Subsidy Control Bill

Debate between Seema Malhotra and Andrea Leadsom

2nd reading
Wednesday 22nd September 2021 Commons Chamber

[Seema Malhotra]

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

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

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

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

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

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

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

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

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

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

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

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

[Dame Andrea Leadsom]

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

[Seema Malhotra]

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

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

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

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

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

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

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

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

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

The Government’s own impact assessment says:

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

The impact assessment also says:

“We should expect the behaviour of public authorities”—

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

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

--- Later in debate ---

[Seema Malhotra]

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

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

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

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

[Dame Andrea Leadsom]

Will the hon. Lady give way?

[Seema Malhotra]

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

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

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