Subsidy Control Bill (Second sitting)

Simon Baynes Excerpts

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.

[Stephen Flynn (Aberdeen South) (SNP)]

Q Thank you for your helpful answers and input so far, Dr Barker. I think earlier you alluded to—those who gave evidence this morning certainly alluded to it—the lack of detail behind the Bill, the lack of guidance and the powers that sit with the Secretary of State. That prevailing situation is unlikely to change before the Bill comes into law. Do you think that is a help or a hindrance to businesses as it stands?

Secondly, we know that historically the UK’s spend when it comes to state aid, as it is more commonly known, has fallen well below that of European partners. Do you think the Bill will change that in any way, shape or form? Is there any indication in the Bill as it stands that it will change, certainly from a business perspective?

Dr Barker: I do think that more clarity is needed around a number of the concepts in the Bill. The need for more detail increases with the number of public bodies that are being empowered to grant subsidies. To give some examples, there is uncertainty around what would constitute a subsidy of particular interest, which is a subsidy that requires much more detailed pre-assessment by the CMA. Will that apply to a significant proportion of potential subsidies, or will that be done just on an exceptional basis? The answer will affect the nature of the entire system. At the other end of the spectrum, I think we still lack detail about the streamlined subsidies that can benefit from fast-track approval.

Another area that is important, particularly for IoD members, is the extent to which this regime can facilitate the support of start-ups, particularly those companies that do not have a long-standing financial track record and are still some way from generating profit or even revenue. I think that the proposed regime in this respect is preferable to the previous European Union regime, which had a prohibition over supporting undertakings in difficulties, which really ruled out start-ups. Within this measure, the only thing that is ruled out is the support of ailing or insolvent companies, which increases the scope of what can be supported. However, we still need clarity about what kind of going-concern assessments will be conducted to ensure that a potential recipient is eligible.

To answer your first question, there is still some way to go to provide all the interested parties with more clarity about how the system will operate. With your regard to your second question—do I think that this framework indicates that we will have more state support of business?—in itself, the answer is no. As I said before, it provides a framework in which that kind of policy could be pursued, but there is nothing about it that necessarily implies that it will be pursued. As I have said previously, in certain sectors there is a need for a changed approach to match those of our key competitors. That is really how the IoD is viewing it—is it going to be useful for that purpose? The answer is that it could be.

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[The Chair]

Before I bring in Simon Baynes, may I remind panellists that five more Members wish to ask questions? Could we keep the answers succinct, please?

[Simon Baynes]

Q One quick question. I think it was Mr Rose who said that the transparency register would be relatively easy to fix. Is there any comparable register that we could look at to learn from? This is perhaps not applicable, but from my own experience as a trustee of arts and heritage organisations, the requirements of the Arts Council and the lottery are very stringent in terms of transparency and what information you have to provide. Is that a comparable situation?

Alexander Rose: Absolutely. In terms of improving, you are starting from a relatively low base, so it is quite easy. There are plenty of databases, but ultimately it is about service functions. For example, I receive updates every day from Government on what they are doing. That kind of technology is there and it is ready to be put in place.

Jonathan Branton: I would second that. 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?” There is an overwhelming case for having a strong database that is searchable by whatever means anybody wants to search it, quite frankly. You can insist on that and be very plain. All the enforcement and strength flows from that later.

[Stephen Kinnock]

Q Just zooming out for a second, I know that you all have an interest in this levelling-up agenda. The stated priorities of the Bill are to be able to drive forward both the levelling-up agenda and the transition to net zero. Mr Rose and Mr Branton, do you think it is possible to achieve the levelling-up agenda without an assisted areas map or some way of actually focusing resources? There is also the issue that relocations are prohibited. What impact does that have on the levelling-up agenda?

We will achieve net zero in this country only if our steel industry transitions towards it. Mr Warren, what kind of state aid support do you think would be needed for that? Do you think there should be more explicit guidance in the Bill about how to achieve the transition to net zero as part of this overall strategy?

Jonathan Branton: I will start with the levelling-up question. I think you were asking whether it is possible to do something there without the equivalent of a regional aid map. The short answer is yes. You do not have to have a map of the country with shades of different colours for different levels of qualification in order to do something similar. The point is to give some form of preference or favouritism to areas based on some kind of measure of comparative disadvantage.

You could quite easily do that if you established a series of criteria. If you found that a given area had exhibited one or more of those criteria—and there would obviously need to be quite some thought given to what they were—that would be a means establishing that somewhere is regionally disadvantaged. Obviously, you can layer that with all sorts of different complications and grades of disadvantage, if you wish. That might be complicated or overly political, but you can establish the fundamental point of something being disadvantaged or not by reference to, I would like to think, a set of criteria, which would not be too hard.

For the relocation point, the wording in the Bill talks about something prohibiting subsidy that was given as a condition of relocation. In some ways, to my mind, that invites somebody to give a relocation that is not a condition, but achieves it anyway. Maybe that is just lawyers being cynical. Perhaps it is not fit for what it seeks to achieve, but is that a good thing anyway? I have seen a number of situations where a relocation has taken place, which has been positive for several reasons—perhaps someone relocates to make physical space for an infrastructure project, for example. Linking that back to levelling up, relocations can be advantageous and good in the grand scheme of things, and definitely positive for redistributing wealth. Having a prohibition in the Bill, even a badly worded one, is potentially too blunt a tool, which might backfire.

Alexander Rose: I have a slightly different position on clause 18. I think the way to resolve it would be to put in a value figure—maybe £20 million. I also agree that relocations can be hugely beneficial. Schedule 1 outlines the common subsidy principles and paragraph F is designed essentially to avoid competitions developing within the internal market.

I think that the issue trying to be resolved here is avoiding what would be regarded as a distortive subsidy. The way to deal with that is to define distortive subsidy and say that that would then be referred to the CMA, or however that works. That leaves you with the potential to include a replacement additional principle—you mentioned levelling up and net zero. I note that the strategy announced last week requires all civil servants to take account of net zero, yet these rules will be used by more than 550 public bodies. That is a great opportunity to instil that kind of thinking in every single subsidy.

Jonathan Branton: Without necessarily preventing them.

Richard Warren: To answer very briefly, yes, undoubtedly decarbonisation of the steel sector will require considerable subsidy or state aids, however we wish to term it. In sectors such as the power sector, we see billions of pounds’ worth of subsidy to decarbonise, and the steel sector will need precisely the same. Net zero or low-carbon forms of steel production will add anything from 30% to 50% to the costs of steel production, depending on which route you go down. If other countries are not moving at precisely the same speed or putting the same constraints on their industries, you will need some sort of intervention to correct that market failure.

There are two key areas where we would like to see additional movement. Again, I come back to competitive electricity prices. Fixing the issue there will require some sort of intervention. Secondly, we need pretty hefty support for capital investment in carbon capture and storage, hydrogen or even new electric arc furnaces. That will require hundreds of millions of pounds of investment.

On your final point about whether we need anything further in the Subsidy Control Bill to direct us towards that, I think that the light-touch approach is the right way to go. It does not exclude the Government from doing anything and it leaves open a huge number of options.

For example, the clean steel fund of £250 million that we hope will be confirmed in the spending review tomorrow is perfectly legitimate under the current regime. Maybe under the EU system, which says, “You can do this, you can’t do that”, you would have had to go through a more complicated approvals process. By the time you start introducing explicit requirements for certain industries, you will get a bunfight where everyone wants something mentioned in the Bill. You may end up down a route of, “If it’s not mentioned, maybe we shouldn’t be doing it”, so I think that the light-touch approach is the best way to go.

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[Bill Esterson]

Q Two final thoughts. How long do you think an investigation is likely to take? And, on your point about local authorities, have there been representations as part of the consultation from local authorities to say that they are more likely, or for that matter less likely, to make referrals?

Rachel Merelie: On the second one, it was BEIS carrying out the consultation. We have not actually been in the frontline of engagement with stakeholders yet, partly because we are at this quite early stage of the Bill’s passage through Parliament. We will obviously be engaging with public authorities much more actively post Royal Assent, and perhaps in the run-up to Royal Assent as well. We do not yet have that information; BEIS may be able to answer that question.

On the question about how long an investigation would take, we have a very tight deadline for the reviews that we are undertaking of subsidies of particular interest. We are being asked to do those in 30 days, so there will be a bit of a run-in period—a pre-notification, to make sure that we have all the relevant information. Once we have published, I think there is a five-day cooling-off period and then the ability for the public authorities to implement their subsidies. They are quite tight timescales. You could imagine a team having a maximum of a couple of months on a particular review, then moving on to another one.

[Simon Baynes]

Q Just a quick question. We have talked rather a lot in this session about the four nations, but the terms of the Bill are such that the devolved Administrations take their place alongside local authorities, public bodies and central Government in being involved in delivering the subsidies to businesses. Therefore, do you agree that they are of equal importance in this endeavour and that, in a sense, the whole point of the Bill is that it spreads the responsibility across the UK and across different levels of government?

Rachel Merelie: Thank you for the question. It is really important that all granting authorities are treated fairly and equitably, regardless of whether they are in the devolved nations or in England. Yes, certainly the spreading of the load across the different granting authorities, and the ability for the subsidy advice unit to engage with each of those on an equal footing, is very important.

[Kevin Hollinrake]

Q On the minimal financial assistance, how are you going to monitor that? It is up to the company to record the assistance it receives. A company could receive assistance from numerous local authorities if it has premises in different parts of the country—for example, through the business rate grants that we saw last year. Those items will not be recorded anywhere. How would you monitor that?

Rachel Merelie: We will be taking the submission from the public authority, and it will be assessing its subsidy against the seven principles that are set out. It will then be for us to look at whether it is providing the evidence that we need to take a view on the strength of its assessment against those principles. That is what we will be relying on in order to do our assessment. Where necessary, we will be able to ask questions of third parties, but in the time available, we will be largely reliant on the public authority giving us the information we need.

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[Paul Scully]

That is helpful to know. Thank you.

[Simon Baynes]

Q Thank you, Mr McKee, for your time this afternoon; it is much appreciated. Do you welcome the devolution of powers under the subsidy control regime to local authorities in Scotland?

Ivan McKee: As I say, our main concern is the assault on the devolution settlement; it takes control away from Scotland in devolved areas. That is a significant concern. It is not acceptable for the UK Government to behave like that. Powers in devolved areas should lie with Scotland, and that is our main concern.

[Simon Baynes]

Q Does that mean that you would rather local authorities did not have these powers under the Bill?

Ivan McKee: The main issue we have is around the devolution settlement. It is quite clear: UK Government Ministers can have authority over devolved issues, which should be decided on in Scotland as per the devolution settlement. That should not be trampled on. That is something we are very concerned about, and we are opposed to that.

[Simon Baynes]

Q But do you support devolving powers to local authorities in general as part of the devolution settlement?

Ivan McKee: Clearly, it depends on what it is. In the devolution settlement, local government is obviously a devolved area, and those areas are for Scotland to decide on.

[Kevin Hollinrake]

Q It seems to me, looking at schedule 1, that you are able to design a scheme that the devolved Administration in Scotland deems appropriate. I think you said that you were worried that, having done that, you might be challenged—by the Secretary of State, for example. However, under clause 70(7)(a), you could challenge another part of the UK on their scheme, too. Why does Scotland have any less discretion in challenging another part of the UK than another part of the UK has in challenging you? It seems to be exactly the same either way.

Ivan McKee: Not really. Look at the calling-in powers, for example, that the Secretary of State has that we do not. The streamlined subsidy schemes, which have not been clarified yet, can be made only by the Secretary of State, not by the devolved Administrations. The cooling-off period, again, has no equivalent powers for the devolved Administrations. Requesting a report from the CMA cannot be done by the devolved Administrations. Referring to the CMA’s subsidy advice unit can be done only by the Secretary of State and not by the devolved Administrations, so the Secretary of State has a range of powers that can operate in areas where the devolved Administrations do not have the authority to do those things as well. That asymmetry in devolved areas is something that we are concerned about.