My Lords, the Subsidy Control Bill creates a new, bespoke, UK-wide subsidy control regime that delivers on our national priorities. This Bill demonstrates the Government’s clear determination to seize the benefits arising from Brexit and design a UK-tailored regime that departs from the previous prescriptive and burdensome EU state-aid system. We have designed a regime that works for the whole of the United Kingdom while at the same time maintaining our reputation as a trusted and respected partner on the world stage. This Bill helps us to honour our international obligations under World Trade Organization rules, under the UK-EU Trade and Co-operation Agreement and other free trade agreements.
The regime that the Government have set out in this Bill will help public authorities to deliver subsidies where they are needed, without facing excessive bureaucracy or lengthy pre-approval processes, as seen under the previous EU system. It allows for greater flexibility and autonomy for public authorities to deliver on local priorities. However, the Government are clear that this freedom does not extend to harmful and excessively distortive subsidies. We are not in the business of propping up businesses that are unviable or doomed to fail without government support.
It is also important to set out clearly what this Bill is not. It is not about intruding on spending decisions for local authorities or the devolved Administrations, and it will not dictate the policy decisions that this Government make in supporting our strategic priorities, from levelling up to net zero. Public authorities will maintain their spending decisions in relevant areas and will be supported by clear guidance on how to grant subsidies in line with the new regime. We will continue to make the right strategic decisions, to support the people’s priorities.
For the first time, local authorities, public bodies and the devolved Administrations in Scotland, Wales and Northern Ireland will be empowered to decide for themselves if they can issue taxpayer-funded subsidies, by following a set of UK-wide principles. This will provide them with new freedom and flexibility to design subsidies and subsidy schemes which meet local needs, as well as national policy objectives such as reaching net zero. The seven principles that they will need to follow are clear and proportionate and form the basis of our new regime. They set out that subsidies awarded under the new regime must be justifiable on policy grounds. The subsidy must be appropriate, proportionate, and designed to minimise any distortions to competition and investment in the United Kingdom. These principles, along with additional considerations for energy and the environment, will ensure that public authorities design subsidies that bring out the best in our communities while ensuring consistency. The Government are clear that subsidies are there to support and encourage businesses, not to prop them up.
The Government are committed to our international obligations and relationships with our valued trading partners. Therefore, the principles also require a public authority to carry out a balancing test and to proceed only if the benefits of the subsidy outweigh any distortions to international trade, in addition to UK competition and investment. These principles will be underpinned by clear guidance, which will be published ahead of implementation of the regime. This guidance will support public authorities to ensure that subsidies deliver strong benefits and good value for money for the UK taxpayer, and ensure that subsidies are being awarded in a timely and effective way, to give businesses the certainty and confidence that they need. The guidance will also ensure that public authorities fully understand their legal obligations, and make clear which subsidies are permitted and which are prohibited.
We want public authorities to be able to deliver subsidies quickly, easily and without undue burdens. The Government want low-risk subsidies to proceed with minimum bureaucracy and maximum certainty, so we will create streamlined subsidy routes for subsidies that are at low risk of causing market distortions, and that promote UK-wide strategic policy objectives. These routes will make demonstrating compliance even simpler than the baseline method of principle-by-principle assessment. I appreciate that streamlined routes are a novel approach to subsidising and that further explication is required. To aid understanding, we will shortly publish a policy statement and two draft illustrative routes. Together, they will describe in detail the Government’s thinking in this area and demonstrate exactly how these routes will work.
I know we have had Covid, but I can still ask a question at Second Reading, even though it is unusual. Can my noble friend explain why the guidance and the information that he is describing has not been made available before we got to Second Reading?
My noble friend makes a good point. We will be publishing the guidance as soon as it is available. We are still in discussions with the devolved Administrations and others on the exact design of the regime and the possibility of obtaining legislative consent Motions.
The Bill also establishes the UK subsidy advice unit, hosted by the Competition and Markets Authority. The unit will monitor and oversee how the regime is working, as well as conducting a mandatory, non-binding review on public authorities’ assessments for subsidies of particular interest. Subsidies or schemes of interest may be referred to the subsidy advice unit. A subsidy or scheme of particular interest must be referred to the unit, which will then publish a report detailing its decision within 30 working days. This quick process will allow public authorities to act with far greater agility than before, while upholding the highest standards of accountability or transparency. We are clear that this Bill will allow for agile delivery and proportionate scrutiny at the same time.
Although we can expect that public authorities will take their obligations under this regime seriously, we also recognise the need for a direct route to challenge by interested parties, so there will be a meaningful, time-limited process for enforcement, through the competition appeal tribunal. This will ensure that the subsidy recipients have legal certainty once the window for a challenge has passed. A key part of effective enforcement is ensuring that we are as transparent as possible with information on what subsidies have been awarded. My department listened to the concerns expressed in the other place about the operation of the subsidy database. We are editing the database to improve the quality of information that is available publicly. Of course, the database is still relatively new. Officials are actively developing further enhancements over the coming months, in advance of the new regime coming into force.
A UK-wide subsidy control regime is necessary to ensure that subsidies do not unduly distort competition within the UK’s internal market. I repeat, as we have many times before, that we are wholeheartedly committed to ensuring that the new regime works for the whole United Kingdom. That is why the Government have worked closely with the devolved Administrations, including sharing the consultation response document ahead of publication and carefully considering their representations. We have met with DA officials 45 times and Ministers 13 times to talk about the regime, since July 2020, and we will continue to discuss its development with DA counterparts ahead of implementation. We will work closely with the devolved Administrations, but it is important to reiterate that subsidy control is a matter reserved for this Parliament. Noble Lords will remember the robust debates that we had on this matter during the passage of the UK Internal Market Bill, but I assure them that the devolved Administrations are and will remain responsible for spending decisions on devolved subsidies within any domestic subsidy control system.
As it currently stands, and according to the terms of the Northern Ireland protocol, subsidies for services in Northern Ireland will be within scope of the new domestic regime. It is this Government’s view that it is no longer necessary for Northern Ireland to be subject to the EU state aid regime, which is why we have proposed a change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime. As noble Lords will be aware, discussions continue at pace with the EU on the Northern Ireland protocol. However, no matter the outcome of these negotiations, the Bill will deliver for the people of Northern Ireland and ensure that there is clarity on which rules to follow.
This new independent subsidy control regime will help ensure that people in all areas of the UK, from Belfast to Bangor, Derby to Dundee, feel the benefits of targeted subsidies in their areas, and that prosperity and opportunity is spread right across the UK. This includes investment in skills, local infrastructure and new technologies, as well as into research and development. We have the opportunity here to facilitate subsidies that support people’s priorities, from tackling regional inequalities, to combating climate change, to increasing R&D and innovation. The common-sense energy and environment principles in Schedule 2 of the Bill support the UK’s net-zero ambitions, as well as contributing to a secure, affordable energy system. Under this regime, public authorities at all levels of government will be empowered to give subsidies to help address regional disadvantages, supporting our levelling-up aims.
Noble Lords will be aware of the delegated powers in the Bill. I assure them that the powers to make regulations are reasonable and necessary. The regime will need to change over time in response to a number of factors, such as exchange rate fluctuations. Where the Bill includes powers to amend primary legislation, these have been drafted to be as narrow as possible. However, we will of course take into account the findings from the Delegated Powers and Regulatory Reform Committee’s report and we will review accordingly.
The illustrative regulations that we will publish before Committee will help to demonstrate to noble Lords how the Government will exercise, with care, the powers contained in the Bill. I am, as usual, very happy to engage and I will very much welcome feedback from all sides of the House on these products in due course.
We are seizing the opportunities of Brexit. The Bill before us today is an important move away from prescriptive state aid rules. Public authorities across all parts of the UK will have the autonomy and flexibility to deliver subsidies that work for their local area. We are returning decision-making to the hands of the decision-makers in local communities up and down the country. This legislation ensures that our new subsidy system will maintain the competitive, free-market economy central to the UK’s economic success and to our national prosperity. I beg to move.
My Lords, I start by thanking the Minister for his engagement with our team and the offers of detailed briefings on this important legislation. Such openness is much appreciated. We agree with the need for this legislation and support the introduction of a subsidy control scheme that provides public authorities at all levels and in all parts of the UK with greater flexibility than they enjoyed under the EU state aid rules.
However, while the EU system came with less flexibility than the one that this Bill envisages, action, for example to support key industries, was never impossible. The UK consistently lagged behind comparable EU member states in the amount of subsidy provided, and in most cases the failure to step in and provide support during a firm’s hour of need was a political choice.
When this Bill was in the Commons, we outlined several fundamental concerns with it. It is not, as has been identified, the finished product. Key terms are not properly defined, and a significant amount of the detail will be left to statutory instruments and guidance, with the department acknowledging in its impact assessment that there are “considerable unknowns” attached to the chosen approach. As the Minister has acknowledged, when we come to talk about oversight, although there have been some improvements since the Commons stages to the public subsidy database, we believe still that it fails on the whole area of oversight.
The Government are failing to mandate clear, swift public declarations of subsidies, or proper means for authorities, including the devolved Administrations, to challenge those that may be unfair. This lack of transparency is an area that we will return to at greater length and is, I am sure, an area that my noble friend Lord McNicol will pick up as we debate these matters further. Surely this is a prime area where the Government’s stated intention to make the UK
“a world leader in subsidy transparency”
should be enacted.
We believe that the Bill lacks ambition. This is yet another framework Bill, meaning there is no clear underlying strategy beyond that of boosting flexibility. Despite stating a wish to level up deprived areas across the UK, the new scheme does not target support by allowing subsidies to target areas of economic deprivation; nor does it address the issue of putting fairness and need at the heart of decision-making. It fails to tackle the biggest challenges that we face. The Bill says virtually nothing about transitioning to net zero, and, while it does still feature some additional energy and environmental principles, they are limited in scope and would not, for example, encourage subsidies for things such as green transport projects. This misses the opportunity to enhance environmental protection, boost regional growth or incentivise research and development, all of which were at the centre of decision-making under the previous arrangements.
Better outcomes drove our decision-making when I was an LEP member for Leeds City Region. Collective decision-making, based on strict criteria and collaboration between all relevant local authorities, was the key to our investment strategy. Perhaps the Minister could inform us as to how this collaborative approach will be enhanced under the new arrangements.
This legislation is especially contentious in terms of the devolved Administrations, who, in a number of areas, are not being afforded the same powers as the Secretary of State, and will not have representation, for example, on the Competition and Markets Authority body advising on subsidy matters.
I could predict the comments made by the Minister when I say that the Government will point to dozens of meetings, held at both ministerial and official level; but, as with most of the Brexit process, it seems that Westminster’s definition of “engagement” differs from that adopted by everyone else. On some points, such as whether the DAs can establish streamlined subsidy schemes, there are probably new forms of words that can be agreed, but others raise that nagging feeling that this Government are simply not interested in devolution.
While there is a benefit to be derived from implementing a new regime sooner rather than later, it is not clear why the Bill has to be pushed through according to the department’s chosen timescale. Surely there was a clear public interest in getting its contents right from the start, rather than leaving gaps to be filled in later. Are we at risk, as suggested in the Financial Times, of sacrificing scrutiny on the altar of speed?
We will seek to make a variety of sensible changes to this legislation and hope that colleagues across the House will work with us to ensure that the Bill that eventually returns to the Commons is an improvement on the initial offering.
My Lords, we on these Benches support a legal system of state aid subsidy support, built on the principles of a sound industrial strategy, where there are identified areas of need and deprivation. The system should be transparent and linked with addressing the structural problems of our economy and the regions within it.
Between 2014 and 2020, the UK as a whole was allocated £4.3 billion a year of structural funds, ERDF funds and ESF funds. The Government’s Budget has stated that we will reach only £1.5 billion a year for the UK shared prosperity funds in 2024-25. Can the Minister say how that shortfall will be met? It is not as if we were renowned for having an expansive subsidy approach. The impact assessment had highlighted the fact that the UK was one of the lowest in expenditure on subsidies within the former 28. The impact assessment used the data from the EU scorecard. In the most recent year, the UK spent £8 billion—0.4% of GDP—compared to France, £16 billion or 0.8% of GDP, and Germany, £49 billion or 1.5% of GDP. Clearly, Germany, spending five times as much as we did, did not consider us a major straitjacket, burdensome and prescriptive, so why were we so low if it was not the fact that it was simply a government policy choice to be so low?
Interestingly, the Government’s impact assessment also said that, for the purposes of us scrutinising the Bill and for the purposes of costing impact, historic data on the volume and value of subsidies awarded in the UK has been used. So the Government, even as they present their Bill to us, are saying that there will not be any change of direction from that anyway. So what is their intention as far as the way forward is concerned? After the Internal Market Act, the Professional Qualifications Bill and now this Bill, we are legislating in limbo, with so many decisions deferred for future regulation and guidance and with a lack of clear information on how it will support structural investment. It simply is not good enough.
It is interesting that five years after the referendum, the Johnson Government are so uncertain what to do with their new powers that they do not even bring forward any schemes that accompany legislation. The noble Lord, Lord Frost, and I seem to have this confusion in common.
The deficiencies of this Bill were rather cruelly exposed within the first three minutes of the Secretary of State’s introduction at Second Reading in the Commons. A rather plaintive intervention by a Conservative Back-Bencher, on behalf of her constituency, which has a tradition in steel manufacturing, asked whether the coal and steel research fund worth €111 million, and from which the UK would have been able to benefit, would be ring-fenced equivalent for state aid support for research on decarbonisation in the UK. No guarantee was forthcoming. That is the essence of the point. The fact that we now have uncertainty and are reliant on the lack of clarity will be a concern for businesses.
The Minister gave us a number of assertions of the benefits of this new scheme, which are not backed up in the Government’s impact assessment. For example, paragraph 468 on the positive impacts for competition that the Minister mentioned, states:
“It is not possible or appropriate to produce a full competition assessment on such a broad policy change—potentially affecting a large number of subsidies and therefore markets.”
So it is not possible to work out the benefits. The Minister also referenced the Government’s impact assessment on trade, paragraph 474 of which states:
“It is not possible or appropriate to produce a full trade assessment”.
Paragraph 478 states:
“As there is still policy detail—yet to be decided—to follow in secondary legislation and guidance it is not possible or appropriate to provide further analysis on the potential trade impacts”.
On monitoring and evaluation, to get away from the approach that the Minister says is harming us so much, paragraph 481 states:
“As the final details of the policy are yet to be decided, or will follow in secondary legislation and guidance, it is not possible or appropriate to provide specific details on the plan for monitoring and evaluation at this stage”.
At what stage will we get this information? Is it the Government’s intention to bring another impact assessment forward, as they have done on market, competition, trade, monitoring and evaluation? These are fundamental for any new schemes.
Finally, Northern Ireland is an area of considerable concern. The Government have indicated, as the Minister said, that it is their intent that no part of this Bill will apply to Northern Ireland, but that is not in the Command Paper. Paragraph 68 of the Command Paper fully anticipates that European Union law will still apply to Northern Ireland. There will still be a situation where there is double jeopardy, where businesses trading in the UK will still have to comply with British-based schemes and EU schemes, especially when businesses are at risk. The Government’s guidance has told them that they should start having two sets of accounts, one for their business operations in Britain and one for their business operations in Northern Ireland. If they trade in Northern Ireland with a parent company in Britain, they will have to comply with both sets of rules. That is not what the Minister indicated.
Liz Truss, in her article in the Telegraph, said that it would no longer be appropriate to have any schemes where Britain would have to notify the European Union for any support for British businesses in Northern Ireland. That is still going to be the case, even if the Government succeed in getting everything they want in the Command Paper.
There are many other concerns of devolution and the fact that the Minister made no reference to agriculture or fisheries at all, which my noble friends will pick up in this debate. If anything is clear, even so far, it is that there are so many holes in this legislation that need to be filled during this scrutiny that we will have a long task ahead of us, especially for our colleagues in Northern Ireland, who will be faced with a continuing system of confusion, lack of clarity and uncertainty—the very things that the Minister promised we were moving away from.
My Lords, I welcome this Bill, which puts in place a subsidy regime that will deliver for the whole of the UK. The principle of having considerably more flexibility than the old system in what we are able to do opens up a host of opportunities for how subsidies can be used for the benefit of the whole UK.
Building on what the noble Baroness, Lady Blake, said, I will focus my remarks on levelling up. Central to the levelling-up agenda will be investment into disadvantaged regions, for which this Bill will obviously play a key role, so I was somewhat surprised not to find levelling up at the heart of the Bill, or even find anything which really contributes to it.
As an example, I am the co-chair of the Midlands Engine APPG. The Midlands Engine is a pan-regional partnership that focuses on levelling up the Midlands. Home to 11 million people, the Midlands Engine contains some of the most deprived areas in the UK and, unsurprisingly, subsidies will be vital to levelling up the region. This is perhaps best illustrated by some economic indicators.
Within the Midlands Engine, public spending and support lag significantly behind the rest of the UK, contributing to a considerable gross value-added gap, whether in transport spending, economic affairs or R&D. For example, spending on transport is £289 per head for the east Midlands and £492 per head in the West Midlands, compared to £882 in London. Public sector R&D in the east Midlands is the lowest in the UK.
These figures also represent a great opportunity for the UK. Data from the Midlands Engine shows that gross value added per capita in the Midlands is almost £24,000, or 91% of the England minus London average. If this gap were closed, it would add an extra £82 billion each year to the UK economy. The Bill could be a key part of closing this gap in the Midlands and the other regions of the UK. What is needed is a clear signal to businesses as to where are the areas in which additional support will be given, to drive investment into disadvantaged regions and level up.
I heard the Minister say that this is a framework Bill, but it will be used by many public authorities and future Administrations, so there should be more definition on how it will help disadvantaged areas. First, there is nothing on assisted areas, as we had previously. Of course, there are a number of issues when attempting to draw a map for which areas would receive preferential treatment, but there are ways of approaching this which would learn lessons from previous schemes. A map is not necessarily required—a list of agreed economic indicators could be an alternative mechanism.
The way the Bill is currently drafted, if a manufacturer is deciding on whether to locate in Scunthorpe or Surrey, or between Dudley and Notting Hill, there is nothing to advantage these former locations. There is a great opportunity for the Government here, at a time when there is much debate about what levelling up actually means, to show that a clear, evidence-based mechanism will be put in place through the Bill to begin delivering for left-behind communities in the UK. Will the Minister expand on how it is intended that investment in disadvantaged areas will be made more attractive to feed into the levelling-up agenda, and why there is nothing on this in the legislation?
Clause18 appears to prohibit relocation of economic activity. I question why this clause exists, as it could be contrary to the levelling-up agenda by preventing productive relocation projects that would benefit disadvantaged regions in the UK. I can see why it may have been included, to prevent gaming the system and internal competition, but I believe that these factors are already adequately controlled by the existing provisions in Schedule 1. Explicitly ruling out relocation appears to be rather a blunt instrument and contrary to the flexible nature of the Bill. Will the Minister say more on this in his summing up and how he sees Clause 18 align with the levelling-up agenda?
Finally, the Bill represents a great opportunity to embed climate and environment considerations into the decision-making of government and public authorities, given that it will be used by hundreds of public bodies. A key part of the success of net zero will be how far we go in a systems view of the problem, embedding climate considerations across all relevant government policy. Through this Bill, net zero considerations could be applied to all subsidies to help meet the principal strategic goal of the nation and link with levelling up due to the key role that the regions will play in the net zero transition.
My Lords, I apologise if I discombobulated my noble friend by asking a question at Second Reading. I appreciate it is unusual to do that, but it is also unusual to have a Second Reading of a Bill so devoid of detail and without the information being provided. I put a marker down: this is becoming a habit for this Government. I voted for leaving the European Union; I thought it would mean that this Parliament would have more power over our affairs. This kind of behaviour just gives power to the bureaucracy, which is then not accountable to Parliament. That is not why we did it.
Again and again, from the Animal Welfare (Sentience) Bill onwards, we have had legislation which has not been properly thought through. It is particularly striking with this Bill; it has been through the House of Commons, yet when it arrives here we still do not have the basic information to enable us to have a Second Reading debate on what it is about and what its principles are. We are told that that will follow shortly. It is becoming a habit, like Billy Bunter’s postal order—it is in the post, and by the time it arrives you have forgotten what was promised.
I start from a slightly ideological position which may not please some Members opposite; I am suspicious of subsidies, because I believe they distort competition by bailing out unsustainable industries and attempting to pick winners. I think my fly-fishing but very distinguished economist friend Sir Dieter Helm coined the phrase that Governments are poor at picking winners but losers are good at picking Governments. That is important to remember. If we are to have a regime of this kind, it is really important that we know what money is being handed out to whom and for what purpose.
Looking at the Bill, it is great that, as advertised, it promotes “autonomy, transparency and accountability”. It is unusual for me to praise the European Union—having dealt with the principles of additionality and the problems of getting through the bureaucracy, I do think this is an advance—but I find it difficult to understand why the threshold for disclosure is higher than it was for the EU. Why should that be? Unless I have misunderstood, it is £500,000 instead of €500,000. That is a significant difference. People might say that it is just a rounding error—my honourable friend John Penrose made these points in the House of Commons—but, while these subsidies must be reported, you have to wait six months to find them. It is hard to understand how having to wait six months to see them increases accountability or transparency.
The bit I really do not understand, which my noble friend touched on in his introduction and the noble Lord, Lord Purvis, picked up on, is how this works for Northern Ireland. Northern Ireland is part of the United Kingdom, but on my reading of where we are now, any subsidies would be subject to the European Commission’s rules. That is the position and, until such time as the Government have negotiated their way out of the protocol which they agreed to, it will remain so. I am not clear what happens if you are a British manufacturer of car batteries, to take an example a colleague suggested to me today, and your cars go to Northern Ireland—if there is a subsidy from the Government to you in the UK, how does that work? It is not clear to me. I would be grateful if my noble friend could explain what will happen. The noble Lord, Lord Purvis, talked about having two sets of accounts. How will that be possible?
I see that I am about to run out of time. I know my noble friend is not to blame, but something is going wrong with the machinery of government when we continue to get legislation, which is not thought through and has no proper impact assessments or detail, being rushed through the House of Commons and coming here. Everyone complains about the number of amendments tabled in this House and the time it takes to get legislation through. That is because Bills are arriving in a form which is not suitable for consideration.
My Lords, in introducing the Bill, the Minister said that we are getting away from an overburdensome and prescriptive European system. I will comment on that in a minute but, until we get detailed guidance from the Minister, we cannot tell quite how prescriptive and overburdensome this legislation will be. We are being asked to buy this Bill without knowing the form it will take and in particular its impact on the devolved authorities, local authorities and administrative bodies in this country.
When I chaired one of the sub-committees of the European Union Committee, we found that the European Union state aid regime was indeed very centralised and authoritative but, as my noble friend Lady Blake and the noble Lord, Lord Purvis, said, we did not actually put to it many of the propositions that other member states did. Germany and France had more than twice as much state aid as the UK, because the UK system was overcautious and, in many cases, anti-intervention. Ministers in Whitehall were always faced with civil servants telling them, “This will not pass the state aid regime”. In reality, the European system was not disproportionately unfavourable towards British propositions—those propositions were never put, to the detriment of many of the most deprived areas of our country.
The history is not correct, and nor is the future. The devolved Administrations have very serious concerns about this Bill; for example, it is not clear whether they can invent streamlined schemes themselves, whether they can appeal against decisions by the CMA or whether they will have any representation in the whole process. As I understand it, at the moment the Welsh and Scottish Governments are not prepared to put the appropriate legislation through their Parliaments. That is a serious constitutional issue, one which we need to understand a bit more about before finishing the process of the Bill in this House. I leave it to others to demonstrate the serious problems businesses in Northern Ireland may have with double jeopardy in this area. Scotland and Wales have tried to co-operate with the Government on this and other post-Brexit issues, yet they are not prepared to give the amber light to the Government on this. That is a serious constitutional issue, and this House should consider it.
The Government may well intend to be more flexible, but we do not know yet. I agree with the noble Lord, Lord Forsyth, that, when we have framework Bills of this nature, the Government cannot expect the House simply to nod them through without seeing how they will really be implemented.
I have three other quick questions for the Minister. First, the Government have resisted calls to exclude agriculture, although the CAP used to be excluded from the European regime. There will be very significant differences between the post-CAP regimes in Scotland, Wales, Northern Ireland and England, so will the Government reconsider special rules for agriculture? They have provided some for energy and the environment—they need strengthening but they have provided them—so can they do that for agriculture?
Secondly, how does this operate in relation to local authorities and procurement? Public procurement is one of the areas the old state aid regime used to be concerned about; if my council of Dorset awards a contract to a firm because it is giving special preference to local employment, will it fall foul of this regime? Finally, what does the £500,000 apply to—the value of that contract or the differential between that contract and what could be applied, shall I say, from Wiltshire?
My Lords, the Subsidy Control Bill, following on from our experience of the internal market Act and of the loss of EU funding after leaving the EU, provides those of us from the devolved nations with another battle. Our battle is, of course, to protect and defend the powers of the Ministers of the devolved Administrations, given to us by this Parliament. Our fellow citizens would expect no less of us. So, what are our concerns about the Bill? I will concentrate on two issues: consultation with the devolved Governments and the powers bestowed on the Secretary of State. I also wish to make a short comment on transparency.
The Bill makes provision about the control of subsidies following the UK’s exit from the EU, and it is a new system, replacing the EU state aid rules. It sets out a new domestic subsidy control regime, which binds all the countries of the UK together. In doing so, the UK Government have, almost unilaterally, produced a Bill that impacts on the devolved Administrations, and they have drafted it in what is becoming their customary fashion. There was little or no consultation with Welsh Ministers before the Bill was introduced to the Commons, although the UK Government consider that policy development on the Bill has involved
“frequent consultation with devolved Governments”.
So what does “frequent consultation” mean? The draft copy of the Bill was shared with the Welsh Minister on 29 June last year—the day before the UK Government laid the draft Bill before Parliament, where it passed its First Reading. This unnecessarily tight timescale has resulted in a distinct lack of any meaningful engagement on its detail and little or no opportunity for devolved government Ministers to influence its content. Indeed, the Welsh Finance Minister has commented that meetings with the UK Government on the Bill have been
“little more … than opportunities for the UK Government to outline their position and … their intentions moving forward”.
“when UK Government has provided us with draft documents, the deadlines for our inputs have been too short to provide a reasoned and considered response, or the drafts … have been just so vague and so general as to provide us with minimal insight into the development of the policy.”
It appears that the two Governments have differing definitions of the word “consultation”. The UK Government are missing a trick here. The Welsh Government have vast experience in the distribution of EU subsidies and are calling for a collegiate approach to drafting the new subsidy regime.
The Bill also provides that functions held at EU level are now held by the Secretary of State, the CMA or the CAT. The role of the Secretary of State is far reaching. The Bill empowers them to shape the subsidy regime in future, with little scrutiny from this UK Parliament and with no scrutiny at all available to Welsh Ministers or the Senedd.
A number of regulation powers are bestowed on the Secretary of State that do not require the consent of or consultation with Welsh Ministers, even when the regulations cover devolved issues. The Secretary of State will also have the power to refer subsidy awards or schemes in policy areas of devolved competence to the independent regulator. These new powers alone would undermine the power of Welsh Ministers to act in relation to matters such as economic development, agriculture and fisheries, which are within their devolved competence at present. So, there will be no meaningful consultation and no involvement in the future drafting of subsidy control measures—in essence, this is a complete neutering of Welsh Ministers’ powers.
On transparency, under EU state law, individual subsidies of over €500,000 were published online, as the noble Lord, Lord Forsyth of Drumlean, explained. The Bill increases that threshold to £500,000. This of course means that subsidies of £499,999 will not need to be published. So, because the subsidies are not cumulative, one business can receive repeated subsidies without publishing their details.
The Centre for Public Data recommends that all subsidies over £500 should be published. Why do the Government not agree with this? Perhaps they should seize the benefits of Brexit which the Minister spoke about and provide the UK with a more transparent system than that of the EU.
My Lords, the Explanatory Notes of the Subsidy Control Bill say, in very grand words, that the Bill is to
“implement a domestic subsidy control regime in the United Kingdom that reflects the UK’s strategic interests and particular national circumstances, providing a legal framework within which public authorities make subsidy decisions.”
Here we go again. Under Article 10 of the Northern Ireland protocol, EU state aid rules continue to apply to subsidies related to trade in goods and the single electricity market that affect trade between Northern Ireland and the EU. The Bill would not apply to subsidies that are subject to Article 10, so why do we even bother saying “the United Kingdom” in the Bill? It is not the United Kingdom.
In their Command Paper, the Government maintained that the provisions of Article 10 are
“redundant in their current form.”
The noble Lord, Lord Frost, said in December 2021 that businesses in Northern Ireland were
“facing unjustified burdens and complexity”
and that the Government could not deliver aid,
“for example for Covid recovery support, without asking for the EU’s permission.”
What kind of Government leave part of the United Kingdom outside the advantages of breaking away from EU state aid rules? What kind of country allows this to happen and has to go cap in hand to beg the EU to be able to give help to its own citizens?
It is very disappointing that, despite what the Minister has said, there is absolutely no confidence that in these negotiations the EU is simply going to roll over and allow us to take back control of our economic situation in Northern Ireland. Northern Ireland will be significantly disadvantaged in goods yet again.
I want to read something from a very big manufacturing company in Northern Ireland which told me how it will affect the company in reality. The company said that in May 2020, Liz Truss, who was then the Secretary of State at the Department for International Trade, announced the most favoured nation tariff regime, the UK global tariff, which replaced the EU common external tariffs. Then, in January 2021, it reduced or removed rest of the world customs duties on thousands of products—compared to those imposed by the EU—that the UK no longer produced, or not in significant quantities. The EU, of course, retains those duties to protect its manufacturing industries from competition. Liz Truss stated:
“It supports the country by making it easier and cheaper for businesses to import goods from overseas … It is a simpler, easier to use and lower tariff regime than the EU’s … CET … It will scrap red tape and other unnecessary barriers to trade, reduce cost pressures and increase choice for consumers … It backs UK manufacturing and production by dropping tariffs to zero across a … range of products used in UK production”.
However, there should have been a footnote which said, “Not applicable in Northern Ireland”.
The company continued by saying that Northern Ireland, as part of the EU for goods, will be subject to EU custom duties and pay higher prices than its GB counterparts for the same goods, irrespective of how they arrive in Northern Ireland. That is all before the rules of origin are taken into consideration. Typically, a product requires 50% originating content based on its ex-works price to qualify for country of origin and allow it to be exported, even to Northern Ireland, under a free trade agreement using preferential rates of duty. If not, standard rates of duty apply. In future, GB exporters to Northern Ireland must hold evidence that the exported goods meet the relevant rules, which will involve HMRC audit procedures, production records, invoicing and accounting details and supplier declarations. The fact that a product is in free circulation in GB does not prove originating status.
They concluded by saying that today there appears to be little or no validation of origin and the current system is open to abuse. Why? This will not be the case in the future as customs issues are black or white and false declarations are fraudulent. Will some GB suppliers be bothered with the Northern Ireland market due to the compliance costs that they do not incur on the mainland? This will all push Northern Ireland manufacturers towards sourcing from EU suppliers. The protocol is unworkable and no amount of sticking plasters will ever fix it.
It is really disappointing that, despite Minister after Minister visiting Northern Ireland, they all get taken round to see the same businesspeople by the Northern Ireland Office. They do not get out there and talk to people who are really being affected. I support what the noble Lord, Lord Forsyth, and others have said: there is no real detail in the Bill. I hope that, by the time we get to Committee, there will be a lot more and that the negotiations that everyone in government seems to think are going to be so successful are actually seen to be successful. If not, then the Government have to do what they said they would: get out of the protocol, go for Article 16 to be invoked and tell the EU, “Sorry, we made a mistake and shouldn’t have signed it. We’re going back on it.”
My Lords, this Bill is highly unusual. It may be unique in the world because I do not think any other country has a national system of subsidy control. The United States does not; the EU does, but of course it is a collection of countries. I think this is the only national system of subsidy control. Of course, we had to have a national system because it was part of the negotiation with the EU on the TCA. The EU, understandably, had fears that Britain, having been subject to the EU system of subsidy control, was going to be free of all control. There therefore had to be a negotiated settlement, the seven principles of which are what is in the Bill.
I read the speech of the Secretary of State in the House of Commons very carefully and listened to the Minister’s speech today. It seems that the Government have, if they will forgive me saying so, something of a Janus-like stance on the Bill. On the one hand, it is a Brexit dividend: there are going to be hints of largesse and more spending, while the money will come more quickly and flexibly. On the other hand, this is also going to control subsidies. Well, which is it? There is an obvious conflict between the two.
It has been said several times, although I think Ministers in the Commons said it more than my noble friend did, that our system will be very much preferable to the slow, inflexible and obstructive system that they had in the EU. I am bound to say, as a Minister who dealt a lot with the EU—admittedly, a very long time ago—that that was not my experience of the EU system. It was a system, incidentally, largely designed by the UK and often operated by UK officials. Most of the applications for subsidies went through the EU through the block exemption. Most of them were approved, and relatively quickly.
There were, however, difficult negotiations over very large state aid projects, such as the motor industry in this country in the 1980s or the steel industry, but it was quite right that the EU took a long time to consider those. Let me put it this way: the EU acted as a discipline upon us, and we have to view a system of subsidy control as not just something permissive but something that imposes a discipline on Governments. That is the point of it but, of course, it poses questions as to how effective this will be compared with the EU system.
I put it to the House that the key difference between what is proposed now and the previous system is that, under the EU, no subsidy was legal until it was approved. Under this system, it is legal until it is struck down after legal proceedings in front of the Competition Appeal Tribunal. What worries me about this system—I say this as someone who, like my noble friend Lord Forsyth, believes profoundly in the merits of competition and market forces—is that there is no enforcer of the regime. The subsidy advice unit is really weak. It has no power to block and, instead of an enforcer, we have to rely on citizens to police this system and take legal proceedings. There is a degree of self-assessment. The question is whether that is enough to discipline and control the Government.
My noble friend may think I am being rather unfair to the Government, but this Government have made some curious subsidy decisions in their life. I never thought I would quote John McDonnell, the former shadow Chancellor, but he said the other day that this Government were the biggest nationaliser since Harold Wilson. That may be a slight exaggeration, but we have had the curious investment in the bankrupt satellite company OneWeb—how would that be dealt with under the Bill?—the bailing out of Bulb and the nationalisation of part of the steel industry. Then we have the Chancellor’s future fund, which subsidises everything from manufacturers of cannabis to dating agencies. There are serious questions to be asked about the Bill and whether it really will be the self-discipline that the Government say it will.
There are also a number of detailed points. I agree with what was said about thresholds—why should they be higher than in the EU? I shall wait with interest to find out the difference between a “subsidy of interest” and a “subsidy of particular interest”. It is a disgrace that these points are not made clear.
Subsidies distort, misallocate resources and often slow down inevitable and necessary change. However, provided that the Government stick to their principles of a competitive, market forces driven economy, I shall give the Bill at least two cheers.
My Lords, contrary to what the Minister said in his introduction, the Subsidy Control Bill is yet another step towards centralising power at Westminster. Even after 20 years of devolution, the UK Government do not seem to understand—or, perhaps more accurately, do not support—the purpose of devolution.
The summary of the Bill provided by the Minister states that the UK is no longer bound by bureaucratic and burdensome EU state aid rules. The Bill introduces equally bureaucratic and burdensome rules, excludes the devolved Governments from having a role in UK-wide policies and prevents them from developing their own policies on subsidies in their own economies. The Minister said that this gives freedoms, but those freedoms are constrained by the UK Government’s policies rather than by the devolved Governments’ policies.
The UK Government claim that they have had discussions with the devolved Administrations, but we heard from the noble Baroness, Lady Humphreys, that both the Welsh and Scottish Governments state they have had no opportunity to engage on the details of the Bill. Last Thursday the Government published a paper, Review on Intergovernmental Relations. Can the Minister explain why the Bill and the United Kingdom Internal Market Act were imposed on the devolved Administrations in advance of the new arrangements outlined in that paper?
There are many examples of how the Bill disregards devolution, and I will touch on a few. Clause 10, which defines and explains streamlined subsidies, states that only Ministers of the Crown may make streamlined subsidy schemes. Given that the regime impacts on areas of devolved responsibility, Ministers from devolved Governments should be able to lay such schemes before their own Parliaments. Clause 31, dealing with cooling off and mandatory referrals, should allow Scottish and Welsh Ministers to overrule such standstill requirements if they affect areas of devolved responsibility or where the devolved Government’s policy commitments may be delayed.
Clause 79 states that
“the Secretary of State must consult such persons as the Secretary of State considers appropriate.”
Can the Minister explain why, in the guidance on the practical application of the principles covered in Schedules 1, 2 and 3, the devolved Ministers are not given an explicit role in mandatory engagement? As the Bill is currently drafted, the Secretary of State is not even required to talk to the devolved Governments if he or she does not deem it appropriate, let alone take their positions into account.
Can the Minister explain why the UK Government have decided to include agriculture in this Bill? The WTO and the trade and co-operation agreement have separate subsidy regimes for agriculture. The devolved Governments should be entitled to use subsidies in the most appropriate way to meet their particular needs in relation to agriculture, which will inevitably differ across the nations.
Schedule 2 impacts on devolved areas of energy and the environment. Different nations have the right to develop different priorities, particularly in setting climate change goals. Subsidies may play an important role in achieving these goals.
The Scottish Government’s response to legislative consent argues that they are concerned that Schedule 3 impacts on devolved areas of economic development and, potentially, other areas of devolved competence. Can the Minister explain what the point of devolution is if the elected Parliaments are unable to develop their own priorities, policies and economies according to the platforms on which they were elected?
We started down the road of devolution while part of the EU. If that had not been the case, there would of necessity have been discussions about how the four nations shared power. If the UK is to stay together—that is a big if at times—it will have to involve a change in relationship that goes beyond the steps outlined in the review of intergovernmental relations. It requires finding a way of sharing sovereignty between the nations, but there is still little evidence that this Government understand that.
My Lords, the starting point I have for this Bill is that we need a subsidy regime for the United Kingdom and we need a rulebook. However, this Bill, as has already been said, falls far short of what is needed. It is, in fact, a rulebook with a lot of blank pages.
I want to focus on Wales. The construct of the new subsidy regime is incredibly important to Wales. As the prime beneficiaries of EU funding, a substantial amount of EU money was made available for the Welsh Government to utilise. To be clear, the power to use these funds came with a great deal of flexibility. An operational programme had to be approved by the Commission but these programmes spanned a six-year period and allowed for a wide range of policy options. For example, the agricultural subsidy regime in Wales was significantly different from that of England and still is. Importantly, all the EU money received was not countable as state aid. They were not considered to be a distorting subsidy.
I have two specific questions for the Minister. How does this Bill provide the same or a better level of flexibility to the Welsh Government on the use of subsidies than that which they previously had? Secondly, since this Government promised—here in this House, at least twice—that they were going to match the EU money Wales had previously received pound for pound, can the Minister tell the House the scoreboard? How much money has been made available to Wales already? Please separate out the agricultural subsidies, because that could cloud the overall picture. I am pretty sure that the Government have fallen short of their promise to this House substantially.
The second major issue relating to this Bill and its impact on the devolved Administrations is the very wide powers it places in the hands of the Business Secretary, mostly by regulation. As an aside, as the Minister said, the Bill gives the Secretary of State the power to change primary legislation by regulation as well. So, for example, the power to define a subsidy and subsidy schemes “of interest” and “of particular interest” is for the Secretary of State by regulation. These types of subsidies will be treated differently from other subsidies and we do not have any detail of what they are. Without them and without an industrial strategy, how can we and other public bodies be expected to understand what these are? There are more blank pages in the rulebook. I must say that I find it very strange that in a piece of primary legislation we get a clause—Clause 79—headed “Guidance”. This House has taken a very grim view of the use of guidance and trying to treat it as a legal power.
We had a debate just last week in this House in which noble Lords, almost universally around the Chamber, looked at how secondary legislation and guidance was being used. The Minister will be well aware that that will cause some problems during the course of this Bill. Given the economic development powers of devolved Governments, surely these details should be worked on together as they are developed, because they will impact significantly on the Welsh Government’s ability to exercise their legal powers for economic development. This House will surely want an opportunity to scrutinise them properly—another matter that this House explained and had great disdain for in the debate last week. Owing to the nature of the powers given to the Secretary of State, it seems that the framework could be an ever-changing one, depending on the views or objectives of the Secretary of State at any one time.
Last week, the Government announced a new council of United Kingdom and devolved Governments, which will be chaired by the Prime Minister—so I presume that trumps the Secretary of State for Business. So it is now the policy of this Government, according to the Written Statement made to this House just last week, that this new council
“provides … new processes to increase impartiality and to avoid, resolve and, where necessary, escalate disputes.”
So where does this dispute resolution procedure fit into the context of this Bill?
The Welsh Government and the Welsh Parliament have declined to give consent for this Bill to legislate in devolved areas, so does it constrain the new council in resolving disputes about the operation of the subsidy regime or not? Given the failure to achieve the legislative consent agreement from the Welsh Government and Welsh Parliament, how does this Bill respect the devolved competency of the Welsh Government? I am afraid that we are looking forward to a rule book with all these blank pages. I hope that they will be filled in, but I suspect that that is a forlorn hope.
My Lords, I heard state aid described this morning as something that people do not get very interested in, yet the range of speakers in this debate, starting at such a ridiculously late hour, puts paid to the claim that there is a lack of interest. Indeed, there could hardly be anything more crucial than what the Government support or do not support—and that, indeed, is a decision not to support. As the noble Lords, Lord Purvis of Tweed and Lord Whitty, pointed out, Governments have often tried to suggest that it was the EU’s fault that the UK Government were not providing support, but that claim does not stand up. That lack of support has given us industries, sectors and communities that are struggling to get a decent quality of life for their members, while living within the boundaries of this one fragile planet. It is something we are far away from today, be it the level of child or pensioner poverty, or the way our society collectively consumes the resources of our share of three planets, when we have only one.
My noble friend Lady Jones of Moulsecoomb will later in this debate be looking at the issues of environment and the lack of a strategic direction here, as in so much of the Her Majesty’s Government. It is hard to have a strategic direction when the ship of state is being tossed around by a party whose members are running to and fro on leadership manoeuvres. My speech is going to focus on the democratic and structural concerns about this Bill, of which many have already been clearly set out, and I shall seek to add to that rather than repeat.
One issue that has not yet been raised is the Bank of England’s monetary policy activities, which are explicitly exempted from the subsidy regime in Clause 46. The Explanatory Notes do not give any explanation or justification for this. This is significant, because we are talking about billions of pounds frequently supplied in cheap credit. It could be used in a positive way, for environmental or social objectives, and the Bill could give direction to that effect. But of course, there is also the problem, which I have often raised in other contexts, of what is known as “too much finance”. One reason why we are in that situation today—the threat to our security that the over-large financial sector presents—is the massive government subsidies of the past, including guarantees for banks that remain “too large to fail”.
I want to pick up the point made by a number of noble Lords, notably the noble Baroness, Lady Humphreys, about the reduction in the publication threshold and the removal of legal controls. Rather than a central pre-approval of subsidies, the system will now rely on challenges from rival businesses to stop harmful subsidies. But with very high levels of subsidies, rather than the £500 that is so often the public sector norm, how can anyone challenge a subsidy that they do not know exists? There is effectively no control at all. Given the issues with government contracts—issues that have been so well-aired that I hardly need go into detail—here we have another potential huge concern about lack of transparency.
We have already talked a lot about the devolved Administrations, and I will not go over the same ground. But I will note that one of the reasons why Scotland is particularly concerned about agricultural subsidies is that it has made far more progress on land reform and has retained far more small land holdings—a very different agricultural structure from what we see in much of England. These crofts and small land holdings are a hugely valued part of Scottish agriculture, community and society and surely require special arrangements and support.
Finally, many noble Lords have covered the issue of how, oddly, the Government’s levelling-up agenda seems to be missing from the Bill. There is actually a levelling down from the EU regional aid system, which permits higher aid ceilings in less developed areas.
As we have heard from every part of your Lordships’ House, we are in a total muddle. This Bill does not hold together, and it is asking a lot of your Lordships’ House to try to pull it together. All I know is that we will try.
My Lords, I thank the Minister for his introduction to the Second Reading of this Bill. As he was the long-suffering Minister for Exiting the EU who helped to deliver the trade and co-operation agreement, it is particularly appropriate that he is now responsible for piloting through your Lordships’ House this Bill to introduce a replacement for the EU state aid rules, thereby meeting our obligations both under the TCA and towards the WTO.
It seems longer than thirteen months since the negotiations with the EU apparently hung in the balance over the question of the subsidy and the state aid regime that the UK would adopt after the final departure from the EU. Maybe that is because the Government’s shameless renouncing of a key part of the TCA, with respect to the Northern Ireland protocol, makes all the theatrics and rhetoric around reaching an agreement as insincere as the Prime Minister’s apologies. But there we were in December 2020, being asked by the party opposite—which had for decades, if not centuries, espoused the smallest possible role for the state and starved the economy of support and investment—to believe that it wanted to provide industry with financial support beyond anything that was possible under the EU state aid regime.
Whether or not there will be more rejoicing in heaven over one sinner who repents, we on these Benches welcome the acknowledgement—if the Government are sincere—of the important role the state has to play in the market economy. Can the Minister confirm that he supports an active role for government in industry and business? Does he believe that that is also the case for his ministerial colleagues, such as the authors of Britannia Unchained, who now apparently drive government policy in the vacuum left by this lame duck of an accidental Keynesian Prime Minister?
I believe that, the stronger that you believe in the principle of the state as an active player in the market, in a complex and nuanced way, the more important it is to have a clear and effective regulatory framework, within which the state has to operate. The track record of this Government in so many areas—public procurement of PPE inescapably springs to mind—makes it all the more important that absolute transparency and rigour of process is embedded in the legislation.
How well does the Bill measure up against these criteria? As my noble friend Lord Whitty and the noble Lord, Lord Forsyth, have already emphasised, it is hard to provide a definitive answer to that question in the absence of so much information. But, in the short time remaining, I will focus on a few points and questions that I hope the Minister can respond to.
Widespread concern has been expressed about the combination of the inadequacies in the database, and I am not sure that the word “editing”, used by the Minister, filled me with confidence. Neither does the short 28-day period available for interested parties to challenge, so long as they become aware of it.
As the noble Lord, Lord Lamont, has said, no enforcer is envisaged. It is of course supremely ironic that judicial review is being promoted as a key part of the enforcement. Can the Minister explain why the Government’s campaign against its use has been suspended in this case? How does he envisage it actually working?
Finally—perhaps this would have been more appropriate as the first question—how easily can public bodies, large and small, be confident of knowing when they are effectively granting a subsidy? Clause 2(2) lists a sample of subsidies:
“a direct transfer of funds … a contingent transfer of funds … the provision of goods or services”
and so on. But it makes no reference to investments of any sort. The noble Lord, Lord Lamont, has already raised the question of how the investment in OneWeb would fit into the new regime. Investments are undoubtedly the most complex instance of effective subsidy—how can you determine whether an investment is on commercial terms? I hope that the noble Lord can explain what the Government’s plans are for incorporating investments into this regime.
My Lords, the Bill raises a number of serious questions, for example, around lower transparency—as articulated in the Delegated Powers Committee’s report—around the strategy that will guide these subsidies, around what a “subsidy scheme” or a “streamlined subsidy scheme” is and around what is meant by “subsidy of interest” and “subsidy of particular interest”. Why are these terms not defined on the face of the Bill? As a significant example of the UK’s post-Brexit landscape, these details in the Bill are essential, so I support all noble Lords who have voiced their concerns on these issues.
It is not enough to have a line in the Explanatory Notes saying,
“The Government aims to deliver ... UK ... priorities such as levelling up and achieving net zero”,
especially because we are now without an industrial strategy, which for inexplicable reasons was done away with early last year. The report of the Commons BEIS Committee last June on the scrapping of the industrial strategy was scathing, calling the axing of the ISC, the Industrial Strategy Council, “a retrograde step”, removing valuable independent scrutiny, insight and expertise.
Business is crying out for long-term consistency and clarity, but instead it is presented with the nebulous “plan for growth”, which does nothing to address how policy statements will be shaped to meet the country’s objectives and provides no expert oversight on what Ministers have actually been able to deliver. This Bill could have put some meat on the bones of the Government’s stated policy aims and given a sense of which sectors will be prioritised to achieve those aims, but they have failed to grasp this opportunity.
I am going to focus on the Government’s aim of achieving net zero. The fact is that, despite the stated strategic approach, there are no climate provisions in the Bill that set out a narrative on how this will be achieved. The Government could have incorporated a robust and systemic approach to climate change mitigation and adaptation, as well as to their “30 by 30” pledge, the aim of which is to protect and conserve 30% of the world’s land and marine ecosystems by 2030 which, by the way, is conspicuously missing from their stated aims. They opted not to do this. Therefore, will the Minister address how the regime would facilitate the future-proofing of industries and promote growth and employment in new, green sectors to ensure a resilient and competitive economy?
It is vital that the overarching subsidies regime is aligned with the country’s climate and wider environmental goals and addresses market and systemic failures. However, this Bill gives us no clue as to how they will do that. Perhaps the Minister can enlighten us. How, for example, will they incentivise investment to help to scale up innovative, low-carbon technologies, industries and solutions across the economy, which will require measures that go beyond R&D investment?
My final point relates to the COP 26 Glasgow climate pact, which included an agreement to accelerate efforts towards the phase-out of inefficient fossil-fuel subsidies. The Government currently subsidise the production and use of fossil fuels in a number of ways, including through tax breaks for high-carbon activities. As an example, in 2019, for each barrel of oil, the UK received $1.72 in tax. In Norway, that sum was $21.35. The Government really need to get a grip on what is happening with regard to advantages that are conferred on the oil and gas industry. Do the Government intend to take a more robust approach to ending subsidies for fossil fuels?
My Lords, we plainly need a proper subsidy control regime and we need independent enforcement. We decided that this was a matter that was a reserved power, but the fact that it is a reserved power does not mean that every effort should not be made to agree the principles on which the independent enforcement agency is to work and to ensure that the procedure before it is fair and balanced. There are very good grounds, therefore, for the fact that the devolved Administrations have refused to give legislative consent.
I will look at two specific areas. The first relates to the way in which the detailed guidance under the Bill and other powers given to the Secretary of State will be operated. Guidance in relation to principles is of fundamental importance, given the very general and non-specific terms in which the principles are set out in Schedule 1. I understand what is meant by,
“Subsidies should pursue a specific policy objective in order to—(a) remedy an identified market failure”
That is reasonably easy to understand—but I am entirely uncertain about what is meant by
“address an equity rationale (such as social difficulties or distributional concerns)”.
What does that actually mean?
It seems that when one takes those words and focuses them on two areas that will be of acute political concern—regional aid and agriculture—we are building up a terrible problem for the enforcer unless we have clear guidance. The real deficiency in the way we are going forward, apart from the points that have been made by the noble Lords, Lord Forsyth and Lord Lamont, as to the way in which the Bill is constructed, is that there is a danger if we do not put this right on a basis of consensus between the UK Government—for a reason I will come to in a minute—and the devolved Administrations.
We have heard an awful lot about consultation, but I am afraid that I have lost faith in consultation. We need a proper protocol or—to use the word for which we fought during the passage of the internal market Act—a framework within which this can all be agreed. I am grateful to the Minister for taking forward some of these suggestions during the passage of that Act, and I hope fondly that I can persuade him again to look more carefully at a mechanism, because it is critical. We have overlooked it, or insufficient attention has been paid to the fact, that the sole enforcer will be the Competition Appeal Tribunal. It will be a judicial body and it needs the clearest, most definite guidance to deal with what will inevitably be highly political issues. Speaking as a former judge, the last thing a body of that kind wants is to get involved in politics—therefore we need clear principles.
The second aspect is procedural fairness. In this respect, it is interesting to read that the Secretary of State, as a Secretary of State, is an interested party in any application before the Competition Appeal Tribunal, but the other governments are not. Therefore, the Secretary of State, putting on his hat as a Minister for England, can intervene before the Competition Appeal Tribunal to say, “We don’t want this—we are very unhappy about a factory going to Scotland or Wales”, but it does not apply the other way round. Where is the justice in that?
All these points show that we need a proper framework for consultation to iron out these points and ensure that the judicial body that decides these things does so on the basis of clear principles. That is what we should try to achieve.
I have 30 seconds to make a completely different point, of which the Minister has been given notice. It is on the powers given to the Treasury under Clause 47, particularly the power to make secret laws or directions. I never thought I would rise in this House to object to legislation on secret powers. There can be no justification —I hope the Minister will look at that again.
My Lords, I am happy to follow the noble and learned Lord, Lord Thomas, and indeed some of his arguments. This Bill shares the same characteristics as the internal market Act. It lacks detail and clarity but shows disregard and a lack of sensitivity to the devolution settlements. This House managed to secure amendments during the passage of that Act, and I hope that we will succeed in securing amendments to this Bill.
The Bill replaces the EU state aid rules, which developed in a way that had the advantage of practicality and clarity. However, it is not clear whether the lack of clarity is because the Government have no coherent strategy for any subsidy regime or they have one but are keeping it under wraps until they have the powers under the Bill. We need to know. Either way, the devolved Administrations of Scotland and Wales have reacted with understandable concern and, so far, have indicated unwillingness to give legislative consent.
The Law Society of Scotland stated in its helpful submission:
“We … stress the importance of ensuring that this bill and its accompanying guidance implements a regime that is clear, proportionate and gives businesses and local authorities (and their advisers), the tools to operate confidently within it.”
As it stands, the Bill does not do that. The imbalance between the role and powers of the Secretary of State and those of the devolved Administrations aggravates the situation. The Government argue that these are reserved powers. However, devolution requires consultation—genuine consultation—co-operation and respect, not the cavalier application of reserved powers.
Both Wales and Scotland have also expressed opposition to the inclusion of agriculture in the Bill. Indeed, the question arises as to why it is being included, given that we had extensive debate on the Agriculture Act, and that other national and international controls and commitments exist. NFU Scotland has stated that it is
“unequivocal that agricultural and rural development financial support”—
that is, subsidy—
“must be kept separate from the subsidy control regime being proposed.”
Some 86% of Scotland’s land is recognised as having “less favoured area” status. The management of that land has required consistent subsidy and support. Although the nature of the support has changed over the years, moving away from reducing livestock subsidies towards environmental and area payments, there is no doubt that these rural areas will require continued support.
Rewilding has its place, but tension is already emerging between this approach and support for traditional farming, land management conservation, tourism and small-scale economic development as a means of averting depopulation, which is re-emerging in rural Scotland having been reversed for many years.
The lack of clarity in the Bill means that there is an inherent contradiction. On the one hand, compared with EU state aid rules, public authorities may be able to provide subsidies that would have been prevented under those rules. However, they do not know whether they can and whether they will be challenged. This means that agencies could well refer the proposals to the EMA—although whether the EMA will be effective in reviewing them is doubtful—meaning more bureaucracy and delay, or they may simply decide, “It is all too difficult, let’s not do it”, and the schemes will be abandoned. The imbalance in the rules makes this even worse. Making the EMA the arbiter raises questions about the fact that the regime is excessively centralised, whether the EMA has the capacity or the expertise, and how it can be fair and effective to apply its role without the specific involvement of the devolved Administrations, which is not proposed at all.
This leads directly to the role of the Secretary of State. He or she has the power to define subsidies or subsidy scheme of interest or particular interest. The Minister really must give an indication of what the heck the Government mean by “interest or particular interest”. Can he give us examples or any idea of what is in the Government’s mind? The Secretary of State also has the power to refer to the CMA and, further, to challenge the ruling before the Competition Appeal Tribunal on the basis of government regulations that we do not even know about yet.
This presumably means that, if the Welsh or Scottish Governments proposed a subsidy scheme for their disadvantaged areas or sectors that the Secretary of State did not like or challenged, the scheme could be blocked. However, if the Secretary of State—acting as an English, not a UK, Minister—supported a subsidy regime in England that the devolved Administrations deemed unfair, there would be no such right. It may reflect reserved powers, but it fails to recognise the reality of devolution, which requires respect and consent. In reality, the Scottish Government’s interventions have been disastrously mismanaged, delivering neither jobs, production nor economic benefit. However, the way to deal with that is to throw them out, not challenge their right to do so.
I will certainly seek to support amendments to address the balance of the Bill and press the Government for clarity and transparency on how, in practice, they think this will operate.
My Lords, I hope that your Lordships will forgive me if I return to the issue of the Northern Ireland protocol and the impact—or lack of it, in many ways—of the provisions of this Bill on Northern Ireland. This is a result of the application of Article 10 of the protocol, whereby EU state aid rules will continue to apply to subsidies related to trade and goods and the wholesale electricity market in so far as these can effect trade between Northern Ireland and the EU. Clause 48(3) makes it clear that the new domestic regime will not apply in circumstances covered by the protocol. So, as was mentioned earlier, Northern Ireland will operate in a dual state aid regime.
The contrasting interpretations of Article 10 by the UK Government and the EU mean that the Bill presents significant legal and practical challenges. I know that the Department for the Economy in Northern Ireland has faced a lot of difficulties in trying to tease out what this will actually mean for businesses affected in Northern Ireland. I really hope that there will be better co-operation between officials here and those of the devolved Administration on these very important matters. The European Commission has set out the broad scope of which measures it believes can affect trade between Northern Ireland and the EU. In interim guidance, the Government have referred to limited circumstances that might apply under Article 10.
The Command Paper of July last year argued that the commitments in the trade and co-operation agreement, together with the Bill, make Article 10 of the protocol “redundant” in its current form. Therefore, it should be taken out of the protocol. I would be grateful if the Minister could tell us how those negotiations are going in this respect. The Government talked about reaching some interim agreements and other matters being dealt with in due course. Is this issue of state aid and subsidy control one of those areas where an interim agreement is being sought? We do not have a lot of time, if the aims in the Government’s Command Paper are to be achieved. I would welcome an update on that particular aspect of the negotiations.
So although I welcome, in many ways, the Bill’s principles and the aim of establishing an independent state aid regime that reflects the specific interests of the United Kingdom, we obviously have a concern that Article 10 of the protocol will be a serious issue for businesses in Northern Ireland. I will give a number of examples. Clause 53 provides that a report on a proposed subsidy must be published within 30 days, yet the process for determining a referral in the EU can extend to up to a year. This could see Northern Ireland businesses put in a detrimental position and it could have an effect on where people decide to locate their investment. The EU caps maximum support at 50%, but no such provision is made in the Bill, so businesses in other UK regions could benefit under the UK regime and Northern Ireland would lag behind. The Bill allows for support for existing businesses to expand, but that is not the case under the EU regime. These will have a detrimental effect on Northern Ireland.
One thinks of the situation where there is competition for investment and Northern Ireland is operating under the EU state aid rules. Officials and Invest Northern Ireland, which is the agency in Northern Ireland that seeks foreign direct investment, have already highlighted that Northern Ireland could be at a serious disadvantage in terms of competition between the various regions and countries of the UK because we are operating under a completely different set of rules. It is clear that this will cause confusion and uncertainty for UK public authorities and businesses. The lines will be drawn. I urge the Minister and the Government to get on and give us some hope that the position set out in the Command Paper last July will actually be brought about, and that Northern Ireland will have Article 10 of the protocol removed from it.
My Lords, I welcome the Bill. Clearly, we need to implement a much better new system for subsidies post the EU, and the Bill sets out a policy for the 500 or so public bodies which seek to give grants and subsidies in the UK. I believe that these amount to over £13 billion a year, so a huge sum of money. I draw your Lordships’ attention to my registered interests, in particular that I am the chairman in the House of Lords of the Campaign for Economic Growth, which I thank for its help with my remarks, as I do the ICAEW and Jonathan Branton at the DWF law firm.
A number of us have concerns about subsidies for businesses, particularly those that, frankly, do not deserve them, but we appreciate that the flexibility offered is important. My main concern is to understand where the focus on value for money is. Proportionate and necessary funding does not necessarily mean value for money. Can my noble friend the Minister assure us that value for money will be a key driver for subsidies? How will this be determined and assessed? The CMA is required to report on the effectiveness of the Act, but not the value for money of the subsidies, so who will do that?
There is a lot of nervousness that the principles are so open to interpretation that in the end it is the courts that will be kept very busy. So much of the detail will be in secondary legislation, which we really need to see as soon as possible. I suspect that many will want to go for CMA clearance well in advance, so can my noble friend confirm that the CMA will be resourced to handle this?
On a stand-alone basis, the seven principles proposed seem reasonable and proportionate, and I am sure that if they were applied by my noble friend the Minister and his colleagues at BEIS, all would be well, but this is going to be used by all sorts of bodies which, frankly, could probably drive a coach and horses through these words if they had a mind so to do. We have seen some perverse decisions by some public bodies. I appreciate it is very difficult, but are Her Majesty’s Government considering further controls and restraints in situations where attempts are made to circumvent the intentions of these principles?
I will focus the rest of my remarks on how the restrictions in the Bill might affect start-ups and recovery companies. Clauses 19 and 20 refer to an “ailing or insolvent enterprise”. I congratulate BEIS on using the word “enterprise” rather than “company”, as in previous legislation. I am concerned, however, that, as currently worded, these clauses might restrict grants or subsidies to those businesses which might really need them; that is, those in trouble. Is my noble friend the Minister able to amplify what the Government are seeking to avoid in their determination not to help ailing businesses?
I do not think it is clear what an ailing or insolvent enterprise is. The helpful Explanatory Notes state:
“An ailing or insolvent enterprise is one that would almost certainly go out of business in the short to medium term without subsidy.”
But in Clause 24 ailing companies are defined by three conditions. In addition to the one I have just mentioned, these are an inability to pay debts as due—fair enough—and where assets are below not just liabilities but “contingent and prospective liabilities”. I need not remind my noble friend the Minister that under the new accounting rules, so much more needs to be disclosed as a liability than was ever the case before. I believe that these definitions are cut and pasted from the Insolvency Act and I just do not think they are appropriate.
Working out what is a prospective liability and making the computations required is not easy. What is meant by the “medium term”? Who is to say how many businesses will be able to look to the medium term with any certainty? Perhaps we need our old friend the monitor back, as we have seen in other legislation.
Clearly, we do not want a terminally ill business to be propped up artificially as someone’s pet project, but we also do not want to rule out businesses such as start-ups, which might otherwise fall foul of these definitions. I am particularly worried about new businesses that are stretched and have certain challenges. Although I think that the exemption for the owners of SMEs from putting money into their businesses is sensible, I can see that all the accounting requirements might be too much for a small business which needs help urgently.
I look forward to some helpful clarifications during the passage of the Bill and to debating these clauses with my noble friend the Minister, who, I am sure, will be working with Back-Benchers in his usual collaborative way.
My Lords, the Bill spells trouble—trouble between the nations of the UK, and because it sets out a series of criteria for subsidies and limitations on their use which are so vague, complex and mutually contradictory that it is bound to lead to repeated legal challenge.
The Bill is the son of the internal market Act, utilising subsidy powers granted to the UK Government within that Act. The use of those powers will constantly chip away at long-standing devolved powers over economic development, agriculture, housing, and so on. Wales Office Ministers and now Welsh Government Ministers have held major economic development and financial assistance powers since the Welsh Development Agency Act 1975. The Bill dismantles those powers.
I want to concentrate on the inclusion of agricultural subsidies within the general criteria set out in the Bill. It is usual to separate out agriculture, as the World Trade Organization and the EU does, in separate schemes, because the reasons for agricultural subsidy have long been very different. They are about the maintenance and supply of food and very different from the reasons for subsidising, for example, a new engineering plant. Nowadays, we overlay those reasons with complex environmental criteria.
Agricultural subsidies do not fit comfortably within a general framework, and they will be even more difficult to accommodate because the type of agriculture suited in Scotland and Wales to that countryside is very different from that practised, for example, on the plains of East Anglia. The Welsh Government could, for instance, devise a subsidy scheme to encourage the continued farming of marginal agricultural land where only sheep farming is viable. The Secretary of State, however, has such broad call-in powers that they could be used in this case on the grounds that it was an unfair competitive advantage to Welsh sheep farmers over English sheep farmers.
In due course, we will challenge these criteria, as we will challenge the concentration of power in the hands of the Secretary of State, who once again will act as Minister for England at one moment and a UK umpire at the next—an impossible balance to strike. That problem is exemplified by the additional scrutiny powers concentrated in the Secretary of State’s hands, whereby he can call in schemes devised by the Welsh Government, but Welsh Ministers have no powers to apply similar scrutiny and control over schemes devised by the Secretary of State for England.
Finally, we seek clarity as to where the common frameworks devised by Defra, which create an even-handed approach across the nations, fit into this. It seems to me that those common frameworks are incompatible with the Bill, and that the Bill will need to be amended to accommodate the principles that underlie them. As the Bill stands, there is no clarity of purpose, no levelling-up mechanism and no industrial strategy to underpin it. In the Brexit debate, Wales was promised that we would not lose money. That was, of course, untrue. Two-thirds of Wales was an assisted area, and that funding has gone. Without that funding, the Welsh Government need other powers and mechanisms to attract investment, and subsidy schemes must be an important part of that.
This Bill is an embarrassing back-of-the-envelope Bill, and every nation of the UK deserves much better.
My Lords, I apologise to the noble Baroness for my over-eagerness to speak in this debate, and thank my noble friend the Minister for introducing this Bill. I declare my interests as stated in the register.
This Bill fulfils an obligation placed on the Government by the TCA, and is intended to clarify what our independent state aid rules will be going forward. The UK is currently bound by its obligations as a member of the WTO, and those contained in the TCA and other trade agreements. In general, I welcome the Bill, which is intended to provide a less cumbersome version of what we have been subject to as an EU member—although, as my noble friend Lord Forsyth has already pointed out, we are still ignorant of a lot of the detail and guidance. Maybe, when we finally receive that, the Bill may not be quite so uncumbersome as we have expected.
Under EU law, all subsidies had to be approved by the European Commission. As your Lordships are aware, as an EU member state the UK has, rightly, been more sparing in its use of state aid compared with most other member states, spending around 0.4% of GDP on state aid—about half the proportion spent by France and less than one-third of the German figure.
In devising the new regime, the Government have tried to find the right balance between the need to eliminate scope for political interference and anti-competitive market distortion, and the conflicting need to provide a process that is nimble, easy to negotiate and fair. As long as applications follow the core principles, public authorities will be empowered to take decisions which will assist economic recovery and national strategies, such as levelling up and net zero. Damaging subsidies which achieve little beyond keeping failing companies alive for longer than the market would otherwise permit are prohibited.
Members of another place were right to reject the proposed amendment to principle G, which would have required public authorities to give too much weight to possible negative effects of subsidies on the UK’s net-zero commitments. This could have caused them to look less favourably on subsidies designed to achieve entirely unrelated objectives, such as high street regeneration or the provision of training opportunities for young people.
The seven subsidy control principles are in fact broadly similar to those under which the EU system operates, and six of them are derived from the TCA. Principle F is a sensible new addition, which seeks to minimise any negative effect on competition and on foreign and domestic investment in the UK’s internal market. It is crucial that the Bill gives effect to the internal markets Act, which stipulates that the regulation of state subsidies is a reserved matter that must be consistently applied across the whole United Kingdom. The excellent Library briefing covers this question in some detail.
Several noble Lords have expressed the view that the Bill is unfair to the devolved Administrations. However, I am struck by the comment of Mr James Webber, a state aid lawyer, that the Bill in any event gives the devolved Administrations much greater freedom to make spending decisions and craft economic interventions than they would have had if the UK had remained an EU member state. Can the Minister confirm that the Government’s policy is that those powers which were held centrally by the EU should now be held centrally by the UK Government, to avoid an incoherent and inconsistent approach between the four nations of the UK? Can he also explain whether a similar approach will be taken both to subsidies contained in devolved primary legislation and to those given by public authorities? The Bill introduces, in Clause 76, the concept of a “promoter” whose views may or may not correspond to the views of a legislature as a whole.
Lastly, can the Minister tell the House whether the Government take seriously the concerns about transparency expressed by my honourable friend John Penrose and others? Surely, he has a point in suggesting that, without adequate transparency, a lack of compliance with the subsidy principles might not be spotted until it is too late, or not at all, and companies could be driven out of business. At £500,000, surely the threshold for entering subsidies into the database is much too high. Would not a figure of £100,000 be more appropriate? I look forward to hearing the Minister’s views on this and other matters.
My Lords, I too would like some clarity on the Bill. For example, there are some key exemptions in it that cut out important issues, and some key omissions that mean that the new subsidy scheme misses a huge opportunity to support levelling up, net zero or innovation of any kind. I have five questions for the Minister. I am sure that he will not be able to deal with them this evening, but I would be happy to have them answered in a letter.
The Bill contains principles that energy and environment subsidies must adhere to. Some of these principles are very welcome—for example, subsidies must not relieve polluters from their liabilities and caps can be put on maximum CO2 emissions eligible for electricity generation subsidies. That is all good, but I do not understand—this is my first question—why these principles are carved out as applying only to energy and environment subsidies. Why are environmental principles not being applied to all subsidy schemes so that we can ensure that all public money is being used to move towards net zero and tackle the climate and ecological crises? Every subsidy should increase the level of environmental protection as compared to a baseline situation. At the very least, no subsidy should be granted that will reduce the level of environmental protection as compared to the baseline.
Secondly, the confusion is further compounded by the absence of any definitions of what constitutes an energy or environment subsidy. It is not at all clear when these special principles do or do not apply. For example, is a scheme for discounted bicycles an environment subsidy, subject to those extra principles, or not? Does it depend whether the scheme is intended to get people to drive less, or drive the same amount but cycle just for fun? I can see quite a lot of future legal battles over this Bill when we try to apply it.
Thirdly, we know with certainty, because the Bill tells us in Clause 51, that nuclear energy is not included in the energy and environment subsidy scheme. I would really like to know the Government’s justification for this. Is it because they believe that nuclear energy will fall foul of the principles, such as fair and competitive processes or increasing the level of environmental protection? Nuclear energy subsidies are a huge amount of money—many billions of pounds—so it is very important to understand why they are being excluded from the provisions that apply to all other energy sources, especially renewables. Is it giving preferential treatment to nuclear? It rather looks like it. I will probably table an amendment on this in Committee.
Fourthly, another notable carve-out in the Bill which my noble friend Lady Bennett has raised is that none of the subsidy rules will apply to the Bank of England’s monetary policy transactions. I would like to understand why. Greens have long understood that monetary policy should be a major tool in tackling the environmental and climate emergencies, such as directing the Bank’s cheap credit towards environmentally sound lenders or at the very least cutting out the most environmentally damaging ones.
Fifthly, I would like to find out more about the community energy schemes, which I thought were happening a long time ago. They have environmental and social benefits, and there is a low risk of distortive effects on competition. Can the noble Lord tell me what is happening with them? I am likely to table amendments on all these issues.
I hate agreeing with the noble Lord, Lord Forsyth, but he is absolutely right; when the Government bring us a thin Bill such as this, we will put in a lot of amendments, just to try to understand what is going on. Of course, we then get the blame for slowing down the business. Can the Minister be very clear that we need enough time to debate this properly and not take it late at night, as is the Government’s usual practice when they want us to hurry up and stop talking?
This Bill is really lacking that overarching sense of using monetary and fiscal policy to transform our economy from a dirty, polluting one to a clean, green, high well-being society. The mechanisms in this Bill will not achieve that and lack ambition. I am looking forward to working with noble Lords—even the noble Lord, Lord Forsyth—in proposing major changes to this Bill so that we can get back on track to reach net zero.
My Lords, it is always a pleasure to follow the noble Baroness, Lady Jones. This has been a really interesting debate and has not unfolded in the way I had originally anticipated. In trying to sum up this debate, there is a short sum and a long sum and I am afraid I am going to give both.
The short sum is that, if the Government table Bills like this, they are going to need more Committee days than they have so far allocated. We do not yet know what this Bill is, and we need to find ways of teasing that out from the Government because clearly they are not volunteering the information at the moment.
On the longer sum, it is always good to try to work out what the Government are seeking to cause or trying to cause to happen. I think we have to look to Schedule 1 for that. Principle A in Schedule 1 says:
“Subsidies should pursue a specific policy objective in order to … remedy an identified market failure”—
correct the market, or—
“address an equity rationale (such as social difficulties or distributional concerns).”
Principle C says:
“Subsidies should be designed to bring about a change of economic behaviour of the beneficiary.”
All of this sounds very social democratic and very interventionalist. That might explain some of the concerns voiced by the noble Lord, Lord Forsyth, about subsidies. However, it is still not clear what sway that schedule will have over the actual behaviours and subsidy behaviours we see. The noble Lord, Lord Lamont, and, I think, the noble and learned Lord, Lord Thomas, made the point about how this is policed and whether Schedule 1 is the rule by which this regime is to be judged. This is still very unclear—in fact, not clear at all.
In the various letters and presentations supporting the Bill, the Minister carefully painted the picture of a nation handcuffed by the European Union. However, as we have heard from the noble Baroness, Lady Blake, and others, the UK has traditionally handed out less in public funding subsidies than most of the other EU countries. To date, the UK has chosen not to subsidise economic activity to the level that it could have done within the EU. Of course, it was the perfect right of the Government at the time to make those decisions.
Looking forward, my noble friend Lord Purvis asked how much money there will be. In the past we have funded less than we could. There is a good deal of discrepancy about how much money will be available on a straight like-for-like basis without starting to include funds such as agriculture. Some profit and loss—P&L—for this would be quite handy.
However much money there is, the next point lacking clarity is how the Government will prioritise what is going on. As my noble friend Lady Sheehan, the noble Lord, Lord Ravensdale, and others said, our guide to this is vanishingly vague. The industrial strategy was scrapped, Build Back Better is essentially a colour brochure, specific plans to reach net zero remain essentially unpublished and the “levelling up” slogan is wandering the corridors of Whitehall looking for a purpose. None of this acts as a useful guide.
Where, unusually, the noble Viscount, Lord Trenchard, is wrong is that rather than this avoiding political interference, it creates a vacuum where political interference can run wild. There are suspicious people who would say that the actual guide for allocating taxpayers’ money will have to answer only one key question: how does the proposed subsidy benefit the electoral ambitions of the Conservative Party?
I am sure the Minister would not want that sort of thing running around these corridors. To avoid it, he could start by circulating the drafts of the guidance. He could start by sending out the draft of the support to the Bill, the policy statements and the routes that this Bill will go by. This echoes the point made by the noble Lord, Lord Forsyth.
As we heard from the noble Lord, Lord Lamont, the EU has a long-standing and rigorous programme that aims to benefit the poorest communities. Rules exist under the EU regional aid scheme that cause higher aid to go to the least developed areas. This was largely through the European Regional Development Fund or the European Social Fund.
We have heard about Wales, but Cornwall received the highest ERDF/ESF allocation of any English area. Over the last 14 years, that totalled €1.24 billion. Looking forwards, can the Minister confirm whether Cornwall will continue to receive this level of support? The evidence suggests it will not. In fact, subsidy law experts Jonathan Branton and Alexander Rose note that the Bill does not propose a preferential system that would lead to targeted support for disadvantaged regions. They argue that the consequence of this could be better-off areas receiving support that would previously have gone to less well-off areas.
It is clear, looking at the role of the CMA, that much clarity is required. We need to know how enforcement is going to emerge. Also, the impact assessment says that there will be just 19 new posts within the CMA. Does the Minister honestly think this represents sufficient resource to police this whole scheme?
The issue of OneWeb was raised by the noble Lord, Lord Lamont, and the noble Viscount, Lord Chandos, and I have a different question around that. In order for that investment to happen, there had to be a letter of direction from the Minister to the Permanent Secretary, which says quite a lot. In future, how would a letter of direction be treated by this regime, given that the Secretary of State is likely to have to refer himself in order to have this reviewed? It is a special case, and I would like to know the answer.
The subject of reporting thresholds has been well documented today and I will not repeat it, except to say that reporting at £500,000 is absolutely the wrong route to take. In the Commons, John Penrose MP and Kevin Hollinrake MP both proposed amendments, and we will be working with others across the House to propose similar amendments here.
The effect on devolution has also been well rehearsed, not least by my noble friends Lady Humphreys, Lady Randerson and Lord Bruce, and the noble Lord, Lord German, the noble Baroness, Lady Bryan, and others. I associate myself with them. At the heart of the problem seems to be a take-it-or-leave-it approach to the relationship from London. The Minister has set out a roll-call of meetings with the devolved authorities and their offices, but it is clear these meetings were not dialogues but show and tell meetings. Ministers portray this Bill as a permissive move that empowers local authorities and the devolved authorities, but for their part, the Scottish and Welsh Governments see it as a now regular incursion of tanks on to their devolved lawns by Westminster. We agree with that latter view, and there will have to be amendments, going forward, to address that.
On Northern Ireland, my noble friend Lord Purvis and others detailed how conflation of the TCA and the Northern Ireland protocol will cause problems. The noble Lord, Lord Dodds, also brought this up. The Minister of State in the Commons sought to address this to some extent and to dispel the issue of double jeopardy, but it is clear that he failed to do that. We need to see, in detail, what legal position and legal advice the Government have had on double jeopardy, and we need to debate that in full when we get to Committee.
It seems that the Minister is seeking to play down the issue your Lordships have had with the Bill, and certainly will have when he sums up. There are issues from start to finish with it. Further, it is designed as a shell Bill—another shell Bill. It provides the Government with the opportunity to fill that shell with secondary legislation that can, at worst, amend primary legislation. This, again, is unacceptable. Overall, a lot of work needs to be done on this Bill before it leaves your Lordships’ House, and the Grand Committee awaits.
My Lords, I thank all noble Baronesses and Lords who have participated in this Second Reading. Across the House there is a wealth of knowledge that can only bode well for the Bill itself—if not for the Minister. As the noble Lord, Lord Fox, has said, time will be required in Grand Committee and at other stages to make sure that we can move forward with it. It is a pleasure to be back on Labour’s Front Bench, especially for such an important Bill.
I will start with some general remarks and then focus on some specific issues of concern and, I hope, offer some helpful solutions, as have many other noble Lords and Baronesses. I believe that we can use the best endeavours of your Lordships’ House to improve the Bill. In previous dealings that I have had with the Minister and his department, they have listened to reason and good arguments, and I am sure that that will continue.
My first question, which is about the Delegated Powers and Regulatory Reform Committee of your Lordships’ House, has been partly answered by the Minister. If other noble Lords have not read the committee’s report on the Bill, it is well worth reading. It is scathing, and the Minister rightly said that he and his department will be looking at its recommendations. I want to push him further on that. Will we see some changes and address some of the issues raised in the DPRRC report in Committee, or will that happen later? The sooner, the better.
As we have heard, most of the concerns about the Bill are not ideological or political. Likewise, Labour’s concerns about it are rooted not in ideological dogma but in a sense of right and wrong, fairness and transparency. What we have before us is, in principle, a positive step. The right subsidies can have a transformative impact on communities across the country. Moving away from the EU regime for pre-approval is a clear win, but only if we are transparent and open about all the subsidies.
However, as my noble friend Lady Blake of Leeds has outlined, it feels like this new flexibility comes at a staggering and, frankly, unacceptable price: a lack of policy certainty, transparency and safeguards and, most worryingly, as we have heard from many today, a lack of proper parliamentary scrutiny. Some of the debates we will have on the Bill, including on the treatment of the devolved Administrations, could and should have been avoided altogether; had the Government learned from their mistakes during the Brexit process and, more recently, the passage of the United Kingdom Internal Market Act, we could have resolved them. The Minister himself is a veteran of both, so he should not be surprised when he sees the forthcoming amendments as we move to Committee and Report.
The four main areas, which I will touch on only briefly because they have been covered well across your Lordships’ House, are reporting transparency, the devolved Administrations, statutory oversight and investigations, and subsidies and their use. It appears from earlier discussions in the other place that Her Majesty’s Government will argue that the Bill as written delivers by reducing red tape, reducing administration and protecting competition. Many—including respected colleagues on the Minister’s own side such as the noble Lords, Lord Lamont, Lord Forsyth and Lord Leigh, and many Conservative Members in the other place—believe that that fundamentally misses the point of the Bill. Amending it in respect of reporting thresholds, the quality of the database, the timely manner of reporting and tighter controls on subsidy schemes could and would make the use of subsidies more transparent, reducing the possibility of corruption and shining a light on any cronyism or misuse or abuse of subsidies. As Her Majesty’s Government’s own analysis shows, such amendments, especially on the database, could cost as little as £20,000—a small price to pay to see what is being subsidised across the UK.
With relatively little transparency and another issue about the large number of various exemptions in terms of what has to be publicly recorded, it is not clear that authorities across the country and the public will have the confidence that public money is being spent according to the Bill’s seven key principles. Of course, local, regional and devolved authorities should be free to establish subsidies in support of their chosen economic objectives, but so too should neighbouring authorities and competing businesses have confidence in the process: that the reporting and regulations are up to speed.
Much like the UK Internal Market Act, the new subsidy regime will have far-reaching consequences across the UK, not just in the short term but for many years to come. We believe that the Bill can be strengthened and enhanced by a number of amendments. Ensuring that the Secretary of State gains the consent of the devolved Administrations when making secondary legislation and issuing guidance on the Bill would be a great start. Secondly, the Bill should be amended to ensure that the devolved Administrations are represented on the CMA subsidy advice unit; thirdly, it should give the devolved Administrations the power to call in subsidies, as we have already heard; fourthly, it should ensure that the devolved Administrations are explicitly included under the definition of “interested party”; and, finally, it should give the devolved Administrations the power to make their own streamlined subsidy schemes in order to support their own national priorities. When responding, could the Minister let your Lordships’ House know whether his department has given any consideration to a new UK-wide body—an economic prosperity council—where the devolved Administrations and the English regions could be represented?
Turning to statutory oversight and investigations, subsidy decisions are never going to be purely about competition. That is clear from the seven principles that public authorities have to consider. But does the Minister have confidence that the CMA has the necessary expertise to regulate subsidies, especially as this is a new area outside its existing remit? Currently, the CMA can investigate only subsidies that are referred by the Secretary of State or subsidies of “interest”—if they are volunteered to the CMA by the granting authority—or subsidies of “particular interest”. This means that damaging subsidies could go under the radar and not be investigated. This would be a particular risk where public authorities get their assessments wrong, conclude that they are not providing a subsidy or do not even upload them on to the transparency database. Could the Minister also outline any plans to open up the oversight process, or does he believe that the Bill as it is written suffices?
Many noble Lords have touched on the levelling-up agenda. Due to time, I will not go into detail on that, but the comments made by the noble Lord, Lord Ravensdale, about the Bill being silent on disadvantaged regions and having nothing on assisted areas should be remedied when we go through Committee and Report.
One of the other areas I would like to question the Minister on is the freeports policy. How does the Government’s current freeport policy feed into or work within the Bill as it is currently written, and how is it represented?
The Minister mentioned net zero three times in his opening remarks, but, reading through the principles, I did not see the issues relating specifically to net zero. We believe that the Bill could and should be used to promote a cleaner and healthier country.
We will debate the Bill in Committee very soon, but I hope that the half-term recess will afford the Minister and his officials a much-needed opportunity to think again on many of the issues that have been raised this evening and in earlier debates in the other place, so that we can get right and truly seize the opportunities before us.
I thank all noble Lords for their engagement ahead of today’s debate and their contributions this evening on this important Bill. It has been a good debate, despite the relatively late hour. I apologise to our two Green ladies, but I am not responsible for the timings, which were primarily driven by the time that the House dealt with previous business. However, we have had some informed and thoughtful speeches from all sides, which have given me much food for thought. I am particularly fascinated by this emerging unholy alliance between my noble friend Lord Forsyth and the noble Baroness, Lady Jones, who are at opposite ends of the political spectrum. I look forward to seeing how long this lasts when confronted with the reality of politics. It will be fascinating to see, and will no doubt give great amusement in Committee.
A number of noble Lords raised concerns regarding the role of the devolved Administrations. I thank the noble Baronesses, Lady Blake of Leeds and Lady Bryan, the noble and learned Lord, Lord Thomas of Cwmgiedd, and the noble Lords, Lord Whitty, and Lord Bruce of Bennachie, for their considered contributions. I emphasise that the devolved Administrations are and will remain responsible for the spending decisions on devolved subsidies within any subsidy control system. We have produced a Bill that not only protects but strengthens our union, through the creation of a single, coherent framework that empowers public bodies across all four nations to design subsidies that are tailored to local needs. It is in all our interests to ensure that the regime works for the whole United Kingdom and enables the UK’s domestic markets to function properly and efficiently, which is precisely what this Bill does.
It is important that I draw attention again to the point that Ministers and officials have engaged in and continue to engage extensively with the devolved Administrations on the new regime. Such discussions have also been paramount in informing the policy development from the outset. This is not to say that we have agreed to everything. Clearly, we have not—there are some areas of disagreement. However, our proposal aligns with their views on the majority of issues, including the regime’s objectives, their foundational principles and the need to respect the devolution settlement and to enable support for levelling up. Therefore, we hope that the devolved Administrations can understand and support our approach and that ultimately, they will give their legislative consent.
A number of noble Lords raised the issue of the Secretary of State’s powers within this Bill, but they are limited and appropriate. The regulation of subsidies is a matter reserved to the UK Parliament, and the Secretary of State therefore has responsibility to ensure that the new regime is enforced consistently across the whole of our United Kingdom. The Secretary of State must also ensure that the UK is compliant with our international obligations.
A number of noble Lords across the House have also raised concerns about transparency. I reassure my noble friend Lord Forsyth and the noble Viscount, Lord Chandos, that my department is working on a programme of improvements to the subsidy database. These will be completed soon and will address a number of the specific concerns raised here and in the other place. The Government will continue to reflect carefully on the points raised today and will engage further on our findings with parliamentarians in both Houses as the Bill progresses.
With regard to secondary legislation and the regime’s guidance, I thank the noble Baroness, Lady Blake, the noble and learned Lord, Lord Thomas, and other noble Lords for their contributions. To directly address the point made by my noble friend Lord Forsyth and the noble Lord, Lord Bruce, around this Bill being a framework, I draw attention to the testimony provided by the parliamentary counsel for domestic legislation in the House of Commons, Daniel Greenberg. He emphasised the need for the Bill to take the form that it does in order to give the flexibility for the ongoing relationships between the different powers concerned by the substance of the Bill.
As I mentioned earlier in response to the intervention by my noble friend Lord Forsyth—I am sorry if I gave him the impression that he was not permitted to intervene; he was entirely right to do so if he wished—and also addressing the point made by the noble Lord, Lord Fox, we will shortly publish a package of illustrative products that will set out much more information on the regime. We have been keen to ensure that relevant stakeholders have had the appropriate opportunity to provide input in the development of these regulations and guidance. They will be published early next week in time to support the Grand Committee debate of the Bill and will include draft regulations on subsidies of particular interest and guidance on the application of the principles. The final guidance will be made available in advance of the new regime’s commencement to ensure that public authorities understand it and can prepare for it.
On the specific request raised by the noble Lord, Lord Purvis of Tweed, on future impact assessments, I can assure him that we will produce further such assessments where appropriate, and we will provide more information on that in due course.
A number of noble Lords raised questions around net zero. I reassure the House—in particular, the noble Lord, Lord Ravensdale, and the noble Baronesses, Lady Bennett and Lady Sheehan—that the Bill supports our net-zero goal. The principles provided under the Bill are common sense and clearly support the UK’s priorities on net zero and on protecting the environment. An explicit principle on net zero, in our view, is therefore not necessary.
A number of noble Lords also commented on levelling up and disadvantaged areas. I reassure the House that this Bill supports the Government’s levelling-up agenda. It gives public authorities the flexibility to grant subsidies where they are best served to support economic growth in local places, but without the excessive bureaucracy or pre-approval processes. This directly addresses the proposal of an assisted area map such as those under the EU state aid regime, a point made by the noble Lords, Lord Ravensdale, Lord Fox and Lord McNicol. These maps were a necessary feature of the EU state aid regime, in which subsidies were prohibited unless specifically permitted. Assisted area maps were therefore required to facilitate an exemption for subsidies addressing regional inequality.
The UK’s domestic regime is fundamentally different, and it is aligned with the rest of the world. It is a permissive regime that allows public authorities to assess for themselves whether their subsidy or scheme can be given by reference to the sets of principles that I outlined earlier and of prohibitions and requirements. I can therefore reassure the noble Lord, Lord German, and the noble Baroness, Lady Bennett, that the absence of a dedicated regional aid exemption does not mean that public authorities are any less able to give aid or to address regional inequality. As long as a subsidy is justifiable on policy grounds, such as addressing regional inequality, and the public authority considers that it is compliant with the basic set of principles and prohibitions, then it can indeed be given.
I move on to the vital subject of Northern Ireland and points raised by my noble friend Lord Forsyth, the noble Lords, Lord Purvis and Lord Dodds, and the noble Baroness, Lady Hoey. In relation to the Bill’s interaction with Northern Ireland, I reiterate that the UK will of course continue to be a responsible trade partner that respects its international obligations, and our commitments made under the Northern Ireland protocol are no exception. There will be no double regulation of subsidies. Subsidies that are subject to the protocol, which complies with EU state aid rules, will be exempt from the requirements of this new domestic regime. Under current arrangements, subsidies within the scope of the Northern Ireland protocol of the withdrawal agreement in respect of goods and wholesale electricity markets, which affect NI-EU trade, will still need to comply with EU state aid rules. Subsidies for services will ordinarily comply with the more flexible UK domestic subsidy regime.
The noble Lord, Lord Purvis, also referred to technical guidance, noting that in specific circumstances it may be useful for companies to keep separate accounts. This is one possible way to demonstrate that a subsidy given in Great Britain is not being used to cross-subsidise a subsidiary in Northern Ireland, but it is not a legal requirement and nor is it relevant to all companies.
I can reassure the noble Lord, Lord Dodds, that, subject to negotiation with the EU, the intention is that all types of subsidy would be within scope of the domestic regime. The Government will create streamlined routes for public authorities across the UK to award subsidies that help achieve UK-wide priorities. We will continue to work closely with the DAs while developing this policy both at official and ministerial level, and we are committed to continue our close engagement on this with the devolved authorities.
Sorry to intervene, but to be clear so that I understand: what the Minister has just said is, I think, that if I have a business which has an operation in County Antrim and an operation in Hereford, and they are both technically eligible for a subsidy for the goods they make, the operation in Hereford would be eligible for a subsidy under the UK scheme but the operation in County Antrim would not be. Is that correct?
It would depend on a number of factors, and whether the subsidy complies with the set of basic principles that we outlined earlier under the UK regime. But under the current system—and obviously negotiations are ongoing—and if it was for a good, then the operation in Norther Ireland would be subject to the EU state aid regime because Northern Ireland is subject to that under the current terms of the protocol. If my interpretation is not correct, I will write to the noble Lord.
I assure the noble Baroness, Lady Randerson, that devolved Administrations, as primary public authorities, can also set up schemes for use by other public authorities where that is within their existing functions and powers. For example, the Welsh Government are perfectly within their rights to set up a scheme, if they wish, that can be used and accessed by all local authorities in Wales.
I move on to the role of the CMA and the subsidy advice unit. I agree wholeheartedly with my noble friend Lord Lamont, who noted the importance of independent oversight and robust scrutiny of our new regime. The subsidy advice unit will have an important advisory role for a relatively small number of cases, and an overall monitoring role for the system as a whole. Most subsidies granted are low risk, so it is right that the unit’s focus should be on the small number of subsidies with a greater likelihood of causing distortion in the market. The subsidy advice unit will provide advice that is genuinely useful to public authorities in designing their subsidies and assessing against their regimes’ requirements. This strikes the right balance between improved freedom for public authorities while providing confidence to interested parties, investors and the general public.
My noble friend also raised the issue of the Competition Appeal Tribunal. I can assure him that the regime will be robustly enforced through this UK judicial system, with the Competition Appeal Tribunal hearing judicial reviews of the award of a subsidy or the making of a subsidy scheme. The Competition Appeal Tribunal is UK-wide, has extensive expertise in the related area of competition law and is well suited to hearing challenges to the award of subsidies. In our view, the roles afforded to the Competition Appeal Tribunal and to the new subsidy advice unit will foster a regime that is robust, while empowering public authorities to deliver subsidies more quickly, more easily and more flexibly if that is what they choose to do.
A number of noble Lords, including the noble Lords, Lord German and Lord Bruce, and the noble Baroness, Lady Bryan, raised the issue of the inclusion of agriculture. In our view, the inclusion of agriculture and fisheries subsidies will help to protect competition and investment in these sectors in the UK. This position was supported by the majority of the respondents to the UK Government’s consultation who answered the question on agriculture and fisheries. Although agriculture and fisheries subsidies are not in scope of the subsidy control provisions in the UK-EU TCA, they are still subject to other international rules. The proposed approach will provide consistency for granting authorities while retaining sufficient flexibility for the devolved Administrations and all public authorities to deliver support where it is needed and how they see fit, given their responsibilities.
I do not have a regional breakdown of the responses to the consultation, but this is a UK-wide system and regime. If there is a regional breakdown, I will certainly provide it to the noble Lord.
I will move on to answering the point made by the noble Lord, Lord McNicol, and the noble and learned Lord, Lord Thomas, about the DPRRC report. I am grateful to the committee for the production of the report; I read it with interest. Of course, I recognise the strength of feeling in this House; it has come across today and been conveyed to me by a number of noble Lords, especially with regard to Clause 47. There is a lot to consider there in terms of striking the right balance on this and the other issues raised in the report, but I can commit to reading it very carefully and considering what policy steps we may take in response.
The noble and learned Lord, Lord Thomas, also referred to the Treasury’s powers. Measures implemented by central banks in pursuit of monetary policy have always been considered outside the scope of EU state aid regimes and rules—just as well given the massive amount of subsidies that it has imposed in recent years. In the joint declaration on monetary policies and subsidy control, the EU and the UK confirmed their mutual understanding that activities conducted by a central bank in pursuit of monetary policy are outside the scope of the subsidy control requirements in the trade and co-operation agreement. One of the Bank of England’s independent statutory functions is to maintain UK price stability and, subject to that, support the Government’s economic policy. It is both appropriate and necessary that the domestic subsidy control regime exempts monetary policy subsidies and schemes in pursuit of these objectives.
I assure my noble friends Lord Lamont and Lord Trenchard, and the noble Viscount, Lord Chandos, that this Government do not intend to return to the policies of the past, such as the failed 1970s approach of attempting to run the economy by bailing out fundamentally unsustainable companies. I suspect that this will probably not be the subject of a new agreement between the noble Lord, Lord Forsyth, and the noble Baroness, Lady Jones, but, nevertheless, that is our policy.
The principles in this Bill make it clear that subsidies need to address either identified market failure or an equity rationale as a legitimate objective in order to be awarded. It is important to note that not every example of government spending is a subsidy, of course. The Bill sets out a detailed definition: if a public authority purchases goods or services on market terms, that is public procurement and not a subsidy. Parliamentary oversight of spending and managing public money, as well as the Green Book requirements, will continue to apply and are important protections against bad government spending decisions.
The Minister is being generous in giving way this evening. For the record, will the Minister say—it was hard to discern from the comments on the processes—what the geographical area of a market is? The Bill refers to market failure, and the Minister has referred to it. He also referred to many public bodies that will be local authorities. When I emailed the subsidy control email inquiry, asking, as a resident of the Scottish Borders, whether Northumberland is a market, in order to discern whether it will be a market failure, I was told that there is no Northumberland market. So, what are the geographical areas of a market? The Government are not going to have the geographical indices for deprivation, whereas previously, we knew what the markets were in respect of state aid support.
I will reflect on that, speak to officials and write to the noble Lord about the appropriate definition, is that is okay with him.
I will respond to the question from my noble friend Lord Trenchard, the noble Lord, Lord Fox, and others about transparency thresholds. Regarding thresholds at which subsidies are uploaded to the database, I listened carefully to the debate in the other place and the comments from noble Lords this evening. In our view, the current transparency provisions seek to strike a balance between reducing the administrative burdens and costs to public authorities and ensuring that the necessary information on subsidies is available. In our view, this is vital to ensure that interested parties are able to challenge potentially harmful subsidies. However, I accept that there is a legitimate debate about the level at which those thresholds are placed.
Let me conclude by reaffirming what I said in my opening remarks. In our view this Bill creates a robust yet agile system that allows public authorities to provide subsidies where they are needed most. At the same time, it will allow us to maintain a competitive free-market economy as we build back better from the pandemic, and to chart a new course as an independent trading nation. I look forward to discussing many of these points further in Committee, but in the meantime, I commend this Bill to the House.
Bill read a second time and committed to a Grand Committee.
House adjourned at 10.02 pm.