Subsidy Control Bill (First sitting)

Debate between Seema Malhotra and Simon Baynes

Tuesday 26th October 2021 Public Bill Committees

[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.

Subsidy Control Bill (Second sitting)

Debate between Seema Malhotra and Simon Baynes

Tuesday 26th October 2021 Public Bill Committees

[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.

Subsidy Control Bill

Debate between Seema Malhotra and Simon Baynes

2nd reading
Wednesday 22nd September 2021 Commons Chamber

[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.

[Simon Baynes (Clwyd South) (Con)]

Will the hon. Lady say why no Labour Back Benchers are present in the Chamber? If this issue means so much to the Labour party, why is it not properly represented in the debate?

[Seema Malhotra]

I have been involved in extensive discussion with my colleagues, and they will want to make significant contributions in Committee to address the gaps in the Bill. We continue to work on that.

As I was saying, the Secretary of State should set out the timeline for consultation on and the publication of secondary legislation that covers critical aspects of the new system. I know the House will want to see that in good time.

Public bodies have faced significant difficulties since the start of this year precisely because of the lack of guidance on how to interpret the subsidy control principles agreed in the trade and co-operation agreement, so clarity on how public authorities should demonstrate that their subsidies comply with those principles will be an important part of the subsidy regime. I am sure the Secretary of State will agree that we will want to see some decisions being made in the interests of how we recover and how we are to grow our economy for the future.

On the important issue of devolution, most importantly of all we are concerned that the Bill has not taken the four-nations approach that is essential for an effective UK-wide subsidy control regime. For example, the balance of the power to challenge between the Secretary of State and the devolved Administrations is asymmetric. I am sure that the Secretary of State has heard those representations made to him directly. Twelve months ago, the shadow Secretary of State stood at this Dispatch Box and warned the Prime Minister of the risks of undermining with policy decisions the devolution settlement that has been part of our constitution for two decades and is vital to our Union. However, on the evidence of the legislation before us, it appears that a shift in mindset and thinking has not been a part of how the Government have brought forward this legislation, and we hope that they are going to listen to the concerns that we and other Members are raising.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Debate between Seema Malhotra and Simon Baynes

Tuesday 6th July 2021 Public Bill Committees

[Seema Malhotra]

[Simon Baynes (Clwyd South) (Con)]

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Second sitting)

Debate between Seema Malhotra and Simon Baynes

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Simon Baynes]

Thank you, Mr Mundell. Is there a sense in which the timing of the rate revaluation is a helpful coincidence, in that it could mitigate some of the issues that ratepayers might have with the change to their business arising from coronavirus, perhaps particularly where a business has been badly affected and has to change its whole focus? Is the revaluation a way to mitigate that, and is that a helpful coincidence of timing?

David Magor: It is a helpful coincidence of timing. There is an antecedent evaluation date, and the rental evidence gathered to determine the values for the next evaluation list will reflect the circumstances of the pandemic and what is happening in the property market. The valuation officer has started to call for that evidence, which is required by statute and will reflect the current situation. Therefore, the list coming into force in 2023 will reflect the current difficult circumstances and, as you rightly say, potential changes in trading patterns and other things.

Adrian Blaylock: I agree. It is convenient it coincides, so will do exactly what David says.

[Seema Malhotra]

Q To ask a follow-up question, you were talking about local authorities and schemes they may need to set up, Mr Magor. What are you expecting in the guidance from Ministers? How soon does that guidance need to come? We heard concerns about how quickly this needs to happen. From your experience, could you share your view on how long that pot could last? Does there need to be reporting and review of expenditure? What do you expect from the Government on that and on working with local authorities on this?

David Magor: I know Adrian will pick up on the impact of it, but I will start. On the guidance, for reliefs under section 47 of the Local Government Finance Act 1988, the Minster is required to give guidance and local authorities to have regard to it. You would expect the guidance to be sufficient to enable local authorities to develop a scheme within the Government’s wishes. From ministerial statements, we know that that scheme will not include awarding relief to retail, hospitality and leisure, or those in receipt of other reliefs that remove their rate liability, and that economic factors will be considered from company to company. I would expect the guidance to clarify those issues and make it clear how the individual pots will operate.

I would also expect it to give local authorities an element of discretion—after all, section 47 is about discretionary relief—to have a scheme shaped for their area. This is why it has to be done in stages. The first is passing the Bill into law. Then, you issue the guidance with the distribution, give local authorities a chance to analyse that distribution and understand whether it is fair, and what to do at a local level. Local authorities then have regard to that guidance and devise a scheme, which has to be done quickly.

If we had not had this proposed change in the law, the valuation officer and ratepayers’ agents would be settling matters now, and I suspect refunds would have started to circulate. If this scheme is to replace those MCC challenges, you would like to think it would be in force later this year, and that any reliefs would be paid during the current financial year— that must be the aim.

The pot is a one-off that would be distributed as quickly as possible, because now is the time when the money is needed. The real issue for local authorities is devising a scheme and ensuring that they can distribute the pot fairly, and that they do not run out of money. That, in itself, will be a massive problem.

Adrian Blaylock: The only point I would add to that is timing. I think you questioned the timing and the need for haste; as David said, businesses need this money now. The only thing I would question is to ask what this relief pot meant to be compensating for. The majority of the lockdown measures and the restrictions applied during 2020-21 rather than during 2021-22, and there is a specific part of section 47 of the Local Government Finance Act that says that a local authority cannot take a decision more than six months after the financial year to which the decision relates. So, strictly speaking, as at the end of September a local authority will not be permitted to give discretionary relief rate back into 2020-21. That means that either everything needs to be in place and all the local schemes need to be up and running by the end of September, or the relief is not given for 2020-21 but is given for 2021-22 instead. However, what then happens to the businesses that had a material change of circumstances lodged for 2020-21 that are no longer in existence? They have missed out on that.

As for the timing, it is important that the Bill gets through as quickly as possible, but it is also important for people to understand that local government also have to go through their own governance processes. Devising a scheme is not just a case of somebody sitting at a desk and saying, “There you go, this is our scheme”. It needs to go through the proper governance process, which will take time. It could take two or three months for all that to go through its own internal processes, on top of whatever time it takes for the legislation to be passed and the guidance and allocations to be issued by MHCLG. Timing is crucial in this process.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Debate between Seema Malhotra and Simon Baynes

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Seema Malhotra]

Q May I probe you a little further on the three year issue? You are right that within legislation there is provision for courts to make disqualification orders within three years after a company has been dissolved. This legislation extends that in line with that current time limit. In light of the fact that we have very unusual circumstances at the moment, with potentially thousands of companies that could require investigation, do you think that with that increased workload for the Insolvency Service, the question about available resources and the court backlogs, there could be a particular issue with directors effectively being culpable but the Government running out of time for courts to issue disqualification orders against them?

David Kerr: We might have touched on this slightly previously. First, there is no suggestion, as far as I am aware, that the whole of the 2,500 companies that have been mentioned would be the subject of an investigation. We are talking about dissolutions in the last 15 months or thereabouts. The time limit is relevant, obviously, because the service has to work to that, but the previous witness made the point, which we should bear in mind, that the majority of the cases that it takes do not necessarily involve court proceedings. In a lot of cases, having presented the evidence to the directors and with the threat of court proceedings available to the service if necessary, many are resolved by the director giving an undertaking, which has the same effect as an order, so a lot of them will not involve court proceedings and that helps the service to achieve what it is seeking to do within that timeframe. Many of the cases in these instances of dissolved companies, I imagine, would result similarly in a relatively high proportion of those being concluded by undertaking.

[Simon Baynes (Clwyd South) (Con)]

Q Thank you, Mr Kerr, for your evidence. I have two questions. These measures clearly have widespread support. Can you give us a feel for the scale of the problem with dissolved companies? We have discussed quite a lot of different figures this morning, but do you feel this is a very significant problem, or a manageable problem, just to get some more idea anecdotally on that?

Secondly, clause 2 allows “easier investigation”. Can you give us some idea of the way in which the Bill improves that process of investigation?

David Kerr: I will deal with the second point first. We know that this provision means that we do not have to go through the process of restoring a company and instead the Department can commence an investigation in circumstances where it deems it appropriate without any barriers to doing that. In that sense it makes the process easier to commence the work it needs to do.

Many companies are dissolved every year, but I do not think there is any suggestion that all those, or even the majority, involve any misconduct by directors and by those who have opposed or supported the measure. I do not think there is any suggestion among those who proposed or supported the measure that that process should be removed as an option for companies in appropriate circumstances. The question is really how many of those represent some form of misconduct or where misconduct might be hidden, or where there is some abuse. I have not seen any statistics on that and do not know if anybody would know for certain. Again, it comes back to the point that the service would have the power to investigate in circumstances where something was brought to its attention, suggesting a need for investigation. In that sense, it is a welcome provision.