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State Aid (EU Exit) Regulations 2019

Volume 796: debated on Thursday 14 March 2019

Motion to Approve

Moved by

That the draft Regulations laid before the House on 21 January be approved.

Relevant documents: 15th and 16th Reports from the Secondary Legislation Scrutiny Committee (Sub-Committee B)

My Lords, I beg to move that the draft State Aid (EU Exit) Regulations be approved. I will speak also to the draft European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) Regulations 2019, which were laid before the House on 28 January.

The draft State Aid (EU Exit) Regulations transpose the existing EU state aid regime into UK domestic law by correcting deficiencies in retained EU law. In doing so, they transfer the state aid regulatory functions of the European Commission to the UK’s Competition and Markets Authority. The regulations will ensure that state aid rules continue to operate in a domestic context and will come into force on exit day in the event of a no-deal exit.

State aid rules govern the way subsidies can be given, and exist to stop companies getting an unfair advantage over their competitors. The rules are not intended to prevent public authorities supporting industry, but rather to do so in a way that minimises distortions to competition. Where there are good justifications for state aid, the rules enable it to be given. The state aid rules are about supporting fair and open competition. Ultimately, they are good for taxpayers, consumers and businesses.

The existing principles for the regulation of state aid will remain substantively unchanged in the domestic regime, in accordance with the aims and powers under the withdrawal Act 2018. The provisions in the regulations will therefore have minimal impact on public authorities that grant state aid or entities that receive it.

The main practical change under the new regime is that the rules will be regulated by the CMA. To prepare for EU exit and its new state aid role, the CMA received £20 million for 2019-20. This is in addition to the £23.6 million it received for 2018-19. The Government are working to ensure that the CMA will be ready to take on this new role and have every confidence in its ability to do so.

The CMA will adopt the Commission’s existing state aid guidelines, which provide clear parameters for how and when aid should be approved. It will also receive enforcement powers broadly equivalent to those of the Commission. I should, however, explain one point of divergence from the EU regime. Under EU rules, the European Council has the power in exceptional circumstances to intervene and approve aid before the Commission has reached a decision.

We do not consider it necessary or appropriate to use the regulations to vest the Government with similar powers. Ultimately, the Government could bring forward legislation to amend the state aid rules if deemed absolutely necessary. This option is not readily available to the European Council in the EU context.

I shall not give way at the moment. I will take advice from the noble Lord, Lord Adonis, who pointed out earlier that the noble Lord will have his moment to speak later. It would probably be helpful if I get through what I want to say and the noble Lord can speak later.

I mentioned earlier that state aid rules will ensure fair and open competition throughout the UK. Over the past year, the Government have engaged extensively with each of the devolved Administrations and shared drafts of the regulations. The Government have also offered to sign a memorandum of understanding about the operation of the state aid regime with the devolved Administrations, which we hope to agree. These discussions have indicated broad agreement on the substance of the Government’s policy to establish a UK-wide state aid regime that mirrors the EU’s. We will of course continue to work closely with the devolved Administrations on state aid policy.

In conclusion, as we leave the EU, these regulations will give certainty to public authorities and recipients of state aid, and help maintain confidence for businesses across the UK.

I turn now to the overview of the structural funds SI. In a no-deal scenario, this instrument will repeal the European regulations concerning the European structural funds, while ensuring that they can continue operating domestically. It will also repeal the regulations for the Cohesion Fund, for which the United Kingdom is not eligible. Structural funds include the European Regional Development Fund and its cross-border European Territorial Cooperation component, and the European Social Fund. Structural funds support regional investment across the UK and are funded via the EU budget, with match-funding from project participants. In a no-deal scenario, the United Kingdom is expected to lose access to European funding.

HM Government have guaranteed funding for structural funds projects signed before the UK leaves the EU. The guarantee also enables new projects to be signed after exit until 2020. This guarantee covers UK beneficiaries, all beneficiaries of the PEACE programme in Ireland and Northern Ireland, and Interreg VA in Ireland, Northern Ireland and Scotland.

This instrument facilitates the domestic delivery of structural funds in a no-deal situation. It repeals the European regulations for these funds, as they would become inoperable retained law. It also ensures that for European Regional Development Fund and European Social Fund projects started before exit, current fund delivery rules are upheld through existing funding arrangements—without keeping redundant EU regulations. The powers to continue paying beneficiaries for projects already exist under domestic law. This instrument does not make provisions for projects started after exit. New projects will none the less continue to be signed using existing domestic powers and delivery systems, with appropriate simplifications. Structural funds delivery will also remain a devolved matter.

The instrument also makes special provisions for European Territorial Cooperation programmes that fund collaborative projects. It includes a transitional provision that enables the guarantee to be paid out to bodies involved in a European Territorial Cooperation programme. The power to fund beneficiaries of cross-border programmes currently comes from European law, and therefore needs to be continued in domestic law through this instrument to protect beneficiaries in a no-deal situation. The EU has made special provisions to enable the United Kingdom to continue in PEACE and Interreg VA in a no-deal scenario if the United Kingdom continues to pay its share of the programmes. The transitional provisions in this instrument enable the United Kingdom to make such payments to the EU. This is consistent with the United Kingdom’s commitments to PEACE and Interreg VA.

In this arrangement, the European regulations do not need to be retained. The United Kingdom will sign an agreement with the EU to ensure that programme beneficiaries continue to follow relevant rules. The EU regulation does not resolve the question of payment powers addressed by this instrument. That is why we need both the EU regulation and this instrument to safeguard these programmes. The transitional provision to pay the guarantee to European Territorial Cooperation beneficiaries also ensures that beneficiaries of cross-border programmes other than PEACE and Interreg VA can be paid through the guarantee. Without this instrument, delivery departments would lack the powers to pay out the guarantee to beneficiaries of European Territorial Cooperation programmes.

In conclusion, in a no-deal scenario, this instrument repeals redundant European law while ensuring that projects previously supported by the EU, including those supporting peace in Northern Ireland, are protected. I commend the regulations to the House and I beg to move.

Amendment to the Motion

Moved by

At the end insert “but that this House regrets that the draft Regulations are not accompanied by a strategy or consultation on the use of state aid after the United Kingdom has left the European Union”.

My Lords, I am grateful to the Minister for his introduction. He has covered the ground very admirably. I have taken the step of putting down Motions to Regret for both the State Aid (EU Exit) Regulations 2019 and for the European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) Regulations 2019 because I wish to do two things. I want to probe a little further on the detail in the regulations and I will share with the House that my focus will be primarily on the state aid regulations rather than the structural funds arrangements. I also wish to make points on the fact that little consultation and thought has been given to how these very important schemes will be continued in the long term.

In order to help the House, I shall spend a few moments on the second of the two sets of regulations covering structural funds. The main point to make is that the Government are taking the opportunity to continue the existing funds either by paying through to the EU to continue with the existing schemes or by taking on the burden themselves. The problem is that of course the first approach is obviously right, given that these are contracts which are in place, commitments have been made, there are funding streams which are currently in process with recipients who are in urgent need of these moneys. Given that, it is right that they should be continued. However, the problem is that, as and when the Government take over responsibility for these schemes and for the payment of them, that will come under the cosh of the general economic situation at the time and the question of future budgetary opportunities for changing them. To what extent can the Government guarantee that the funding will be maintained at least at current levels and that schemes which need second and subsequent phases to complete will be considered fairly and on their merits as if the original arrangements were in place? I would be grateful for a response from the noble Lord on that point.

I turn to the state aid regulations. The issue here is the question of why it is that we are transferring across into UK legislation exactly the same procedures and processes that have existed up until now through the EU’s policy of state aid. It is fair to say—the Minister should correct me if I am wrong on this—that, prior to joining the EU in 1973 and the passing of the EU Bill and Act in 1972, there was no concept of state aid as such in the UK. The arrangements under which moneys were used to fund regional activity, to promote research and development and to provide for cultural activities were paid out of general taxation funds gathered in by the Treasury and subject to annual approval by Parliament. In a sense, are the Government trying to operate in a rather odd way in this statutory instrument in relation to others that we have considered? The general premise is that the statute book should be complete at the time we leave on a no-deal basis, assuming that we do—although I hope very much that we will not. However, given that this was not a practice before 1972 and did not exist in any form in the years before that, why are we accepting lock, stock and barrel that which is currently happening in the EU?

In order to make the point, I want to spend a bit of time on state aid and how it currently operates. I acknowledge that much of the information that I am going to share with the House is contained in an excellent pamphlet, which I recommend, that was published by the Institute for Public Policy Research in January 2019 called State Aid Rules and Brexit. The first point to make is that state aid is a portmanteau term which does not have direct legal force. It has a definition that is broadly used in the Treaty on the Functioning of the European Union, which states that state aid is any resource made available by a state,

“which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods … in so far as it affects trade between Member States”.

Two important points arise from that. It is for goods only, and it is between member states. These issues are therefore not entirely relevant to a transfer of that particular definition to the UK, where presumably we are talking about trade within the UK because we are not going to be offering state aid for trade outside the UK.

The EU has used state aid rules effectively in order to tell the British Government what to do with regard to their enterprise investment scheme; that is not goods, it is very much a financial service.

I am grateful to the noble Lord for the intervention. I will come on to that; I was quoting a definition only to prove that it did not actually work. He has made my point for me—perhaps I will shorten that bit of my speech. I was going on to say that the rules do not work in practice, because they have been applied to a number of very different activities.

There is a definition—it is not very clear what it means in practice—and it applies to the particular issue of competition between states, and we will not have that situation. Within this, of course, there are a number of variations, one of which we have already touched on. It is generally recognised that state aid can do more than simply reduce distortions in competition. It can enhance public welfare, address inequalities, allow for investment in research and development for which there is no direct benefit to individual companies—which is probably therefore a public good—and address inequalities across various areas and regions. These do not fit very well into the definition, yet they happen and have continued to do so. Broadly speaking, the state aid rules are not really designed to prevent states aiding the enterprises that operate within those states; they aim for state aid to be targeted. Is that one of the issues that will be carried forward in these new regulations, should they be applied and there be no deal? If that is the case, we are talking about a slightly different way in which the Government will be operating to preserve some of the elements being transferred. I could list a number of issues under which state aid has been offered that would exemplify that.

If we are going to accept that state aid has in the past been used, under the general block exemption regime, for regional aid, to help SMEs, to support research and development, to support the environment and for cultural and other reasons, we have to accept that the issues are broadly interpreted. I am anxious to get on the record whether the Government see this historical use of state aid in a European context as the basis on which future state aid arrangements will be made in this country, whether done directly by the UK or by devolved Administrations.

If you look at European spending on state aid, the UK is significantly below the median level and well below the average. It was said in the IPPR document I talked about that,

“UK spending on state aid as a percentage of GDP in 2016 was 0.36 per cent, significantly lower than the EU average (0.69 per cent) and far lower than other western European countries such as Germany (1.31 per cent), France (0.65 per cent), and Denmark (1.63 per cent)”.

State aid should presumably be appropriate to the need that has been defined, but if UK expenditure were on the same level that France spends we would be spending £6 billion more. If we were to raise it to the same level as Germany, we would be spending £19 billion more; if to the same level as Denmark, £25 billion more. These are huge sums of money, and we do not need to spend much time thinking about what would happen to that. Previously, that would have been money funded out of the European budget, in a sense, but obviously that can only come from taxation raised in member countries. If we are bringing this home and bringing back control, we will also have to think about where the resources for that would come. Is there any intention to set a budget figure for what state aid will be, going forward, if these regulations come through? Can the Minister speculate about where the indicative level of spending will be?

What happens after Brexit if we leave on a no-deal basis? Clearly, some of the issues here will work whether we leave with or without a deal. With a deal there will be implications, not just from the transition period but particularly—this is relevant to debates we had only yesterday—on the question of Northern Ireland. If we are working on a backstop arrangement, there are some specific rules, which I am sure the Minister will want to acknowledge, relating to how state aid rules will apply in Ireland, particularly with reference to differential practices across the border. Can the Minister give us some information about how that would happen? If there is no deal, we are back in WTO territory; those are the only rules that generally apply to the use of targeted financial subsidies. They are not as far-reaching or as enforceable as the EU rules, because the EU’s state aid rules come with significant penalties for those who breach them. They will place limits on government, but they are not nearly as bad, so there would be no barrier in a no-deal, WTO environment for the Government to take forward a spending programme which would encourage more spending on state aid in a way which would be helpful to their overall arrangements.

These issues lead us to a number of questions, some of which I have already asked. Can we narrow down the question of scope? At the moment, I understand the documents to say that the state aid regulations being brought forward are in connection with UK trade with other EU countries. If that is correct, will the Minister explain the reasons for that? Since we are leaving the EU, it does not seem to be appropriate for us to be bound by a rule that would have continued had we stayed in the EU. If there is no deal, there is no reason why that should happen. We would be treating with the EU as a different third country or set of countries. Will the Minister give us a bit more information on that?

The Minister said that consultation had taken place with the devolved Administrations, but in the discussion I have seen there is quite a lot of thought being given to whether Scotland, Wales and Northern Ireland will have their own state aid rules. Will the Minister explain whether that will be the case or they are to be done entirely from a UK Government point of view? The CMA will have responsibility for policing the state aid rules. In his introduction, the Minister mentioned the question of whether the equivalent powers will transfer from the EU to the UK. That might be worthy of further debate because in the EU situation—I make a very general point, but it is worth making—the power to prevent state aid includes the power to overturn legislation made by countries in the EU if it is felt by the EU that they would breach the state aid rules. I understand that the Government do not intend to provide the CMA with the same power and that it would simply have the power to point out that state aid rules had been breached. Is that the power that is being given to the CMA? Will the Minister explain why the power to overturn legislation has not been given to the CMA? Does that power also apply to any decisions taken by the Scottish Parliament, the Welsh Assembly or the Northern Ireland Assembly in relation to state aid? In other words, would the CMA be able to say to Scotland, Wales or Northern Ireland that a decision in their budget in their territory was not in line with state aid and had to be set aside?

Finally, who has the power to set the framework under which the state aid is to operate? I have already mentioned that variable limits exist across the EU at the moment. There is no absolute limit on what you can spend. There are general rules. These are all matters which should surely have political rather than administrative control. Where will that lie? As I understand it, Parliament will not have a role in this. This matter is being devolved solely to the Secretary of State, who can issue guidance on what is or is not state aid. That surely needs some further check. I beg to move.

My Lords, I welcome the opportunity to discuss these two statutory instruments and I welcome the opportunity of the amendments that have been tabled to press the Government. I shall take each in turn. I remind the House that as a very young person I spent six months working as a stagiaire in DG IV, as it then was—it is now DG COMP—of the European Commission, where we looked at measures to prevent the distortion of competition, such as state aid.

I shall press my noble friend on whether and at what stage the Government will come forward with their policy on state aid post Brexit. We do not yet know what our own destination will be. It is quite possible that we will end up remaining or applying to join the EEA and EFTA, which have a competition regime very similar to that of the European Union. If that were the case and we ended up with a sort of Norway-plus EEA/EFTA-style arrangement, would the House have to revisit the statutory instrument in that regard, and would other changes have to be made?

I cannot remember which Government were in power at the time but it is worthy of note that the United Kingdom was effectively the author of the original Articles 85, 86 and, I think, 92, which relate specifically to state aid. The noble Lord, Lord Stevenson, raised in particular the question of the Irish border. Obviously, that will have an impact, particularly in relation to the block exemption on agriculture but also to any subsidies for other products that may be deemed to be a distortion of trade. A no-deal Brexit is still a potential prospect, so what consideration has been given to the World Trade Organization rules that will apply to subsidies? If the answer is in this rather long SI, perhaps the Minister could refer us to it. That would be immensely helpful.

I now turn to the European structural and investment funds regulations. Yesterday we had a debate on the rural development agricultural fund and a short debate on the maritime and fisheries fund, and this debate on structural funds is not dissimilar. I do not know whether the investment funds cover Horizon 2020. Perhaps the Minister could confirm my understanding that it is the Government’s desire to continue to participate in projects such as Horizon 2020. It would be immensely helpful to know that.

I should like to place on record—I know that the noble Baroness, Lady Crawley, will remember this only too well from her time in the European Parliament— that we have benefited from a European Social Fund programme targeted at new opportunities for women returning to work, and there are other specific projects as well. This is something that for some reason the UK Conservative Government would never embrace: targeting and giving assistance, through funding, to workers in their 50s or older who perhaps need training before they feel confident enough to return to the employment market. I see the noble Baroness, Lady Quin, in her place. She too will remember that great training schemes were made available for youth employment, although obviously they were not that helpful. When one sees the level of youth unemployment in countries such as Spain, it is clear that these projects are never as well funded as they could be.

Therefore, can the Minister say what criteria will be used, what projects and beneficiaries might be identified, and what sums will be made available? My specific question relates to paragraph 7.5 of the Explanatory Memorandum to the structural funds regulations, which says:

“To this end, HM Government funding guarantee ensures that, in the event of a No Deal, HM Treasury will underwrite sums that would have otherwise been received from the European Commission”.

I would like to pin the Minister down. Am I correct in understanding that we will have matched funding replaced by additional government funds, and am I right in assuming that HM Treasury’s largesse will know no limits? That is a very big ask because, if we have been allocated £8.4 billion of funding under structural funds for 2014 to 2020, there will be a remaining period until the end of that time is reached. So I should like clarification that the matched funding will be made good by Her Majesty’s Treasury for the projects that are outstanding for that period.

Finally, I will follow up on a point raised by my noble friend the Minister in his introduction, when he said that this was something to which we might return. The point was highlighted by the House of Lords Secondary Legislation Scrutiny Committee Sub-Committee B, in paragraph 42 of its report. The Government have decided not to replicate the current power granted by the European Council, which the Secretary of State could assume in the right circumstances. Will my noble friend set out the circumstances in which the Government might seek to appropriate those powers? Would it be a statutory instrument that he would intend to assume? Will he explain to the House and satisfy Sub-Committee B that there is sufficient flexibility in the statutory instrument to override any need for the Secretary of State to have the final say?

My Lords, in the event that the proposition put prior to this debate by the noble Lord, Lord Adonis, comes to pass, and this SI is not needed, my time will not have been wasted: a more cogent seminar on state aid I could not have asked for than the one I have just received from the noble Lord, Lord Stevenson. I am grateful to him for placing these amendments before your Lordships’ House as this is an issue that requires greater clarity; I associate myself with the questions put by the noble Baroness, Lady McIntosh.

My remarks will be less structured than those of the noble Lord, Lord Stevenson. Regarding the question he posed of what qualifies as state aid, I put before your Lordships my experience of working in the United States and where, for example, a company might be looking to establish a new facility. When considering where that facility might be located, the company speaks to the administrations of various states—this is literally state aid. It asks about the tax structure it would receive in that state, the training regimes that universities might deliver, the buildings and planning regulations that might be needed. All these things qualify as aid which may be offered to companies to locate in a particular place.

The United States would talk about not being a country that distorts the market. Yet the local market is heavily distorted by literally billions of dollars that different US states put in to attract businesses to their location. How does this future regime of state aid fit into that pattern? We have unitary authorities. My noble friend Lord Purvis is going to ask about the role of devolved authorities, but we already have a degree of devolution to unitary authorities in England. They are required to deliver local or regional industrial strategies; LEPs are being granted money to deliver them. How does this fit into a structured state aid programme?

We talked recently about Nissan, which received a secret letter from the Government reassuring the company that it should keep one of its models in the north of England—a large sum of money was secretly committed by the Government in that letter. I contend that that was state aid; whether it would be recognised internationally as state aid is another matter. But we have a dichotomy: there is aid that the state—through a central, local or devolved budget—can give to companies or individuals to help them flourish or locate to particular areas, but it may or may not qualify in terms of whatever international agreements we are under. The noble Baroness, Lady McIntosh, is right to say that, whether we are operating under an EEA, WTO or any other regime, this will become an important distinction. What work are the Government doing on distinguishing between these various forms of state aid?

The noble Baroness, Lady McIntosh, and the noble Lord, Lord Stevenson, also talked about the role of the CMA. There is scope for the Minister to flesh out that role. In particular, the Minister said that broadly equivalent powers were being granted to the CMA, with the one exception that he separated out. There is some disparity on the CMA’s ability to claw back, or otherwise, aid given. I have been given to understand that the CMA has an advisory role in this, rather than an authority role. Can the Minister explain why the Government are seeking to diverge from reproducing the way this is done in the European Union in full?

The structural fund issue is tied in, so it is right that we debate these instruments together. It is good that those who have received funds can be assured that they will continue. It is very important that the mechanism for continuing the peace arrangements is contained in this. Everyone in this House would say that it is very important that we continue to support that process in every way. However, the fundamental point is that the cohesion fund worked in terms of relative poverty, or relative disparity. The reason that not much cohesion money came to this country is that, relative to other parts of Europe, particularly the east of Europe, this part is well off. However, there is huge relative disparity between regions in this country.

The Government need to recognise that while they are honouring their obligations from a European point of view, there is no indication that they realise that what the cohesion fund sought to do—to level the playing field across Europe—remains an issue because we have to level the playing field across the United Kingdom of Great Britain and Northern Ireland. The Minister needs to recognise that there is work to be done. As the noble Lord, Lord Stevenson, rightly says, those requirements will fight with all of Her Majesty’s Government’s other budgetary necessities. Therefore, there needs to be an element of prioritisation and ring-fencing; otherwise, the money will not be spent and we will see disparity grow in this country, rather than narrow. There is room for the Minister to explain this a little further.

My Lords, I am happy to follow my noble friend Lord Fox. I endorse the strong points he made towards the end of his speech, because I live in a very rural part of the Scottish Borders. On my journey to this House every week, I drive past a number of local infrastructure investments that have been made and areas where projects have been brought about by the partnership between the devolved Administration in Edinburgh and the support of the UK Government, but funded by EU structural funds. There is a whole suite of different funds, which the Scottish Borders local authority has been able to link with directly.

I can only emphasise the point made by my noble friend. The Scottish Borders can be excluded from certain types of funding from the normal budget-per-capita distribution of funds of the Scottish or UK Government. However, it has been able to use the fact that it has the second-lowest wage profile in the country to tap into cohesion funds, because these have been set at a European level on a certain set of parameters, which are not the same as the budgetary distribution formula from the Treasury used by the UK Government. This has meant that the Scottish Borders has benefited from projects from these direct funds and the way they have been established, using objective criteria that are not used in the normal way of distributing funds. Therefore, it would be most helpful if the Minister could provide a degree of clarity as to how the formula would be used for any successor support that would be provided. If it is different from what is currently used, there will need to be some urgent readjustment from the local authorities and the Scottish Government in how they will offer match funding.

Linked with that, in the multiannual financial framework 2014-20, including all European funds, Scotland received 14% of the UK funds with a population of just 8.3% of the UK. This is because of the particular circumstances of the Scottish industries and the Scottish economy. It would be a major disruption if that kind of financial balance had to be adjusted over a short period, especially in the context of a no-deal Brexit.

That leads to my next point. I have heard the Minister commit to offering security for funded projects to be supported for their lifetime. I stress, from my direct experience of having been elected in the Scottish Borders and working very closely with the then local enterprise company and the local authority, that the typical long-term basis of the six-year period of the multiannual financial framework has been pivotal, especially in the context that these funds have to secure match funding, which can be over two or three spending review periods of any Government, either a UK Government or a devolved Administration. That period has been critical when there have been other funds and they have had to secure other forms of match funding. If there will be simply a normal three-year spending review period replacing the longer-term multiannual financial framework, that will be very damaging to the ability to secure some of the projects associated with it.

That is also why it has been typical in my area of Scotland for projects often to run on from the funding period. That has been a beneficial approach by the European Commission, which instituted the principle of n+1, n+2 and n+3 so that projects that have been initiated and are operating can continue to receive funds after the formal closing of that funding period. The funding has been committed but there is no guillotine period at the end of the funding round. In certain areas that has been pivotal. An equivalent commitment would be helpful.

We now have reference to the areas linking in with the devolved Administrations, certainly for Scotland, and we have the UK fiscal framework, which has been negotiated between the UK Government and the Scottish Government and is the basis on which the non-own revenue funding that the Scottish Parliament is responsible for is distributed. Is it the Government’s plan that there will be discrete funding components, as my noble friend asked for clarity on, or is it their intention that the funding will be operated through the UK fiscal framework? I can tell the Minister straightaway that if it is the latter I can see a situation where certain parts of Scotland will be harmed because they will not be able to tap into the targeted methodology of many of these project funds. Clarity on that would be very important.

Furthermore, it is also very important to know whether the Government intend to continue the principle that some funds can be bid into. Scotland has a better record of success in bidding into EU-wide funds that are open for bids because of its particular set of circumstances and its economy. In my experience, it has been a very positive element to ensure that all levels of government—local authorities, the Scottish Government and the UK Government—work together with local enterprise leaders to ensure that bids into EU projects have been the strongest they can possibly be. If that is weakened, the whole quality of economic development policy will be harmed. Do the Government intend that there will be some funds that can be bid into? That has been a positive element.

Finally, on the element of the structural funds in this support, is it the Government’s intention in their negotiations that, if we are to leave the European Union, parts of the UK will be able to continue bidding into European-funded projects, as those in Norway can? I understand that the Minister may say that this will depend on a negotiation with the rest of the EU, but a signal that this is the Government’s intention would be most helpful.

Turning to state aid, I am most grateful to the noble Lord, Lord Stevenson, for tabling his amendment to allow us to ask these questions. The points he raised are very important. He and I—and the noble Viscount, Lord Younger, who I see on the Government Front Bench—have debated at length the interaction with the devolved Administration on trade issues as a whole, but also on state aid as a component part of them. In leading up to this statutory instrument, the Minister said that the Government have been working closely on state aid issues. It would be helpful to know if the Government formally communicated the draft text to the Scottish Government before bringing forward this statutory instrument. The Minister will be aware of the operation of Section 2 of the Scotland Act 2016, which states:

“It is recognised that the Parliament of the United Kingdom will not normally legislate with regard to devolved matters without the consent of the Scottish Parliament”.

It is the view of the Scottish Government, endorsed by the Parliament, that state aid is an issue of competence, and that when areas of EU competence in state aid issues are brought back to the United Kingdom, they should fall fully within the legislative competence of the Scottish Parliament. It is an area of dispute between the UK Government and the Scottish Parliament. I am assuming—and hope the Minister can clarify—that this issue has now been resolved. It would be fairly regrettable if this statutory instrument was brought forward without any consultation with the Scottish Government, given that they believe that this will be fully within the legislative competence of that Parliament.

This leads directly on to the very good point made by the noble Lord, Lord Stevenson, and my noble friend Lord Fox: what will be the interaction with the CMA? Ordinarily, UK regulatory bodies operate within reserved areas, and the devolved Administrations know that if there is interaction between a devolved Administration and a UK regulator, whether it is Ofgem or Ofcom, the statutory underpinning is UK-reserved legislation.

This is an area where there is not agreement. The Scottish Government and Parliament believe that state aid issues are fully within the legislative competence of the Scottish Parliament. What will the interaction be of a UK regulator not operating under UK legislation when one part of the United Kingdom believes that this is fully within the scope of a devolved Administration? I can tell the Minister that conceptually it is not a new idea. When the Committee on Climate Change was established, the Scottish Parliament made a conscious decision that it would have an oversight role and a formal link to the devolved Administration. That was proactively asked for by the Scottish Parliament, and a mature relationship then developed. It would be very regrettable if this was the reverse—if the UK Government were insisting that a regulatory body had some form of oversight of devolved competences when they themselves will have no regulatory or formal relationship with that devolved Administration. I cannot see it working, but maybe the Government will be able to clarify.

I hope that the Government are able to provide a degree of clarity on the areas where I believe there is still dispute. It would be very regrettable if something so critical to many parts of the Scottish economy started with a major constitutional dispute about the competences and how it will be interactive.

My Lords, I will start by dealing with one or two of the points made by the noble Lord, Lord Purvis of Tweed. He lives just north of the border and, as he is probably aware, I live north of Hadrian’s Wall but just south of the border, so we both have an interest in that area. I presume he noticed the announcement, among many others, by my right honourable friend the Chancellor in his Statement yesterday about the £260 million available for the new borderlands deal. He is probably also aware of what my right honourable friend the Secretary of State for Scotland said about welcoming that deal. Irrespective of all other matters that we might discuss, this is a wonderful example of cross-border working which he and I, and no doubt others who have slightly less interest in the immediacy of the Anglo-Scottish border, would welcome.

On the noble Lord’s point about these matters and to what extent they are devolved, it is Her Majesty’s Government’s view that regulation of state aid is a matter that is reserved for them. I recognise that there is a difference of view. However, given that the UK Government are closely aligned with the devolved Administrations on the substance of policy and given the limited scope to depart from mirroring the EU regime by using powers in regulations, it is not necessary for us to resolve the matter at this stage, because at this stage we are just bringing in no-deal regulations to deal with these points. We will come on to others, such as the shared prosperity fund, later. I appreciate that all noble Lords who have spoken want me to say more about it. There is a certain amount I can say but I obviously cannot go quite as far as noble Lords would want on guarantees and so on.

We would be satisfied with that kind of comment if we knew what vehicle the debate about these future issues will come in. Will it be in primary legislation brought to this House straight away? Would it be merely a series of Command Papers? If the Minister could explain the structure by which future negotiation or legislation will go ahead, we could perhaps be more satisfied by that.

I will see how I get on in my response to the various remarks made by the noble Lord, Lord Fox, and others. I was going to start with state aid rather than on structural funds but we all know about the shared prosperity fund. I think it was back in July that my right honourable friend made a Written Ministerial Statement on that subject. The noble Lord will know, as that Statement made it clear, that it is designed to tackle inequalities between communities, especially in those parts of the country whose economies are furthest behind. It will achieve that by investing in the “foundations of productivity” and so on, as outlined in our industrial strategy, which is now—gosh, it is a year and a half old. But it will be an integrated, simplified fund, operating across the UK. I do not know at this stage whether it will need primary or secondary legislation, or whatever, and it would be wrong to speculate.

Before the Minister moves on to the structural funds, I want to come back on the previous issue. I understand that there may well be a difference of opinion between the UK Government and the Scottish Government, in particular, on where the legislative competence on state aid issues arises. But it does not matter if there is a difference of opinion because we operate on a statutory basis. The Scotland Act 1998, as a constitutional Act, provides for the legislative competence of the Scottish Parliament to be total unless there are specific areas reserved in its Schedule 5. So it does not matter what the Government’s opinion might be since unless that is reflected in Schedule 5 to that Scotland Act, as amended by the 2016 Act, the legislative competence falls within the Scottish Parliament.

Even if this statutory instrument were on an emergency basis—the basis of leaving the European Union—that statutory competence would therefore be the Scottish Parliament’s, unless the Government bring forward an amendment to the Scotland Act to reserve it. It is important that this is now resolved in this statutory instrument, as in others, because unless the Government intend to amend Schedule 5 as per the Scotland Act 2016, the legislative competence for state aid will rest with the Scottish Parliament.

My Lords, I do not accept the point that the noble Lord is making. I made it clear that we believe that state aid is a matter reserved for HMG. As I said, we recognise that there is a difference of view; that can be resolved in due course but I do not think it necessarily needs to be resolved in advance of this SI. He and I will obviously have to continue to disagree on that matter.

I was going to deal with these matters in the order that I originally set out, starting with questions relating to state aid and in particular to the amendment moved by the noble Lord, Lord Stevenson. What is important on this occasion is that we do not conflate the rules that govern the overall aid framework with the provision of aid itself. Decisions by public authorities on how and when to provide funding to business and industry after EU exit are quite separate from the decision in front of the House today, which is on whether to approve a state aid framework to ensure fair and open competition throughout the UK. By keeping the rules as close as possible to how they operate today, compared to what has been the case, will provide continuity and certainty in the immediate aftermath of the UK’s departure from the EU. This will ensure that aid can be provided in a similar way to now.

Individual choices on how and when to give aid within that regulatory framework will obviously be for each public authority to make. That applies equally to successive Governments, the devolved Administrations and local authorities. As with the other public authorities granting that state aid, the Government will of course continue to consult individual spending authorities where it is appropriate to do so after the UK leaves the EU. But our strategy for supporting business and industry before and after EU exit is comprehensively set out in the industrial strategy, which we have debated on various occasions. As I said, it was launched almost a year and half ago and is already having an impact. That is how it should be set out.

As I made clear, and I repeat it, we have engaged constructively and intensively with each of the devolved Administrations on the state aid regime, including discussing the details of the proposed regulations and the accompanying set of commitments to underpin how the regime will operate. I think the noble Lord, Lord Fox, wanted more detail on this—perhaps it was the noble Lord, Lord Purvis—and we hope to conclude a memorandum of understanding in due course with the devolved Administrations. No doubt when we have concluded that, it can be published. Our discussions over the last year have shown a broad alignment on the substance of the policy to establish a UK-wide state aid regime that mirrors the EU’s. We will continue to work with the devolved Administrations and, as agreed, each of them will be responsible for managing communication between their respective aid givers and the CMA. They will not need to go through my department, as is the case at the moment.

I thank the noble Lord for beginning to flesh this out. Rather than continue the debate here, it would be helpful if the Minister could go back to his department and then write to us about the basis for the assertion by Her Majesty’s Government that they have predominance on this issue over Scotland and the devolved authorities. On what basis in law do the Government assert that UK-wide role? Can he also flesh out the mechanics for the CMA operating in Scotland? Rather than detain the Minister at the Dispatch Box, a written response would be helpful.

I am more than happy to offer a written response, but the Government have been clear throughout. My noble and learned friend Lord Keen set out our position in various debates on the withdrawal Bill and so on. I will dig that out and offer it to the noble Lord. Other Ministers, equally learned in the law, have also made similar points in another place. As I said to the noble Lord, Lord Purvis, this is a matter for the Government but we believe we should continue to consult the devolved Administrations.

The noble Lords, Lord Fox and Lord Stevenson, also wanted me to flesh out the role of the CMA and asked whether it would have the power to overturn legislation. I repeat that our intention is to make sure that the regime covers the same sectors, applies to the same actors and does the same job as it does at the moment. It is worth noting that there are very limited circumstances in which aid is granted directly by Act of Parliament. To ensure that aid granted by any future Act of Parliament can be reviewed in a non-binding way by the CMA, which is the domestic regulator, Schedule 3 creates a process for it to consider aid that may be granted directly by an Act of Parliament. It provides for a Minister of the Crown to seek a non-binding advisory opinion on proposals for grant aid by an Act of Parliament. It also provides for interested parties to request the CMA to prepare a non-binding advisory opinion. I hope that explains the matter, but I will expand on it in any letter that I write to noble Lords in future.

The noble Lord, Lord Stevenson, also asked how we were intending to use this provision in future. I will expand on this a little more. The rules are not intended to prevent public authorities supporting industries or businesses, or even—dare I say it—nationalising assets. A rigorous state aid system is good for taxpayers and consumers and ensures an efficient allocation of resources. There is a large degree of flexibility in the rules to ensure that a wide range of interventions can still be deployed, but in a way that minimises distortions to competition. The future regime will still allow the Government to act swiftly if necessary, much as they have been able to under the existing one. EU state aid rules do not prevent, and have not prevented, the UK pursuing its active industrial strategy. In practice, the existing EU rules have always been sufficiently flexible to allow the UK to make innovative state aid interventions where necessary.

The noble Lord, Lord Stevenson, also asked a purely factual question about how this would work with the backstop. In the unlikely event that we have not agreed a future economic partnership at the end of the implementation period, the Northern Ireland protocol, which provides for the single customs territory between the EU and the UK, would come into effect. Under Article 12 of that protocol, the full EU state aid acquis will apply dynamically for goods and the Commission will act as a regulator in Northern Ireland for measures in support of goods in so far as these affect trade between the EU and Northern Ireland. Under Article 7 of Annexe 4 of the protocol, the rest of the UK will take the state aid acquis for support of goods only in so far as it affects trade between Great Britain and the EU, and align dynamically. This will be regulated by the CMA.

The noble Lord also asked whether Parliament should have some sort of role in the guidance that the CMA would be given by my right honourable friend the Secretary of State. He will provide guidance on the approach to providing aid under Article 107(3), also known as the balancing test. That guidance will draw on the Commission’s working paper, setting out how to balance the good effects of an aid measure against any potential distortions of competition. The department will publish that guidance shortly and certainly before exit day. This is appropriate because the guidance does not substantially alter the current state aid balancing test.

My noble friend Lady McIntosh was concerned about the WTO rules and whether, without a state aid regime, the UK would still be bound by the WTO’s agreement on subsidies and countervailing measures. This does not regulate subsidies within countries and would not, therefore, prevent distortions of competition between the different parts of the UK. This regime also only applies to goods, not services, so does not provide cover for the whole economy. Without a state aid regime there is also no right of redress for individual companies and complaints cannot be brought against domestic aid which a company may feel unfairly benefits its competitors.

I do not want to go into detail on the question of the structural funds as, at the moment, we do not know what the new shared prosperity fund will look like. The statutory instrument in front of the House purely concerns no-deal planning for structural funds including, as I made clear in my opening remarks, its European territorial co-operation component. It enables those funds to continue to operate with no deal much as they would have done before exit. It does not make provision for the UK shared prosperity fund, which we will bring forward in future. There will be ample opportunities to discuss that.

Under the terms of our funding guarantee, structural funds projects signed before the UK exits the EU will continue to be funded even in the event of no deal. The guarantee also enables new projects to be signed after exit, until 2020, with funding from Her Majesty’s Government. That practical measure ensures that beneficiaries can expect to receive the same amount of funding under the guarantee as they would have received if the UK had remained a member state. I believe that provides additional certainty to communities, businesses and local partners, guaranteeing investment in regional growth until the end of the current structural funds’ programme period. As I said, we will have ample opportunity to debate the UK’s shared prosperity fund, but now is not necessarily the right time or place to do that.

I intend to make two final points—

Could my noble friend confirm the match-funding aspect of what would have been paid by Brussels, and that the UK Government will pay not just what they would have paid in match funding, but the whole amount the Commission would have paid—effectively both parts of the fund?

The noble Baroness is too fast for me. I had two final points, one of which was to deal with concerns about match funding and whether that guarantee would underwrite it. The guarantee will underwrite the funding previously received by the EU. Match funding will continue to be provided by existing match-funding providers, such as the National Lottery.

My noble friend also asked about our future participation in Horizon. All I can say at the moment is that decisions on future such EU programmes will come as part of the spending review.

I appreciate I have not answered all the questions that have been put to me, but I believe I have answered most of those that are directly relevant to the statutory instruments before us. I appreciate that the noble Lord, Lord Fox, would like—and will receive—a letter. That letter will set out more about the possibilities for the future, and I will write to the noble Lord, Lord Purvis, in greater detail about our possible disagreement on where responsibility lies.

The Minister may have answered this question, so I apologise if I missed it. In dealing with the shared prosperity fund and its disbursement, we come back to that paradigm of what happens in the United States, for example. Do the Minister and the Government foresee that the CMA will have a role in policing that process? If not, how do we prevent regions bidding up, which we have experienced in some RDAs? The Minister again said we will have ample opportunity to debate this in the future, but it is not clear to me through what vehicle this debate will continue.

I am sure the noble Lord will find it easy to raise the subject, and will do so. Whether there will be the opportunity through primary, secondary or whatever legislation, I do not know. On his broader questions about the shared prosperity fund, he will have to wait for the guidance that the right honourable Secretary of State will provide. That might be his moment to consider such matters. With that, I beg to move.

I notice the noble Lord did not ask me to withdraw my amendment. I am sure he therefore wants to accept it, but I am going to disappoint him because I will be withdrawing it anyway, so he does not need to panic too much.

Having said that, I am afraid we did not get answers to many of the deeper and far-reaching questions about state aid or the European structural and investment funds’ continuation schemes. That is partly because the particular issue is the need to cope with a no-deal Brexit and, therefore, some of the bigger issues do not come into play. For the record, I do not feel that we have had a sensible answer to my question about why the Government are asserting that state aid rules are necessary to ensure that competition with the EU is not distorted. If we are leaving the EU under a no-deal situation, they will be a series of third countries and there is no logic in trying to make sure that our competitive approaches are maximised. There would be a good argument for saying that, if we have to leave the EU with no deal, and we are therefore just competing with them, we ought to use the maximum freedom available under the WTO to subsidise all our exporting companies as much as possible, for the benefits of UK plc. I am not supporting that; I am just saying that there is an alternative. The argument for why we need the proposed comprehensive set of rules needs to be explained better.

Secondly, we have not had an answer to why Parliament has not been brought into this process. Again, this is an issue of supreme importance to many people; the sums of money are enormous. The impact of the structural funds and European investment over the years has been fantastic; in times of austerity, they have saved many communities, economies and lives, and we should not forget that. Therefore, Parliament should have a role. We are not getting the right answers on how the devolved Administrations will operate in this new process and we are certainly not getting answers about how the CMA and its powers will operate.

However, these issues are for the future. I am sure that, once we read Hansard, a number of issues will be clearer. I will do that, and I also hope that a few letters will come from the mighty pen opposite, which will also help. If the Minister feels that a meeting to discuss some of these issues might help to clear the air, we would be willing to do that. With that, I beg leave to withdraw my amendment.

Amendment to the Motion withdrawn.

Motion agreed.