsidy control principles are set out in schedule 1 to the Bill, and that the further principles for public authorities awarding energy and environment subsidies are set out in schedule 2 to the Bill. Those common-sense principles, requiring that subsidies are an appropriate, proportionate means of addressing a specific policy programme, are set out in clear terms in the relevant schedules. I commend the clause to the Committee.

[Seema Malhotra]

I thank the Minister for his comments. Labour has no further issues with this clause.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Schedule 1

The subsidy control principles

[Seema Malhotra]

I beg to move amendment 6, in schedule 1, page 51, line 8, after “concerns” insert “and areas of deprivation”.

This amendment includes areas of deprivation as an example of the equity rationales that subsidies should address.

Under EU state aid rules, subsidies could be, and indeed were, targeted at areas of economic deprivation, significantly aiding struggling regions. Labour recognises the ongoing debate about assisted areas or other ways in which there could be a successor scheme to those rules, in order to support better and more effective targeting and transparency about where public resources are going, and indeed to support the levelling up agenda. We are concerned that this is not explicit in the Bill; it is merely alluded to in guidance. This important principle needs to be explicitly in the Bill for those who might be interpreting legislation in the near future or who want it to be a regime that stands the test of time and has the confidence of all four nations.

As Professor Fothergill highlighted, as the Bill currently stands we could be treating investment in a wealthy part of Guildford on the same basis as a potential investment in a less prosperous part of Grimsby. That seems counterintuitive to the oft-quoted term “levelling up”, which highlights a policy priority for Governments of all persuasions and is a new term for what we have all talked about: increasing equality and making sure there is prosperity in all parts of our country. It is important that we all agree on the need to make sure that public resources are being used to the best effect and to achieve the best outcomes for those areas of greatest need.

Professor Fothergill went on to say:

“You would not be attempting to incentivise the levelling up of the United Kingdom. In certain places, if we really are serious about levelling up, we have to put more resources into that effort, and we have to use state aid as one of the tools for delivering new jobs.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 11, Q7.]

I would be grateful for the Minister’s response on that. Does he agree that the Bill should include a stronger mandate for reducing economic inequality? The notes on the Bill’s intention allude to levelling up, and the Government created a specific Department for levelling up. Given how much the Government have been talking about levelling up, I must say it was surprising not to see it more explicitly in the wording of the Bill. Could the Minister respond to that?

We are concerned about the overall principles. I understand that they are derived from agreements within the TCA, but they can be amended. It is not that we do not have the authority to do that. Where, if not here, do the Government intend to include and support the equity rationale that subsidies are supposed to be addressing? We believe that the amendment would make it clear that the new subsidy regime can and should play a role in reducing regional and sub-regional inequality. It is a simple way of addressing the issue within the Bill.

[Paul Scully]

As we have heard, amendment 6 seeks to include areas of deprivation as an example of the equity rationale that may be addressed through subsidies. Firstly, I would like to use this opportunity to welcome the hon. Lady’s commitment to the levelling-up agenda. The Government are clearly committed to ensuring that prosperity and opportunity is shared across all parts of the UK. The domestic subsidy control regime will facilitate this. It will allow public authorities to deliver investment in skills, local infrastructure and new technologies.

Principle A within schedule 1, as well as the wider subsidy control system, has been designed to allow public authorities to address inequality and disadvantage through the use of subsidies. The principle specifies that subsidies should pursue a policy objective that either remedies a market failure or addresses, to quote from schedule 1,

“an equity rationale (such as social difficulties or distributional concerns).”

As currently drafted, schedule 1 clearly covers investment in disadvantaged or deprived areas; as such, the amendment is unnecessary. Through guidance, we can come up with more specific clarity to public authorities, but I do not believe it is helpful to list in the Bill every policy objective that a subsidy may address. As I say, the specific examples will be covered and elaborated on in guidance, which is a more appropriate place to address the practical application of the subsidy control principles. I therefore suggest that the hon. Member for Feltham and Heston withdraws the amendment.

--- Later in debate ---

[Paul Scully]

In terms of levelling up, it has been designed to provide a bespoke and dynamic framework. It allows public authorities to deliver bespoke subsidies that are tailored to their local needs, which will indeed address the UK Government’s priorities, such as levelling up, but within their own areas. Public authorities are best placed to work out how to address the inequality and disadvantage within regions, as well as between regions, so we have developed an approach that ensures that disadvantaged areas have the maximum freedom and reassurance to receive the levelling-up subsidies and best meet the characteristics of the area.

[Seema Malhotra]

I will make a few remarks and then clarify whether I will push the amendment to a vote. I will respond to some of the points raised, and I thank the hon. Member for Aberdeen North for her comments. It is important to ensure that a more explicit intention is incorporated in the wording of the Bill, but I worry that that will not be achieved as explicitly as it ought to be, if it is so squarely in line with the Government’s intentions.

I want to come back on one of the points that the Minister made. We have spoken about the evidence in relation to Guildford and Grimsby, but he makes an important point. Every area has better-off, prosperous parts and others that are worse off, which is why it is important to think about levelling up not just between regions but within them, as he said. Indeed, I know that some wards in my constituency have some of the worst records in the country for children going to university. Some of them have improved, but some London wards can be as poverty stricken as other parts of the country, which is why we need to have a more mature debate about levelling up that looks at some of those issues. What is important is that this will be an ongoing discussion throughout the course of the Committee. We have not fully closed off whether, and how, there should be a successor to the assisted areas map. We take the point about the boundaries not always being clear if we do try and have a map, and I have concerns about that having unintended consequences, such as excluding areas further down the line that may have good reason to be considered for subsides. However, there is an important principle here, and I do not want us to lose it. I will not be pushing this amendment to a vote today, but I do think that it is one that with further discussion and clarity—reviewing some of the evidence—we may want to come back to at a later stage.

[Paul Scully]

I agree with many of the hon. Member’s remarks, as I am the Minister for London as well. We are talking about addressing areas of inequality within regions, as well as between regions. By having a blunt tool, we can sometimes miss out on those pockets of deprivation, as well as the wider issues—both need to be covered.

[Seema Malhotra]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment 7, in schedule 1, page 52, line 6, at end insert—

“(c) the United Kingdom reaching its net-zero commitments.”

This amendment adds the impact on the UK’s net-zero commitments as a particular consideration for public authorities before deciding whether to give a subsidy.

[The Chair]

With this it will be convenient to discuss amendment 8, in schedule 2, page 52, line 15, at end insert—

“(c) delivering the UK’s net-zero commitments.”

This amendment would ensure that subsidies related to energy and the environment incentivise the beneficiary to help deliver the UK’s net-zero targets.

[Seema Malhotra]

Thank you for allowing me to speak to the amendment, Mr Sharma. I want to speak about why I think this is so important. The reason for this amendment is that the Bill should prevent subsidies that unnecessarily harm or impede the UK’s work towards net zero. In the Bill as it currently stands, subsidies not related to energy or the environment can meet all of the subsidy control principles, but could work against the Government’s overall goal of moving towards net zero.

To prevent this the Government are seeking to amend principle G of the schedule, in order to state that the subsidy’s beneficial effects must outweigh any negative consequences they may have on the UK’s net zero commitment. This was supported in evidence by Alexander Rose from DWF Group, who noted that all civil servants would be mandated to take account of net zero. Why not extend that thinking to other public authorities and to every single subsidy? Similarly, subsidies related to energy and the environment should not impede the UK’s work towards net zero. More than that, they should actively work towards the UK reaching its targets. We are having this debate and seeing the Bill pass through Committee during COP26; in fact, we are leading into COP26 and we will pick up after it. Does the Minister agree that if the Government want to show they are serious about this, we should be thinking about how to ensure that when public money could be used to support policy objectives, we include the United Kingdom reaching its net zero commitments as part of that?

[Andrew Bowie (West Aberdeenshire and Kincardine) (Con)]

I find nothing objectionable in what the hon. Lady is saying or indeed the amendments. However, possibly due to what she has said about the Government’s amendment and what is already in the Bill, I do not know whether what she is proposing is entirely required. Directly underneath where her proposed sub-paragraph (c) would be inserted, principle A in schedule 2, on the aim of subsidies in relation to energy and environment, refers to the aim to deliver

“a secure, affordable and sustainable energy system”,

and, in sub-paragraph (b), the aim to increase

“the level of environmental protection compared to the level that would be achieved in the absence of the subsidy.”

Both are very much in line with, and compatible with, our aim to reach net zero.

[Seema Malhotra]

I thank the hon. Gentleman for his comments. My understanding is that the energy and environment principles would apply to subsidies in relation to energy and the environment. We are talking about a slightly broader principle here, which is that any subsidy granted under the regime should not have a harmful impact on achieving our net zero outcomes. That would seem to be a slightly perverse use of public money when net zero is such an explicit goal and when civil servants will need to be working towards it. Indeed, as Dr Barker outlined on Tuesday,

“the green industrial revolution that we are all seeking to work towards in order to achieve net zero is also something that will require…partnership between business and Government”,

and

“an effective subsidy system can be part of that.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 39, Q52.]

These amendments are simply saying that if we are serious about what achieving net zero will mean, we should not allow a system to be established, at the same time as COP26, that could work against that, and do so using public money.

[Kirsty Blackman]

For the avoidance of doubt, my colleague and I support amendments 7 and 8, which are both incredibly sensible. As is quite often the case in Bill Committees, I wish I had thought of them earlier and tabled them first.

I agree with the hon. Member for Feltham and Heston about COP26. This is happening now, and it is a moment that we can take advantage of to get towards net zero commitments. COP is coming up and there is a groundswell of public support for trying to make a difference. This is something on which my colleague and I also moved amendments during proceedings on the Advanced Research and Invention Agency Bill. We wanted ARIA’s No. 1 priority to be a focus on net zero. We also wanted a commitment from the Government that ARIA would itself operate on a net zero basis, because we are beyond the time for talking about this. In order to meet the UK Government and the Scottish Government’s commitments, we need to be taking action on this, rather than just talking about it.

It is all well and good to have in place the stuff that my neighbouring MP, the hon. Member for West Aberdeenshire and Kincardine, talked about for energy and environment subsidies, but we need that for all subsidies, whether they relate to energy and the environment or anything else. This should run through everything that the Government are doing. For every decision in the Budget, which is being discussed in the main Chamber, we should be asking, “How does this get us towards net zero and reducing our carbon output?”

I just do not think we are there yet. It does not feel like the Government are taking this seriously enough, and it is not just this Government. Governments around the world are not taking this seriously enough. We need to be there now and making that commitment. If the subsidy control regime is intended to work and to stand the test of time, and if we are looking towards those net zero targets, we need that to be in this Bill. At the very least, we need a strong commitment from the Minister that subsidies in relation to not just energy and the environment but other areas will be more favourably looked on, or less likely to be rejected out of hand, if they specifically work towards reaching the UK’s net zero targets, and particularly if they work towards something that is carbon negative. We are not doing enough of those things, so if more of the new policies that come through were carbon negative, it would be much easier for us to get to our net zero target. If the Minister could make some strong commitments on that, it would be hugely welcome, but I will be happy to support the amendments tabled in the name of the Opposition.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his remarks and all hon. Members who have contributed, including the hon. Members for Aberdeen North and for Aberdeen South. I will push amendment 7 to a vote, and will do the same with amendment 8 later. The wording has been quite carefully constructed. Schedule 1 states:

“Subsidies’ beneficial effects (in terms of achieving their specific policy objective) should outweigh any negative effects, including in particular negative effects on—(a) competition or investment within the United Kingdom; (b) international trade or investment.”

Amendment 7 would add:

“(c) the United Kingdom reaching its net-zero commitments.”

I have not heard from the Minister a strong argument as to why we would not want public authorities granting subsidies using public resources to ensure that beneficial effects outweighed any negative effects on the UK’s achieving its net zero commitments. That principle is significant, and it should be in the Bill, so I will push the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

The schedule sets out the seven general subsidy controls, including how public authorities should consider and assess a policy objective, and make sure a subsidy is proportionate and that it incentivises and leads to a change of behaviour in a beneficiary that would not have happened had they not had the subsidy. It does not include normal business expenses. It provides that alternative policy levers that are likely to cause less distortion should be considered before a subsidy, and that subsidies should be designed in a way that meets the policy objective and minimises the impact on competition and investment within the UK’s internal market.

Finally, principle G requires public authorities to conduct a balancing test to assess the effects on competition and investment in the UK and on international trade or investment, and to determine whether the benefits of a subsidy are greater than the negative effects of providing it. I commend schedule 1 to the Committee.

[Seema Malhotra]

I thank the Minister for his remarks. Notwithstanding the debate that we have just had and our ongoing concerns, which we want to return to later in the consideration of the Bill, we support schedule 1.

[Kirsty Blackman]

I would like to ask a few questions, particularly about principle F in schedule 1, which says:

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

If someone was looking to invest in the United Kingdom, create jobs, start a business or bring a specific arm of a business to a certain place, and Aberdeen were to subsidise that, which would therefore have a negative effect on Cardiff, because Cardiff was not getting the jobs and Aberdeen was, is that excluded as a result of principle F? It concerns me that pretty much every subsidy that could be given will have a potential negative effect on another part of the UK because it would be incentivising investment, or whatever, in one part of the UK.

I am concerned that principle F can be read either as not meaning anything or as something that is too restrictive for what the Government are trying to achieve with what they are doing. I am thinking about what the Government are trying to achieve because a number of Government Back Benchers stood up on Second Reading and said, “This is great, because it means we will be able to get lots more investment and put lots of subsidies into our area.” If that is the Government’s intention, which I think it probably is, I worry that the risk-averse nature of granting authorities means that they will be concerned about doing that, in case they fall foul of the principle. If the Minister gave us a bit more clarity on how the principle is intended to work, that would help granting authorities to make the right decisions in order to subsidise economic development in their areas.

Subsidy Control Bill (Fourth sitting)

Seema Malhotra Excerpts

Thursday 28th October 2021 Public Bill Committees

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

It is a pleasure to serve under your chairmanship, Ms Nokes. The schedule lists the additional energy and environmental principles that energy and environment subsidies must be evaluated against, in addition to the subsidy control principles in schedule 1. These common-sense additional principles are designed to ensure, for example, that public authorities consider the need for energy and environment subsidies to achieve reductions in emissions, or otherwise increase the level of environmental protection relative to the lower level achieved without the subsidy. There are also more specific principles in schedule 2, including, for instance, those regarding subsidies for electricity generation adequacy, renewable energy and cogeneration. This schedule is key to complying with our obligations under the trade and co-operation agreement with the European Union, and I commend it to the Committee.

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

It is a pleasure to serve under your chairship, Ms Nokes. I thank the Minister for his remarks on schedule 2. I have no further comments to add—we will be supporting this schedule stand part—other than to allude to the debate we had earlier about making more explicit within the schedule the need to deliver the UK’s net zero commitment, and that subsidies should contribute to that goal. That is an area that I am sure we will come back to when debating later parts of the Bill, but we will support this schedule stand part today.

Schedule 2 agreed to.

Clause 10

Subsidy schemes and streamlined subsidy schemes

[Seema Malhotra]

I beg to move amendment 9, in clause 10, page 6, line 30, leave out paragraph (a) and insert—

“(a) is made by—

(i) a Minister of the Crown,

(ii) the Welsh Ministers,

(iii) the Scottish Ministers, or

(iv) a Northern Ireland department; and”

This amendment would extend the power to make streamlined subsidy schemes to the Devolved Administrations.

[The Chair]

With this it will be convenient to discuss amendment 16, in clause 10, page 6, line 30, after “Crown” insert

“, or other primary public authority, as defined in subsection (3),”.

The purpose of this amendment is to allow the Scottish Ministers, Welsh Ministers and relevant Northern Ireland department, as well as other public authorities, to make streamlined subsidy schemes.

[Seema Malhotra]

I am pleased to be able to move amendment 9 on behalf of myself and my hon. Friend the Member for Sefton Central. We have proposed the amendment because we recognise that the streamlined subsidy schemes play a significant role in this legislation. Clause 10 defines subsidy schemes and streamlined subsidy schemes: unlike subsidy schemes, streamlined subsidy schemes can be made only by a Minister of the Crown, but they do create a route for certain subsidies to be passed more easily and quickly, and on occasion have the potential to effectively contribute to key policy objectives and targets, which is their purpose.

The question is why the Government have allowed only the Secretary of State to create streamlined schemes. In our view, the restriction not only limits the potential of the Bill, but undermines the important role of the devolved Administrations. Those Administrations are more likely than the Secretary of State to understand what subsidies and schemes may be most beneficial for their respective nations or areas, and by preventing them from being able to create streamlined schemes, the Government are potentially hampering the effectiveness of subsidies in Scotland, Wales and Northern Ireland. As Daniel Greenberg explained in our evidence session on Tuesday,

“throughout the Bill, you see ‘Secretary of State, Secretary of State, Secretary of State’—all powers of HMG—and you think, “Hold on, the devolved institutions are also public authorities. They appear in the list of public authorities in clause 6, so why is it that they do not also share Secretary of State powers?”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 61, Q80.]

While Labour understand that power over UK subsidies should ultimately reside in Westminster, preventing the devolved Administrations from creating streamlined schemes undermines their important role in our democratic structure, as well as the responsibilities that they have in their respective nations. It should also be noted that any proposals for streamlined schemes must be laid before Parliament, as set out in subsection (5). Any streamlined subsidy schemes created by the devolved Administrations could be subject to ample parliamentary scrutiny. Labour is therefore seeking to amend the clause to allow Welsh Ministers, Scottish Ministers and Northern Ireland Departments to create streamlined subsidies. We believe that the amendment would help increase the effectiveness of subsidies across the UK while respecting the role of the devolved Administrations. We also support the SNP’s amendment, which I think would have a very similar effect.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to take part in the Committee’s proceedings with you in the Chair, Ms Nokes. I want to say a couple of things. I agree with almost everything that the hon. Member for Feltham and Heston said, apart from the idea that the Secretary of State should have powers over what happens in Scotland, because obviously I believe that Scotland should be independent—but that is probably an argument for another day.

The powers of the Scottish Parliament were voted for democratically in a referendum that showed the Scottish people’s will that a Scottish Parliament should be created. Those powers have been discussed on many occasions, including in subsequent Scotland Acts. The powers of the Scottish Parliament, having been agreed democratically, are part of our democracy, whereas the powers that Westminster has do not seem to have ever been discussed or voted on democratically.

As regards what the Opposition spokesperson said about upholding the democratic nature of the United Kingdom and the democratic powers of the Scottish Parliament, the Welsh Parliament and the Northern Ireland Assembly, I think it is really important that the ability to make streamlined subsidy schemes be included. If the Government are going to talk about levelling up, which I am sure they will—they generally do on such matters—they should consider that those devolved bodies, which are elected to represent those areas, have a huge amount of knowledge and are much closer to the places they represent. They should be able to make streamlined subsidy schemes too, because I believe, as many people do, that they would make them better than Westminster is likely to.

--- Later in debate ---

[Paul Scully]

Rather than a streamlined scheme encroaching on the devolution settlement, it is important to stress that any public authority in the UK will be free under the Bill to create a subsidy scheme for its own purposes. Schemes have many of the same attributes that streamlined subsidy schemes have in that only the scheme, and not the individual subsidies awarded under it, needs to be assessed under those principles. Schemes offer a similar administratively light touch means of awarding many subsidies that are also open to any and all public authorities, including the devolved Administrations. What we are saying is that the streamlined subsidies are best used when they are available across the UK but schemes are available to the devolved Administrations, to the public authorities and indeed to the UK Government to award. They are more bespoke and tailored. Because of that, I ask the hon. Lady to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his remarks. Perhaps it is something that I have not seen, but could he clarify where it is specified that streamlined subsidy schemes would need to be UK-wide? I could not see it in the legislation.

[Paul Scully]

What I was saying was that streamlined subsidy schemes do not need to be UK-wide. We are not putting that on the face of the Bill. They work best and are more effective when they can be rolled out across the UK, because schemes effectively do a very similar thing. It could be more bespoke and more tailored to a local area, economy or whatever the subsidy relates to.

[Seema Malhotra]

I thank the Minister for his comments. It feels as if this area is not sufficiently defined. I cannot see why we would not want to have better symmetry of powers between the devolved nation Administrations.

[Kevin Hollinrake]

Is not a reason that this could distort competition between different parts of the United Kingdom? If an example of a streamlined subsidy scheme is the business rate grants for hospitality, whole parts of the UK—Scotland, for example—could provide a huge amount of support across the hospitality sector, which would unfairly disadvantage the rest of the UK. Is that not an example of how this might be a danger?

[Seema Malhotra]

I am not sure I fully agree with that. Surely it would mean that it was incompatible with the principles in schedule 1. I think that the principles would preclude that. I come back to the point that at the moment we have an asymmetry of power. I cannot, in the circumstances of streamlined subsidy schemes as they are currently defined, see why that should not be a power that is there for the devolved Administrations. It is important to go further with the amendment, and I would like to put it to a vote.

[Kirsty Blackman]

Just to come back on what the hon. Member for Thirsk and Malton said, business rates are already devolved in Scotland. We already have a more generous system of allowances. People at the lower end of income, pay or value of properties pay less than they would in England anyway. So we already have that in place. It does not have to come in as part of a subsidy scheme or streamlined subsidy scheme, as far as I am aware.

The hon. Member for Feltham and Heston is correct. The Minister seems to be saying that the schemes will apply across the UK, but nothing in the Bill says that this will apply across the UK for any of the streamlined subsidy schemes that come through. The Government could create a streamlined subsidy scheme that applied only in Blackpool, for example. The fact that it is a streamlined subsidy scheme does not mean that it has to apply across the UK.

I did not get a straight answer from the Minister about devolved competencies. Is it intended that the UK Government will make streamlined subsidy schemes that trespass on areas of devolved competency and apply those across the UK? If that is the case, I am even more concerned about this than I already was. If they are going to do that only in reserved areas, that makes sense, but given the Government’s tendency to reduce the power of the Scottish Parliament and the other devolved Administrations, I am not sure that I have a huge amount of trust in the fact that the streamlined subsidy schemes will not trespass on the devolved areas.

--- Later in debate ---

Division 3

Ayes: 6

---

Labour: 5
Scottish National Party: 1

Noes: 10

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Conservative: 10

[Seema Malhotra]

I beg to move amendment 10, in clause 10, page 6, line 32, at end insert—

“(4A) A streamlined subsidy scheme may be made, in particular, for the purposes of providing support to areas of deprivation.”.

This amendment would clarify that streamlined subsidy schemes may be made for the purposes of supporting areas of deprivation.

I will keep my remarks brief. As I stated earlier, the Bill provides an opportunity to target funding towards areas of deprivation. In our view, that is not made as explicit as it needs to be in the Bill. If we are looking at levelling up, tackling deprivation and equity of outcomes, we would want a streamlined subsidy scheme, in particular for the purposes of providing support to areas of deprivation. We have tabled a similar amendment to schedule 1, but are seeking here to amend subsection (4) of clause 10. The amendment would explicitly clarify that streamlined schemes can be used to support projects to tackle economic deprivation.

[Paul Scully]

As we have heard, the Government intend streamlined subsidy schemes to be a pragmatic means of establishing schemes for commonly awarded subsidies. That includes subsidies in areas of UK strategic priority that all public authorities in the UK will be able to use if they so wish.

The Government are fully supportive of action to assist areas of deprivation and to facilitate the levelling-up agenda. The new domestic subsidy control regime will give authorities the flexibility to deliver subsidies where they are needed to support economic growth, without facing excessive bureaucracy or lengthy pre-approval processes. We will also publish guidance to make clear how the principles should be applied by public authorities when considering subsidies that advance the levelling-up agenda or promote the economic development of relatively disadvantaged areas.

We would not want to pre-empt work to develop the streamlined subsidy schemes by committing here and now to privilege one specific policy objective over all the others in the Bill. In any case, the Bill does not set limits on the policy objectives that a streamlined subsidy scheme can pursue. Seeking to specify particular objectives in the Bill may lead to the power to create streamlined subsidy schemes being interpreted in an unduly narrow way in the future. I therefore ask the hon. Member to withdraw the amendment.

[Seema Malhotra]

I had wanted to press the amendment to a vote, but perhaps I can ask the Minister for further clarification. If, in the further guidance that may be coming on streamlined subsidy schemes, we can return to the question of the objectives and purposes for which those schemes are made, I am happy to withdraw the amendment today and come back to the point in future discussions.

[Paul Scully]

I am grateful to the hon. Member. It is important that we continue to talk about this issue, so I am happy to discuss it further.

[Seema Malhotra]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Paul Scully]

As we have heard, the clause confirms that public authorities can create a subsidy scheme and that a Minister of the Crown can create a streamlined subsidy scheme. I have talked about the fact that they are a pragmatic means of establishing schemes for commonly awarded subsidies in areas of UK strategic priorities. All public authorities in the UK will be able to use them, if they so wish.

[Seema Malhotra]

I thank the Minister for his comments. In relation to the discussions that we have had, and our concerns about some of the areas under clause 10, I will not be proposing that we vote against it standing part. However, there are concerns. If there were some mechanism or means by which we could abstain, we would seek to do so. There are some big gaps in clarity regarding some of the clause’s powers and what they can be used for, and we would like greater definition and scrutiny.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11

Subsidies and schemes of interest or particular interest

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

I beg to move amendment 11, in clause 11, page 6, line 40, at end insert—

“(1A) Regulations under this section must be made by no later than three months after this Act receives Royal Assent”.

This amendment would require the Secretary of State to make regulations giving the meaning of “subsidy, or subsidy scheme, of interest” and “subsidy, or subsidy scheme, of particular interest” no later than three months following Royal Assent.

I am grateful for the opportunity to move amendment 11. I mentioned earlier that this Bill has many issues when it comes to devolution. We want a four-nation settlement to be integral to how the regime is implemented. It has to have the confidence of the whole nation, and it must deliver sustainable outcomes across the whole of the UK, but Professor Fothergill summarised on Tuesday:

“From the point of the view of the devolved Administrations, for example, the passage of the Bill will still leave them pretty much in the dark as to what they can and cannot do.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 12, Q8.]

Clause 11 highlights yet another devolution issue. It gives the Secretary of State the power to define schemes of interest, and of particular interest, after the Bill receives Royal Assent. How the Secretary of State chooses to define these areas will have a significant effect on the legislation and its implementation. Given the importance of these definitions, could the Minister explain why the Government have not gone further and included them in primary legislation, instead leaving them up to the Secretary of State? Does he not agree that Parliament should have the opportunity to properly scrutinise such significant definitions at this stage of the Bill?

Does the Minister also recognise that it would therefore be of concern to the devolved Administrations to be excluded from the making of these definitions? Daniel Greenberg expressed on Tuesday how the Bill falls short on

“explanation of some of the systems and mechanisms that will inevitably be required to go on underneath the surface in order to reflect the economic competencies of the devolved Administrations”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 60, Q80.]

As I have said, the devolved Administrations have an important role to play in the creation and implementation of subsidies in their respective nations. As such, there is an important part for them to play in the process of defining and setting these significant terms.

[Paul Scully]

As we have heard, amendment 11 would require the Government to make the regulations within three months. The Government fully recognise the importance of establishing clear definitions for the categories in a timely fashion, both to create certainty for public authorities and to set the parameters for the work of the subsidy advice unit.

--- Later in debate ---

[Paul Scully]

Clearly, we want to make sure that the regulations go through due parliamentary process and that colleagues have plenty of time to see them, discuss them and scrutinise them. That is absolutely appropriate. We also want to give businesses time to see what is on the horizon, and to give public authorities—those awarding authorities—time to adjust to the new framework.

[Seema Malhotra]

I thank the Minister for his remarks. On the basis that we want to ensure that there is time for scrutiny—and I think he alluded to some assurances that things will move as quickly as possible—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Seema Malhotra]

I beg to move amendment 12, in clause 11, page 7, line 8, at end insert—

“(4) Before making regulations under this section, the Secretary of State must seek the consent of the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland.

(5) If consent to the making of the regulations is not given by any of those authorities within the period of one month beginning with the day on which it is sought from that authority, the Secretary of State may make the regulations without that consent.

(6) If regulations are made in reliance on subsection (5), the Secretary of State must make a statement to the House of Commons explaining why the Secretary of State decided to make the regulations without the consent of the authority or authorities concerned.”

This amendment would require the Secretary of State to seek the consent of the Devolved Administrations before making regulations under this section. Where such consent is not given within one month, the Secretary of State may make the regulations without that consent, but must make a statement to the House of Commons explaining their decision.

It is my pleasure to speak to this amendment. It would require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. As the Minister just mentioned, the Government may wish to bring forward further regulations to make changes under clause 11. We propose that if such consent is not given within one month, the Secretary of State may make the regulations without that consent, in line with other principles here and in the United Kingdom Internal Market Act 2020, but must make a statement to the House of Commons explaining that decision.

As I have outlined, we are very concerned that there needs to be a fair and equitable four-nations solution in how this legislation is developed and implemented. That will be an important part of its success and the confidence that people have in it over time. As I have said, the devolved Administrations have an important role to play in the implementation of subsidies, and they should play their part in defining and setting the significant terms in the legislation.

If the Secretary of State is unable to gain the devolved Administrations’ consent—I hope that it will be forthcoming on the basis of there being constructive dialogue between the nations, and those mechanisms being set up in good faith—it is important that that has the scrutiny of the House of Commons, and that the Secretary of State makes a statement to the House explaining what the issues were and why agreement was not reached.

As I have said, the regulations will have an important effect on the subsidy regime. It is bad enough that they are not included in primary legislation, but it is important that dialogue happens to ensure that the best regulations are made under this clause. I hope that the Minister will agree that the definitions need to be set in partnership and in discussion with the devolved Administrations, and that it would be a sign of confidence in the regime to seek that consent.

[Kirsty Blackman]

I have a couple of points on this amendment, and I want to give it my wholehearted backing. I agree that the devolved Administrations should be consulted on these regulations. I would probably go further and have them not proceed if the devolved Administrations did not agree, but we are where we are.

I am a serving member of the Procedure Committee, and we have discussed this at huge length recently in our report and our look at how the territorial constitution works, and how the devolved Administrations relate. One thing that is brought up regularly is that if the UK Government proceed with something in the absence of legislative consent, there is no clear mechanism for the UK Government to explain to Parliament why the process has happened in advance of legislative consent. For me, it seems like the very least that the UK Government should do if something proceeds without consent.

That is important in relation to legislative consent motions for primary legislation where something trips over into devolved competencies, as we have seen a number of times in recent years. When it comes to these regulations, I think it is really important that the devolved Administrations are in agreement with what happens, because, in the main, they will be guaranteed authorities implementing subsidy schemes in the devolved areas. The Scottish Parliament has authority over the local authorities in Scotland so it will oversee some of their work, particularly when it comes to directing them how to best improve their local areas. If the UK Government are to proceed without the consent of the devolved Administrations, they must come and explain to us why.

I note that the UK Government and Scottish Government, as well as the other Administrations, have regular conversations about how things could go forward, but I feel there is a significant amount of disagreement at the moment in many areas. It would be very good if we could all come to an agreement about what “particular interest” means. If we cannot, I believe that this House should know why the UK Government think that agreement has not been reached, and why they intend to proceed anyway.

--- Later in debate ---

[Paul Scully]

Absolutely. The Government have determined—as we did in debate on the United Kingdom Internal Market Act 2020—that subsidy control is a reserved matter, so it is right that subsidy control policy is made and voted on in Parliament. Clearly, we must ensure that those schemes are scrutinised, and we will continue to engage with the Scottish and Welsh Governments and the Northern Ireland Executive, as we have done in drafting the Bill and since its introduction. We are committed to engaging with them regularly and listening to their views during the Bill’s passage and beyond. That includes engagement on the definitions of “subsidy, or subsidy scheme, of interest” and “subsidy, or subsidy scheme, of particular interest”. I therefore ask the hon. Member for Feltham and Heston to withdraw the amendment.

[Seema Malhotra]

I thank the Minister for his comments. I also thank other hon. Members who have contributed, particularly the hon. Member for Aberdeen North, who brought her expertise and experience from the Procedure Committee to the discussion. That was quite helpful as it highlighted a wider issue about better defining how the House can more effectively support the goals of our devolved Administrations and of Westminster in a more coherent way.

This quite measured amendment would

“require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. Where such consent is not given within one month, the Secretary of State”

can go ahead. The amendment deals with making regulations under the clause, and would ensure that the process was working properly.

[Kirsty Blackman]

Does the shadow Minister agree that because the clause deals specifically with schemes of interest and of particular interest, it is pretty unlikely that a situation will arise whereby an economic failure needs to be addressed in the space of a month, but cannot be addressed because the Government cannot change the definition of “interest” or “particular interest”?

[Seema Malhotra]

I think the hon. Member is right on this—the definitions would not necessarily change in those circumstances, and some of that is more about the speed of being able to grant a subsidy—but I am not sure I followed the logic of the intervention, although I appreciate that there is a concern there and it is important that we iron out those scenarios. However, I am not sure the intervention is pertinent to the issue being debated now.

I will press the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

The clause will enable the Secretary of State to make secondary legislation to define subsidies or subsidy schemes of interest, or of particular interest. We know that some subsidies are more likely than others to pose a risk of distorting international trade or competition within the UK. International trade disputes, including at World Trade Organisation level, may have arisen in particular sectors. As we heard earlier, that is especially common in sectors of long-standing global over-capacity, such as steel. Subsidies to enterprises operating in sectors that have historically faced a higher proportion of disputes may therefore warrant a proportionately higher level of scrutiny before they are given.

The Bill will establish the mechanisms for the referral of those subsidies and schemes to the subsidy advice unit, but it is important that the Government have some flexibility to modify the criteria over time in response to market conditions or the periodic reviews that will be carried out by the SAU to ascertain how the domestic subsidy control regime is working. Both Houses will have the opportunity to debate any regulations in draft to ensure that the criteria for what constitutes “of interest” or “of particular interest” are robust and capture the right subsidies and schemes for additional scrutiny.

[Seema Malhotra]

I will add nothing further to the comments made during our discussion of the amendments. There are areas that we continue to be concerned about, but we will not oppose the clause standing part.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Application of the subsidy control principles

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

[Paul Scully]

The clause is central to the new subsidy control regime. It will impose a duty on public authorities to consider the subsidy control principles before deciding whether to give an individual subsidy or make a subsidy scheme. A public authority cannot go on to give the subsidy or make the scheme unless they are of the view that it is consistent with those principles. That duty does not apply when a subsidy is given under a scheme. That is because the terms of the scheme must be consistent with the principles themselves, and any subsidies must therefore comply with those terms.

--- Later in debate ---

[Seema Malhotra]

I thank the Minister for his comments. This is an important clause, so we obviously support it standing part of the Bill. I seek his view on a couple of points that came up in relation to earlier clauses regarding how a public authority will confirm that the subsidy is in line with the principles—we talked about that in the debates on clauses 3 and 4 standing part of the Bill—and ensure that the quality of information that is then published reflects the consideration process that the public authority went through.

Earlier, the Minister talked about the expectation that public authorities will keep their own records of how they made assessments that the subsidy being provided would not distort competition, and that there were not ways in which it could have been available in the market on more favourable terms, and so on. It is important from a transparency and public confidence point of view that it be clearer how it would need to be demonstrated, or at least confirmed, by the public authority that it had considered the subsidy control principles and what records might need to be kept should there be a concern at a later date.

[Paul Scully]

In the first instance, an interested party can request the public authority to provide information demonstrating how it has complied with the duty under clause 76. Under part 5 of the Bill—

[Seema Malhotra]

I think there will be a further debate to have on the interested parties point. The important thing is what the public authority might be expected to do.

[Paul Scully]

Absolutely. I was going to say that the interested party can, obviously, make a challenge—commence a judicial review of the decision. The duty to consider and act consistently with the principles does leave room for legitimate judgment by public authorities.

On the question of what standard will be applied when looking at that, should it be judicially reviewed, the Competition Appeal Tribunal will apply the judicial review standard when hearing challenges. None the less, the guidance that is going to be published will provide advice on the practical application of provisions, including the duty to consider and act consistently with the subsidy control principles. That guidance will be published in good time for public authorities and other stakeholders to understand the key requirements of the new regime before it commences.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Application of the energy and environment principles

--- Later in debate ---

[Kirsty Blackman]

I think that, actually, schedule 2 does provide some environmental protections; I am quite comfortable in saying that. It does not do everything I would have wanted it to do. It does not create a requirement to meet the carbon commitments and move towards net zero in the consideration of the principles. However, increasing the level of environmental protection is in there, and it is important that all authorities are thinking about increasing the level of environmental protection in whatever they are doing. Now is the time for the UK Government to make that explicit in relation to everything that everybody is doing, whether it is subsidies or something else. That is why the amendment has been tabled.

[Seema Malhotra]

I thank the hon. Lady for her explanation of the amendment. We certainly recognise the intention behind it, which was something we looked at and gave thought to. We share the view that climate and environmental considerations should be taken into account in assessing all subsidies, and ensuring that all subsidies are assessed in the context of the UK’s net zero commitments is important. That is a real gap in the Bill—for example, transport subsidies might sit outside the scope of schedule 2, and therefore a public authority might not be required to consider the environmental questions and impact relating to those.

Labour believes that hardwiring the net zero considerations into all subsidy decisions would be better achieved by amending schedule 1, as our amendment would have done. I hope that as we proceed with our debates in the House and the period of COP26, which is just ahead of us, we can return to how we embed that principle in the legislation. These are principles of general relevance, so that is where we see a general requirement to consider net zero sitting a little more comfortably. That is why, while we support the intention behind the amendment, we would prefer to reconsider how we look at embedding the general principle of net zero more widely in the legislation.

[Paul Scully]

I remind hon. Members that the principles in schedule 2 include general matters such as requiring energy and environmental subsidies to be aimed at, or to incentivise the beneficiary in, delivering a secure, affordable, sustainable energy system, or to increase the level of environmental protection relative to that which would have been achieved in the absence of the subsidy. The schedule also includes a number of more specific principles, covering for example the decarbonisation of emissions linked to industrial activities or subsidies to electricity-intensive users to compensate for rises in electricity costs.

While I recognise the commitment shown by the hon. Member for Aberdeen North to our transition to net zero—subsidies that are correctly devised, designed and targeted can be a powerful means to achieve that—public authorities grant subsidies for many reasons and in connection with many policy objectives.

--- Later in debate ---

[Paul Scully]

The clause establishes that public authorities granting energy and environment subsidies, or establishing schemes to award such subsidies, must assess them against the additional principles in schedule 2.

[Seema Malhotra]

We support clause 13.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Introductory

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

[Paul Scully]

The clause sets out the purpose in general terms of chapter 2 of part 2 of the Bill, which prohibits several categories of subsidy from being given and establishes requirements on the giving of other categories of subsidy.

[Seema Malhotra]

We support clause 14.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Unlimited guarantees

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

--- Later in debate ---

[Paul Scully]

The notes for clause 15 stand part are not in my pack but fortunately, because of technology, which does not require a subsidy, I can tell the Committee that the clause prohibits subsidies in the form of unlimited guarantees of an enterprise’s debts or liabilities if this guarantee is either unlimited in monetary terms or in its duration.

[Seema Malhotra]

I understand that the clause, as the Minister describes, provides that an unlimited guarantee for the debts or liabilities of an enterprise is prohibited. That does, as I understand it, reflect the commitments in article 12.7 of the UK-Japan comprehensive economic partnership agreement on subsidies, and article 367 of the EU-UK trade and co-operation agreement. Perhaps the Minister could confirm that these commitments are rolled over from the EU and Japan agreements.

[Paul Scully]

As I said, the clause ensures that we continue to comply with our international obligations, which have included those prohibitions on unlimited guarantees for many years.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clause 16

Export performance

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

--- Later in debate ---

[Paul Scully]

I will clarify that, but there is no purpose in hiding it. We want to give certainty to businesses and the public authorities.

[Seema Malhotra]

I thank the Minister for his comments. It is quite a long clause. It does not appear to be one that we need to raise real concerns about today, but I would like to raise some points of clarification, because the question is whether there is anything deeper in there that could have other implications.

According to the notes, the clause establishes

“rules around subsidies for goods and services designed to be contingent, whether in law or in fact, on export performance”

which may include, for instance,

“subsidies to cover the price difference between domestic market prices and international market prices. Subsidies of this kind are prohibited unless specific conditions or terms are met, in line with the UK’s international obligations under”

various other pieces of legislation such as the TCA. The clause establishes that

“short-term export credit support, where this support is not in the form of support for marketable risk for buyers in marketable risk countries… is not prohibited.”

In the light of some of the circumstances we are seeing in relation to differences in domestic prices and international market prices, I would be grateful for greater clarity on what the overall clause is there to achieve and whether it will work in the interests of businesses in the UK and support of them.

[Paul Scully]

The significant distortive effect of export subsidies on our international trade has been recognised for many years, so except for certain types of export credit, export performance subsidies for goods are prohibited under the World Trade Organisation’s agreement on subsidies and countervailing measures. This Bill obviously complies with that agreement.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17

Use of domestic goods or services

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

--- Later in debate ---

[Paul Scully]

Clause 17 prohibits subsidies that are contingent on the recipient using domestic goods or services over imported goods or services. Such subsidies are generally known as local content subsidies, and since they benefit domestic businesses, they are generally regarded as being distortive to trade and therefore often result in inefficient outcomes for consumers. Again, local content subsidies for goods are prohibited under the World Trade Organisation’s agreement on subsidies and countervailing measures.

Subsidies to the audio-visual sector are exempt from that prohibition: it may sometimes be appropriate to give subsidies to that sector that require local content, in light of its contribution to our nation’s cultural objectives. That approach is in line with our international obligations and reflects the approach taken by many of our trading partners, including Canada and New Zealand.

Subsection (3) clarifies that certain types of subsidies should not be considered local content subsidies—for example, when the Government incentivise an enterprise that is not currently based here to locate production in the UK, or to train or employ workers in the UK.

The clause facilitates our international obligations under the terms of the trade and co-operation agreement with the European Union and as a member of the World Trade Organisation, and I commend it to the Committee.

[Seema Malhotra]

We support clause 17 standing part of the Bill.

[Kirsty Blackman]

This is one of the issues that has frustrated me most about the entire Brexit thing: a whole bunch of left-wing Brexiteers thought that these subsidies would be allowed in the event of our leaving the EU and coming out of its state aid system. They thought that we would be able to incentivise local content, and a lot of people in left-wing areas supported Brexit for that reason, but it is expressly prohibited by the WTO and the trade and co-operation agreement. I am just rising to vent my frustrations briefly; I am not going to vote against the clause.

Question put and agreed to.

Clause 17 accordingly ordered to stand part of the Bill.

Clause 18

Relocation of activities

[Seema Malhotra]

I beg to move amendment 13, in clause 18, page 10, line 13, at end insert—

“(3A) This section shall not come into force until the Secretary of State has laid before Parliament a report complying with subsection (3B).

(3B) The report must explain how the prohibition established in this section is consistent with—

(a) reducing deprivation across the United Kingdom; and

(b) the Government’s policy on the establishment of freeports in the United Kingdom”.

This amendment would mean that the prohibition in clause 18 does not come into force until the Secretary of State has laid before Parliament a report explaining how that prohibition is consistent with reducing deprivation across the UK and the Government’s freeports policy.

I am grateful for the opportunity to move this amendment, which would mean that the prohibition in clause 18 would not come into force

“until the Secretary of State has laid before Parliament a report explaining how that prohibition is consistent with reducing deprivation across the UK and the Government’s freeports policy.”

Clause 18 provides that a subsidy is prohibited if it is conditional on relocation from one part of the UK to another, and that the relocation would not occur but for the giving of the subsidy. Subsection (2) clarifies the meaning of an enterprise relocating existing activities: such a relocation occurs where the business carries on activities in one area of the UK before the subsidy is given, and it ceases to carry on those activities in that area after the subsidy has been given and instead carries them on in another area of the United Kingdom. Clause 18 is intended to protect the UK’s internal market and prevent subsidy races between parts of the UK.

The Government’s March 2021 consultation document anticipated clause 18, and suggested that measures could be introduced to prevent the uneconomic relocation of economic activity between England, Scotland, Wales and Northern Ireland. The important word there is “uneconomic”, which is notably missing from what appears to be a slightly blunter instrument in clause 18 as currently drafted. The Government’s consultation cautioned:

“Any additional measures here would need to recognise the value of subsidies which seek to address regional inequalities.”

However, clause 18 does not seem to do that. There is no acknowledgement of the value of subsidies that seek to address regional inequalities. Alexander Rose of DWF Group said on Tuesday that relocations can be highly beneficial to the economy.

--- Later in debate ---

[Kevin Hollinrake]

Is it not quite obvious? We are trying to target new investment to go into those regions, rather than existing investment being transferred from one part of the country to another. Is that not what the clause is trying to say?

[Seema Malhotra]

I hear what the hon. Gentleman says, and that is indeed what it is probably trying to do, but the problem is not only that it potentially undermines levelling up; it could also undermine and challenge the Government’s freeport policy. In the Queen’s Speech and the 2021 Budget, the UK Government announced eight new freeports in England, which are intended to promote regional regeneration and job creation and to become hotbeds of innovation. However, it is notable that no mention of freeports was made in the Government’s consultation on subsidy control policy, which closed on 31 March.

Under the Government’s freeport policy, significant subsidies, particularly tax reliefs, move to a particular site. In fact, they are conditional on a relocation. Are these tax reliefs—enhanced capital allowance, enhanced structures in building allowance, business rate relief and relief from national insurance contributions—which are conditional on relocating to a freeport, prohibited or not by clause 18? We heard significant reservations about clause 18 from our expert witnesses on Tuesday. As Jonathan Branton from DWF Group put it:

“Having a prohibition in the Bill, even a badly worded one, is potentially too blunt a tool, which might backfire.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 56, Q77.]

Amendment 13 would mean that the prohibition in clause 18 would not come into force until the Secretary of State has laid before Parliament a report that explains how the provision is consistent with both reducing deprivation across the UK and the Government’s freeport policy. This modest amendment is designed to ensure that the Government have properly considered the impact of the clause 18 prohibition on tackling regional inequality and on the freeport policy. However, we are not convinced at the moment that sufficient thought has been given to that impact.

Beyond our concerns about whether the Government have considered the impact of this provision on their claimed commitment to levelling up across the UK, there are also questions about how public authorities should interpret the clause 18 prohibition. Specifically, the prohibition applies where a subsidy is conditional on moving all or part of the economic activity from one area of the UK to another, but I cannot see where we have had a definition of “area”. Will the Minister explain whether “area” refers to a nation of the United Kingdom, a region, a local authority, a town, a village or any or all of the above? What about a council subsidising a business to move from one part of a local authority to another? There might be perfectly sensible and sound economic and regeneration reasons to do that—for example, to make way for an infrastructure project—but presumably this would be caught by clause 18. Therefore, it is arguably prohibited. Will the Minister clarify the interpretation of the current wording of clause 18?

[Stephen Kinnock]

My hon. Friend is setting out very clearly the rationale for our amendment. I would add, in response to the comments from the hon. Member for Thirsk and Malton, that this is about incentivising and ensuring that the measure is used in a positive way.

Our concern is that the wording of the clause is a very blunt instrument. It could be interpreted by a business that was looking to invest in either Middlesbrough or Mayfair that already has a base in Mayfair as a disincentive against favouring an investment in Middlesbrough. That would surely fundamentally undermine the Government’s own levelling-up agenda. The amendment would reassure businesses that they can be incentivised to invest in Grimsby rather than Guildford, without it being a binary choice between one or the other—it is much more nuanced.

[Seema Malhotra]

My hon. Friend is absolutely right to put the amendment in those terms—it seeks to bring clarity. The Minister will probably appreciate that these are complicated questions for enterprises that may be in receipt of subsidies for positive reasons that meet the objectives of the regime and public policy goals. Clarity for public authorities in granting those subsidies is also important, ensuring that they are not subject to challenge when they genuinely want to achieve positive outcomes, but would be caught under the fairly blunt definition in clause 18. I look forward to the Minister’s response.

[Kirsty Blackman]

The concerns I raised on principle F of schedule 1 are very similar to the ones being raised here. The Government have an intention here, but the clause will not achieve that intention; it is also too restrictive.

I love this amendment; it feels hugely cheeky. I know it is very serious, but I love the way it is drafted—how sad is that?—and I quite like the way both issues are put together in the same amendment. It makes sense that this measure is included alongside the amendments moved earlier by the Opposition on areas of deprivation. There is also the freeport element. The clause basically rules out freeports and the way the Government have explained they are intended to work, which is massively concerning if that is the Government’s plan.

If, for example, a Government Department was to relocate from Whitehall to Salford—I cannot think which Department might be doing that—and if there is going to be some sort of incentive for them to do that, that relocation would be prohibited. Surely that is something that the Government want; if they did not want it, they would not be doing it. They want Government Departments to be able to relocate to places outside Whitehall and to bring jobs to those areas. I am glad they are doing that, but it now would not be able to provide any subsidies for that to happen. That does not make sense.

If the Government’s stated aim and objective is to try to level up places to ensure more jobs, there is going to have to be some level of relocation. That is going to have to happen. We are going to end up in a situation where the Department for Business, Energy and Industrial Strategy does not have 400 staff here and has 400 staff in Salford instead. Surely that is a good thing, rather than a bad one. It would be helpful if the Government could clarify what is meant here.

I agree with the amendment. I agree with the report. We covered areas of deprivation this morning. The freeport thing, however, is unsolvable unless the Government provide us with more information, whether by the Minister explaining, changes being tabled for future iterations of the Bill—perhaps on Report—or the report asked for by the Opposition being provided.

--- Later in debate ---

[Seema Malhotra]

The Minister might say that that will come in guidance, but the scenario that he just outlined does not seem to be consistent with the wording of the clause. Even if the local authority was to agree a move from one end of its area into a high street, and even if all the existing economic activity was relocated, that would not have occurred but for the giving of the subsidy. Activity would be carried on in an area of the United Kingdom different from where it was before. Will the Minister reflect on that? It might be helpful to read that again, even against the scenario he just outlined.

[Paul Scully]

The regenerative example that I gave would fit, but it will be fleshed out in guidance. Let me come to freeports quickly, because that issue complies with the principles and prohibitions set out in the Bill, including in the clause.

When designating freeports, bidders are required to explain how their choice of tax site locations minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. The focus of freeports, however, is to encourage new investment and to create new businesses and jobs, rather than harmful displacement, so tax sites will be designated only once the mitigation of displacement and other factors have been demonstrated by the successful bidder in its tax site. We are confident that the risk of harmful displacement has been minimised.

In summary, the subsidies will not be conditional on the relocation of existing economic activities.

--- Later in debate ---

[Bill Esterson]

It is great to see you back in the Chair, Ms Nokes.

Clause 18 is crystal clear about preventing the use of subsidies to enable businesses to move from one location within the UK to another. The example of the high street is crystal clear, as is the example of the freeports. I will come back to the point about promoting new investment in freeports shortly.

The Minister talked about issuing guidance to go with the provision. That is the way the legislation has been crafted, which I think we can all understand. However, guidance will always be open to interpretation, and what takes priority? Is it the primary legislation—the very clear statement set out in clause 18 that a subsidy is prohibited if

“the relocation of those activities would not occur but for the giving of the subsidy”?

How is that overcome by the guidance? That is the point that all Opposition Members who have spoken have tried to get to, whether with the example of the regeneration of high streets or that of freeports.

The Minister talked about the justification for freeports and the support that the Government have given. My hon. Friend the Member for Feltham and Heston made the point that freeports were not part of the consultation for the legislation, and they are ruled out by the clause. It could not be much clearer.

On the point about freeports being just about new investment, the evidence base—the report published by the UK Trade Policy Observatory, and the commentary by Adam Marshall when he was director general of the British Chambers of Commerce—shows all too clearly that they are exactly about relocation and displacement, and all the things that the Minister said that they should not be about. His point that they do not deliver displacement from one deprived area to another is undermined by the evidence base provided by the UKTPO and the British Chambers of Commerce.

I am afraid that we have not had an adequate answer from the Minister on how all those circles will be squared, and how the primary legislation of clause 18, which he wants to go through unamended, will not override attempts to use subsidies to support local areas in the examples that we have given him and that he says we should not worry about. I am afraid it comes back to a point that we have made a number of times, and will continue to make, I suspect, through the Committee’s deliberations: specific statements need to be added to the Bill to provide reassurance and to make the framework a much more workable system of subsidy.

Without that, things will be left wide open. As much as the Minister defends the Government’s freeport policy, notwithstanding the analysis that I have given from those experts, and claims that local authorities will be able to sort their high streets, and despite his response to my hon. Friend the Member for Aberavon about supporting more deprived areas otherwise, I am afraid that without additional content going in at this stage, or on Report, or in the House of Lords, we will be left in a position where the framework will leave awarding bodies open to judicial review because of the uncertainty and the contradiction that will almost inevitably be left in place between the primary legislation of clause 18 and whatever he puts in guidance.

[Seema Malhotra]

I listened to the Minister’s response and the contributions to the debate. I remain concerned that the clause is worryingly worded in terms of what could be permissible under it and what might not be. In the light of that, it is important that we press what is a very measured amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Paul Scully]

As we have heard, clause 18 prohibits subsidies that explicitly require enterprises to relocate economic activities from one area of the UK to another, where this relocation would not have occurred without the subsidy. I should say that the purpose of the provision is only to prevent subsidies that are explicitly contingent on a relocation—in other words, that the business ceases its economic activities in the previous area. We believe that the approach strikes the right balance: it prohibits some of the most potentially harmful subsidies without preventing levelling-up subsidies that attract investment to disadvantaged areas.

[Seema Malhotra]

I thank the Minister for his comments. He has our concerns on the record. We will not oppose the clause, but I think this is an important area. Perhaps I will write to the Minister about this, which I hope will help to make sure the provision is as positive as it can be for the purposes of the Bill.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Rescuing

[Bill Esterson]

I beg to move amendment 14, in clause 19, page 10, line 29, after “exceptional circumstances” insert

“including the protection of critical national infrastructure and industries of strategic national importance,”.

This amendment clarifies that protecting critical national infrastructure and industries of strategic national importance may constitute exceptional circumstances.

--- Later in debate ---

[Bill Esterson]

We recognise that subsidies to an air carrier for the operation of a route should be prohibited unless certain conditions are met, and those conditions are listed. I cannot help noting the irony of the reduction in taxes on travel for short-haul flights, and the fact that one can get a ticket from London to Glasgow for COP26 for £45 on the railway and it is about £145 to fly. That is possibly going slightly beyond the scope, other than to say that again this is not consistent with what the Minister said earlier about the intention of travel, so to speak, on moving towards net zero.

[Seema Malhotra]

My hon. Friend may be aware that it is part of the application, if someone is going to COP26, to show how they are—

[The Chair]

Order. May I remind Members of the need to stay on the subject of the Subsidy Control Bill.

[Seema Malhotra]

It is tangentially connected.

[The Chair]

I will give you a little leeway—not much.

[Seema Malhotra]

The requirements of applying for a pass for COP26—[Laughter.]

[Michael Tomlinson]

It was a great effort.

[The Chair]

I am still not convinced that this is on the substance of the Bill.

[Seema Malhotra]

The Government requires that delegates state their method of travel.

[Bill Esterson]

Yes, there is the irony that the Government are requiring delegates to COP26 to show their method of travel to the conference. I hope that we will see subsidies supporting rail travel. In my constituency, I have been long campaigning for a rail link from the port of Liverpool rather than a new road, and in the run-up to COP26 that would make sense, rather than concentrating on air travel. There is a serious point that we need to use the subsidies to support rail and low-carbon transport, and reduce the reliance on, and support that the Budget gave for, air travel.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Services of public economic interest

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

[Paul Scully]

The clause sets out the requirements for giving subsidies for services of public economic interest.

[Seema Malhotra]

I thank the Minister for his remarks on clause 29. Similarly to EU provisions on support to services of general economic interest, the clause relates to enterprises that are assigned with a particular task in the public interest. We recognise why the clause is needed, to outline the regulations for subsidies given to SPEIs. Labour recognises that SPEIs differ from enterprises that may normally receive subsidies, and accepts that different regulations should therefore apply to subsidies given to SPEIs. We support the regulations under clause 29. It may be important to note that we do not support the exceptions given to SPEIs under clauses 38 and 41, but that will be discussed at a later date.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Effect of prohibitions etc in relation to subsidy schemes

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

[Paul Scully]

The clause sets out how the prohibitions and other requirements in this chapter apply in relation to subsidy schemes. It ensures that public authorities cannot evade those prohibitions and requirements when establishing a subsidy scheme.

[Seema Malhotra]

We support clause 30 standing part of the Bill.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Subsidies or schemes subject to mandatory referral

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

[Paul Scully]

Clause 31 prohibits a subsidy or scheme that a public authority has failed to properly refer to the subsidy advice unit, or which has been given or made before the referral process has been allowed to conclude.

[Seema Malhotra]

Clause 31 outlines the regulations for mandatory referral of subsidies to the CMA. We support the regulations in the clause, which will be an important part of the operation of the regime, but we will seek to amend clause 54, which will be discussed at a later date.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

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

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

Seema Malhotra Excerpts

Wednesday 27th October 2021 General Committees

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

It is a pleasure to serve under your chairship, Dr Huq. May I thank the Minister for his opening remarks? I would be grateful to him if he could respond to some of my questions, either in response today or in writing. I want to know which business organisations the Minister spoke to before deciding to move forward with the tapering as it is and as proposed by the Government. How will he keep the measure under review? It is both an extension of some support and a withdrawal of other support in the way that it has been tapered, and I thank my hon. Friend the Member for Rhondda for the point he made in relation to that.

We believe that it is right to maintain restrictions on serving winding-up petitions under schedule 10 to the Corporate Insolvency and Governance Act 2020. It is vital that businesses that have sustained pressure during the last 18 months are supported right through to the end of the pandemic. We acknowledge and welcome the raised limit, and at least there is considerable protection for small businesses with debts below £10,000. That is important and is in line with the measures that we have called for since June, when other support was withdrawn, to ensure that there are effective ways to deal with debt through the period of recovery, so that we do not see the loss of viable businesses that are allowed to fail because of the impact of covid-19.

Let us face it: covid-19 is not over yet, and there is still uncertainty about what might happen going forward and whether there will be further restrictions. It is important that the Government make it clear to Parliament how there will be flexibility in relation to business support that will be in line with potentially changing health measures. In this context, the pressures facing businesses this winter must be taken into account as the Government keep the measure under review.

The challenges are numerous: rising energy prices, the Government’s supply chain crisis, price inflation and consumer confidence declining to its lowest level since April, compounded further by the Government’s cruel decision to cut universal credit for 6 million families. Why does that matter? Let me take my constituency as an example, with 18,000 households affected and £18 million coming out of the local economy—£18 million that would be spent largely in local shops. There is a relationship between the choices being made on cuts to universal credit and the support that there will be for small businesses as household income reduces, as people are able to spend less on looking after their families, which they do largely in community businesses.

This is a time when businesses should be experiencing their golden quarter—the quarter leading up to Christmas, when they can make the majority of their profits for the year in order to address the debt that they may have accrued during the periods before—but many businesses will still be fighting for their survival and having to respond to one crisis after another. I am sure that the Minister has received representations from affected businesses. I can state one example of a business that told me it had to refund £8,000-worth of customer purchases a month ago because the goods were not going to arrive due to the supply chain crisis.

This is affecting businesses up and down the country. The last two quarters have also seen more than 100,000 business deaths in each quarter—more than in any other subsequent quarters in the recent past. Without a more robust response, quarter 4 of 2021 and quarter 1 of next year will be worse. Against this backdrop, it is no wonder that business groups, including the Federation of Small Businesses, have warned of falling business confidence. The cash liquidity crisis, which is also facing various sectors of the economy, from aviation to retail and leisure, will continue well into 2022. It is important for us not to just assume and want to believe that things were suddenly magically better from July onwards, because a lot of the uncertainty remains.

That brings us to the extension of the restrictions, even with the tapering, which we do support, as we did last month with the extensions that we debated then. First, with regard to the two-day gap that was created by the initial version of this instrument, how many businesses were issued with winding-up orders on 29 and 30 September? Does the Minister have those figures? Will those businesses now benefit from the protections that they should have had?

Last time, we also noted our concern that the Government were legislating for businesses to be protected from eviction but not rent-induced liquidation. The Minister then spoke of legislation being introduced to support the resolution of commercial rent arrears for tenants that were affected by the restrictions during the pandemic. What is the status of that? Rent debt will remain an anvil around the necks of many businesses, particularly those in the hospitality and retail sectors, which have been impacted—sometimes most—by the pandemic.

That can also be the case in areas of tourism that were very significantly impacted. Some of that picked up this summer, but aviation has seen a very stuttering recovery. In relation to the aviation supply chain across the country, which includes hundreds of thousands of businesses, the Minister will know that there is still huge uncertainty as international travel and even domestic travel are still recovering. It is estimated that the hospitality sector alone is facing billions of pounds of rent debt.

Therefore, when it comes to lifting the measure of support, along with the business rate and VAT reductions and the eviction restrictions, much of which will happen in March, this could well lead to a real risk of a cliff-edge scenario for businesses, particularly those that have been hit hardest by the pandemic and are not in those sectors that are recovering more quickly. The tail of the recovery is set to continue well into next year and even the year after, so what assessment is being made of what the additional support might be and how that can be tailored to deal with the slower recovery of particular sectors?

Will the Minister also provide an update on the arbitration process that, I think, has been brought forward? On the detail of that in relation to rent arrears, I would be grateful for an update.

I will express just a few concerns about today’s SI. The legislation note describes the process, which the Minister outlined, of notice needing to be given, 21 days of consultation, and allowing a response from the debtor to then be taken into account. What happens if, unreasonably, the creditor does not wish to accept the proposal? Would that then be for the courts to decide? Could any court fees then be payable? If the debtor does not win the case against them, will they then be having to pay court fees as well? Perhaps the Minister can provide clarification, because I am not sure of the detail of that.

Could the Minister clarify one point? If the 21 days begins just a few days before the measures are due to end in March of next year, what does that mean for any of the disagreements going through between a creditor and a debtor? Will the 21 days that might start before the end of these provisions continue with those rights secured?

People may be concerned about their business, which might otherwise be viable but has been hit by covid and the continuing uncertainty over recovery. What are the Government doing to ensure that those who are concerned about the ending of the temporary insolvency measures seek effective early advice? I agree with R3 that businesses that seek advice early often have the best options open to them and the best advice to make decisions about their next steps. That often results in a more favourable outcome than if those businesses had waited and let problems spiral. What are the Government doing to make businesses aware of such advice? That may mean the involvement of grassroots business organisations.

If the Government are forced to introduce new measures this winter as a result of a health crisis that restricts business operations, will they review those measures and amend them as required? At a time when businesses need us most, the House should focus on how we support businesses not just to survive but to recover and thrive. They will be looking to us to make sure that support is not removed from businesses prematurely. That would have a catastrophic impact on businesses, high streets and communities across the country.

--- Later in debate ---

[Paul Scully]

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

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

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

We continue to work with businesses on a number of measures. The hon. Lady asked what other support we are giving to small businesses, especially as we go through the winter. We are continuing to flex with, and listen to, businesses. Indeed, once I leave this sitting I will speak to really hard-pressed businesses from the hospitality sector, to listen to them and see how they are getting on. We regularly check in to see what businesses conditions are like. Clearly, the Budget is coming up shortly; we will see what their feedback is afterwards, and how it will affect them. We continue to ensure that we can flex our support, help and measures within that sphere, having had that feedback.

Importantly, what we are doing is extending these measures. We picked a six-month extension. To date, we have been going in three-month chunks, so that creditors in particular do not feel that we are only looking after debtors, and not looking after their interests as well. As I said, it is really important that we get a balanced, proportionate view between the two sides.

[Seema Malhotra]

May I remind the Minister about the question on court fees? It would be helpful if he could come back to me on that. Also, no statutory review clause was introduced as part of the instrument. The explanatory memorandum says that

“the Government will continue to monitor the need for these measures”

and that

“the provisions in this instrument will automatically expire”,

I think on 25 March. Would it not be helpful to have a statutory review clause? Otherwise, it feels like we get bounced at the end, and sometimes after the event. It would be helpful to have some time to consider the changes made in advance.

[Paul Scully]

As I say, it is ongoing. We will not set a particular arbitrary date for a statutory review because things can change very quickly. We have seen that right the way through the past 18 months. We do not want to be bounced, as clearly happened at points last year when we were chasing the virus, which affected the decisions made. We have learned a lot of lessons from that, but putting in an arbitrary review date is not particularly helpful when we are ensuring that we continue to speak to businesses on a day-to-day basis. On court fees, this is a modification of the usual court process for winding up, so no new fees are involved.

The hon. Member for Rhondda asked about Northern Ireland. It has laid its own regulations extending the same temporary consultancy measures as the rest of the United Kingdom.

[Paul Scully]

We laid the SI before then, and there is a clear direction from the Insolvency Service and other business groups on the intention of what is happening. The courts are obviously aware of the landscape. Yes, the measures are coming to us for discussion only today, but they were laid before the House and are known to business groups, with which, as I say, we continue the conversation so that they can see the constant direction. Clearly, when the measures end on 31 March 2022 it is envisaged that the insolvency regime will return to its normal operation; however, as I have been stressing, as the effects of the pandemic continue to be felt the Government will keep the requirement for the measures, as we do for all measures, under review.

[Seema Malhotra]

May I just clarify the dates? I think some things have been 25 March, but this says 31 March. Are today’s measures retrospective, so from 1 October, and will they expire on 31 March?

[Paul Scully]

We have re-laid the SI so that there is no gap in provision. That is the key thing. It goes to 31 March 2022. I should say to the hon. Member for Rotherham, who spoke about debts—

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

Seema Malhotra Excerpts

Wednesday 27th October 2021 General Committees

[Paul Scully]

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

[Richard Thomson (Gordon) (SNP)]

--- Later in debate ---

[Paul Scully]

[Seema Malhotra]

[Paul Scully]

[Paul Scully]

[Seema Malhotra]

[Paul Scully]

Subsidy Control Bill (Second sitting)

Seema Malhotra Excerpts

Tuesday 26th October 2021 Public Bill Committees

[The Chair]

Would you like to make an opening comment?

Dr Barker: I would, yes. Probably the most important comment I can make to start is that, from IoD members’ perspective, we are seeking a subsidy regime that is easy to navigate; does not result in too much delay; and has predictable outcomes that are reasonably legally certain and are not challenged or reversed too often. Of course we want a nimble system, but we do not want one that is so nimble that decisions are vulnerable to challenge because the public body has perhaps not followed the right process. That would make the whole system too uncertain and unpredictable. That is the basic point underlying our perspective.

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

Q44 It is a pleasure to serve under your chairship, Ms Nokes.

Thank you for giving evidence to us today, Dr Barker. I shall start with a more general question about your view of the Bill and the regime as a whole. Where do you see the opportunity for small businesses to work towards the Government’s objectives of levelling up and net zero that have been talked about?

Dr Barker: I do think this is an opportunity. It provides a framework to undertake the type of policy approach that you describe, but as to whether it will actually be used for that purpose is still somewhat uncertain. Historically, the UK has granted subsidies to companies much less than the EU, for example. EU countries, the United States and Asian countries continue to use subsidies in a major way to encourage key areas such as semiconductors, artificial intelligence and quantum computing—the industries of the future. Despite the difficult historical experience that we had in trying to pick winners during the 1970s, we probably have to ask what it is that our more successful competitors have realised about the use of subsidies that we have not.

From the IoD’s perspective, our view is that we should recognise that an effective subsidy regime does have an appropriate role to play for small and medium-sized enterprises to build a tech revolution in the UK, and a green industrial revolution. That will require Government and business to work together, as to some extent they have during the pandemic. The subsidy regime will be part of that—the changes will not just happen spontaneously.

[Seema Malhotra]

Q You have said this week that grants—or subsidies—made under the global Britain investment fund should have more conditionality associated with them to ensure that they support long-term commitments into the UK as well as levelling up. Do you believe that that Bill does enough to set out those goals? Is even net zero sufficiently enshrined in how subsidies should be used and their impact evaluated?

Dr Barker: I do not think it does. At the moment, the framework that is being described is like an empty husk that could be used in a variety of ways. It does not really indicate how it will be used in a more detailed policy sense. Some aspects of the structure of the framework could get in the way of some of the policy agenda. The particular area where we have some concerns relates to compatibility with the levelling-up agenda. There is a clear principle in the Bill that any subsidy should not displace investment or business activity from one part of the UK to another, but you can see that having some potential conflict with the levelling-up agenda, which is trying to promote disadvantaged regions of the UK. You can see the potential for legal challenges occurring as one region says “Well, actually, you are not creating new business here, with these subsidies; you have actually displaced business activity from our region.” I think we could benefit, within the Bill, from more clarity to prevent that type of conflict from happening.

[Seema Malhotra]

Q In your view, how and where do you think that could be strengthened in the Bill? We have also heard from other witnesses on whether there should be an equivalent, or a successor, to the assisted areas map, which is currently used in the EU, and which we also had, in some form, as a predecessor. Do you think that, at the very least, we need something tighter around areas of economic disadvantage, and a definition of what that might be—levelling up also may be within regions, as well as between regions—to provide some clarity for businesses that may be in smaller areas of disadvantage, but in a region that is more prosperous?

Dr Barker: Yes. I think there should be scope to do that within the framework of the Bill. I do not have a very specific proposal on the wording of the legislation, but that displacement principle should certainly be qualified to the extent that it allows this kind of regional policy—or levelling-up agenda—to actually take place.

[Seema Malhotra]

Q Do you have any concerns relating to transparency? There is a sort of de minimis threshold suggesting that under £315,000, those subsidies will not be subject to the controls in the Bill; they will not be reported. Do you have concerns about what that could mean for knowing whether subsidies have actually been implemented—subsidies that may be supporting particular enterprises without the visibility of that for other businesses?

Dr Barker: We would like to see transparency throughout the system. It is important for everyone to have trust in the system. That applies to all the different processes that one might go through to win a subsidy; there are different processes identified, depending on the nature of the subsidy, from those requiring quite a detailed due-diligence process from the Competition and Markets Authority to those that, as you state, are on a kind of fast-stream process to subsidy.

Transparency is incredibly important. Competitor firms and other enterprises want to be able to see what sort of subsidy is being granted to their competitors; they want to see how that is justified and whether they might want to make some kind of legal challenge against that decision. If any of this process is seen as happening within a black box, where each subsidy decision is not properly justified and explained, that will simply create mistrust in the system and undermine it.

[Seema Malhotra]

Q Finally, on that point, do you think that £315,000 or £500,000 as a threshold for subsidies under a subsidy scheme is too high?

Dr Barker: I would not say whether it is too high or too low. I think that there should be transparency at every level of subsidy, but I think it is reasonable to have a threshold in defining a faster-track decision-making process. That seems reasonable but, regarding transparency, I do not think that should be related to the size of the grant.

[Simon Baynes (Clwyd South) (Con)]

Q Thank you for your time this afternoon, Dr Barker; it is much appreciated. I wanted to look at the part of the Bill to empower local authorities, public bodies and central and devolved Governments, particularly the public bodies aspect. Do you see this as a welcome broadening-out of the routes by which subsidies can be brought to business, not only through central devolved Governments but through local authorities and public bodies?

Dr Barker: That is potentially welcome, but now we are extending subsidy-granting powers to a large number of bodies—about 500 in total. That will create a requirement that each of those bodies understands the principles for granting the subsidy and the processes that need to be gone through. They need to have some degree of expertise to guide business through the process in a confident way. In practice, that will probably mean that the subsidy advice unit in the CMA will be called on a good deal from a lot of those bodies for advice, information and to try to get an indication of whether the process being followed is the right one.

I am slightly concerned that consulting the subsidy advice unit may become a kind of quasi-obligatory stage in the subsidy approval process. The question is, will that delay things? Will it take away the nimbleness of the system? Does the subsidy advice unit have the necessary resources to deal with the hundreds of public bodies that will be consulting it? That is an uncertainty and a concern.

--- Later in debate ---

[The Chair]

We will now hear from George Peretz QC from Monckton Chambers in person. We have until 3 o’clock for this session. Could the witness please introduce himself for the record? If you would like to make a brief opening statement, please do so.

George Peretz: I am George Peretz QC. I practise at Monckton Chambers. I was the co-founder of the UK State Aid Law Association a few years ago and am currently also co-chair of the Joint Working Party of the Bars and Law Societies of the United Kingdom on Competition Law, and we have contributed to the debate on subsidy control as well.

[Seema Malhotra]

Q Thank you for coming in. I have a couple of questions that I want to put to you. I want to understand your view of the CMA’s powers in the Bill, such as whether the CMA should have the power to instigate an investigation or report on its own initiative. Currently, it is able to act only on those that are referred to it. Would it be desirable for the CMA to have further powers and, in your opinion, why would that be beneficial?

George Peretz: There is an issue about the position of subsidies that are not recognised by the granting authority as subsidies. It has always been true under EU state aid rules and World Trade Organisation subsidy rules, and 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. Two well-known examples are tax measures decisions by the tax authorities as to the tax treatment of particular corporations. If those are over-generous, they give rise to subsidies under WTO rules, EU rules and under the Bill. You also have situations where Government bodies enter into commercial transactions—loans, contracts or grants—that are over-generous. They are not the sort of transaction that a market operator would enter into, but the public authority wants to claim that they are the sort of transaction that a bank or another market operator would be prepared to enter into.

You will appreciate that there is scope in both of those areas for considerable argument and for genuinely different views to be taken about whether what is being done is a subsidy at all. You can certainly have such a situation, and these situations will arise fairly frequently when public authorities have to take a view as to what they are doing in granting a loan, or in the case of Her Majesty’s Revenue and Customs deciding on the tax treatment for a particular company, is a subsidy at all. They will quite often take the view that it is not, but that view will be contestable. Sometimes the view is completely wrong and the measure is in fact a subsidy. Those cases will not be placed on the transparency database, and it seems to me that there is a bit of an enforcement gap in dealing with them.

We have an obligation under the trade and co-operation agreement to ensure that things that are subsidies are dealt with properly as subsidies, so I think that there is a bit of a weakness. One thing that the CMA could be given the job of doing is, probably most easily, investigating on its own initiative, rather than necessarily in response to a complaint, cases where it looked as if there may have been a subsidy, but where a subsidy was not in fact placed on the transparency database. That would have to be on its own initiative because the whole starting point in the Bill is that things go on the transparency database, so if they have not other mechanisms do not really kick in.

[Seema Malhotra]

Q That raises quite a serious issue about possible gaps in the regime. Under clause 55, there is the opportunity for the Secretary of State to call in a proposed subsidy or subsidy scheme. Do you think that is sufficient under the scenario that you have outlined, whereby there may be an example of tax treatment that has the same effect as a subsidy but is not on the transparency database? In such a scenario, do you interpret the wording of clause 55 to be enough for the Secretary of State to call that in, or do you think the wording needs to be tightened to allow it to be clearer? For example, it might be something that appears to be a subsidy and would therefore go to the CMA, rather than what might happen under clause 71, which would be for it to go to the tribunal.

George Peretz: There is a lot in that, yes. It is also worth looking at clause 60, on proposed award referrals, because quite often these cases will arise after the measure has come into effect, so it will be a post-award referral. Clause 60 and clause 55, on call-in directions, both talk about the power of the Secretary of State to request a report in relation to a proposed subsidy or subsidy scheme. It is not entirely clear what happens in a case where the Secretary of State thinks there might be a subsidy scheme but is not actually sure. It is possible that he could make a reference in that situation. The first question for the CMA in either case would be, “Is what we are dealing with really a subsidy?” The granting authority will be saying, “No, it isn’t.” If the intention is for the Secretary of State to have powers to catch things that are subsidies but have not, for one reason or another, been placed on the transparency database, it would better for the wording to say something like, “a proposed subsidy or subsidy scheme, or something that the Secretary of State considers to be a subsidy or subsidy scheme.”

There is a second point behind both those provisions: whether it is right for that power to be held only by the Secretary of State, who is of course a politician. Realistically, politically, in what circumstances is the Secretary of State likely to be keen to scrutinise decisions of central Government? He may or may not, but clearly politics will come into that in a way that might not be entirely desirable. There is a wider argument, which I think I have made elsewhere, that it might be worth widening out the category of people who can make post-award referrals and call in directions, at least to include the devolved Ministers, but that is a slightly separate issue.

To return to your question, it seems to me that it is worth looking at the wording of clauses 55 and 60. Then there is the broader question of whether it should just be the Secretary of State who has that power.

[Seema Malhotra]

Q May I ask a final question on that? I think that has highlighted what seems to be the asymmetry between the powers of the Secretary of State and of the devolved Administrations in being able to call in and challenge subsidies. Do you think it is important to look at amending this area of the Bill? I am thinking about the need to have an integrated and lasting four-nation settlement. What do you think the consequences of not doing that will be?

Secondly, public interest bodies that you might normally expect to be able to look at and challenge decisions are currently not defined as interested parties. How important do you think it is to revisit the definition of interested parties?

George Peretz: There are two points there. One is the position of the devolved Governments, particularly in relation to clauses 55 and 60, vis-à-vis the position of the United Kingdom Government. The whole point of clauses 55 and 60—you can see it in the text—is that a reference is made to the CMA in situations where the measure creates a risk of negative effects on competition or investment within the United Kingdom. Plainly, the power is intended to catch a situation whereby the Secretary of State considers that a measure undertaken by the Scottish Government or Welsh Government creates highly distortive effects in England. One can see the possibility of that, but if that is the intention, it is hard to see why sauce for the goose is not sauce for the gander. 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.

A second, slightly different point is about the definition of “interested party”, which is in clause 70(7). This says that

“interests may be affected by the giving of the subsidy”.

“Interest” is a wide phrase—what does it cover? Is it just financial or commercial interests? I think any court, in construing that, will look at paragraph 6 of article 369 of the trade and co-operation agreement, which seems to be where this comes from. That refers to both parties being obliged to make sure that interested parties have a right to challenge. It then defines interested parties as including competitors, trade associations and a couple of other things. However, they are all people with very direct commercial interests in subsidies, most obviously competitors who feel that the subsidies will make life difficult for them when they compete.

When one goes back to article 369, the argument that we have put is that it does not cover bodies such as concerned next-door local authorities and the Scottish and Welsh Ministers. The Secretary of State is automatically defined as an interested party, so it is not a problem for him, but it would be a problem for any other Government authority in the United Kingdom that has concerns. There is then also an issue about whether the wider bodies concerned with public interest litigation would be able to claim an interest; it looks as if the intention is to exclude those from having the right to go to the CAT.

I say “right to go to the CAT” because there is a subsidiary question, which is if the definition of interested parties is confined to and is rather narrower than the caste of people who would normally have the ability to challenge public law decisions such as this in the judicial review courts, as I think it may be, there would be an argument open to someone who was not an interested party—a public interest group—to go to the High Court and say they have a right to challenge this decision as a matter of ordinary public law. They would say that because they do not have standing under the Subsidy Control Bill to go to the CAT, they have no alternative remedy. It seems to me to be quite likely that the courts would accept that argument. I am not entirely certain that that is what is intended. If it is intended that all subsidy control appeals go to the CAT, I am not sure that is really achieved.

[Stephen Kinnock]

Q I have two questions, Mr Peretz. The first is around the idea of assisted area maps; do you think there is a connection between the need for an assisted area map and the commitments that were made in the TCA? The joint declaration on subsidy control policies within the TCA says:

“Subsidies may be granted for the development of disadvantaged or deprived areas or regions. When

determining the amount of subsidy, the following may be taken into account: the socio-economic situation of the disadvantaged area concerned; the size of the beneficiary; and the size of the investment project.”

I would be interested in your view as to whether that constitutes an actual obligation to have an assisted area map, or some way of defining disadvantaged areas based on the terms of the TCA?

My other question was around article 10 of the Northern Ireland protocol; I am sure you will not be surprised to hear that, we have discussed it many times. What is your sense now of the state of play around article 10 of the Northern Ireland protocol? To what extent could it be interpreted so broadly as to effectively drive a coach and horses through this legislation?

George Peretz: I will deal with the regional aid map first. The schedule to the TCA is permissive. It allows the parties to do things: it does not require them to do anything. If the UK Government just did not think that regional aid was appropriate at all, they are entirely free not to do it—ditto the EU. There is also a bit of a danger in holding on to old state aid law thinking. The position of regional aid maps in the state aid law regime was there because there was a basic prohibition on state aid unless it went through the process of going to the Commission and getting cleared, unless it fell within block exemptions. Regional aid maps played their role within the block exemptions. They meant that if you were giving a grant that fell within the conditions of regional aid in certain areas, you could give grants in an area that benefited from assisted area status that you would not be allowed to give, for example, in Guildford without going through the process of notification and clearance. If you did it in an assisted area, you could just do it without going through that process.

Structurally, that does not really fit into the new regime, because it does not have that basic prohibition element in it. Instead, it requires all public authorities to think about the principles, which will inevitably apply in a somewhat different way. They are bound to be affected by the region in which they are given. For example, the principle in paragraph A(b) of schedule 1—

“address an equity rationale (such as social difficulties or distributional concerns)”—

will apply very differently in the Welsh valleys than in Guildford, because the social difficulties and distributional concerns are different.

One possibility that could arise under the structure of the Bill is that the Government might well issue streamlined schemes that make reference to the areas concerned—something that a streamlined scheme could certainly do. They could say, “This scheme applies,” and effectively there is automatically no risk of the CMA having to look at it, and you do not have to go through the process of thinking about the application of the subsidy control principles for grants in Pontypridd, as you would were you making the grant in Guildford. That is where something like the regional aid map might come back in, but it is not in the Bill; it will depend on what the Government decide to do about streamlined subsidy schemes.

I have probably written far too much on article 10. The current state of play is that, if I am advising a client such as a local authority or a subsidy recipient, my immediate problem is that I have to look at two sets of guidance—one issued by the European Commission and one by the Department for Business, Energy and Industrial Strategy—that in some important respects tell me very different things. If I am advising a client who is the prospective recipient of a grant from an English local authority, but my client sells a significant quantity of goods in Northern Ireland, the Commission guidance essentially tells me that article 10 is likely to apply. The BEIS guidance tells me that it is unlikely to apply. I am capable of making up my own mind about that, but I would obviously have to draw my client’s attention to the different guidance, and if it ever got to court the court would be entertained with the different guidance and would have to decide what to do, so there is a difficulty.

The fundamental problem is the effect on trade test. Assuming that it is meant to mean the same sort of thing as it means in the EU state aid law rules, which is probably, though not certainly, right, it catches an awful lot of things. It famously caught the question of whether taxi cabs in London could drive in bus lanes, according to the European Court, even though one might struggle to see quite why that affected trade between member states.

The real problem is that the European Court has consistently upheld reasoning on effect of trade, which is extremely thin, based on assumptions, and it does not really include much of what any economist would recognise as economics. An effect on trade has been deduced and that makes it a bit difficult. The boundary line is therefore just obscure. The Bill effectively says that anything that falls under that regime is excluded from the Bill, but you do have the problem that the boundary line is not very clear.

--- Later in debate ---

[The Chair]

We will now hear from Jonathan Branton, partner at the DWF Group; Alexander Rose, director at the DWF Group; and Richard Warren, head of policy and external affairs at UK Steel. They are all here in person. We have until 3.40 pm for this session. Can the witnesses please introduce themselves in turn for the record—perhaps we will go left to right, starting with Mr Rose—and give a brief opening statement? I will then move to Seema Malhotra for questions.

Alexander Rose: I am Alexander Rose. I am a director at DWF working day to day on subsidy control.

Jonathan Branton: Hi. I am Jonathan Branton, a partner at the DWF Group. I have been head of competition and practising in this area for over 20 years. I have spent a long time in Brussels.

Richard Warren: I am Richard Warren, head of policy and external affairs at UK Steel, which is the trade association representing the steel industry in the UK. The steel industry is a recipient of various forms of state aid approved under the EU regime, so we have an active interest in the system that replaces it.

[Seema Malhotra]

Q Thank you to our witnesses for coming in today. We are very appreciative of your time. I will ask two questions to cover the areas that you have commented on. First, I am interested to know your view on the question of transparency in the Bill around decisions that are made on how challenges might be brought if there are concerns about subsidies and their impact. Secondly, more positively, what might the opportunities be for the Bill and its regime? What would success look like in terms of how it positively affects the areas that we, on both sides of the House, are interested in, such as levelling up and the transition to net zero? Will the scheme actively support delivering them?

Richard Warren: I would probably be best placed to start with the opportunity side of things, rather than transparency. As we see it, the opportunity for the Bill, briefly, is that it creates a more flexible and light-touch regime, which I am sure many of your witnesses have already spoken about.

The EU system, certainly the way we view it, effectively says, “State aid or subsidy is banned, except for a list of things that you’re allowed to do.” The new UK regime seems to take the opposite approach and says, “Basically everything is allowed apart from a select list of things that we ban.” At least ostensibly or theoretically, the Bill, as we see it, sets out a regime that will give us considerably more flexibility and room for manoeuvre in what we are able to do.

Some of the regimes that we are recipients of—the most beneficial for the UK steel sector—are around some of the subsidies and exemptions we receive on the costs of renewables and carbon taxes in relation to electricity prices. That is a really big issue for the steel sector. The UK steel sector pays between 80% and 100% more for its electricity than its counterparts in the EU. Those exemptions have reduced our electricity prices. There is a still a big gap, but they are really important to improving competitiveness in the UK.

The system in the EU has a very complicated, convoluted way of saying, “You can do this. If you introduce this scheme, you have to follow this rule. You can’t do this. This is the percentage that you are allowed to reward, etc. etc. etc.” Now the UK may choose to follow that, and it may not simplify the rules, but at least theoretically it can say, “I don’t have to follow any of your rules. I have a complete clean slate to redesign the process,” and award the compensation or the exemption in a targeted fashion that is most beneficial to the UK sector. Without giving too many other examples, although I have a long list if people want to hear them at a later date, the main benefit is that the framework is transparent.

The second element is the process for providing approvals if a local authority or national Government want to introduce a scheme. From our perspective, it is a lot more light touch and a lot more straightforward. There are a number of examples that we can give where the UK introduced or tried to introduce a system to benefit the steel industry. It was either blocked by the EU Commission or it said, “You need to go back and change this regulation.” You have actually got examples where state aid had been stuck in consideration or investigation for two years before eventually being given up on by member states. The process where you can actually approve schemes should be a significant benefit.

The final thing I would say before handing over to others on the panel is that that is all theoretical and I am sure questions will be posed at a later point. I think probably the biggest barrier to the use of state aid in the UK has not necessarily been the EU rules, although they have proven tricky at times. It has perhaps been a culture in the UK that says that state aid is not necessarily what we want and perhaps a last resort. The data bear that out; we tended to use about a third of the amount of state aid that Germany has and about half the amount that France has used. The proof of the pudding will be more in the answer to whether there is a different approach or a different cultural approach within the UK to wanting to use state aid.

Jonathan Branton: Shall I pick up? First, to talk about the opportunity, it is really important to set the context of the Bill in the fact that we already have a new regime away from the EU regime. The opportunity of the Bill is to take forward the regime that has come out of the trade and co-operation agreement, which is already in force and in use. The fundamental point is how the Bill takes that and improves upon it to help to pursue the UK’s interests in a safe and secure way.

The TCA has already diverged massively from the EU state aid regime and created a whole lot of flexibility and ability to do things at speed, which is supposedly what the UK is particularly interested to secure. In terms of the opportunity presented by the Bill, there is an opportunity to improve upon that framework to make it better fit for purpose to monitor and secure a subsidy-controlled platform in the UK in a way that preserves competition, but also enhances the ability of Government and various different public authorities up and down the land—I do not just mean central Government, but regional government and local government—to influence policy and to make active interventions in order to achieve positive outcomes. There is an enormous opportunity to do that better, but also a risk of compromising some of the freedoms and flexibilities that have been achieved by the TCA in the first place. It is important to put that in context.

In terms of transparency, that is one of the bedrocks of an effective regime if you look at it from the perspective of maintenance of competition and the ability of third parties to come forward and to be able to challenge that subsidies have been carried through in a clear and effective way, through sound decision-making and appropriate thought as per the commitments within the TCA to respect the common principles that have been set out.

For the level playing field to be preserved, if you like, it is vital that there is a remedy, an enforcement system. That system can only come out when there is public knowledge of what is going on. Such public knowledge is also generally seen to enhance decision making on account of the scrutiny that it necessarily brings to the process as a result. Primarily, the main point of the transparency is to enable people to come forward and say, “Okay, this particular subsidy has created a negative effect,” and make sure that that is scrutinised by a suitably empowered authority, in this case the national courts.

Transparency is super important to that process. What has happened already is that there are commitments to transparency via the TCA—those are minimum commitments that the UK has made—and they must be respected because they are international commitments. What has happened in practice, however, is that a national transparency register has been established, but when you look at that register and at the relevant rules around it, you do not see that it is functioning well.

A lot of the entries there at the moment look somewhat incomplete, and you will notice that lots of the entries have a zero for the amount of money that is committed, all of which leads to an inability for the market to be able to see what is actually going on. If you cannot see what is going on, you do not know what to challenge, or even if to challenge.

The other point about the transparency register is its brevity, frankly. Given how long the new regime has been in force, which is the best part of 10 months, and given the number of public authorities that are out there making interventions on this, that and the other form, it is clear that not everything that has been awarded in that 10 months is in that register—not by a long shot. Something is going awry in terms of the implementation of that particular transparency register.

[Seema Malhotra]

Q Specifically on what is in there—I am conscious of the time—are there recommendations you would make, based on that experience, around what may need to be tightened up within the Bill? That would be quite helpful, because there are questions about the de minimis threshold, about whether an entry should take six months, and about how long things should be open to challenge.

Jonathan Branton: On the challenge point, I think one month is too short, because that requires people to be extremely alert about checking things. The database is not readily searchable. It does not send prompts when particular information is put on at a sectoral level. If you were keeping an eye on it, you would have to be checking it every other day to see that something was coming forward about which you were concerned.

In terms of searching for amounts and dates on which things have been recorded, all that is not regulated. What we really need—I will hand over to Alex in a second as I know he has strong views on this—is something that sets out in very clear detail exactly what needs to come in on every entry. Then, in practice, when you actually come to making those entries, it must require you to put in the correct answers to those questions in order for the entry to go live on the website. If that does not happen, you should get pushed back. That is clearly not working well enough.

Alexander Rose: As Jonathan says, essentially, the key piece of information on that website is the date the entry is made, and the reason that is so important is that the challenger has as little as a month to challenge once that information is placed on the website. To put some numbers on what Jonathan said, first and foremost there are only 501 entries. There are a lot of subsidies, so there is no way that only 501 subsidies have been awarded since 11 pm, 31 December 2020.

Secondly, of those 501, some 257 are recorded as having a zero or nil value. In order to bring a digital review—

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

Q How many, sorry?

Alexander Rose: Two hundred and fifty seven out of 501. In order to bring a digital review challenge, you are probably going to have to spend between £25,000 and £40,000, so if you are seeing a nil value, you are very unlikely to bring a claim.

Some of those are going to be schemes, and I will bring out some of the schemes on that website at the moment. SC10261, the Tees Valley Capital Grant Scheme, is listed as having been posted on the website on 1 April 2020, but the website did not exist on 1 April 2020. SC10388 is a real estate grant of £675,000 in Girton in Cambridgeshire—I picked this one because it is the last—and that one does not have a date at all. There is no way that somebody wanting to challenge would be able to know that date unless, as I have personally done, they have been saving the spreadsheets and comparing them.

Now, essentially, what we have here, therefore, is a mousetrap that is lacking a spring. Unfortunately, the Bill does not fix that. The way to fix it is at clause 32, which relates to the database, and it must expressly say that there needs to be two things. First and foremost, that information has to be included—the date it is actually entered and/or modified. Secondly, I think you need to end up having a search function that gives you three pieces of information. You need to have the date an entry was entered or modified; the name of the funder, because that is currently not searchable; and the name of the beneficiary, which is on there at the moment. Those are the three key pieces of information. The other element is, in order to capture that scenario where people simply are not putting into the database, you need to have some sanction if you fail to put it on.

The other issue that needs to be considered is that, at the moment, you have up to six months to put that information on the database. A large enough subsidy could make a business insolvent within that six months, so it feels to me that the period needs to be shorter. Likewise, the period to challenge needs to be longer. There is no obvious reason for having a shorter period for what is rightly described as the most important piece of post-Brexit legislation than for a planning permission judicial review. It should be longer. The next point is that there should be some level of sanction if that information is not put online. For example, maybe a sensible level would be the challenge period is extended to six months.

Jonathan Branton: The challenge period is not validly started if the right information is not put online. That is one way of looking at it. If it is not validly started, it never ends.

--- Later in debate ---

[The Chair]

Thank you. I will move to Seema Malhotra, please.

[Seema Malhotra]

Q Thank you, Mr Greenberg, for coming to give evidence. We have had some representations to suggest that there could be an incompatibility between, for example, the economic competence of devolved Administrations and the way in which the Bill’s regime is set out. What is your view of the schedules, the interpretation of economic competence and, in schedule 3 I think, the application of principles and the definitions of what is included in primary legislation—which can obviously be more than Westminster—in relation to devolved Administrations and the Bill?

Daniel Greenberg: Thank you. Chair, would it be convenient if I answered that question by contextualising it in the overall structure of the Bill and said a few words about how devolution appears in the Bill not on the surface, but underneath it, and requires to be brought in in relation to the principles mentioned?

[The Chair]

I think that would be very helpful, thank you.

Daniel Greenberg: Where I would like to start is to look at the shape of the Bill by reference to the concept of subsidy as set out in the Bill. I hope that the Member who asked me the question forgives me: this is an answer to your question. It will be slightly long, but I am hoping that at the end I will have answered most of the questions on devolution that Members have.

To take you back to what a subsidy is, we can see in clause 2 that the focus of the Bill is inevitably on things that affect the United Kingdom as a whole, or things that go on within the United Kingdom between the different components and parts of the United Kingdom. If we look at subsection (1)(d)—page 2, lines 16 to 21 —it explains a lot about the shape of everything that follows in the Bill.

I keep mentioning “shape”, because I want the Committee to understand that the Bill inevitably reflects macroeconomic policy. That is what it is there to do. Inevitably, there will be lots of connections, co-ordination, consultation and interaction of lots of different kinds—I will come back to some specifics soon—under the surface of the Bill. It may be that the question I have just been asked and other questions on devolution arise because, on its surface, the Bill is arguably a little short on explanation of some of the systems and mechanisms that will inevitably be required to go on underneath the surface in order to reflect the economic competencies of the devolved Administrations and the devolved legislatures.

To put it in a nutshell, everything that is required by way of accommodating, reflecting and understanding those devolved competences and powers is capable of taking place with the shape of the Bill as it is now, but it perhaps needs to be brought out more, either on the face of the Bill or in the explanatory materials.

Chair, I hope I am not yet trespassing on your patience. Am I still close enough to the question to be allowed to continue?

[The Chair]

indicated assent.

Daniel Greenberg: I mention explanatory materials because I expect that as well as the principles in schedule 3, you may want to ask me about the relationship between the United Kingdom Internal Market Act and this Bill, and indeed the relationship between this Bill and the Northern Ireland protocol, all of which are key devolution areas. It is arguably surprising that the relationship between the Bill and the internal market Act is not addressed more expressly on the face of the Bill, but whether or not it is addressed expressly, the shape of the Bill allows it to be accommodated. I do not know whether as a Committee, as you move forward, the interplay between the sides will encourage the Government to put more of this on the face of the Bill, but what I do think is that all members of the Committee may consider whether the explanatory notes could helpfully be enlarged to explain how these different mechanisms fit together.

Coming back to the specifics of the question, because the shape of the Bill is about subsidy that is macroeconomic, it has to focus on international obligations, and international obligations are obligations of Her Majesty’s Government. That brings us to the next point: throughout the Bill, you see “Secretary of State, Secretary of State, Secretary of State”—all powers of HMG—and you think, “Hold on, the devolved institutions are also public authorities. They appear in the list of public authorities in clause 6, so why is it that they do not also share Secretary of State powers?” The answer is very simple: when you are dealing with international obligations of the UK, that has to be dealt with by central Government but, again, doesn’t that have to be done in consultation with the devolved Administrations? Of course it does. With co-ordination with the devolved Administrations? Of course it does. With mechanisms for encoding that co-ordination and consultation into the way the Bill operates? Of course.

At the moment, I am absolutely sure that the Government intend that to work under the Bill, and it can work under the Bill. Whether that could be shown more on the surface of the Bill or in the explanatory notes is a matter for the Committee. Does that help at all?

[Seema Malhotra]

Q Yes, that is very helpful. Just coming back to the specific point that we have heard from the Welsh Government about whether there can be interference with the economic competence that the Welsh Government have—that is one example—is your view that it need not be incompatible, but that needs to be made clearer?

Daniel Greenberg: The extent to which it needs to be made clearer is obviously for the Committee as it proceeds through the Bill. That is why I specifically mention explanatory material, because I would remind the Committee that it is so much easier to have things made clear in explanatory notes, explanatory memorandums, memorandums of understanding, quasi-legislation generally and explanatory material than it is to secure an amendment to the shape of the Bill, particularly because the simple answer to the question you were implying—“Could these powers be used to interfere with devolved autonomy?”—is “Of course they could. No question.” The question for you, therefore, is “Are there mechanisms by which they will not be used to do that?” Clearly, this sits alongside the United Kingdom Internal Market Act. It does not repeal that Act. It sits alongside the Northern Ireland protocol. Clearly, the Government expects and intends for them to operate in unison. The question for you is: can that dovetailing be addressed more expressly?

[Seema Malhotra]

I had a question about the Northern Ireland protocol, but I am conscious of the time.

[The Chair]

I will bring in Kirsty Blackman and come back to you if there is time.

--- Later in debate ---

[The Chair]

Thank you. Seema Malhotra, did you want to come back in?

[Seema Malhotra]

Q I did. You referred to one of the contextual pieces of legislation. There is the Northern Ireland protocol as well. There has been some debate about whether the Bill is compatible and whether there could be legal challenges to subsidies, particularly in Northern Ireland, and whether that could have an impact on subsidy schemes that are UK wide. I would be grateful for your interpretation of the legal framework on that.

Daniel Greenberg: You are not asking me for a compatibility opinion, and I would not give you one, but I will draw your attention and the attention of the Committee to a point for your consideration as you go forward, which is to be sure that you understand the focal points of the protocol in relation to this Bill.

Primarily, we have to have regard to article 6 of the protocol and remind ourselves that the protocol is designed to ensure that it does not prevent market access within the UK and that the international requirements and commitments are protected. One of the issues about article 6 is that it does have the kind of mechanism that we were discussing before, because the protocol has of course the Joint Committee, which is going to be very significant.

So you start off by looking at article 6. You ask yourself, “Will those protections be consistent with this Bill, and how will the Joint Committee be capable of applying its mechanisms in a way that join up with the mechanisms that you develop in relation to the Bill?”

Then we move to article 10, which in substantive terms is the key article for you, because it deals with state aid. The question to ask in relation to compatibility is this: is there anything in the Bill that insists upon a measure, in respect of measures that affect trade between Northern Ireland and the Union, that being the test in article 10? As I have already said—I am perhaps slightly risking something close to an opinion here—I do not see anything, because the mechanisms of the Bill are deliberately so wide.

Perhaps it is helpful to say that we often have this in law. You look at something and you say, “Hold on—the Minister could exercise that in a way that is incompatible with human rights and the protocol.” That does not matter—that is not the question. The question is, “Would the Minister be obliged to exercise it in a way that is incompatible?” If the Minister would not be obliged to exercise it in a way that is incompatible, then in itself it is not incompatible, and your next question is, “Do we have mechanisms built in to make sure that the powers are only exercised in the way that is compatible?” That is article 10.

Finally, on the article 16 safeguards and the exception, which was of considerable controversy earlier on this year, that looks at economic, societal or environmental difficulties that are liable to persist and allows unilateral action as safeguarding measures in relation to those difficulties. I think you will want to ask yourselves, not is this compatible—it clearly is—but how continued compatibility would be assured in a case where the article 16 safeguards were being invoked. For me, that is the more interesting question for you.

[The Chair]

Thank you very much for your contribution, Mr Greenberg. That brings us to the end of the session.

Examination of Witness

Rachel Merelie gave evidence.

[The Chair]

Q We now hear from Rachel Merelie, senior director for the Office for the Internal Market at the Competition and Markets Authority, who is appearing virtually. We have until half-past four for this session. Could the witness please introduce herself and give a few short opening remarks?

Rachel Merelie: Thank you for the opportunity to appear in front of this panel. As you say, I am the senior director for the Office for the Internal Market at the Competition and Markets Authority, but perhaps more relevant for you today is that I am the senior responsible officer for the project to set up the subsidy advice unit, should the Bill make its way through Parliament in its current form.

I want to make a couple of opening remarks. Obviously, we will operate within the framework set by the Government and by Parliament. The role that we have been given is an advisory one. I know that Members understand that, but it is really important and relevant to us. We have two particular roles to fulfil. One relates to the review function. We will have a very targeted review of the most complex and potentially distortive subsidies that we are asked to look at. The second is a more general and wider monitoring function. We will look at the way in which the regime is operating on a five-yearly basis, so that will enable us to look more generally at the subsidy control regime.

My second point is that in order to fulfil our functions we need to ensure that we have access to the appropriate information. We will have information-gathering powers in relation to the wider monitoring function, and we believe that with appropriate definition of the information to be supplied by the public authorities we should have the appropriate information to undertake our review functions. Should our role change, we would want to ensure that we had the appropriate powers.

[Seema Malhotra]

Q Thank you for giving evidence today. May I ask a couple of questions on the CMA’s current powers, and whether there is arguably a case for some extension of them? In relation to the CMA not having the power to instigate a report or investigation by its own initiative, would there be circumstances in which you could see it as beneficial for the CMA to proactively undertake an investigation? For example, something may not be explicitly described as a subsidy by a public authority but seems to have the same effect and is therefore potentially in question. Secondly, what is your assessment of the additional resource and capacity that the CMA will need to fulfil its obligations under the new regime, and do you have any concerns on that?

Rachel Merelie: As you know, that wider role is not what is currently envisaged. Under the current proposals, we can look only at the subsidies of interest and subsidies of particular interest that are referred to us, although as I mentioned in my opening remarks we have a wider monitoring role, which will allow us to take a broader view on the regime as a whole. We can, of course, also look at subsidies that are called in by the Secretary of State, so that might to some extent help to address the question of subsidies that we might want to look at, as you referred to.

Were we take on a broader role, looking at things under our own initiative, as you were discussing, we would have to really understand the implications of that in terms of resources, as you mentioned, and the powers that we have. Ultimately, of course, it is not really for us to decide. It will be for Government and Parliament to decide whether that is a role that you want to give us. I think that was your first point. Could you remind me what the second point was?

[Seema Malhotra]

It was about whether there is sufficient resourcing.

Rachel Merelie: Yes, of course. We have been given money in the 2021-22 settlement to take on a number of new functions. Previous witnesses referred to the fact that the CMA has three new functions that we are currently setting up. We have the Office for the Internal Market, the Digital Markets Unit, and potentially the subsidy advice unit. We were given a sum of money in the 2021-22 settlement to start to staff up and resource all three of those functions. We now have a bid in for the spending review for the next three years, and we should hear more about that formally tomorrow.

[Seema Malhotra]

Q To follow up, in relation to the internal market and the digital services market, is their membership drawn in the same way, solely from within the CMA? Do you have the option of involving external experts to fill any gaps? I have a slightly different question: when you talk about the access to information that you might need, are there sufficient mechanisms to ensure the accuracy of information posted on the database? Do you have views about what information needs to be on the database? Should there be an auditing process, whether random or otherwise, to ensure the accuracy of the information that is being put there?

Rachel Merelie: Perhaps I will start with the second question. The database is being set up by the Department for Business, Energy and Industrial Strategy and it is not something that the CMA or the subsidy advice unit will be operating—at least at the moment there is no intention for that to be the case. Our focus will be on those very specific, more complex subsidies—the subsidies of interest and of particular interest—rather than the wider set of subsidies that are contained on the database, although you are right that we will want to look more broadly when we undertake our monitoring role. Because we have the information gathering powers we have been given for that, I think we will be able to gather relevant information when we need to, to get a wider understanding of the subsidies that have been awarded.

Your first question was around governance and the way in which the Office for the Internal Market and the subsidy advice unit had been set up. You are right that they are slightly different, in the sense that the Office for the Internal Market has a chair and a panel that are in the process of being appointed by BEIS. There is an opportunity for the devolved Administrations to offer their views on the appointments of the chair and the panel members. That is entirely appropriate; we are talking about a function that is inherently involved in understanding the trade and relationships between the four nations.

For the subsidy advice unit, what is currently envisaged is a sub-committee of the board, so we would have the opportunity to draw on board members, non-execs, panel members and others, as well as the staff from around the four nations. It is important to emphasise that the CMA does have staff in all four nations, and a growing presence across the UK. We think that is incredibly important to be able to run the subsidy advice unit properly.

[Seema Malhotra]

Q May I come back on two brief points? There is not a requirement to have representation from all four nations, as far as I understand. That seems to be slightly at odds with the UKIM set-up, which has been a cause of concern for what needs to have a four-nations approach and buy-in. Would it be a concern to you if there was that requirement in the Bill? Secondly, the question I do not think I heard an answer to was, where should there be a function for either audit or checking of the accuracy of information put on the subsidy database? Would that need to be within BEIS rather than the CMA?

Rachel Merelie: Perhaps, again, I will pick up on the second one first. Yes, at the moment, given that the database sits within BEIS, it would be most appropriate for that sort of checking function to be part of its remit. Obviously, if it were decided for that database to sit with the CMA, we would need to have the requisite resources and powers associated with it.

On representation from all four nations, as you say, there is currently no formal requirement in the Bill. The CMA, as I said, is a pan-UK body. It does have good relationships across all four nations, and is very used to working with them. We are not the policy makers here—that is important to underline—we take on board and do our best to implement the policy set by the Government and by Parliament.

[Kevin Hollinrake]

Q If you have a monitoring requirement, you would think the obvious place for you to go to look at would be the database, yet we heard evidence earlier that fewer than half the entries on that database even have a figure for how much subsidy has been allocated. Is that not a concern to you, because how else will you gather the information other than looking at the database?

Rachel Merelie: That is a very good question. I think we will need to understand how that database is operating, and I am sure you are right; that will be one of the ways in which we will gather information. We may also be going directly to public authorities to ask them questions. I guess we would also be doing some market analysis, some desktop analysis, and so on, of how the subsidy regime is operating more widely. I think there will be a number of different ways in which we gather information, but you are absolutely right—the database will be an important part of that.

--- Later in debate ---

[Kevin Hollinrake]

Q I realise that your primary focus is going to be very large schemes—not hundreds of thousands of pounds, but millions of pounds. Nevertheless, somebody has to monitor the smaller stuff as well to make sure that people are not abusing the system. I do not see how anybody can monitor that. To monitor that, you would have to monitor every local authority in the country and stitch all their contributions together against a certain entity.

Rachel Merelie: In the way the Bill is currently set up, that wider monitoring on a day-to-day basis is not something that we will be involved in.

[Seema Malhotra]

Q I want to come back on a couple of points. This is in relation to helping make sure that there is a regime that commands confidence and provides the information to public authorities, which are engaging with some of this activity for the first time. To what extent do you think more needs to be done to engage with public bodies and prepare them to be able to grant subsidies effectively and efficiently to enterprises under the regime? It is likely that a lot of that burden could end up with public bodies approaching the subsidy advice unit. Are you factoring that in to how you see the unit working, or do you think that some of that needs to be done elsewhere?

Rachel Merelie: That is a very good question. I am sure that you are right—there will be quite a process to educate and support the public authorities as they embrace the new regime. I think that a lot of this will come from central Government and the guidance that they will publish. The subsidy advice unit, I suspect, will need to flesh out that guidance with respect to the very large subsidies and the information that we will need to carry out our assessment. We are keen to work with public authorities to make sure that they understand what will be required. Yes, we are aware of the need to do that guidance, which is one reason why, I suspect, it will take a little time between Royal Assent and the commencement of the Act, as there will be a need to get that guidance and detail out there and give confidence to those who want to operate under the regime to do so.

[Seema Malhotra]

Q Would you see that being done in a slightly more structured way through the guidance? Otherwise, the likelihood is that you will have a lot of approaches and potentially more voluntary referrals than you might expect, because the earlier information, advice and guidance is not helping to address some of the questions. Public bodies will engage with this—local authorities in particular give rise to concern—and will be doing this for the first time.

Rachel Merelie: I think the guidance will be incredibly important. Doubtless, there will need to be a series of roundtables and communication with public bodies to ensure that there is as good an understanding as there can be. The other point to emphasise is that this is going to be a bit of a learning experience for everyone in the first days of the operation of the new regime. We cannot expect it all to work entirely smoothly from day one, although we will do our very best to make that happen. There will be a need as time goes on to adjust, to iterate and to develop our processes.

[Seema Malhotra]

Q On fast-cycle learning and the effectiveness of the scheme, do you think that there are merits in the five-year report being produced to a shorter timetable, with greater frequency—for example, three years? You may have a view on that—I am just raising it as an issue. Five years seems a long time, particularly with a new regime, in which to look at how well it is working.

Rachel Merelie: Yes, I can see that as a question. At the moment, the Bill allows for the Secretary of State to ask for advice more frequently or when required. There may be an argument that says that we will provide some advice on a shorter timescale than five years, with the set point being the five-year report. Again, that is a question that we are entirely open to discussing further.

[Seema Malhotra]

Q I am conscious that we have only two minutes so, while I can, I will ask whether you have concerns about your ability to scrutinise subsidy schemes if subsidies under those schemes are less likely potentially to be on the database. Do you have concerns about the transparency of subsidy schemes from the perspective of any single role?

Rachel Merelie: I think that this is an area where quite a lot more work needs to be done to understand the relationship between the subsidy schemes, the individual subsidies and the information that we will have to analyse. I do not have concerns at the moment, but that is partly because this is a pretty early stage in articulating how that will work.

[The Chair]

Thank you, Ms Merelie, for your evidence this afternoon. That was beautifully timed, and we will now move on to the final panel.

Examination of Witness

Ivan McKee gave evidence.

[The Chair]

We are going to hear from Ivan McKee, the Scottish Government Minister for Business, Trade, Tourism and Enterprise, who is appearing virtually. We have until 5 pm for this session. Would the witness introduce himself for the record and give us a few opening comments?

Ivan McKee: Thank you very much, Ms Nokes. Thank you for the opportunity to set out the views of Scottish Ministers on the proposed legislation. For the record, my name is Ivan McKee. I am the Scottish Minister for Business, Trade, Tourism and Enterprise.

I look forward to taking questions, but would like to briefly outline a few concerns that the Scottish Government have about the Bill. The first is the sweeping powers of the Secretary of State, which ignore the devolution settlement and do not grant the equivalent powers to Scottish Government and other devolved Administration Ministers. The second concern is the absence of formal regulatory and enforcement arrangements. The third is the inclusion of agriculture and forestry in the provision. Those are our main concerns, but I am happy to take questions from members of the Committee.

[Seema Malhotra]

Q Thank you very much, Mr McKee, for giving evidence to our Committee today. First, what is your overall view of the regime? Do you see any advantages in moving away from the way the EU state aid regime operates? Could there be more freedoms for devolved Administrations?

Secondly, what do you see as the impact of moving away from more formal assisted areas on the ability of the Scottish Government to support more deprived regions? Would you say that there could be flexibility in the Bill to enable you to make those decisions as you might wish, in line with Scottish Government objectives?

Ivan McKee: First, for the record, it is well known but it is worth stating that leaving the European Union was a mistake and we look forward to the day, hopefully in the not-too-distant future, when we can rejoin the European Union and all the advantages that it gave to Scotland and, frankly, the rest of the UK.

As for the specifics of the Bill, given that we are where we are, we recognise the need for a Bill, notwithstanding the concerns I have raised already. Many of the specifics have still to be nailed down. As we see the final shape of it emerge, we will comment on the specifics.

As for being able to support different parts of Scotland, given that we have responsibility for economic development in Scotland, clearly we are keen to be able to do that. The EU rules obviously allowed different parts of Scotland to be treated differently depending on the circumstances and allowed us to make decisions on how we saw fit to spend money and take action within those rules. It was a slightly different system, but we do not see any specific advantages to the current proposals in this Bill.

[Seema Malhotra]

Q Thank you very much for those answers. As you will be aware, concerns have been raised that the role, voice and powers of the devolved Administrations within the regime may not be strong enough, particularly for a four-nations approach. It has been suggested that that should be addressed and the Bill strengthened. Are there specific areas that you would say need to be strengthened?

Ivan McKee: A four-nations approach clearly has to take recognition of areas of devolved responsibility, be that for agriculture, forestry, fisheries, environment, economic development and so on. A range of areas on which the Bill impinges are devolved under the settlement. So clearly that is a concern.

I suppose another concern about the Bill’s general operation is the lack of the option, or requirement, under the EU regime for pre-notification or advance approval. In advance of an award or a subsidy being made, that gave certainty that it was aligned with the rules in place. The absence of that in this Bill creates a great deal of uncertainty as to what is allowable and what is not in advance of any subsidy decisions being made.

[Robin Millar (Aberconwy) (Con)]

Q It is a pleasure to be here with you in the Chair, Ms Nokes.

Welcome to this Committee of the UK Government, Mr McKee. We are discussing a UK Government instrument and within that there are provisions made for the role of the devolved Administrations. Clause 10 gives the devolved Administrations scope to set their own scheme of subsidies. Is that your understanding? Do you feel that that provides the Scottish Government with the powers to do what they need to do?

Ivan McKee: No, because the Secretary of State has powers over devolved areas that Scottish Government Ministers do not have, and that impinges on the devolution settlement. That settlement is quite clear on areas that are reserved and devolved, and it is the Scottish Government and Scottish Ministers who have the power to act and operate in those devolved areas. The Bill gives those powers to the Secretary of State and the UK Government, but it does not give equivalent powers to Scottish Government Ministers to operate likewise in devolved areas.

--- Later in debate ---

[Kevin Hollinrake]

It was my point, though. Thank you.

[Seema Malhotra]

Q We had some discussion about clause 70(7)(a), and there is some point of clarification about the definition of “interested party”, which I do not think is fully clear in relation to the devolved Administrations, but either we agree on the need for the Bill to be taken forward, I hope with some significant improvements, or there is a view that that cannot be achieved. I want to come back on a couple of points that you made, Mr McKee, that I was not fully clear on. The first is on being prepared to be involved in discussions, the question being what outcomes would be achieved. Do you feel clear at the moment on what specific changes, whether in relation to call-in powers, an obligation to consult or consent, you would want to see inserted in the Bill to meet some of those concerns? It would be very helpful to understand specifically what they were. Perhaps that could be in writing afterwards.

Secondly, I was not fully clear on what your view was in relation to local authorities. It seemed that it was more for the Scottish Parliament to decide what local authorities in Scotland may or may not do, rather than local authorities across the UK being able to make subsidies if they felt that they were in line with the subsidy control principles, and beneficial for their area. I was slightly confused on what your view was about local authorities being able to make subsidy decisions in Scotland. Perhaps you could come back on both those points, and put in writing what specific changes you want to see.

Ivan McKee: On the specifics of what our asks would be, I am very happy to put that in writing. In broad terms, it centres around, as I said, the requirement to not have the Secretary of State able to operate in devolved areas, as per the devolved settlement, and for the Scottish Government and Scottish Ministers to be able to do that. For us to have equivalent powers as it refers to devolved areas would be the ask, in broad terms. I have outlined some of that verbally, but I am very happy to come back to the Committee in writing with the details on specifically what that means.

Local authorities have always been able to grant aid within the rules that exist, so effectively nothing changes there. What changes with regard to the Bill is the authority that it gives the Secretary of State that it does not give in devolved areas to Ministers in the devolved Administrations. That is our concern.

[Kirsty Blackman]

Q Nice to see you, Ivan. My question is about the priorities and the fact that we are being asked to take on trust an awful lot of the stuff that is coming forward in regulation and guidance. Given the current track record of the UK Government and their relationship with Scotland, trampling over the Scottish Parliament, do you think that it is likely that the regulations and guidance that come through will be in any way suitable or tailored to the needs of Scotland, or do you think that they are likely to be done for the benefit of the UK?

Ivan McKee: Experience has shown us over recent years that the commodity of trust is in short supply. We would be very concerned if the issues that we are talking about were not dealt with in the Bill. I think we would be in a very difficult place if we were relying on guidance that might come out later to give us the comfort that we require that this was not a challenge to the devolution settlement, and the powers of the Scottish Government and Scottish Ministers.

Subsidy Control Bill (First sitting)

Seema Malhotra Excerpts

Tuesday 26th October 2021 Public Bill Committees

[The Chair]

Thank you. Professor Fothergill, you have one minute for a brief statement, because time is very limited.

Professor Fothergill: I will do my best. There are two points I want to make by way of introduction. First, we need subsidy control. Subsidies can be expensive and they can be distortive, but they can also deliver valuable objectives—things like regional development, the green agenda and so on—so we do need rules.

The second point I would like to make—this is the big concern I want to air in front of the Committee as we proceed—is about the relationship between the Bill and the levelling-up agenda. The Subsidy Control Bill is potentially a very useful tool in delivering the levelling-up agenda, but at the moment the details are very thin. In particular, there is an absence of an assisted area map, and no commitment to developing one. That would be extremely helpful in promoting growth in the less-prosperous local economies of the United Kingdom.

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

Q Thank you, Professor Forthergill, for joining us today. I have two brief questions on your comments about the interface between the Bill and the levelling-up agenda. First, what more needs to be done to the Bill to strengthen the involvement and the achievement of the levelling-up agenda in relation to targets and policy? Should there be reporting on that? Should the Competition and Markets Authority’s report consider the geographical distribution of subsidies, for example?

Secondly, do you think that the UK Government and the devolved Administrations will have a common way of delivering policy goals under the subsidy control principle—on market failure and equity rationales, for example? How might that be interpreted by different levels of government? Does more need to be done for a stronger relationship between Westminster and the devolved Administrations and local government on the implementation of the measures?

Professor Fothergill: Okay—there is quite a lot in that. Let me clarify the point I was trying to make about how an assisted area map would strengthen the levelling-up agenda, and how it might be incorporated into the legislation.

An assisted area map would define the areas where you could give additional subsidies to firms to promote investment, to bring in businesses from abroad, and to strengthen existing businesses in the locality, for example. We had an assisted area map under the old EU state aid rules, but let me be quite clear: the whole idea of an assisted area map was not something that was imposed on the UK from Brussels; we had an assisted area map in the UK long before Britain even joined the EU. There were maps back in the ’60s and early ’70s defining the areas where it was legitimate to give additional aid to businesses to promote new jobs or protect existing ones.

I do not think we need some after the event audit of how the geography of subsidies has worked out. What we need, in advance, are some clear criteria defining the places where enhanced subsidies can be given. That sends an important signal to businesses in particular that if they were interested in investing in one of the less-prosperous parts of the UK, they might be able to draw down significant financial assistance. At the moment, the legislation does not rule out an assisted area map, but equally, it does not rule one in. I have to say, with due respect to the Minister, that that leaves a huge amount of discretion in the hands of the ministerial team. In the absence of any commitment in the legislation to defining how an assisted area map should be drawn up, I think it is perhaps taking the whole issue away from the scrutiny of Parliament. That is how the legislation should be strengthened on that point.

On the question of the relationship between the UK Government and the devolved Administrations, it is perhaps fair and reasonable that the whole of the UK operates under broadly the same rules, but there is then a subsidiary issue of whether the different tiers of government in the UK actually take advantage of those rules. That has always been the case. It was the case under the old EU state aid rules; we had rules about what you could and could not do, but the different parts of the United Kingdom put larger or smaller amounts of funding into different schemes to support businesses. As long as that was all within the rules, that was okay. In terms of the detailed implementation of the legislation, and I think a lot of the real operation of this legislation does depend on the details—the devil is in the details—then, clearly, it would be good to have that meaningful dialogue between Westminster and the devolved Administrations, even if we are, at the end of the day, working within a single set of rules for the whole United Kingdom.

[The Chair]

Q Thank you. Dr Serafin, would you wish to comment?

Dr Pazos-Vidal: Yes. I could only agree, in general terms, with what has been said already. I will take the questions in order. Quite clearly, there is an expectation from local authorities that there is a specific targeting of given areas, because that will provide legal certainty for public authorities, but also for economic operators, about whether the subsidies can or cannot be applied. That makes sense, and it is clearly a message that comes from many councils across Scotland, particularly from those that have benefited from assisted area status. It is worth recalling, in the case of Scotland for instance, that the regional selective assistance scheme has been running for many years, awarding around £20 million through 60 or so awards a year. That is something that local authorities want to retain, but the same could be applied to colleagues from the rest of the UK.

Quite clearly, as has been mentioned, the Bill does not say one thing or the other. The supporting documents do say, more or less, that there might be some guidelines or guidance on the special targeting of assisted areas, which, as has been mentioned, has been a feature of the UK policy toolbox since the 1930s. The Bill could, for instance, define what an assisted area is. That would be encouraged, and there would be limited discretion on that for whoever the Minister might be in however many years’ time.

That would be helpful, but it is also important to distinguish that having assisted areas does not mean having European-style assisted areas. After all, the geographies that we have seen in the assisted area maps so far have been developed by Eurostat, according to —I would say—very technocratic approaches that did not fit the geographies of the UK. It created a certain degree of lineation by imposing certain geographies that are not recognisable in the UK, so we should not necessarily look at just having the old maps.

The good thing however, is that the UK, and Scotland, and different parts of the UK, are very privileged in the amount of data that is available at a very local level—sub-municipal level, sub-local level, ward and street level—which will allow the granularity that we perhaps did not have under the EU system. Now that we are moving to creating a home-grown system of assisted areas, that could be very much put to use, in a way that has perhaps not been used at the same level during the time of EU membership.

We should not underestimate the importance for this Bill of the participation of the devolved Administrations, and also local government. After all, we are talking about policy choices, not competition policies. It is about policy outcome and political rationale, and we have a very divided system of Governments, which is asymmetric in certain respects. If a decision is just taken by a Minister, or a Minister just issues guidance, as set out in clause 79, that will not work.

We should not underestimate the constitutional impact that the United Kingdom Internal Market Act 2020 had on the territorial constitution and the governmental relations of the UK. That needs to be addressed—one issue with the Act is subsidy control—by taking a more inclusive approach in terms of how rules are made, even if the Minister has to say at the end, “We need to have a system of engagement and consultation.”

In my view, that should also be specifically incentivised, mentioned and encouraged in the Bill itself, so that it is not a question of the Government of the day just deciding to engage or not to engage. This is quite important—it is part of the role of intergovernmental relations. I should also say that, in a statement to this House in March 2018, the UK Government committed to engage with local government when designing the new rules. That is actually one of the ways of honouring the Government commitment.

[Seema Malhotra]

Q May I follow up on how the guidance should be developed more inclusively? Where in the Bill are there gaps relating to the involvement of the devolved Administrations? Is it in the development of the guidance? Are there powers for the Secretary of State that the devolved Administrations do not have, such as the ability to call in and make challenges? I would be very grateful for your view on that.

Dr Pazos-Vidal: You are absolutely right. Ideally, the Bill should be the framework of how this engagement should be done. Under clause 79, the Secretary of State should consult anybody whom they consider it appropriate to consult before issuing statutory guidance. In our view, that is too general and not reflective of the territorial constitution of the UK as it stands. There should be a provision that the Secretary of State must consult the devolved Administrations in a dedicated system that should also involve local law. There should be a duty to make sure that different parts of the UK have full ownership of the final outcome—it is true that the Secretary of State will issue the guidance—but also the intelligence and the local know-how about these ideas. It is very easy to see things in a certain way in Westminster, but when you are in different parts of the UK, they do not look like that.

On the call-in powers, it is true that UK Ministers have responsibilities only for England on some issues, whereas other Ministers across the UK have responsibilities on the same issue in other parts of the UK. It makes sense that whenever the competent authority is in a devolved part of the UK, the same consultation mechanism should be provided, mutatis mutandis, before the Secretary of State decides to call in a subsidy. That seems to be quite inclusive. I have to say that the intergovernmental review, which was updated in March this year, tends to go in the other direction, but as the supporting document suggests, we cannot wait for the intergovernmental review to happen, because it will take its time.

Subsidy control is potentially a sensitive constitutional and political issue. We are already introducing provisions to make sure that the mechanism of consultation happens. It is quite consistent with the direction of travel in which we should be going. As I say, the intergovernmental review really goes in that direction, but that is a wider piece of work, and I think we should introduce those social provisions in the Bill.

Likewise, because the Government committed to a consultation mechanism with local government a couple of years ago, there should be some provisions for that. That is what we had when the European Commission used to draft the guidelines. The member states had a special legislative committee, and there were specific procedures for local government. There was even a statutory procedure through the European Committee of the Regions. There was a whole infrastructure to help the Commission design the rules. We do not have to replicate exactly the same things, but at the very least we should have the same level of ownership as we had during our EU membership—or more. That is only right and proper if we are to ensure that the system works in the long term.

Equally, the new subsidy control unit in the CMA could benefit from the work of the devolved state aid units, which are not mentioned in the Bill or the supporting documents, but naturally these teams have a lot of experience working with local authorities, sorting out the practicalities of how to assign a subsidy. It would be a shame if all this knowledge was not properly used to design the system and rules that will emerge from the Bill.

Professor Fothergill: May I amplify my remarks on the consultation and the involvement of the devolved Administrations? The crucial thing is to include a commitment to consultation and to their involvement in the drawing up of the detailed guidance, because the guidance really matters. Let me illustrate how this might work in the context of an assisted area map, if we are to have such a map; I know from personal involvement that an assisted area map has been drawn up the last three times round, and a full consultation process has been undertaken. Indeed, there was a two-stage consultation process, in which the principles underlining the map were out for consultation first, because the map was largely drawn here in the UK, though parts of it were set by Europe, and then the draft map went out to consultation.

I am also aware that the devolved Administrations largely drove the detailed drawing of that assisted area map within their own patch. There needs to be a commitment to undertake a similar sort of procedure.

[Bill Esterson (Sefton Central) (Lab)]

Q Good morning, Dr Pazos-Vidal and Professor Fothergill. You have talked a lot about the assisted area map, Professor, and I certainly take your points about its history and benefits, not least as an MP from Merseyside, which has benefited enormously from state aid over many years. However, there are some criticisms of the way that assisted area maps interact with area boundaries. For example, there are cases where an area that needs investment and support is inside the assisted area, yet the businesses that could deliver that support are outside. Could you say a bit about what the counter-argument is, and what the answer to those sorts of boundary issues might be? I suspect that may be part of our deliberations.

Professor Fothergill: I think that we can draw a map better this time if it is simply drawn here in the UK. Last time, the way that the system worked was that certain areas under EU rules automatically qualified for assistance, such as west Wales and the valleys, the highlands and islands, and Cornwall. There was also a particular deal over Northern Ireland, which meant that the whole of Northern Ireland automatically qualified. The rest of the map beyond those limited areas was drawn within the UK, but it was drawn within an overall population envelope, in terms of population coverage, that was set by Brussels, so it was a question of, “We have so much coverage to allocate. Where do we allocate it?”.

The Government went through a very difficult procedure to try to target the areas that were most in need, as well as places within or close to those areas where there were genuine opportunities to promote jobs and support businesses. In a sense, it is no good putting a line around a residential area and saying, “That is eligible for business support”, because there are not businesses in most residential areas; it is the big areas of trading estates and so on that need to be targeted.

Obviously, within a fixed population envelope, not everywhere that perhaps deserved coverage was able to get coverage. If we are drawing a map here in the United Kingdom under our own rules, we can increase the population coverage of that assisted area map to better reflect the true extent of economic disadvantage in the United Kingdom. Under the old EU rules, only about a quarter of the entire UK population was on the map. That really does not accurately reflect the extent of areas that need levelling up in the United Kingdom.

--- Later in debate ---

[The Chair]

A lot of Members have indicated that they want to speak now. I have the list and I will call those whose eye I have caught—I will try to call Members whom I have seen first. Seema Malhotra, do you have a question?

[Seema Malhotra]

I am happy to come back in later.

[The Chair]

Thank you. Could I have Stephen Flynn?

--- Later in debate ---

[Kevin Hollinrake]

Yes.

Professor Fothergill: I see no reason that things should be reported. This is a personal view, not the view of the alliance, but I know that the local authorities that I work with in the Industrial Communities Alliance have welcomed an increase in the de minimis threshold. Operationally, that makes sense and does not lead to big damage to competition across the country, or indeed to damage to international trade.

[Seema Malhotra]

Q May I ask for some final clarification on that? Part of the question was about the reporting. If all the decisions have been made and the work has been done on a subsidy, reporting—putting an entry on the database—should not be an onerous matter. Are you objecting to that also?

Professor Fothergill: No, I am not objecting to reporting. By the way, when I speak of reporting, I should clarify that the alliance has not taken a particular view on the issue. If I am speaking about reporting, I am expressing a personal opinion that it should not be too onerous. I would have to consult some of my local authority colleagues to clarify their precise views on that, but I know that their precise view on the de minimis threshold is that the increase is a good idea.

[The Chair]

Dr Serafin, do you wish to add anything, briefly?

Dr Pazos-Vidal: Some of the EU rules are there because one size fits all. Even the level of the threshold is low because the prices in some countries are much lower than you experience in the UK, so it makes complete sense to raise the threshold, which is welcome.

On the level of reporting, the feedback we got from councils in Scotland, and from colleagues across the UK as well, is that it should not be even more onerous than what we had in the EU. Perhaps the proposed system goes in a direction whereby it is less onerous, and that should definitely be the way forward.

--- Later in debate ---

[The Chair]

Thank you. I call Seema Malhotra.

[Seema Malhotra]

Q Thank you, Mr Sharma. I thank Professor Rickard and Thomas Pope for coming in today to give evidence. I will pick up on the issue of transparency first. What specific additions to the Bill might you recommend to increase transparency? I am also interested in your view on whether there should be some form of reporting for all subsidies under the Bill or whether there should be a threshold. Could that be done in a more streamlined way to allow for that transparency?

Could I also ask for your view on whether the six-month reporting deadline is necessary? In your view, could that threshold be reduced if decisions had already been made about the subsidy? Those questions are for both our witnesses. Finally, do you believe that the one-month challenge window is sufficient in the context of how the scheme is being designed and is likely to operate in order to make sure there can be an effective challenge to any subsidies?

Thomas Pope: On transparency, as most of you know, there is the £315,000 de minimis threshold. If the subsidy is below that level, we need not worry whether it is complying with the system. There is then a higher £500,000 threshold. If a subsidy complies with a scheme that has already been approved, it need not be put on the database if it is below £500,000.

[Seema Malhotra]

Q Can I clarify one thing, because I want it to be clear? Being below £315,000 means that the subsidy does not need to comply with the principles—does not need to be checked against those—and does not need to be reported?

Thomas Pope: Yes, that’s right. The purpose of having a de minimis threshold is that we are worried only about subsidies that are likely to distort competition or investment. The judgment has been made. It is quite hard to know exactly what the right level there is. I think a bit higher than the EU level, which was €200,000, seems about right, so £315,000 certainly seems reasonable.

My view is that there is a benefit to more transparency. Therefore, it is worth having a lower threshold for publishing to the database than for someone having to think about whether they are complying with the regime and all its principles. There are a couple of reasons for that.

First, I think we want to understand how the system is actually working and the impact of different decisions that we are making in the system. One of the big policy levers we are pulling in the system is the £315,000 de minimis threshold, and we want to understand how influential that is. Are lots of subsidies bunching at £300,000 or £310,000 so as not to comply with the system? That is not necessarily a problem, but we want to understand what impact the system is having on how subsidies are offered. If we censor everything so we see only the stuff above £315,000, we have a less good sense of how the system is operating.

Likewise, with the £500,000 threshold for subsidies that are approved under a scheme, we want to understand how often a scheme is being used and how much public authorities are going down that route. Again, we want to know whether a £400,000 subsidy is being approved under a scheme. I do not think that means we should pull the transparency limit down to £500 or £1,000.

Personally, I think a public authority also has to ask the question, “Is this a subsidy?” With quite big amounts of money, such as £100,000 or £200,000, they will be thinking about that. For £1,500 here or there, I imagine that would be quite a big additional burden. Realistically, we are never going to move the de minimis threshold down to £1,500 or £50,000. A level on the transparency database of around the EU level or a bit lower—about £175,000; I know that was in the original consultation as a possibility—would be a reasonable compromise between those two concerns. We could even have fewer things that needed to be put on the database if the subsidy was below £315,000, although we might want it on the database somewhere.

Professor Rickard: I will give a few examples of things that could be changed to help to improve transparency. The first would be to lower that threshold and report subsidies even if they were below £350,000 over three years. Report subsidies that were included in a scheme, even if they were less than £500,000. Report subsidies even if they were subsidies for the public economic interest.

I would shorten that time for reporting; I think six months is too long. If it is a tax break for 12 months, after 12 months a competitor might be out of business, so I certainly think that there would be scope to shorten the time to reporting. I would increase the time to challenge. One month is too short, particularly if someone is learning about a subsidy only through the public reporting and the database. Remember, for subsidies not publicly reported in the database, how will we know about them? Where will we learn information about them? I would increase the time that people had, or people with interest had, to challenge a subsidy.

I would maintain the information on the subsidy for longer than six years. Six years is mentioned in the Bill. I do not see a good justification for deleting information after six years, particularly if we want to analyse how the regime is working. We need this over-time data, this long-time thing, to ask, is the regime working? Are we achieving what we want to achieve with our subsidies? Are we getting good value for money? Are we helping disadvantaged areas? Are we helping to create economic activity? To assess that, we need to have this information and we should not delete it after a certain time.

I would ensure that certain types of information were reported. At the moment, the Secretary of State is given the discretion to ask for certain types of information, but I would want to see as much information as we could possibly get, while protecting commercially sensitive information.

Finally, I would look to make sure that all the information was self-contained in the database, without having links to local councils or other information. As we know, links break and information gets lost. I understand that there is this concern about putting a burden on granting authorities. One possibility may be to ask the recipients themselves to help to provide some of the information, so we could cross-reference and make sure that we had the correct information from the granting authority and the correct information from the recipients.

Those are just some ideas that would help to improve transparency. Through transparency, we can get better compliance and better value for money, and we can help to ensure that the subsidies that are being granted meet the goals that we are setting out to achieve.

[Stephen Flynn]

Q Thank you both for your contributions so far. Thomas, if I picked you up correctly at the start, you made a reference to damaging schemes. Can you elaborate on that and what you are thinking in that regard?

I also have a question for both of you. Thomas, you touched on this in your remarks in relation to this being a skeleton of a Bill. We heard earlier from Professor Fothergill and Dr Pazos-Vidal about the potential implications of that lack of clarity about what sits behind the Bill and what the Government will be coming forward with: statutory instruments or secondary legislation. Do you see the lack of detail in the Bill having a consequence for the investment decisions of public bodies right across the UK?

Thomas Pope: On schemes, my specific concern—and this links to the one-month challenge window—is that a scheme gets added to the database or is set up. There is then a 28-day window where a potential interested party—someone who might be damaged by a subsidy that could be offered under the scheme—has a chance to appeal and to ask for more information and go through the process as set out in the Bill. Once that challenge window has passed, the scheme is approved and subsidies that fit with that scheme can then be offered with no opportunity to challenge.

The risk is that, if I am a competitor business and a business I am competing against is going to get a subsidy under a scheme, but has not yet got that subsidy at the point when the scheme has been set up, I will probably not know that the scheme is here and the clock is ticking. Here is this subsidy that will come later, and I am an interested party because a subsidy could go to my competitor. It is not even clear that that business would be an interested party, so my concern is that there is a benefit to using schemes in that you do not need to go through a separate process for every subsidy, but there is a corresponding risk that if there is not sufficient scrutiny of the schemes when they are set up, there is almost a sort of free pass if a scheme slips through the net and it allows you to give quite damaging subsidies. Once the time limit has passed, there is nothing you can do about that.

In terms of the Bill being a skeleton, there is a trade-off here. We want to be flexible and we want to be able to update elements of our regime over time. Things that are set in primary legislation are harder to change, but at the same time there are bits of the Bill where there is a lot of power given to the Secretary of State, with very little indication about how he or she might need to, for example, decide what constitutes a subsidy of interest or of particular interest. Those are subsidies that would have to be sent to the Competition and Markets Authority before they could be offered. More detail there would be good.

As to whether it will actually cause uncertainty and affect investment decisions, I do not talk directly to public authorities in the same way that some of your other witnesses will. To the extent that you can write very good guidance and have clear secondary legislation, that need not be a major issue. There are other ways that legal certainty can be provided. There probably is an extent to which this system will take a bit of bedding in. It is not clear how the Competition Appeal Tribunal is going to treat appeals and what the burden of evidence will be, or how easy it will be to challenge a subsidy subject to the principles. Probably that means there will be a bit of caution, at least initially while that beds in, because there will be legal precedent that will build up as well. Again, I do not think that will be a permanent feature necessarily.

Professor Rickard: I will weigh in briefly on the streamlined routes that have been proposed. The Government could propose a streamlined route, and they would bring it to Parliament, so there would be some room for scrutiny, but once that streamlined route or scheme is set up, granting authorities can just designate that subsidy as falling within that scheme, and then it is assumed to comply. That is a potentially interesting situation where you have a scheme and granting authorities say, “Yes, the subsidy is part of the scheme.” If we then assume compliance and do not see these subsidies showing up in the database, that potentially allows some leeway for subsidies that are not fully compliant with all of the principles. That would be one potential way in which the streamlined scheme would lay on top of the individual subsidies.

It is a route, of course, for the Government to set priorities and say, “This is an area in which we would like to see subsidies.” They are signalling a policy direction in which they would like to go. Of course, when you get a new Government, you might get new schemes. That would be right and proper. In a democratic system, you have a new Government with a new platform, and the voters have chosen that platform, but it does set up, potentially, a situation where you would have a streamed route scheme full of subsidies, and when there is a new Government there is a new streamed route scheme for subsidies. I am thinking about how to transition between them and the potential uncertainty generated for both businesses and granting authorities.

I want to pick up on one thing that Mr Pope said about who can challenge a potential subsidy. This is an area that would benefit from additional scrutiny. Thinking about who has a particular interest in challenging those subsidies, there may be good reasons to expand the potential set of challengers to ensure that it includes not just competitors but maybe also employees, trade unions, taxpayers or interest groups. That would give us more eyes on the subsidies to ensure that they are complying with the principles, ensuring value for money and achieving the economic outcomes that they set out to achieve.

[Seema Malhotra]

Q Can I ask for one quick point of clarification? Would that mean, Professor Rickard, that you would widen the definition of interested parties to include those groups explicitly?

Professor Rickard: Yes. In my opinion, that would be a good strategy. The benefits of ensuring increased scrutiny of how these subsidies are being allocated and how taxpayers’ money is being spent would outweigh any potential costs.

[Seema Malhotra]

Q Would that include the devolved Administrations?

Professor Rickard: That is a good question. I do not have an opinion on that; I do not think I could say.

[Simon Baynes]

Q Thank you, witnesses, for your contributions this morning. Which subsidy system internationally would you consider the best role model for the UK, and why?

Professor Rickard: That is an excellent question. The UK is in a unique position because of the TCA. It is hard to find a perfect analogy internationally because of the TCA, and the structure and the limit of the TCA puts the UK in a unique position.

However, there are world-leading examples in transparency, for example Norway and Germany. They are extremely transparent in their subsidies. States within Germany provide annual subsidy reports that run to 50, 60 or 70 pages. I am not saying that that is necessary, but that is the kind of world-leading transparency that the UK could and should aim for.

What the UK is setting up in the subsidy control regime here is closer to what we see in the World Trade Organisation. The WTO allows subsidies, except for those that are prohibited, a bit like what is suggested here. Granting authorities are allowed to provide subsidies, and they self-certify that their subsidies comply with the rules, as we see in the Bill. Those subsidies then persist until they are challenged. That is the best analogy that we see.

The challenge in the WTO system is that many subsidies that do not comply with the principles, with the agreed upon rules, persist for a long time, and in fact may never be challenged. That is the challenge in the subsidy control regime here: granting the ability to self-assess your own subsidies to ensure that they comply with the principles, but thinking about what happens when a subsidy that does not comply with those principles is enacted. How long does it persist before it is challenged? Certainly in the WTO system they persist for a very long time, because it is difficult to enact that challenge.

--- Later in debate ---

[Bill Esterson]

Q Thanks very much. I will ask you the follow-up question as well, Mr Pope: if not six months, how quickly should that information be there?

Thomas Pope: I will answer the first question first. I agree with many of the suggestions outlined by Professor Rickard. My real concern is that, as that 28-day period is so short, there is a risk that a subsidy or scheme that is concerning is missed by potential interested parties. The issue could be that they do not qualify as interested parties, so you could expand that, or that the time is too short.

I would propose one solution. At the moment, the CMA has a reactive role in the system—deliberately so. It issues reports on subsidies of interest and particular interest before they have been offered, if those public bodies offer the subsidies to the CMA for review. In special cases, where the Secretary of State is concerned about a subsidy, it can issue a post-award referral, and after a subsidy has been awarded, the CMA can issue a report. I think that the CMA should have the ability to do that investigation off its own bat. That would not mean giving it a standing a court, or anything like that, but that it could keep an eye on potentially problematic subsidies. If the CMA reports on a subsidy and raises a concern—there would not be ratings—it is much more likely that interested parties would be aware of that. I would possibly go even further and allow the CMA to have standing in court, but I understand that that is quite a departure from the system and it probably will not be a goer. However, at the very least, the CMA could have the proactive ability to investigate and issue reports ex-post.

The six-month challenge deadline is clearly something that has been brought in from the TCA, and that is the maximum we are allowed. I am afraid that I do not have a very strong view on the right amount. I have not spent enough time actually writing the reports. The public authorities have to be very strong on that.

[Seema Malhotra]

Q To clarify, that is the maximum amount.

Thomas Pope: We could make it shorter within our own legislation if we wanted to.

[Kirsty Blackman]

Q My questions focus particularly on chapter 3, which is about the subsidy database and transparency. Do you have any idea what the logic is behind the tax entries in the database? It seems to me that if something relates to a subsidy measure that is taxed, it may not need to be reported for almost two years—or even longer—because it is a year past the first declaration on the tax. Does that make sense, or would it be better to have something different?

I have two more questions. In the event of cumulative subsidies, where an organisation receives various subsidies from various organisations and it takes them over the threshold of the three-year period, who is responsible for ensuring that that is put on the subsidy database? I am not clear on that.

Lastly, EU state aid rules have a number of de minimis exemptions for agriculture and various other things. Does the fact that the Bill does not include them cause problems, or is it more of a tidying-up exercise?

Thomas Pope: On tax, again, that is a longer allowance that is in the TCA, and that is why it looks like that in the Bill. Of course, the bigger question is why it was permitted in the TCA in the first place. I think it is because tax measures tend to operate on a slightly different cycle—we have our financial years and budgets—and that is why there is a different time period, but I am not quite sure.

In terms of cumulative subsidies, I am not sure that they would end up on the database—I do not believe that is the case. In terms of monitoring that, and knowing whether subsidies have exceeded a de minimis limit, I think that is the responsibility of the recipient rather than the public body. However, I am afraid that is one where you would have to ask some lawyers.

Professor Rickard: I do not know the logic behind the 12 months, but as I said in my opening remarks, I think that is quite a long time. If a competitor is benefitting from a discriminatory tax break, then after 12 months I could be out of business. So it does seem like a very long time, and I would think about the potential benefits of shortening it.

The cumulative subsidies question is an excellent point, and it highlights the arbitrariness of having these thresholds. The monetary thresholds are potentially obscuring these cumulative subsidies, exactly as has been suggested. In my own research on procurements, not in the UK but elsewhere, I find that Governments break up their procurement contracts specifically to get them below the threshold so that they do not have to report them and they are not open to scrutiny. I am not suggesting that happens in terms of subsidies, but these cumulative subsidies could potentially take on that kind of logic where you are breaking up a subsidy or collaborating on providing subsidies below that threshold that actually end up going above the threshold.

Finally, in terms of exemptions, there are exemptions included in this Bill. Sometimes they may be legacy exemptions, but I think that the benefits of having this information surely outweigh the costs. If we understand where the subsidies are going and who is getting subsidised, we can have a better understanding of whether these subsidies are working and achieving their goals. If you are weighing up the costs and benefits, I think the benefits of having fewer exemptions would outweigh the costs.

--- Later in debate ---

[Kevin Hollinrake]

I think it’s the EU level.

Professor Rickard: Okay, thank you. I do not see why it could not be lower. I recognise that there is a concern that we are putting a burden on granting authorities, but the granting authorities have this information. They have already collated it and made a decision. Increasingly, with tech, I do not think it is a huge burden to upload that type of information to a database, so I would argue for an even lower threshold than £175,000. If I gave you a number, it would be an arbitrary number—as I suggested, all thresholds are arbitrary numbers—but it could be as low as £100,000. I think that would not unduly burden governing authorities, but would increase transparency to ensure value for money and compliance with the principles.

Thomas Pope: I completely agree that all of these numbers are somewhat arbitrary. The reason I mentioned £175,000 specifically is that it is the EU level, and it is the number that was in the Government’s consultation at the start of the year. That was a question in the consultation, but in the end the level was higher. It is very hard to say whether the right number is £100,000, £80,000, £150,000, £175,000 or £210,000. It should be low enough that we have a good sense of how the system is actually affecting how subsidies are offered.

[Seema Malhotra]

Q I want to follow up on a couple of points, starting with the duty to provide pre-action information—primarily, clause 76. There are ways in which a public authority may refuse or suggest that it would be difficult to give information based on a number of categories—commercial sensitivity, confidentiality and so on—without it seeming to be clear how that could then be challenged. I wonder whether transparency, and being able to bring a challenge with the information needed, needs to be stronger, or whether the role of the CMA might need to be stronger to support requests for information.

Thomas Pope: I am not an expert on that, and you will probably want to ask other witnesses. I think part of the point here is that a failure to comply with something like this could be challengeable, not directly, under the process set out in this Bill, but that is also a violation of public law. But as I say, it would be better to ask a lawyer than me on that.

Professor Rickard: One possibility, potentially, when you are talking about commercially sensitive information is not to limit the amount of commercially sensitive information that would be in the database but, when you do get a public request, to do something similar to what they do with Nomis and the labour data, which is very disaggregated by firms. You have to sign a declaration saying why you are using this information and that you are not going to use it in a commercial way. That may be a way to provide the necessary information to a potential challenger, but in a way that protects information that is potentially commercially sensitive. So I certainly think there are ways around it, and I think that it would be important to explore some of those mechanisms.

[Seema Malhotra]

Q May I ask one further follow-up question in relation to this? I am not saying that there would be, but there may be circumstances in which accurate information is not always reported. What mechanisms do you see in the Bill—or does there need to be more on this—in relation to potential audit and checking of the accuracy of the information being submitted, and who should be doing that?

Professor Rickard: I think you are right that we are not only trusting the governing authorities to mark their own exams, but trusting them to provide accurate information about what they have done. So I think there are two possibilities—this is blue-sky thinking. One, as I have suggested before, is to collate information—get the information from the granting authority, but also request information from the body or entity that has received the subsidy. And then you can confirm: do these numbers match? This happens in trade all the time: you say, “What is the export data? What is the import data? Can we match these data?” And if not, what is the problem; why do they not appear to match? One way to have a check and balance on the information that is being provided by the governing authority is to seek this kind of information from the people who received the subsidy. It could even be a condition of receiving the subsidy that you will report this information.

The second suggestion, which is one that Mr Pope offered previously, is giving the CMA a bigger role for audits, and even beyond that. I am glad to see that the CMA has been tasked with doing five-yearly reports, but I really think that there is a lot of additional room for ex post scrutiny, not only of the regime but of individual subsidies, to say, “Did this subsidy achieve this goal? Was the subsidy successful? Did it engender jobs, business and economic opportunities?” I think that is a really important role for the CMA or another entity like that, but in order to be able to do this kind of auditing, this ex post analysis, we need more information, which means we need more transparency.

Thomas Pope: I would agree with all of that. What I would say is that I think there is an incentive to get the information right, in that I think if you are found to have got it wrong, probably your 28-day time limit after you have offered accurate information does not apply. So you do want to make sure that you are providing accurate information here. But I completely agree about some role for the CMA or some other body in getting the information from recipients—it sounds like a very good idea to me—and checking that, subject to how burdensome that would be. Yes, that is a good cross-validation. I suppose the concern here would be that the CMA ends up a sinkhole of time, just looking through every single thing that goes on the database, but if you just have a flag to say, “Hold on, the information doesn’t match here,” and then the CMA looks further, they are two strategies that work together quite well, I think.

[Kirsty Blackman]

Q Professor Rickard, you mentioned the subsidy database that there is already. I have had a bit of a look at that. Do you think that it is a model for how we should take this forward, or do you think that there are significant amounts of information that we need to add to it in order that it will make sense to people? You did touch on this, but could you just expand on it?

Professor Rickard: I think it is a commendable first step. I think it is great that it is publicly available, that it is online, that it is relatively transparent. There would be some more things that I would like to see. For example, there are many cases, as you will know from looking at it, where it just says “other” or “not available”, and there are a lot of cells that have not been filled in or do not look as if they have been filled in correctly. I encourage some mechanism to ensure that you cannot just say “other” or “not available”. Sometimes the amounts are listed as zero; I am not sure I understand why that is the case. I also think best practice could be followed in terms of international comparability. For example, you could put on these codes that we use to identify the sector, like NACE codes—internationally standard codes that would identify the sector to which these subsidies are going.

The Bill is really commendable and is a great initial step, and I am glad to see it up there, but there are ways that it could be improved by providing more information, and more consistent and detailed information, and by using some of these international standard codes that exist in databases that we use—for example, for imports, employment, industries or firms.

[Seema Malhotra]

Q I am keen to get your views on the subsidy advice unit and its role, responsibilities and powers as defined in the Bill. Do you think that the unit should have some further external voices on it, whether on the board or involved in its work? It seems to have a huge amount of responsibility, but its membership can only be drawn from within the CMA, from which panels might be appointed to undertake reviews. To give confidence, a process of review will need to be robust and have knowledge of devolved competencies, regional issues and so on. Do you think the unit will be strong enough, or do you think it needs some adaptation in order to make it the most effective it needs to be?

Thomas Pope: I certainly think that the CMA and/or the subsidy advice unit should have a membership and input reflecting its four-nation role in the UK and the fact that, although subsidy control is a reserved matter, it affects devolved competence and the operation of policy in all four nations of the UK. I therefore think it is appropriate that there be better devolved representation. These statutory responsibilities go to the CMA and are then exercised by the subsidy advice unit and the Office for the Internal Market. I think it is time for a look at the CMA’s governance, although that is obviously slightly beyond the scope of the Bill.

There could certainly be ways that the subsidy advice unit could get input. A particular concern could be that, because the regional economies of the UK can look quite different, you may need a different set of local expertise when the CMA or SAU were looking into a particular subsidy in Scotland from what you would need in the north of England, which has quite a different industrial structure. There are lots of creative ways that the SAU could do that. You could have regional panels that have that expertise. I would go further and have a real look at the governance of the CMA as well, because ultimately, while it is the SAU doing the subsidy control, those are the CMA’s powers.

Professor Rickard: I was surprised to see in legislation that members of the SAU can only be employees of the CMA. There may be very good reasons for that. The key for the SAU is to ensure that it is insulated from politics and that the decisions it makes are really not only economic logic but are consistent with the principles. Of course, there is a role for politics in that—people saying, “We want to achieve these particular outcomes”—but I think you really want the SAU to be a technocratic body staffed by experts who will review a subsidy on balance, in line with the principles. With those goals in mind, there may be scope for expanded membership, or certainly at least for ensuring some sort of feed-in from experts on the particular issues, subsidies or areas that the SAU happens to be investigating.

[The Chair]

I am afraid that brings us to the end of the time allotted for the Committee to ask questions and, indeed, for this morning’s sitting. I thank our witnesses, on behalf of the Committee, for their evidence. The Committee will meet again at 2 pm this afternoon here in the Boothroyd Room to continue taking oral evidence.