Wednesday 9 February 2022
Arrangement of Business
My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bell rings and resume after 10 minutes. We now resume the Subsidy Control Bill. I understand that the Minister was cut off in his prime.
Subsidy Control Bill
Committee (4th Day)
Relevant document: 17th Report from the Delegated Powers Committee
Clause 55: Call-in direction
Debate on Amendment 55A resumed.
My Lords, I trust that it will be acceptable to your Lordships for me to pick up exactly where we were cut off in our prime on Monday, which noble Lords will be gratified to know was where I began speaking to Amendments 55A, 57A, 57B, 60A and 61.
Collectively, these amendments would allow the call-in powers currently provided to the Secretary of State to be exercised by the subsidy advice unit as well. Amendment 61 would create a new concept of a post-award investigation, which would be an extensive review by the SAU of the public authority’s decision-making process before giving a subsidy or making a scheme. I recognise the concerns of noble Lords that this system perhaps gives too great a responsibility to the Secretary of State. However, as I set out in response to the preceding group of amendments on Monday, it is appropriate that the Secretary of State is responsible for making these judgments in the interests of the entirety of the United Kingdom. In that function, they are answerable to this Parliament and to the interests of every citizen in the UK, and ultimately, as I keep stressing, for ensuring that the UK is compliant with its international commitments.
However, I would submit that there is a fundamental difference between a power to be exercised by the Secretary of State as a safety net, and a power to be exercised by a body such as the Competition and Markets Authority. There is very little possibility for the latter to exercise discretion and act only in situations that otherwise come to its attention. To carry out the functions envisaged by these amendments, the SAU would therefore have to scale up considerably. It would need a full market monitoring function to remain apprised of any potential new subsidies, including a public-facing arm to gather information and complaints, and it would need to develop clear criteria and decision-making processes for using these call-in powers.
Of course, ministerial decision-making must also be even-handed and evidence-based, but Ministers can and should have more discretion to make case-by- case judgments and will naturally be more aware of forthcoming distortive subsidies and where our international obligations are more likely to be impacted. The amendments tabled would require a very significant shift in the role of the SAU and would move it far closer to being a regulator of subsidies, which, to address the point made by the noble Lord, Lord McNicol, is not the Government’s intention, for the reasons that I have set out. This would of course create costs to the taxpayer, both in setting up this expanded subsidy advice unit and in the legal uncertainty and delays for legitimate subsidies that are placed under review or investigation.
I would also like to address the specific point that a government Minister will be unlikely to call in a subsidy that the Government themselves are giving. As I said in the previous sitting, Ministers will remain open-minded to referring a UK government subsidy to the SAU where it would be beneficial to have additional scrutiny of their own assessment. As with the regulations for automatic mandatory referral, there is no exemption for government subsidies. It is important to recognise that the SAU referral is a mechanism for scrutiny, transparency and advice which will support but not directly form part of the enforcement process, so there is no concern that the Government will be launching a legal challenge against themselves.
In summary, creating a function for the SAU to refer subsidies to itself or to initiate investigations would fundamentally change its role from one of oversight and monitoring to regulation and enforcement—a change which would be welcomed by the noble Lord, Lord Fox, but not by the Government, noble Lords will be shocked to know. I therefore hope that the noble Lord will withdraw the amendment.
I thank the Minister. I ask because my understanding is that a regulatory provision can be a subsidy; it has nothing to do with there being two separate pieces of legislation. As the Minister knows, the internal market Act takes into account any regulatory provision that will have an impact on the operation of the internal market. As the Minister has previously said, subsidy schemes will be considered as part of the operation of the internal market. So, if such a scheme is a regulatory provision under the terms of the internal market Act, any national authority would be empowered under that Act to ask the CMA for its view on whether that provision will distort the internal market. Is my understanding of that correct?
Again, before the Minister sits down, I have a couple of questions. I apologise to him for this, but we have had the benefit of actually seeing his words written down in Hansard. Some of the phrases he came out with were quite dense and intricate, and I was rather puzzled by two points. The first was when he talked about the functions of the SAU. He said that it was intended
“to support public authorities in giving the subsidies that are most likely to be distortive.”—[Official Report, 7/2/22; col. GC 383.]
I am puzzled by the word “support”, and puzzled that we would want to support the ones that are most distortive. I am sure I am misunderstanding it, but I would like the Minister to explain.
Let me also read out a second bit that I felt was particularly incomprehensible. If anybody in the Committee can understand it, I will be very impressed. I will read it slowly. The Minister said:
“I do not believe there is a contradiction in saying that a full assessment of compliance is light-touch regulation for the public authority but could prove arduous to replicate for the subsidy advice unit.”—[Official Report, 7/2/22; col. GC 383.]
I thank the Minister for giving way. Perhaps that is why we asked him to stop—so that we could start again today. His answer to my noble friend Lord Purvis is intriguing. He seems to be saying that no matter how much a subsidy affects the UK internal market—I will wait for the Minister to finish his conversation—it can never be within the purview of the internal market Act. Is that what he just said?
My Lords, I am very grateful to all those who spoke in the debate and supported my Amendments 55A, 57A and 57B. I am grateful in particular to the noble and learned Lord, Lord Thomas, who made a very powerful speech about the need for an independent evaluation of subsidies. The noble Lord, Lord Purvis, pointed out that, if we had an independent assessment, it would increase the possibility of consistency in the whole regime, which I thought was a very important point. The noble Lord, Lord McNicol, made the point that it was completely counterintuitive, after everything that had been said about the control of subsidies, not to have an independent evaluation. So I hope that there is quite a degree of support in the Committee for these amendments.
I do not think that the Minister today really explained why we could not have an independent regulator. He said that it would require a certain scaling up of resources. Well, obviously, it would. He said that it would become more like a regulator, rather than whatever else it is. Well, we want it to be a regulator—that is the whole point—with control of subsidies. But I really did not feel that he had made out a case against. He told us what the SAU does, but he did not explain why it would be wrong for it to do more things or to be scaled up and become a proper regulator.
The reason why I was particularly interested in the two passages that I put to the Minister—he is going to write to explain them to me—is that the more I listened to him, the more it became clear to me that the general line in this Bill is, “Public authorities know what they are doing, so let them, by and large, get on with it. Maybe somebody will object; they have 28 days. Don’t make it any longer because a lot of them might object; just give them 28 days. But by and large public authorities know what they are doing, so we want them just to get on with it”.
The Minister said that the SAU would not carry out its own assessment of compliance. Is that enough? It seems as though what it is going to do is extremely limited: it is just going to examine process. The Minister said:
“The SAU would be acting without the understanding and body of evidence that the public authority will have created in developing the subsidy”.
That is, the public authority will know more than the people who are checking the subsidy. Is that really the right way round? It seems to me a real Alice in Wonderland to call this control of subsidies, when those who have actually invented the subsidy and paid the money know more about it than the people who are regulating them—and this is admitted by the Minister at the same time. The Minister also said:
“There is no intention to build up an extensive monitoring function within my department or the CMA”.—[Official Report, 7/2/2022; cols. GC 383-4.]
Surely, that is exactly what we need. If we are talking about the control of subsidies, how can we have it without monitoring subsidies? That becomes even weaker when you consider what has been referred to again and again in Committee about the 28 days.
It seems to me that the SAU is far too weak for this really to be a Subsidy Control Bill; it ought to be renamed the “Support of Subsidies Bill”, because that is actually what it is. The reality of the Bill is that it is not attempting to control subsidies at all; it is just giving expression to the undertakings that the Government gave on Brexit in the TCA. I see the Minister smiling, although I shall not refer to that again. The Government gave assurances that were embodied in the TCA about not having subsidies that might distort competition with the European Union, so we have to have a control mechanism, and it is this Bill. But there is also a national interest in having proper competition and control of subsidies, and I do not think, frankly, that the Bill does that. It is far too weak. But having made my points and not persuaded the Minister, I look forward very much to the letter he is going to write to me explaining what he said. With that, I withdraw my amendment.
Amendment 55A withdrawn.
Amendments 56 to 60 not moved.
Clause 55 agreed.
Clauses 56 and 57 agreed.
Clause 58: Call-in direction following voluntary referral
Amendment 60A not moved.
Clause 58 agreed.
Clauses 59 to 62 agreed.
Amendment 61 not moved.
Clauses 63 to 65 agreed.
Clause 66: CMA annual report
62: Clause 66, page 38, line 5, at end insert—
“(2) The annual report must also contain an assessment by the CMA, on the basis of the reports it has prepared, of the extent to which the subsidy control regime under this Act is meeting its stated policy objectives.”Member’s explanatory statement
This amendment would require the CMA to opine, in its annual report, on the extent to which the new subsidy control system is meeting its stated policy objectives.
I rise to move to Amendment 62, in the name of my noble friend Lord McNicol. I am also looking forward to discussing Amendment 63, in the name of the noble Baroness, Lady Boycott, which is supported by the noble Baroness, Lady Sheehan, and my noble friend Lord Whitty.
Following on from the discussion of the purpose of the work of the CMA and the opportunities it will present, I want to express the concern that we could be missing a real opportunity if we do not look more closely at the way it will work. Amendment 62 has been tabled to probe the question of what practical effect the CMA’s work will have, beyond on the making of individual decisions taken in isolation on the basis of its advice. Also, as we have discussed, what powers will it have to investigate or highlight areas of concern which come to light?
On a general note, in many cases the delegation of responsibilities to a regulator or other form of arm’s-length body creates a symbiotic relationship whereby day-to-day work can be carried out independently of the department, but that same department can benefit from the experiences of its agency. We remain concerned that, as I have said, we are missing trick and that the whole process is weakened by the lack of a need to respond annually on what work the CMA is undertaking collectively. It is not clear whether there will be a sense of the overall contribution that the CMA and subsidy control will make to key policy areas. Will its findings have an impact on future policy and statutory guidance, or is its sole purpose simply to state opinion or comment on the individual cases before it?
Amendment 63 will enable us to have a specific debate on the policy objectives around net zero, particularly linking to the outcomes of COP 26, as we have discussed before in Committee, and highlighted by the publication this week of the levelling up White Paper. Where are we going to be able to assess progress? Surely, a section of the CMA’s annual report would be a very good place and opportunity to bring together the sense of purpose of the subsidy regime.
We have talked a great deal about what subsidies are and who they are there to benefit. Surely this presents an opportunity to make sure that there is the transparency, clarity and real sense of forward thinking that will help take strategic objectives forward. As I say, we are concerned that the Bill is fairly silent on these areas, and we would like to hear from the Minister what the contribution of the CMA and its work will be to the progress of strategic priorities going forward. With those comments, I beg to move.
My Lords, I declare my interests as set out in the register and apologise for being unable to attend day one in Committee. I am very grateful to the noble Baroness, Lady Sheehan, for introducing my amendments on that day, and to the noble Lord, Lord Whitty, and the noble Baroness, Lady Hayman, for their support.
Today I am introducing Amendment 63, again with the welcome support of the noble Baroness, Lady Sheehan, and the noble Lord, Lord Whitty. Some of the reasons for this amendment have just been set out. It is linked to my earlier amendments in that it is aimed at ensuring that progress towards achieving our net-zero and environmental goals is reported on and monitored after decisions on subsidies have been made.
Amendment 63 provides that a review of the impact of the subsidy control regime on progress towards achieving net zero and our environmental goals should be included in the annual report prepared by the CMA, as has just been mentioned. The Government have said that the new subsidy regime aims to enable public authorities to deliver
“strategic interventions to support the UK’s economic recovery and deliver government priorities such as … net zero.”
As debated on day one, the framework permits subsidies that support our net-zero goals, but there is very little in the Bill that actually enables subsidies that support or encourage consideration of net-zero and environmental goals in their design and the way they are awarded.
Ultimately, if we do not do this, the Government will not know whether the subsidy regime is delivering on its net-zero and environmental priorities. Tracking underlying progress is absolutely crucial to identifying whether their aims are being met and to understanding what progress or changes we need to further make.
On day one, the Minister said that:
“Net-zero and climate change considerations are not inherent to all subsidies”,
and that placing a principle that considers our climate change and environmental commitments in the Schedule 1 principles
“could lead to public authorities having to do bespoke, possibly onerous, assessments for every single subsidy awarded or subsidy scheme made”.—[Official Report, 31/1/22; col. GC 158.]
The delivery of net zero is one of the key strategic priorities of this Government, but if there is to be no specific principle ensuring that public authorities properly factor this into their decisions, it seems even more important that we put clear monitoring and reporting of these issues in the Bill.
The Bill sets out an overarching monitoring and reporting process, predominantly led by the subsidy advice unit within the CMA, which includes determining
“whether any changes should be made to the regime as a whole or certain aspects of the regime.”
However, absolutely nothing explicitly suggests that this monitoring and reporting process will encompass the impact of the new subsidy regime on achieving the strategic net-zero priority.
With nothing in the Bill that embeds this consideration, it is really difficult, if not impossible, to understand how the Government intend to monitor whether their strategic objectives are being met, or indeed possibly being undermined. The Government have declared a climate emergency, so it seems quite astonishing that we are prepared to put public money towards efforts that could undermine that goal. Indeed, all public money should be put towards anything that makes this goal more available and possible for us all.
My Lords, I rise to speak to Amendment 63 in the name of the noble Baroness, Lady Boycott, to which I and the noble Lord, Lord Whitty, have added our names.
Before doing so, I want quickly to speak about Amendment 62, which I support. I recognise the less than complete nature of the assessment it advocates, namely the
“assessment by the CMA, on the basis of the reports it has prepared”.
However, those reports are limited to the voluntary or mandatory referrals referred to in paragraphs (a), (b) and (c). I also have some reservations about the reference to the legislation meeting its stated objectives; that is living in hope that a stated objective might actually appear in the Bill at some point.
I thank the noble Baroness, Lady Boycott, for her comprehensive introduction to Amendment 63; it leaves me with little to say. These subsidies will be used by hundreds of public authorities. According to figures I have seen, some 550 public authorities will be able to give out subsidies under this regime. Can the Minister confirm that figure? It is important that many of them fully grasp the importance of their decisions. The Government have said that meeting the net-zero target and levelling up will be policy objectives, but words are not enough. We need to be able to demonstrate that that is the case. This amendment would ensure that it is the case with respect to the net-zero target and other environmental targets. The amendment will be especially necessary if the Government resist that tabled by the noble Baroness, Lady Boycott, which would include a new principle to consider net-zero goals.
Clear and detailed monitoring and reporting of climate change risks and opportunities has been successfully implemented in other parts of our economic system—for example, by the FCA and the PRA through amendments to last year’s Financial Services Act, and by the Pensions Regulator through the pensions Act, also of last year. For the first time, the Pensions Regulator has published guidance on governance and the reporting of climate-related risks and opportunities. Such inclusions in those Acts really help to drive climate alignment across these sectors.
This Bill is an opportunity to do the same in relation to our subsidy control regime. Amendment 63 would allow the Government to continue to claim that they are a global leader on climate change.
My Lords, I have added my name to Amendment 63 but I want to say a couple of things about Amendment 62 because, as we proceed through this Committee, it is clear that there is a bit of fuzziness about what exactly the role of the CMA is. Historically, the CMA and its predecessors have reported effectively on the nature of competition across the British economy but, of course, the issue of state intervention has been left to the European level. Some of us were slightly concerned that the CMA would take over that function after Brexit; in the end, I was sort of convinced that it should, rather than creating a whole new body, but it has to do a number of different things. It has to look after our trade obligations not only to the EU but in all the other trade agreements we have reached, in which we agreed that we will not unreasonably subsidise goods that are traded so as to undercut our trading partners. So, we have a big international obligation—one that can lead to retaliation and all sorts of problems arising with the WTO and other international bodies.
We have all that, but we also have the area of subsidies in the UK. This includes the delicate relationship between the UK Government and the Secretary of State acting for England, the devolved authorities and local authorities. It is a very complex area, and all this is to be landed on a new body within the CMA: the SAU. It is not yet clear whether it will have the resources, expertise and personnel to do that. We have gone along with this, but we need to be clearer on, for example, whether it is a regulator or an overseer and reporter on the activities of the public authorities that are giving subsidies and quasi-subsidies. As we debated earlier in the Bill, this involves a range of things—for example, preferential procurement. At the end of my contribution at Second Reading, I asked the Minister whether my county would be able to give preferential treatment to a local firm because it provided local employment, or whether it had to make sure that the neighbouring county of Wiltshire was not thereby being undercut.
Admittedly, there is a minimal level, but a lot of public authorities’ activities, in public procurement and their other regulatory functions, will be affected like this. We need an authoritative body that can say whether this is in order with the principles that we set. Effectively, Amendment 62 says that we must have a running report on whether the SAU and the CMA are actually doing the job we thought they would do when we gave it to them, or whether there are problems between the various authorities and various levels of authority affected by this.
I will move on to what I was supposed to be speaking about, which is Amendment 63. As the noble Baroness, Lady Boycott, said, in earlier debates we considered amendments that would have added a requirement to take environmental considerations into account, in particular whether a subsidy does or does not undermine the principle that the polluter pays or makes it easier for a provider or manufacturer to produce in a way that creates environmental harm, or whether any intervention makes issues such as decarbonisation better or worse. This amendment attempts to make sure that the CMA reflects this itself, not only in its individual decisions and views on particular subsidies but in its overall impact. I guess some reflection would have to be added to the CAT, as well
I would like to see a provision such as this written into all regulators’ requirements. Maybe there ought to be a standard form of words in the annual report on what their net contribution to or effect has been on the achievement of decarbonisation, net zero and the trend to reduce greenhouse gases. It is important that the CMA’s individual interventions and views take this environmental consideration into account. Of course, the most important environmental consideration, to which the Government are utterly committed, is towards net-zero carbon and carbon-equivalent emissions. If we do not do that, there is the difficulty that the intervention, which will primarily be made on economic grounds, will have an environmental effect on emissions that far outweighs any economic advantage that was the original intention of the subsidy.
We have to write this into the Bill and make sure that there are people in the SAU and CMA who understand these issues more generally and are capable of making these assessments. At the moment, I am not convinced that is the case and I hope the Minister can give us some reassurance on that front. The seven principles in Schedule 1 do not directly refer to any environmental consequences, and the reference to energy and environmental effects in Schedule 2 is limited. It relates principally to the energy sector and industrial activities.
Actually, any subsidy or preferential procurement could impact on carbon emissions. Whether it relates to transport, public services, digitalisation or whatever, it can have an effect that is not primarily environmental, but with a fairly devastating environmental side-effect. We need to make sure that the regulation of our subsidies reflects the need to focus on that at every level. We need to get the CMA to report the aggregate outcome of its activities of the previous year. I strongly support the amendment from the noble Baroness, Lady Boycott.
Could my noble colleague clarify his thinking with regard to subsidies to the steel industry? Clearly, such subsidies could have far-reaching effects on the environment. To make a judgment on that would require people with an intricate knowledge of the steel industry and the background and significance of subsidies in that sector. At what level should that decision be taken?
My Lords, that is probably a question for the Minister rather than for me, but, clearly, the decision on, for example, the Cumbrian coal mine, which is to feed into the steel industry, is an incredibly complex issue which will not be resolved by the narrow criteria of whether it enhances or undermines competition. The noble Lord is correct in that respect, because it would also have a considerable effect on carbon emissions.
My Lords, I shall speak to Amendments 62 and 63. Amendment 62 seems pretty basic post-legislative scrutiny, so I am not quite sure why it is not in the Bill already. The Government are bringing in this legislation and it makes sense for the Competition and Markets Authority to report on whether the legislation works in practice. That is fairly fundamental, is it not? If it does not, then, obviously, we can improve the legislation; if it does, then the Government can pat themselves on the back. The amendment should have been in the Bill. I am expecting the Minister to say, “Yes, of course, we’ll write it in now.”
On Amendment 63—I wish I had added my name to it; I agree with everything that we have heard so far from noble Lords—I have said before that we should have a provision such as this in every single piece of legislation. As the noble Lord, Lord Whitty, just said, it is basic to what the Government claim to care about. The principle should underpin everything that they do. We know that the scale and size of the net-zero problem is huge, and the Government will need a lot of help. They will need a lot of private and public investment, and it will involve a lot of changes to government taxation and spending.
Any aspect of government that thinks that the climate emergency is not part of its remit is not thinking hard enough about it. We need both the whole of government and the whole of society to address the work on the climate and ecological emergencies. Every Bill that comes through here, every tax levied and every pound of government spending should move us towards net zero. There is an environmental saying: doing nothing risks everything. The Minister will say that the Government are doing a lot. I would argue that they are doing bits and pieces, so the saying could be: doing bits and pieces risks everything as well. We need a coherent approach.
I was asked whether I would still like a meeting with the Minister. Yes, I would, and I would like to throw down a little challenge. If the Minister or his team can come up with any issue that is not relevant to our climate emergency, I will be happy to argue how it is relevant. I look forward to that meeting, and I might bring some heavyweights with me.
My Lords, each year, the CMA is required by the Enterprise and Regulatory Reform Act 2013 to prepare a report on its activities and performance that year. The report must be sent to the Secretary of State and laid before Parliament.
Clause 66 requires that the CMA include details within its annual report of any subsidies and schemes which have been referred to the subsidy advice unit in that year. This includes referrals made on both a mandatory or voluntary basis, including those made by the Secretary of State, and it is designed to mirror the level of detail required for information on the CMA’s other functions. This information will help to provide transparency as to the number and types of subsidies and schemes referred to the subsidy advice unit. Among other things, it will help both the CMA and Parliament to understand whether the subsidy advice unit is operating as expected and has the appropriate resources to fulfil its functions.
Amendment 62 would add the requirement for the CMA to set out an assessment on the extent to which the regime is meeting its stated policy objectives. On this matter, it is important to draw a clear distinction between the purpose of the CMA’s reporting under this clause, as opposed to the more in-depth review and reporting that it will do under Clause 65. The effect of this amendment will be to combine the purpose of these two distinct categories of report, and in doing so place an unnecessary burden on the CMA in producing its annual report.
In response to the question of the noble Baroness, Lady Blake, on what effect the CMA reports will have, the monitoring reports will already be published for all to see. The Bill contains numerous provisions for amending specific aspects of the regime though secondary legislation. This ensures proper parliamentary scrutiny of any proposed changes to the regime. The purpose of the subsidy advice unit’s regime-level monitoring function is to provide an objective source of information about the functioning of the new system. This feeds into the Government’s objective of monitoring and continuous improvement for the regime, while also providing confidence in the regime to stakeholders and the public across the UK. Requiring more frequent monitoring reports from the CMA, with improved scrutiny and transparency, might indeed seem attractive but in reality, it could cause the opposite effect to that intended by the noble Baroness, resulting in more superficial reports that will be less useful in assessing the overall effectiveness of the subsidy regime.
The information required by Clause 66 is designed to sit within the CMA’s existing reporting requirements. The annual report is a descriptive and limited tool for the CMA to publish key information about its workload and resources and to ensure that it is moving towards achieving its own organisational objectives across all its functions. This report must include summaries of its significant decisions, investigations or other activities carried out during the previous year.
As currently drafted, the requirements under this clause similarly require summary descriptive information in relation to the subsidy advice unit’s functions, which will give an indication of how those functions are being used and whether it has the appropriate resource to fulfil the demand for those functions. This should be placed in contrast to the five-yearly reports specific to the subsidy advice unit under Clause 65, which will provide the CMA with the opportunity to publish a substantive analysis of the operation of the regime and the subsidy advice unit’s role within that regime. Of course, the CMA may include further data or case studies on subsidy control in its annual report if appropriate. Clause 66 is only a minimum list of the information that it will be required to include.
Under the Enterprise and Regulatory Reform Act, the CMA must also include a survey of developments in relation to all its functions, which may include developments within the subsidy control regime that the CMA deems of significant enough importance to publish, and thereby inform Parliament. The Government’s position is that the five-yearly reporting under Clause 65 is the appropriate place for the CMA to provide an assessment of the regime’s performance. The five-yearly report provides for an appropriate timescale for producing such assessments and the CMA is empowered under Clause 67 to gather information for this purpose. This will provide the CMA with the time and resources necessary for the subsidy advice unit to provide for a considered review of the subsidy control regime.
Amendment 62 also requires that the SAU produce its assessment only
“on the basis of the reports it has prepared”.
It is our view that any assessment of the regime’s performance will need to take a much wider view of the regime than only that part of it to which the SAU has reported that year. That is why the five-yearly reporting requirement in Clause 65 has been drafted to give the CMA the scope and power it needs to consider the matter thoroughly. Supplementing those powers with additional requirements in the annual report may only lead to the production of an assessment that is relatively narrow and partial, and that does not have the benefits of a more extensive review over a longer period.
I support the view that there may be circumstances in which we need more analytical and evaluative information more frequently than every five years. I would like to reassure the Committee that the Secretary of State has the power under Clause 65 to direct the SAU to produce a report for a specified period. It is also worth noting that, under the Enterprise and Regulatory Reform Act, the Secretary of State already has the power to request a report or advice from the CMA on any matter relating to its functions.
Regarding parliamentary scrutiny, there should be no reason for any committee of this House or the other place to wait for the CMA’s reporting under either Clause 65 or Clause 66 in order to take a close look at the subsidy advice unit’s functions. It is always open to noble Lords and honourable Members of the other place to examine this regime and the SAU through the usual process of parliamentary committee.
Amendment 63 would expand the scope of the CMA’s annual report to include an assessment of the effect that the regime is having on the UK’s ability to achieve its net-zero carbon emissions goal, set out in the Climate Change Act 2008, and the targets set under the Environment Act 2021.
While I understand the noble Baroness’s aim to ensure that this legislation will not hinder the UK’s ability to achieve its net-zero goal or environmental targets, I must urge her to reconsider this amendment. I say in response to the concerns of many noble Lords, including the noble Baronesses, Lady Boycott, Lady Sheehan and Lady Jones, and the noble Lord, Lord Whitty, that I recognise their position. For reasons of time, I will not repeat the arguments set out in previous Committee sessions, or those in my noble friend Lord Callanan’s letter to the noble Baroness, Lady Jones: that the UK’s framework to address climate change and protect the environment is strong as it stands.
It is also worth mentioning that robust reporting requirements are already in place for considering progress towards meeting Environment Act targets. The Government must report annually on whether the natural environment has improved, including on whether progress has been made towards targets. The office for environmental protection will also scrutinise the Government’s progress towards targets annually, providing recommendations if it believes better progress could be made in improving the natural environment.
Turning to the amendment, the CMA’s annual review function is not an appropriate tool for addressing the noble Baroness’s concerns. The amendment would probably be prohibitively disruptive to the delivery of the CMA’s annual report. As I have already described, the CMA’s annual report is intended to be a descriptive and limited tool for the authority to inform Parliament of its workload and resources, and to ensure that it is moving towards achieving its own organisational objectives. A review of the subsidy control regime’s effect on carbon emissions and the Government’s environmental targets would necessarily require a significant assessment of this aspect of the regime, with the inclusion and explanation of technical details and nuances that are wholly unrelated to the rest of the CMA’s functions. The inclusion of such an assessment in the CMA’s annual reporting is unlikely to be helpful to Parliament in scrutinising the CMA’s functions or reviewing the progress towards the goal of net zero, or indeed to the Government’s environmental targets.
This is not to say that the subsidy advice unit will never take into account the regime’s potential effect on the UK’s net-zero commitment. This regime will support our net-zero target by facilitating strategic subsidy interventions with minimal bureaucracy and delay. This includes the energy and environment principles in Schedule 2 to the Bill, which could be used to aid public authorities in the granting of subsidies which support the UK’s priorities on net zero and protecting the environment. As I have set out, the subsidy advice unit will be charged with the responsibility of reviewing the operation of the entire regime every five years under Clause 65. This will include the effect of the energy and environment principles in Schedule 2.
The Government take their net-zero commitment and environmental targets seriously and this Bill will support those aims by giving public authorities—
It is the Government’s position that five-yearly reports are sufficiently frequent to take a view of how successful this is. They are the appropriate tool to conduct a review of the environment and energy principles. Clause 65 provides an achievable timescale for delivering complex and substantive analysis of this sort. To ask that we prepare something every year would be an unnecessary burden on the whole subsidy control regime and the structures we have put in place to support this.
The CMA will have the ability to gather all the information needed to conduct such an analysis for these five-yearly reports, through Clause 67. These are powers that the CMA will not have in relation to its annual reports. I therefore humbly request that the noble Baroness withdraw the amendment.
The other day, we discussed the inclusion of agriculture in the Bill, but the Government have made it clear that, basically, the future of all agriculture subsidy will be environmental objectives. The Minister’s reply to my noble friend’s amendment suggests that she agrees that agriculture should not really be covered by this approach, or that it should at least be treated substantially differently. What she has said, effectively, is that we cannot judge the environmental side; we have to approach it in the same way as every other sector.
On the specific point about agriculture, I do not know whether the letter addressing those points has been issued yet. I can say that 99.5% of subsidies given to the agriculture industry in the UK would not fall within the remit of the subsidy; they are lower. We do not have the data for Scotland or Wales, but it captures only the very largest subsidy given to the very largest farms. That may include some in Scotland with that sort of acreage—
Can I ask the Minister about her remarks about the OEP’s remit? I think that she said that it would cover whether the Government are meeting their climate change requirements. However, the OEP’s remit does not cover whether the subsidy control regime is working towards our net-zero targets. What the amendments are trying to say—as we tried to include in the Financial Services Act and the pensions Act, successfully—is that a more granular approach will be needed, which has to be provided by the regulatory authorities within the sectors concerned because, otherwise, we really will not know whether each sector is working towards the net-zero targets that we are all trying to achieve in the timespan that we have.
One of the noble Baroness’s concerns was that there was no overarching principle for the Government’s drive towards net zero. I think that the Environment Act provides the overarching context for whatever we are doing. As I say, the Office for Environmental Protection will also scrutinise the Government’s progress towards targets annually. I do not know what further level of granularity the noble Baroness wishes to apply.
I shall not repeat what I have said, but I do not think that the OEP will be able to tell us whether the subsidy control regime is working in the way that subsidies are being allocated in terms of meeting our climate change requirements. There is precedent in this, as I keep saying, with the Financial Services Act and pensions Act, and the actions that the Pensions Regulator took on the back of that Act. They all speak volumes as to how important it is to have each sector being held to account. Those are the points that the noble Lord, Lord Whitty, and the noble Baroness, Lady Jones, made. Every single sector within the country needs to be shown to be pulling its weight and we need to know where we have to put in greater effort, if it is not working towards the net-zero targets.
I understand the noble Baroness’s concerns, but I am not able to go further than I have done at the Dispatch Box. On the point that the noble Lord, Lord Whitty, made about the steel industry, followed up by the noble Lord, Lord Wigley, we are directing subsidies towards greening industries like that, so we can invest in electric arc technology, and hydrogen as well. It is part of an overall drive by this Government to be consistent with the environment principles that we have laid out.
But can the Minister see our point that the climate emergency has to be part of every part of government thinking and at the moment it is not? It just gets dropped out of piece after piece of legislation as if it was not really part of government thinking. It is all right talking about zero carbon, about how we are on our way and all that sort of thing, but if it is not in every single piece of legislation, it will not happen.
We are just going to have to agree to disagree on this point. I believe that it is part of the overarching principles of this Government that the environment is one of our most important points. I do not believe that it needs to go on to the face of every Bill. I know that it is in the pensions legislation, but I cannot go further than I have already gone at the Dispatch Box in the context of this Bill.
My Lords, given how huge this area is in terms of the amount of public money that gets spent and given that the Government have a public commitment to net zero, it seems astonishing that we do not have the legislation blended in to this Bill. We are not talking about minor amounts of money; we are talking about the way in which whole communities live, work and operate.
I thank the Minister for her full response to the two amendments before us. In the contributions that have been made both in the debate and in our following up and further probing, there is a sense that we have to go into this more deeply.
Again, we are asking for the same principles that we have talked about with regard to many of these issues around clarity, sense of purpose and benefit. I do not believe that public authorities will find some of this assessment and monitoring onerous, including having to account for the subsidies that they put forward. That is part of established practice and it needs to be formalised in the sense put forward by my noble friend Lord McNicol in Amendment 62, with annual reports as a mechanism for picking it up.
I absolutely agree on the issue of five-yearly reports. We are already in 2022. Are we saying that the first report into progress in these areas around net zero will not be heard until 2027—possibly even 2028, with the way things are going? That cannot be what the Government intend, given the urgency of the situation in front of us in moving towards net zero.
I will not unpick all the excellent points made by noble Lords in this debate because I know that we will come back to this area. I look forward to hearing how we can bring this together and come up with a sensible way forward. As I said in my opening remarks, if we carry on with the Bill in its current form, we will be sitting on a missed opportunity to do something constructive and positive—particularly, in the context of this debate, around net zero but also, looking further afield, in the wider area of levelling up. The climate emergency is a major contributor to the unequal experience of people right across the four nations. Addressing the matters raised in this discussion would be a sensible way forward. With that, I beg leave to withdraw the amendment.
Amendment 62 withdrawn.
Amendment 63 not moved.
Clause 66 agreed.
Clause 67 agreed.
Clause 68: Subsidy Advice Unit
64: Clause 68, page 39, line 1, at end insert—
“(3A) The Chair of the CMA Board may appoint up to three non-executive members to the Subsidy Advice Unit established under subsection (1) in order to ensure that the Unit includes at least one person with relevant experience in relation to each of Wales, Scotland and Northern Ireland.”Member’s explanatory statement
This amendment would allow the CMA Chair to appoint up to three non-executive members to ensure that the Unit includes at least one person with experience in relation to each of Wales, Scotland and Northern Ireland.
In moving Amendment 64, I will also speak to Amendment 65. I am grateful to the noble Lords, Lord Bruce, Lord Wigley and Lord German, for adding their names to one or both of the amendments.
Just because it was touched on a minute ago by the Minister, I should say that we have received the letters. The lessons from day 3, on Monday, when the letters were received before the Grand Committee started, may well have been learned. Notwithstanding that, I thank the Minister and his department. I have not read the letters in detail because I was engrossed in the previous debate, but I want to pick up one small point in them. Obviously it is worrying that any subsidy under the level of £315,000 does not have to be entered on the database. What is even more worrying is that that subsidy does not even have to abide by the principles in Schedules 1 and 2. This gives more weight to the arguments for reducing the subsidy level and admittance on to the database, especially if the subsidies do not have to meet the principles in the schedules.
Amendment 64 would allow the CMA chair to
“appoint up to three non-executive members … to ensure that the Unit includes at least one person with … experience in relation to each of Wales, Scotland and Northern Ireland.”
Amendment 64 was considered in the Commons but, like many of the other amendments relating to the role of the devolved Administrations, I do not think it received a satisfactory response. I am sure we will come back to it again in discussions. Hopefully it will not need to come back on Report, but we will see.
As we have covered in previous debates, each of the devolved nations has its own particular interests, and it seems only fair that these be represented—or at least picked up—on this new body, the subsidy advice unit. The CMA has staff based in each of the four nations of the UK, so why should there not be a statutory requirement that the SAU reflect this?
The amendment does not call for a Welsh representative to opine on matters wholly relating to England and Scotland. I am sure that all those in the devolved nations who could be affected by subsidies would feel more supported, protected and engaged knowing that a representative from one of the devolved nations was involved with the SAU.
More importantly, Clause 68(4) on page 39 of the Bill states:
“The Subsidy Advice Unit may consist only”
“who are members of the CMA or its staff.”
I am really interested in why, whereas in so many other parts of the Bill there is silence or less prescription, Clause 68 is so prescriptive. I would appreciate the Minister’s thoughts on that.
Amendment 65 returns us to the question of how prepared the CMA is to undertake these new responsibilities. It would prevent Part 4 of the Bill coming into force until the Secretary of State has undertaken a full assessment of the CMA’s capacity. It states:
“This Part may not come into force until the Secretary of State has … undertaken an assessment of the CMA’s capacity to undertake the functions contained within this Part, and … laid before both Houses of Parliament a statement confirming whether, in the Secretary of State’s opinion, the CMA has the appropriate resourcing to meet its obligations under this Part.”
We appreciate that the CMA will be undertaking preparatory work as we speak, and this amendment is not meant as a criticism, but during the passage of other Bills it is perfectly normal for us to probe whether a chosen regulator—because it will not be an enforcement agency—is the correct one. It very much picks up on my noble friend Lord Whitty’s remarks in the previous debate about the role of the CMA and how ready it and the SAU are. Do they have the resources and the expertise? Amendment 64 aims to make sure that the SAU has four-nation representation on it. With that, I beg to move Amendment 64.
My Lords, I speak in support of Amendment 64, to which I have added my name. I also support Amendment 65, which my noble friend Lord German will address in more detail. Overall, and as has been said, this Bill has worrying implications for the devolution settlements. Just as the United Kingdom Internal Market Act may be used to impact the devolved Administrations unfairly—certainly, that is their concern—reserving the subsidy regime to the UK Parliament and the powers that have been given to the Secretary of State are causing alarm across the devolved Administrations.
The Government like to claim, and the Minister has made this point a few times, that leaving the EU gives the devolved Administrations more power and flexibility. Under the EU, they were constrained by the state aid rules that no longer apply. Now, they can pursue their own. That would be true if the UK Government were not introducing legislation that allows them to override the devolved Administrations, without even a requirement for consultation and with no reciprocal rights to challenge UK Ministers’ decisions as regards not only the UK but England.
Oversight of these two pieces of post-Brexit reserve-power legislation, which I would argue are draconian, has been allocated to the Competition and Markets Authority, which has been asked to acquire skills and experience that it does not yet have. It is important for us to recognise that this is new territory for the CMA.
Thomas Pope of the Institute for Government says that this Bill
“does not yet guarantee a Brexit success story. Gaps in the legislation could deny Parliament”—
I would argue are denying Parliament—
“a proper chance to scrutinise how the new system will work—and point to future rows between the UK government and the devolved administrations.”
He further points out that the regulations have no input from the devolved Administrations. The Minister keeps saying that he is consulting, but the devolved Administrations say it is not consultation at all. Pope argues that
“a successful system needs buy-in from all parts of the UK.”
That is absolutely the case. He went on to say that the Institute for Government’s report
“recommended that any regulations should be made in consultation with the devolved administrations”—
I emphasise the following—
“with the process preferably led by experts in the CMA. The government’s approach risks future clashes”.
These arguments have been further developed by George Peretz QC, who points out, as previous debates in this Committee have highlighted, that granting authorities need to test their subsidies against the effects on competition and investment, without reference to the wider issues—in other words, social and environmental implications, and the other issues we are discussing. It is a very narrow definition, which could lead to broader subsidy intentions being overridden. It is true that the TCA refers to the socioeconomic situation of the disadvantaged area concerned. How could the EU not agree to that, given the CAP and its own state aid rules? But there is no definition of what constitutes a disadvantaged area or what disadvantage is. We have discussed the lack of any area map in previous Committee debates.
Mr Peretz goes on to say that
“nothing in the Bill provides for the devolved governments to have any say in the appointment of CMA panel members who will, as part of the Subsidy Advice Unit, exercise the CMA’s powers under the Bill”,
such as they are, and
“there is no equivalent to the provisions of Schedule 3 to IMA20 that require the Secretary of State to seek the consent of the devolved governments before making appointments to the Office for the Internal Market”.
Why is that the case for the internal market Act but not the Subsidy Control Bill? Surely, consistency, at least, requires that. This amendment seeks to remedy this and, I suggest, for very good reason. As I said, the CMA is moving into new and unfamiliar territory. It is surely essential that it understands the needs of the devolved areas and can balance them across the UK.
The powers that the Secretary of State has, which are not reciprocated for the devolved Administrations, put the CMA in a potentially invidious position. If the Secretary of State seeks to challenge, for example, the livestock support regime of any of the devolved Administrations, he or she can do so—on so far unstated but potentially restricting grounds. If a Minister introduces a subsidy, let us say, for London which the devolved Administrations feel disadvantages them, they have no corresponding right to challenge. I would anticipate the argument of grandfathering current regimes and repeat what I said in the debate on agriculture earlier in the week: that, over time, the regimes may change as circumstances change and, at that point, they will not be grandfathered and may be subject to challenge. That is important to note.
As George Peretz points out, the result looks distinctly unbalanced. For example, if the Welsh Government decide to grant a subsidy to which the Secretary of State objects, perhaps on the basis of its impact on England, the Secretary of State may be able to refer it to the CMA and will have standing to challenge it before the CAT. The Secretary of State may also be able to issue guidance that recommends against types of subsidy that the Welsh Government might have in mind, guidance to which the CMA and the Welsh Government have to have regard. On the other hand, if the Secretary of State grants subsidies to businesses in England or, using his or her powers under Section 50 of the internal market Act, to businesses in Wales to which the Welsh Government have objections, none of those possibilities are open to the Welsh Government. I rest that case, because it is crucial.
The Minister may argue that, as with the Monetary Policy Committee of the Bank of England, members are appointed to the CMA for their expertise rather than their geographical base, but he is ignoring that no such expertise yet exists for the new regime. It is surely imperative that, from the outset, the CMA is fully conversant with the needs of the devolved Administrations and that administering the regime evolves in a way which is sensitive to them. The Minister knows my opposition to separatism and nationalism, but I am a passionate home ruler and believe that the devolution settlements should be upheld and not eroded.
The Minister will assert that these are reserved powers—he has done it several times already during this Committee—and are based on the sovereignty of Westminster and not on a federal system which we do not have, or even a devolved consensus. To disregard the devolved Administrations, regardless of where the legal and constitutional power lies, is reckless. The Government are putting the union at risk in the way they are proceeding with this Bill by using reserved powers and failing to recognise the sensitivities. To say to the devolved Administrations, “You have more freedom than you had under the EU, but we’re having reserved powers that will qualify, test or challenge that freedom” is a two-edged sword that does not stack up. Right now, the mood in the devolved Administrations is that they do not trust the Government’s intentions, not yet knowing what they are.
My Lords, I am delighted to follow the noble Lord and agree with almost all the comments that he made—not entirely, but almost. In particular, I am glad to support Amendments 64 and 65, proposed earlier by the noble Lord, Lord McNicol, and have added my name to both of them.
My feeling—and this is really what the noble Lord was speaking about a moment ago—is that we are building a grit creation machine here. We are creating the grit that will cause difficulties as the wheels of this operation move forward. I do not think that is what the Government really want to do.
I well remember being on a committee chaired by the noble Lord sitting next to me a couple of years ago, when we were questioning the CMA’s role in these matters. We found that the CMA, quite legitimately, had very little experience of dealing with devolved dimensions. This was not a criticism of it; that was not its role. It still does not. We should therefore ensure that we build the necessary talent and experience into the relevant units or committees of the CMA that can at least advise on these matters, but it seems that we want to tie the hands of the CMA. It does not have that background; it has no obligation to work in close proximity to the devolved regimes under the Bill. It should certainly find a way of doing that if it wants the operation to go smoothly, otherwise problems will arise.
As the noble Lord mentioned when opening this debate, Clause 68(4) states:
“The Subsidy Advice Unit may consist only of persons who are members of the CMA or its staff.”
At an earlier stage we cut out any requirement for the CMA to have a dimension of experience from the devolved regimes. Therefore, we are tying its hands by not giving it the resources or responsibilities it needs to deal with the devolved dimensions, insisting that this be undertaken by people who themselves are wholly employed by the CMA. I am not quite sure what the logic of all this is. Do we want to create a structure that does not work; do we want to create legislation which we must amend at a later stage; or do we just want to create a tension between London, Cardiff, Edinburgh and Belfast in these matters? The issues with which we are dealing are too important to leave to the open book of how the organisation will carry out this matter.
Between now and Report, the Government should look again at ways in which the Bill can achieve the co-operation with the devolved regimes that will give them the confidence they need, and the CMA the reassurance it needs in undertaking its responsibilities. These are not just debating points. It is not necessarily in my political interest to make these points, but my goodness, I would rather see good government undertaken without problems, and the economies of Wales, Scotland, Northern Ireland and indeed England benefiting from a coherent structure, than the problems that will arise from the current wording of the Bill. Therefore, I am delighted to support both these amendments.
My Lords, I have attached my name to Amendment 65 and want to examine the cash and resources which the Government intend to put into the CMA.
Talking of cash and resources, I was very disappointed to read the Minister’s letter to my noble friend Lord Purvis today, in which he says of a previous debate about money:
“I regret that I am not in a position to confirm the per capita allocation of the UK shared prosperity fund in each nation at this stage. However, I emphasise that the Government is meeting its manifesto commitments in Scotland, Wales and Northern Ireland. The fund will match previous EU funding in real terms for all these places.”
The letter says that the fund will match previous funding, but it also emphasises that they are meeting their manifesto commitments. How on earth can you say that you are meeting your manifesto commitments when you cannot tell us whether you are giving £780 per head to Wales in the way that it was described, as a per capita allocation? Clearly, having a per capita allocation is how you judge whether you are meeting your manifesto commitments. I am very disappointed that the Government say that they are meeting their commitment but are unable to provide the figures to show that they are doing so. I hope they will rectify this swiftly.
Turning to the CMA and its resources, we were very fortunate some years ago to receive evidence from the CMA on its readiness to take part in the new world we were entering. However, it is very important to separate out the CMA’s need for resource to carry on its traditional functions of mergers, acquisitions and so on. The chair of the CMA said then, regarding the non-subsidy side:
“We will be involved in much bigger and arguably more complex cases than we typically deal with. We will have to deal with mergers. We will also be involved in the enforcement cases. The extra workload, the complexity and the likely litigation that follows such cases ... implies significant expansion in our activities.”
The chief executive then said:
“We expect a 30-50% increase in mergers coming our way. However, these will tend to be bigger and more complex mergers. On the antitrust side we think we will do between five and seven large extra antitrust cases a year. That will mean an increase of at least 50% on our current workload in that area.”
Between the two of its own size, it is clear that the CMA found that cash was very important.
The chair went on:
“The key point on resources … is that we need approval for the extra cash that we need … We need the cash, but then we need the time to attract and recruit the talent and get them up to speed in terms of the work. We need to start having action relatively soon, given the timescales that we are talking about.”
Given that this was a few years ago, the timescales are now upon us because this Bill is where it all happens. On state aid, he said:
“We have no experience in this area … It would add, I would emphasise, to the expansion that we have to undertake anyway”—
that is, on the other side of the CMA’s work—
“and we would have to find the skills … given the lack of experienced people in the UK itself. It would be a challenge”.
The key challenge identified was the recruitment of lawyers. How is that going? As far as I can tell, lawyers do not come cheap and, with respect to my colleagues behind me, good lawyers come even less cheaply. It is a matter for the CMA to have the appropriate lawyers. At one point, the chief executive said that they are difficult to find and that
“we are now thinking about expanding our office in Scotland, to tap into talent there.”
So it will have talent from Scotland but no representation regarding the decision-making powers of the board—but there we are. He went on:
“We want to see where talent is and what we can do to attract people and keep them in the CMA.”
The price of the challenge was that of finding appropriate salary levels.
In replying, can the Minister tell us how much money, in raw terms, has been put into both sides of this equation: into the traditional work of the CMA, which has now fallen upon it because we have left the European Union; and into the subsidies side? How many new lawyers has the CMA been able to attract? At the time, the chair said that there are lawyers working in private practice
“who are well experienced … in dealing with state aid applications”
on the side of the role now needed by the CMA. How many lawyers with this sort of experience have now been recruited, and at what level? Earlier, the noble Lord, Lord Lamont, talked about the need to have experience on the side of the regulator that is greater than the experience of the people operating the subsidies. We will need lawyers who are even more skilled and who have the greatest skill in managing this sort of operation. I repeat: I suspect that they do not come cheap.
In replying, can the Minister outline specifically where and when the recruitment will take place, how much money is on either side of the equation and whether the Government have a deadline for making sure that all the resources are in place? Also, I will continue to pursue my claim: can the Minister tell me when the Government will match the £780 per head that was promised and is now in the letter?
My Lords, I want to add to that list of questions. Does the Minister have any information on where the CMA is to be based? It is one thing if it is in London, and quite different if it is in Cardiff, Glasgow, Birmingham or Manchester, for example. One of the concerns is the constant pressure that the devolved Administrations have against the south-east and London-based administrations. If there were some way in which the CMA could locate itself further away from the south-east and closer to other areas, that would at least be to some advantage.
My Lords, Clause 68 requires that the CMA establishes a new committee of its board called the subsidy advice unit for the purposes of undertaking the subsidy control functions set out elsewhere in the Bill. I recognise that nothing I can say at the Dispatch Box will completely allay the fears of the DAs that this is a power grab or that we have malevolent intent in all this. All I can say is that the Government are very well aware of these issues. We talk about them constantly and will endeavour to continue the dialogue as we go forward on many fronts.
To return to these amendments, the subsidy advice unit will be a specific committee within the CMA dealing with subsidy control. It will comprise exclusively staff and members of the CMA. In this instance, “members” of the CMA refers to, among others, the chair and individuals who sit on the CMA board, the CMA panel of competition experts and the office for the internal market panel and its chair; “staff” refers to the civil servants employed by the CMA.
Amendment 64 seeks to allow the CMA chair to appoint to the subsidy advice unit non-executive members
“with relevant experience in relation to each of Wales, Scotland and Northern Ireland.”
The CMA was chosen as the home of the subsidy advice unit because of its experience and credibility in acting as a regulator and adviser in matters of competition and consumer law on a UK-wide basis. In carrying out its new functions under the SAU, the CMA will continue to act as it always has successfully, with the whole of the UK in mind.
It is notable that the amendment does not make any mention of “relevant experience” in relation to England, perhaps implying that the CMA already has an excess of England expertise but a deficit in relation to the other parts of the UK. I cannot possibly agree with the noble Lord on that point, if indeed that was the implication.
The amendment is unnecessary because the CMA can and does already recruit to the unit personnel with “relevant experience” in relation to all its functions, various different markets and all parts of the UK. The CMA has an excellent track record of recruitment and retention of staff and members from across the UK, and currently employs staff in Belfast, Cardiff, Edinburgh and London. The CMA has already undertaken external recruitment to a number of posts in the SAU. These were advertised on a location-neutral basis and were open to applicants willing to be based in any of the CMA’s existing offices. It is unnecessary to impose excessive and unhelpful complexity on the CMA’s recruitment process when it has already proved quite capable of finding persons with the “relevant experience” to carry out its functions.
I turn to Amendment 65. Part 4 of the Subsidy Control Bill represents an important pillar of the new domestic regime. The additional flexibility that public authorities will enjoy to design bespoke subsidies and schemes and quickly bring them to fruition to address identified policy problems must be balanced by a proportionate mechanism to provide an appropriate degree of scrutiny. This scrutiny will be crucial for the most potentially distortive subsidies and schemes, which is why the SAU has been given a role in advising public authorities before they award the most potentially distortive subsides or schemes. In response to the noble Lord, Lord Bruce, I say that neither the SAU nor the Secretary of State will be able to block a subsidy being awarded.
The CMA will also have the role of monitoring the efficacy of the entire regime through a periodic review and report to Parliament. This will ensure appropriate oversight and scrutiny of the regime by Parliament to confirm that it remains relevant to the needs of the whole of the UK.
Amendment 65 requires that the Secretary of State must undertake an assessment of the CMA’s capacity to fulfil its new functions under Part 4 of the Bill and make a Statement to both Houses on their findings. If the Secretary of State finds that the CMA is not sufficiently resourced, their report to Parliament must also outline the steps the Government intend to take to address this. I appreciate the noble Lord’s intention and that this is a probing amendment to ensure that the CMA is properly prepared to carry out its new statutory functions. I therefore offer the following statement on preparations for the new subsidy advice unit.
The CMA was allocated funding of some £20.3 million at the spending review in 2020 to establish three new functions within the CMA: the subsidy control function, the office for the internal market and the digital markets unit. Following the 2021 spending review, this budget of around £20.3 million will be maintained for the next three years. The CMA will continue to allocate funding in the 2022-23 financial year to reflect the estimate of resources needed to establish the new subsidy advice unit. This estimate reflects both the functions set out in the Bill on introduction, and the estimated number of subsidies and schemes of interest and particular interest that would be referred to the SAU.
The estimated case load of around 20 cases of both categories per year was arrived at using the methodologies set out in the Bill’s impact assessment. There is unavoidable uncertainty in this estimation, since the SAU’s referral functions are new and unprecedented. However, Her Majesty’s Government remain confident that this represents a reasonable estimate based on the best available evidence.
In terms of recruitment, to establish the SAU, the CMA has estimated that approximately 50 new posts will need to be created across all its professions. The CMA has recently undertaken external recruitment to fill several policy and project management posts in the subsidy advice unit, as well as allocating resource internally. The CMA will continue to recruit to its pools of economist, legal and business adviser resource over the coming months. The CMA is looking to recruit staff with a range of skills and experience, which includes building on its core competition expertise, as well ensuring the necessary skills in areas such as stakeholder engagement.
I must challenge the apparent assumptions of the noble Lord, Lord Bruce. As I have mentioned, the SAU will sit within the CMA, which is a pan-UK institution and already has offices in the four parts of the UK, with members of staff who have experience of working for each of the devolved Administrations as well as the UK Government. I absolutely agree with noble Lords that it is important for the CMA to recruit expertise that recognises the UK-wide subsidy control regime and will work with them to ensure that this is reflected through implementation.
In addition to all of this, the CMA is already undertaking a range of activities in order to prepare for its new statutory functions, and these will gather further pace as the Bill progresses. This work will include the development of SAU guidance, engagement with public authorities, and the development of an online portal to streamline the referral of subsidies to the SAU by public authorities. I hope that noble Lords have to some extent been reassured on these matters, and I humbly request that Amendment 64 be withdrawn.
Before the Minister concludes, I listened carefully to her comprehensive reply, for which I thank her. I think I heard her mention an additional 50 posts. The impact assessment indicated an assumed additional headcount of 19. What happened between when the impact assessment was put together and the current commitment was made? Presumably, there is an understanding that the role is much greater than when the impact assessment was put together.
Secondly, given that agriculture and fisheries will be involved, can the Minister assure us that those with a specific understanding of the geographical, agricultural and fisheries market—as opposed to the other sectors, which previously the CMA did not have—have been part of the recruitment process? At the moment there is no indication that they have.
On the noble Lord’s first point, it has been a year since the Bill was introduced and therefore things have moved on since the impact assessment was done. On his second point, we are looking for a broad range of expertise that will enable the CMA and the SAU to fulfil their functions.
Can I ask that in future, all impact assessments be given a time lapse, so we know how many weeks they last for, until such time as they cease to be? Seriously, if one year on the impact assessment for this means that the number of people triples, then it was not necessarily a very accurate impact assessment.
I wonder if, in concluding, the Minister could indicate the deadline for when the 50 extra advertised posts have to be filled? She may have to do so in writing, I understand that. Also, what is the difference between those who will be allocated to the traditional work of the CMA—competition, mergers and anti-trust—and those on the subsidy side of this split? They are distinct areas of work and quite distinct skills are needed. At some stage, could the Minister also tell me how many lawyers have been recruited so far, and how many they are short of. That would be very helpful.
I think the noble Lord might have to declare an interest on that front, but we will let that lie. I will have to write to him with the specifics on this. Obviously, recruitment is an ongoing process that will continue throughout the next year.
Before the Minister sits down, I have what is meant to be a helpful question. Given that there may be a need for expertise in certain areas in the work of the CMA—expertise it does not have in house—could staff be taken on on a secondment basis to overcome the restriction in subsection (4) referred to earlier? This would provide the expertise for the duration necessary in undertaking specialist areas of investigation. I do not expect an immediate answer, but perhaps the Government might consider it.
I thank the Minister for her detailed response. When she, the other Minister or the department reply, could the letter be shared between all those who have spoken in this debate?
I have one other question—and I do not expect the Minister to have the answer just now. She talked about a budget of £20.3 million being divided between the SAU, digital and one other body. Could we have the split between the three of them, because they have three distinctive functions, and the one we are concerned about and talking about is the funding of the SAU?
Likewise, I listened in detail but I am not clear whether I missed the point about why Clause 68(4) is so prescriptive and detailed in stating that the SAU will consist
“only of persons who are members of the CMA or its staff”.
If it is that prescriptive, it seems to rule out the points made by the noble Lord, Lord Wigley, so maybe it could be opened up a little.
The Minister, in referring to some of the concerns and issues around devolved authorities, said that the department was well aware of them. These amendments are meant to be helpful and to try to create, foster and build a better relationship—as the noble Lord, Lord Bruce, has outlined—especially as we move from European state aid to our own authorities being able to create and deliver subsidies. One hopes that there are some things in not just this small group of amendments but other groups that will help to generate and foster that better relationship between central government and the devolved authorities. With that, I beg leave to withdraw my amendment.
Amendment 64 withdrawn.
Clause 68 agreed.
Clause 69 agreed.
Amendment 65 not moved.
66: After Clause 69, insert the following new Clause—
“Prohibition of references to the Office for Internal Market
(1) The United Kingdom Internal Market Act 2020 is amended as follows.(2) In section 32 (Office for the Internal Market panel and task groups) after subsection (1) insert—“(1A) The CMA may not make a reference of a subsidy or subsidy scheme under the Subsidy Control Act 2022 to an Office for the Internal Market task group.””Member’s explanatory statement
This amendment seeks to probe the interaction between this bill and the United Kingdom Internal Market Act 2020.
My Lords, in moving Amendment 66 I shall speak also to Amendments 72 and 78. In so doing, I thank the Minister for his earlier reply to the brief exchange on the interaction of this Bill with the internal market Act. I wish to probe some of that a little further.
Before I do, I wish to comment, as my noble friend Lord German did, on the letter that I gratefully received from the Minister, which corrected the previous omission of not answering the question in an earlier letter. Of course, one oversight is perfectly acceptable, but the fact that, as the Minister said, the Government are unable to give per capita expenditure on the successor to the structural funds is curious. The Government were very capable of giving per capita expenditure in the spending review period for Scotland on 27 October in their press release, and on 15 December in their press release, but they seem singularly incapable of doing so when it comes to the successor to the structural funds. How are the Government able, on the one hand, to give per capita expenditure from the spending review as a whole, but not when it comes to the structural fund’s component of that? If they are unable to do that on the structural fund’s component, clearly, they are incapable of extrapolating the overall per capita expenditure. There is something rather fishy about that—fisheries, of course, is now part of this Bill—and we will be pursuing that pun further, for the benefit of the noble Lord.
The serious point is that the Government are not honouring their manifesto commitment. They are not matching EU funds and are trying to hide behind this risible “we will rise to” element of the spending review. As my noble friend said, I look forward to getting the per capita, like-for-like figures for Wales, England, Scotland and Northern Ireland. Until we get them, we will not be satisfied.
On Amendment 66, as was said earlier, the subsidies and schemes are able to be used under the principles of Schedule 1. Principle A allows a subsidy to be used for
“an equity rationale (such as social difficulties or distributional concerns).”
That is wider than simply identified market failure. Principle F goes on further in that
“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition”.
So they can impact on competition, but they should minimise that. As the Minister well remembers, the United Kingdom Internal Market Act reformed or amended the Scotland Act, the Government of Wales Act and that relating to Northern Ireland to define what distortive or harmful subsidies are, so their definition is already in statute. For example, under Sections 52 and 53 of the internal market Act,
“A subsidy is ‘distortive or harmful’ if it distorts competition between, or otherwise causes harm or injury to, persons supplying goods or services in the course of a business, whether or not those persons are established in the United Kingdom.”
The devolved Administrations have no wiggle room when it comes to their statutory obligations under the internal market Act, as regards distorting competition. The wiggle room comes in under the subsidy element to minimise competition. I want to probe which legislation they must follow when setting subsidy schemes—what will be the subsidy control Act or the internal market Act. The definitions are very clear.
The noble Lord, Lord Lamont, and others asked about the distortive elements. They are defined under the internal market Act. These are not somehow separate processes, because that Act defines what subsidies are. The second element is that Part 4 of Schedule 3 to the internal market Act excludes types of regulatory provisions. The Minister was categorical in saying that no subsidy scheme, regulation, statutory or regulatory provision that establishes a scheme under the Bill would be considered under the internal market Act, but subsidy schemes are not excluded by Part 4 of Schedule 3, which lists the exclusions to the regulatory provisions. The legislation is perfectly clear about what is covered within the internal market Act and defines this in Section 30(8). There is no difference between subsidies or anything else. A regulatory provision
“means a provision … contained in legislation, or … not of a legislative character but made under, and given effect by, legislation.”
There is broad scope as far as that is concerned. It would be helpful to have a much clearer understanding of why the Government believe that a subsidy scheme is not a regulatory provision, statutory or otherwise.
Indeed, the Act goes further with regard to what is considered non-discrimination and what would be directly or indirectly discriminating for goods or services. The Minister knows that we debated this thoroughly on the internal market Act, which says that a statutory provision for goods
“is within the scope of … non-discrimination … if it relates to any … of the following … the circumstances or manner in which goods are sold (such as where, when, by whom, to whom, or the price or other terms on which they may be sold)”.
As we know and have discussed on previous groups, subsidies can have a relationship with the price of goods and services, and that is permitted under the subsidy Bill but absolutely prohibited under the internal market Act.
Another element that relates to non-discrimination is
“the transportation, storage, handling or display of goods”.
A subsidy scheme can support the transportation, storage or handling of goods, but that would be prohibited under the internal market Act because it would not satisfy the non-discrimination principles.
When it comes to services, Section 21(2)(b) of that Act says:
“A regulatory requirement indirectly discriminates against an incoming service provider if … it puts the incoming service provider at”
a relative disadvantage. By definition, a relative disadvantage is one of the elements of a subsidy, and that will presumably be an area in which one can challenge. If you are a service provider wishing to provide services to a public body, and that public body is subsidising certain service providers, which is permitted under a subsidy scheme, that will be providing a relative disadvantage to another. As I see it—I am happy for the Minister to correct me—there is no carve-out in the internal market Act to say that a subsidy scheme would not be considered within that.
I suspect there would be quite a degree of confusion as to whether it is the Subsidy Control Bill or the internal market Act where these provisions are being put forward. I suspect that, if you are a public body and wish to circumvent the internal market Act, you would use principle A in Schedule 1 to define a social difficulty and principle F to say that you are
“minimising … negative effects on competition”
but recognise that there will be such effects. I am interested as to the interaction between the two.
My amendments suggest that either the internal market Act or the subsidy Bill should apply. Ultimately, it seems that we will be operating two markets. There will be one market in the internal market Act for competition, for non-discrimination on market failure, for distortion and for geographic delineation, and there will be a separate market for the subsidy regime. I do not know how they interact—I am looking forward to the Minister telling me. One body may say that we are putting forward a measure that will distort competition and that it will be challenged under the office for the internal market, then we would say to that public body, “No, we recognise that, but it is for a social aim and we are minimising it, so we have a defence under the subsidy Bill”. I do not know how the office for the internal market or the CMA will judge that.
Secondly, I do not know how the CMA will publish its reports under its duty to consider the impact on the operation of the internal market. This refers to Amendment 72, which is the requirement that the bodies should work in an even-handed manner. I think there was an agreement that, when it comes to the CMA operating and reporting on the effective operation of the internal market of the United Kingdom, it should
“in carrying out its functions … have regard to the need to act even-handedly as respects relevant national authorities”.
That is the statutory requirement in Section 31(4) of the internal market Act. There is no equivalent in this Bill for how, when the CMA will report overall on the competition, it would
“act even-handedly as respects relevant national authorities”.
I believe it should, and therefore I would be grateful if the Minister could explain why he disagrees. I beg to move.
My Lords, I shall speak to Amendment 72, which I think is linked with this amendment. It refers to the responsibility of the CMA to act in an even-handed manner when carrying out its functions, particularly with regard to the Scottish Ministers, the Welsh Ministers and a Northern Ireland department.
I ask the Minister how on earth one can reject the requirement to act on an even-handed basis. It seems common sense that any action by the CMA would have to be on an even-handed basis. If that is the case, what is the problem with including these words in the Bill? If the argument is that the CMA may not sometimes act on an even-handed basis, that needs further exploration, which perhaps we can come to at a later stage; but if the Government are rejecting Amendment 72, I would like the Minister to clarify on what possible basis they can do so.
My Lords, I am grateful to the noble Lord, Lord Purvis, for tabling these amendments. At Second Reading and over the past three and a half days of Committee, we have repeatedly come back to how the new subsidy regime interacts with the broader provisions contained in the United Kingdom Internal Market Act.
As we know, the Government have clearly classified subsidy control as a reserved matter, but there a number of sectors where local or devolved interests may conflict with the wider interests of the internal market Act. The Government repeatedly come back to the notion that the new regime should facilitate the smooth functioning of the internal market. However, if we return to Monday’s discussions about Northern Ireland’s unique position and the inclusion of agriculture, we have to accept that those issues have raised more questions than answers when it comes to how the new regime will balance competing interests.
It is fair to say that some of the responses that we have had thus far have not been entirely convincing, and some of the answers given by the Minister seem to have highlighted the complexity of the issues that we are discussing and, therefore, the need to raise the matters in these amendments.
The wording “even-handedly”, as raised in Amendment 72 and used in other legislation, is particularly interesting. What is the Minister’s personal interpretation of that? How will it be administered and who will make the judgments, if it is deemed that unfairness is built into some of the decisions that are made?
We are repeatedly told when debating this Bill as well as when discussing whole rafts of government policy in other areas that there is a commitment to devolution and that is the most important thing—but, in the same breath, the Government say that subsidies must not undermine the internal market. How can both those statements be true?
My Lords, this is an interesting debate. I originally set out, as Committee stages are wont to do, to tease out some minor details and things from this legislation, but it is clear that there is a major philosophical point that needs to be established before the minor details can be filled in.
Perhaps the Minister can cast himself back to when he was at school. I am sure that he popped into the odd mathematics lesson. He may well have come across a thing called a Venn diagram. For those who missed that particular week, a Venn diagram is made up of a number of circles. The degree to which they intersect indicates the amount of common area that they have—and perhaps the Minister is beginning to understand the direction of travel.
The issue here is that the Minister is asserting that, when it comes to subsidies, essentially, the internal market Act and this Subsidy Control Bill are discrete circles—that is circles that barely intersect or do not do so at all. We have ministerial assertion, and then we have the words as written in Bills and Acts. My noble friend Lord Purvis carefully and usefully filleted the words from the internal market Act, which seem to indicate that there is a large element of common ground with respect to subsidies between these two circles—these two pieces of legislation. Therefore, it is not possible to unpick the words and aims of the internal market Act when talking about subsidies.
My noble friend set out some of the potential contradictions. I will be simpler, because I am a simpler person. Reading those two pieces of legislation, and looking at words rather than hearing the Minister’s assertions, it seems to me that the Scottish Government could design a subsidies scheme. The CMA and the SAU within it, using this Subsidy Control Bill as their guide, as my noble friend set out, would indicate that this scheme is allowable and that market distortions are only minimal, as the Bill allows. The scheme could therefore be launched. However, the OIM—the Office for the Internal Market—would then analyse that subsidies scheme and detect that there are indeed distortions, albeit minimal ones, in that market. This information would be passed to the Secretary of State, who could, quite properly, then withdraw that scheme or cause it to be withdrawn; that is what the words in that Act and this Bill say. So I am interested to understand from the Minister why this might not be the case.
A separate and slightly smaller issue is that, within the CMA, we have the OIM and the SAU. Will these two organisations be operated discretely? Will there be Chinese walls between them in that they will operate under different Acts? Will they operate off the same data, or will they have to get their data separately? Indeed, coming back to the question asked by the noble Lord, Lord German, will they share the same lawyers when push comes to shove?
We seem to have here two things that the Minister is trying to push apart but which the words bring closely together. The purpose of these amendments is to understand how the Minister can assert that these two worlds are separate when the words indicate quite the opposite.
First, I thank the noble Lords, Lord Purvis and Lord Fox, for their amendments. They seek to probe the interactions between the OIM and the Bill, as well as the functions of the CMA more generally; I will take them together. Seeing as we were all involved in the debate on the then internal market Bill, I am getting flashes of déjà vu with all the different acronyms, such as the OIM and the SAU. Perhaps it is a Venn diagram, as the noble Lord, Lord Fox, indicated, but I will set out the position and, hopefully, resolve it.
Before I do that, I will briefly address the question asked by the noble Lord, Lord Purvis, on the UK shared prosperity fund, a matter which we return to regularly. Let me clarify the points that the noble Lord was raising. I am unable to give per capita figures for the fund at the moment, but the Government will publish further details on it in due course. However, as I explained in the letter, which I know the noble Lord received only recently, there is no overall shortfall in funds while the UK shared prosperity fund ramps up to its full amount. The UKSPF is not yet at its full amount because it is tapering up as EU funds in the UK taper down and, of course, those EU funds are funds that the UK has already contributed to. I am getting flashbacks to my DExEU days and the debate that we had on the EU withdrawal Acts at the same time.
Amendments 66 and 78 relate to the United Kingdom Internal Market Act 2020, under which the CMA may authorise an Office for the Internal Market task group to carry out the relevant functions under the 2020 Act on the CMA’s behalf. Amendment 66 seeks to exclude any subsidies or schemes which fall under the terms of this Bill from referral to an OIM task group. To address the fundamental concerns of the noble Lords, Lord Purvis and Lord Fox, mention of subsidies in the UK Internal Market Act sets out the areas of regulation that are reserved to the UK Parliament. The Act does not prohibit the giving of subsidies but prevents devolved Administrations from regulating the giving of subsidies, as that matter is now reserved to this Parliament.
A subsidy is, by definition, potentially or actively distortive. We are therefore seeking to regulate the giving of subsidies through this legislation. I must stress to noble Lords that the Government take the integrity and effective operation of the UK internal markets most seriously, and the terms of the Bill that we have been considering over the last sessions reflect this. It is important to note, therefore, that principle F in Schedule 1 requires subsidies to be designed to minimise distortion to UK competition and investment. This was an important priority for respondents to the subsidy control consultation which we carried out in 2021. The schedule also includes principle G, which is a general requirement to ensure that the beneficial effects outweigh the negative effects, including on competition and investment within the UK.
Under the UKIM Act, the CMA has the power to provide non-binding advice and reporting, at the request of the relevant national authorities, on the economic impacts of regulatory provisions where these are in scope of the mutual recognition and non-discrimination market access principles set out in that Act. The CMA is also required to report on the effective operation of the UK internal market at regular intervals. As I said earlier, this is a distinct legislative framework with a different purpose and policy objective to the subsidy control regime that is set out in this Bill. In terms of governance, the CMA may exercise its functions under the UKIM Act through the OIM panel, for instance with task groups of the OIM panel constituted by the OIM panel chair.
The OIM panel chair will not have the power, under the relevant provisions of the UKIM Act, to establish a task group of the OIM panel for purposes other than the exercise of the CMA’s internal market advice and reporting functions under Sections 33 to 36 of the UKIM Act. An OIM task group can only be constituted to carry out the functions of the CMA under the UKIM Act and can therefore not be constituted to carry out the CMA functions under this Subsidy Control Bill.
It is right to say that there may be some overlaps, to take account of the famous Venn diagram of the noble Lord, Lord Fox, between the monitoring and reporting functions of the OIM and the functions of the subsidy advice unit, because subsidies and grants can affect the operation of the UK internal market. It is important to emphasise that that overlap exists only for the general functions of the OIM, under Section 33 of the UKIM Act, and not its specific powers under Sections 34 to 36 to advise on certain regulatory provisions that fall within the scope of Part 4 of the UKIM Act.
However, we do not expect that the OIM will routinely look into matters related to subsidy control. The OIM has broad discretion to review matters that it considers relevant to assessing or promoting the effective operation of the UK internal market under Section 33 of the UKIM Act. However, any analysis by the OIM would differ from that undertaken by the SAU in that it would focus on impacts such as intra-UK trade, rather than evaluating a public authority’s assessment against the principles and requirements set out in the Subsidy Control Bill.
I have been following the Minister’s line of argument, but I do not think that it comes to the same conclusion. Under UKIM, a provision that is a subsidy scheme is not permitted under the non-discrimination principle, taking into account
“the circumstances or manner in which the goods are sold … by whom, to whom, or the price or other terms on which they may be sold”.
It is prohibited under the market access principles on non-discrimination. The Minister is saying that it is permitted under this Bill, because a measure would absolutely affect the price of the goods under the principles in the schedule. I am just wondering why a subsidy is not considered as a provision under the internal market Act, because they are prohibited under the non-discrimination principles.
The United Kingdom Internal Market Act applies only to certain regulatory provisions, and a subsidy scheme would not meet the necessary conditions required. This is a complicated legal area, and I suspect that the best way in which to advise the noble Lord would be for me to write to him with appropriate details.
With respect, we are in Committee on a Bill and we are making law, and simply to say that this is a complex legal area is not correct. We are making law—and it is not convincing to say that these schemes would not be under the Act when there is nothing under the Act that says that they are not. You cannot just assert when we are making law, because we also want to make sure that these provisions are protected from challenge. As to anybody who thinks that this is not going to be open to challenge, because it provides assistance for the certain price of certain goods in one area, it will be challenged under the internal market Act, because it is discriminatory. Unless there is clear legislative protection that this is excluded from these measures, I am afraid that it comes back to the fact that this area is absolutely ripe for legal confusion.
The reason why I made that point clear to the noble Lord—and I understand the point that he is making—is to explain to him the legal advice that I have received from the lawyers responsible for this Bill. Clearly, the noble Lord has a different interpretation, but I have set it out in great detail, and the advice that I have received is that UKIM applies only to certain regulatory provision and a subsidy control scheme would not meet those necessary conditions. Clearly, there are differing views, and there are lots of esteemed lawyers in this room; that is the advice that I have received, and I am happy to go away and speak to the lawyers to get the noble Lord more detailed advice, but I can go no further than to give him the advice that we have received on these provisions.
I turn to Amendment 72. I stress to noble Lords, particularly to address the concerns of the noble Lord, Lord Wigley, that the CMA was chosen as the home of the subsidy advice unit precisely because of both the former’s experience protecting UK competition and its credibility with domestic and international stakeholders. The CMA is independent in its function and will carry out its duties as such, with equal regard and even-handedness towards all four Governments of the United Kingdom. Earlier, my noble friend Lady Bloomfield went into more detail on the different territorial offices of the CMA that already exist and on the way it carries out its functions across all the parts of our nation.
While a similarly drafted clause is included in Section 31(4) of the UKIM Act, I question how appropriate it would be to replicate that provision here. The provision in Section 31(4) reflects the unique relationship between the UK Government and the devolved Governments in ensuring the proper functioning of the internal market and their responsibilities for delivering regulatory provisions for each part of the United Kingdom.
However, a great number of public authorities will be responsible for designing subsidies and schemes that are consistent with the subsidy control principles. Of course, the devolved Administrations have an important constitutional status and a unique role in working with the UK Government on ongoing policy development for subsidy control. But subsidy control is a reserved policy and is not an ongoing legislative architecture for co-ordination between the four parts of the UK. I appreciate the devolved Administrations do not agree with that fact, but it was legislated for under the UKIM Act. I therefore request that the noble Lord withdraws his amendment.
I am grateful to the Minister for his reply, but I am also grateful to my noble friend Lord Fox, the noble Lord, Lord Wigley, and the noble Baroness, Lady Blake, for their contributions on this. I am quite happy that we have explored this further. The Minister took the point—I do not think this is legal pedantry—that when it comes to the reality of when subsidies start to be issued, for those seeking to challenge or those aggrieved, this must be watertight. Therefore, I am grateful to the Minister for offering further discussions on this. I understand that his office has been in touch in seeking to organise a meeting, and I am grateful for that. He fully knows now that he will need to be prepared and bring his lawyer along to that meeting to assuage some of the concerns.
I am not entirely convinced that the requirement to act even-handedly goes, because there will be more bodies to act even-handedly towards. I do not think acting even-handedly is a zero-sum thing, given that an even-handed nature is in the internal market Act but not in how it operates as a whole, because that Act and the subsidy control regime are both reserved issues. It jars that, when it comes to the CMA carrying out its functions, it has to act even-handedly in considering the operation of the internal market, but that requirement is absent when it is considering the distortion of competition.
In the meantime, and in looking forward to the meeting with the Minister to reflect on this further, I beg leave to withdraw Amendment 66.
Amendment 66 withdrawn.
Clause 70: Review of subsidy decisions
67: Clause 70, page 39, line 33, after “decision” insert “or, where the CMA has made a report on a subsidy or subsidy scheme after a referral under section 53, 57 or 61 in respect of which a subsidy decision has been made, the CMA”
Member’s explanatory statement
The purpose of the amendment is to give the CMA standing to exercise enforcement powers through the Competition Appeal Tribunal in respect of decisions on subsidies where it has made a report.
My Lords, I rise to deal with an amendment in relation to what I would call the broad powers of making this Act work. Whether we call it regulation or self-regulation, there has to be a system of compliance. We looked at one, disclosure, and earlier we looked at the CMA’s role. Now it is the CAT’s turn and, before we conclude tonight, we will look at the role of the High Court and the Court of Session on enforcement against the devolved legislatures.
I was going to say something about the Minister’s remarks relating to what he sees as the role of the CMA, but the noble Lord, Lord Lamont, has dealt with this. I think it is only fair to the Minister to allow him to come back and explain what he said, in slightly more detail, about the role of the CMA. Obviously, the role of the CMA relates very closely to the role of the CAT.
This amendment tries to make sure that the CAT is effective. Obviously, the reasons for that are the whole purpose of making this an effective regime: avoiding waste, with funds directed to the right purposes, and with complete compliance. There are so many examples where self-regulation, without it being properly supervised, have been a disaster, that I need not go into them. Of course, there is the regime that we are required to operate under the TCA. It seems to me, that the really good way of making sure that the CAT is effective is to allow the CMA to have standing to bring cases before it.
To appreciate that, it is necessary just to say a few words by way of background. First, as is accepted I think on the face of this Bill, the CMA will have nothing more than advisory powers, although one would hope that its advisory notices would be accorded great respect by those who were giving subsidies or seeking them. It is very important that there are cases that show where the lines are, so it is very important that there are cases that come to the CAT to act as a deterrent against improper, impermissible and wasteful subsidies.
Secondly, there will be the need—and we have touched on this, and so many parts of this Bill interlock—for authoritative interpretations of what the subsidy control principles mean. I could talk about that now, but as I am coming back to that later this evening, I will not, because I can see the pressure of time.
Thirdly, we need to look at enforcement. As the Minister said, there is a legal duty, but public authorities quite often do not comply with their legal duties unless there is strong enforcement. It is quite remarkable how this Government have resisted enforcement in relation to its legal duties, in relation to climate change. Saying that we do not want effective enforcement will, to my mind, drive a coach and horses through this Bill. The mechanism for enforcement here is that parties have to be able to bring private proceedings.
I notice from the impact assessment that it is thought that 23 cases a year would be brought, in a range of 15 to 30. Those are the figures that have been worked through. What I simply do not understand at all is how it is thought that so many cases, or any cases, will be brought. Enough has been said about the cost of lawyers that I do not think I need add to that. Also, there is the rule in all litigation, and this is not different, that if you lose you pay the costs of the other side. As the author of the impact assessment accepts, and it is perfectly obvious, no one is going to take the risk of an adverse costs order, or spend money on his own lawyers, unless there is a real chance of the recovery exceeding what he is going to get and a bit more to take care of the risk. Otherwise, self-enforcement just does not work.
In the Sherman Act and the various anti-trust measures, the Americans provided for triple damages. One knows how effective, as one hears from time to time in newspapers, this is as an incentive to lawyers to make their services available for this kind of action. In the UK, and elsewhere in the world now, we have third-party litigation funding, but that is unsustainable unless the third-party litigation funder sees the prosect of significant recoveries.
What I would like to know from the Minister, when we turn to evaluate the effectiveness of this, is what the estimated amount of the recoveries is in relation to the costs—I appreciate that he may not be able to give me those figures now—and how the amount likely to be recovered is estimated. Will there be damages? Will local authorities that grant subsidies wrongly, which has disadvantaged one public body over another, have to pay damages? What are the amounts of the recovered subsidies likely to be? Unless one does a hard and fast financial calculation, it is in my view illusory to rely on private enforcement.
If we translate this to other industries, we see that private enforcement is quite effective in the copyright industry, where businesses tend to protect themselves and make significant recoveries—but that is a careful business calculation, and what is absent at the moment is any careful business calculation. The really effective way of enforcement is to allow the CMA to go to the CAT and say, “We think there’s a problem here. We want to enforce it against someone.”
There is a second consideration. Private individuals are not only influenced by money. They may be influenced by political or other considerations so that they do not want to challenge something that is obviously wrong. It must be in the public interest for an independent person—here, the CMA—to be able to challenge such a scheme.
Yes, indeed; that was my third point. The noble Lord has made it most eloquently in one sentence so I need not make it any further.
My last point on this is simply that the time limit is very short. It will be difficult for private litigants to decide that they want to bring a case. The CMA will be well aware and can act within the time limit. For all those reasons, I beg to move that this amendment be inserted into the Bill.
My Lords, I have added my name to this amendment, which was so powerfully and eloquently moved. Its purpose is to give the CMA standing to exercise enforcement powers through the CAT.
To some extent, this amendment overlaps with the amendment I moved earlier. I strongly agree with what was said about the limitations of relying on people who are affected by subsidy decisions to challenge them within the tight time limits that we have debated. I have already said, probably at too great length, that there needs to be much more independent enforcement.
I do not want to go over all the points I made earlier but, just in case some of the Committee thought I was overegging or inventing it, I want to refer to what the Financial Times said about this Bill. It carried an article on 2 July headed:
“The UK carves a risky new path on state aid.”
It went on to acknowledge what the Government have claimed as the great advantage of the new system—that it is speedier and more flexible—but commented:
“On the altar of speed, it”—
“has sacrificed scrutiny. This is worrying from a government that has shied away from accountability and spent lavishly on contracts.”
It went on:
“The government envisages public bodies largely having a free hand in deciding whether subsidies comply with broad principles.”
I mentioned this point earlier: really, the regime seemed to amount to allowing public authorities to do whatever they wanted, and the assumption was that public authorities knew the law and would therefore observe it.
Finally, the FT said:
“The combination of a light-touch system and an interventionist government willing to spend lavishly on special projects creates dangers of a distortive spending spree—and of ministers becoming vulnerable to lobbying by vested interests.”
That is one of the problems. I am not in any way questioning the integrity or motives of the Government, but it is so easy for vested interests to have an undue influence on these decisions and it is a slippery road down to the politicisation of subsidies. I very much think that we need to move one way or another, whether it is by the route that the noble and learned Lord, Lord Thomas, so eloquently laid down or the one that I referred to earlier. We need to move to more arm’s-length, independent and effective enforcement.
When he spoke in reply to my earlier amendment, the Minister said the Government will not refer themselves to the CMA, as though that were perfectly obvious. It may be perfectly obvious that no one would do that, but in a sense they ought to. There ought to be a mechanism by which a Government are referred to the CMA.
When I first got into the House of Commons, I used to come and listen to debates here. People always gave Latin tags. I am sure that if Lord Boyd-Carpenter or Derek Walker-Smith, Lord Broxbourne, were examining this Bill today, their Latin tag would be “Quis custodiet ipsos custodes?”—who will guard the guards? I am sure everybody knew that already. That is the principle. Who is going to contain and limit the Government?
My Lords, I rise to speak to Amendment 71 in my name. I thank the noble Lord, Lord Lamont, and the noble and learned Lord, Lord Thomas of Cwmgiedd, for their support. I acknowledge that anything I say is unlikely to carry the weight of those two authoritative Peers, so your Lordships will be pleased to hear that I will be brief.
The noble and learned Lord, Lord Thomas, raised the issue of private enforcement. It is intriguing to me that the Government should choose private enforcement to police something as important as a subsidy regime. They do not use private enforcement to police their income tax regime or all manner of important economic activity, yet they have chosen this route. They have explicitly decided to eliminate the devolved authorities, councils and LEPs from the process of enforcement and have added a 28-day deadline to that private enforcement process, which makes it almost impossible for private individuals to enforce in a timely manner. One would think that enforcement was perhaps not at the forefront of the Government’s objectives when looking at the Bill, and nothing so far has convinced me that the Government are interested in enforcing.
At Second Reading, the noble Lord, Lord Lamont, let out the cri de cœur: who will enforce the Bill? The answer is clear: no one. There is an informal system of bringing to book that will ensure that very little enforcement goes on. Yet if we look somewhere else in the CMA, the Digital Markets Unit is pre-emptively calling the big techs in and dealing with issues under its orbit. It is not that the CMA cannot do it; it is that the Government have decided not to let it do it.
Both these amendments—the one in my name and the other—seek to give a role for the Competition Appeal Tribunal to pre-emptively deal with transgressions. What are the Government frightened of in this? I do not think that the Minister has so far articulated a valid reason as to what is wrong with enforcing the Bill. If the Government think it is important to have the Bill, why not enforce it?
I used one example: the CMA’s own digital markets unit. It is clear that regulators all over are acting pre-emptively. Look at the Pensions Regulator. It can proactively go in and do things, so it is not as if we do not do it in this country. Generally, the regulator can act pre-emptively, except in this case. It is not clear to me what is behind the Government’s decision to do that. My key objective for Amendment 71 is for the Minister to very clearly articulate to the Committee why this subsidy regime should not be policed.
My Lords, one problem that legislators always face is the inability to look with complete clarity into the future. Trying to predict with any degree of accuracy how this system will work is almost impossible. The advantage of the proposal that my noble and learned friend Lord Thomas is advancing is that if cases go to the CAT, gradually there will be a build-up of decisions that will begin to add extra guidance that we cannot provide in the legislation. This is the way the law works in many fields.
It is that aspect that appeals to me. Gradually, through a series of decisions in various situations, the CAT will be able to add an extra dimension to the way in which this system has tended to work. There is a value in this. I think the word “enforcement” is perhaps rather pointing in the wrong direction. It is more like building up decisions, a category or a case law that would act as guidance for further cases, so that one does not constantly have exactly the same problem being advanced. We would be able to say that there is a decision by the CAT that tells us the answer in that particular situation. Decisions of that kind can be helpful, and I hope very much that the Minister will see value in what my noble and learned friend Lord Thomas is proposing.
We welcome the tabling of these two amendments, which move us on from the composition and core investigatory powers of the CMA towards enforcement or, to use the word of the noble and learned Lord, Lord Hope, “guidance” of subsidy decisions, via the Competition Appeal Tribunal. The two amendments in this group aim to achieve similar things but by different means.
In relation to Amendment 67 from the noble and learned Lord, Lord Thomas of Cwmgiedd, the CMA would have the option to refer matters to the CAT. That is a sensible proposition, and we are more than happy to support it. It seems counterintuitive to have a body tasked with investigating or looking at whether due process was followed when the subsidy was awarded, only for a separate person or entity to be left to initiate enforcement proceedings. Even if an interested party were to use the SAU’s output as a basis for referring the matter to the CAT, how much weight does the Minister think such a report would carry? As an entirely separate entity, would it be reasonable for the CAT to disregard or override any of the SAU’s findings?
Amendment 71 from the noble Lord, Lord Fox, takes a slightly different approach. It gives the CAT the powers to pre-emptively investigate subsidies if it believes that an award is not consistent with the principles of the Bill. I am more than happy to support this amendment. Whichever approach is taken, it is clear that all involved need greater clarity on how disputes will play out. I will not repeat the points made by the noble Lord, Lord Lamont, but independent enforcement will bring clearer and better oversight to the Bill.
I thank the noble and learned Lord, Lord Thomas, and my noble friend Lord Lamont for tabling Amendment 67. I also thank them and the noble Lord, Lord Fox, for Amendment 71. Before addressing the two amendments in turn, I will offer some context. We have discussed at length the conception of the new domestic control regime as envisaged by the Government. We have heard criticism to the effect that the regime is, in the view of the protagonists, lacking in robust enforcement.
Of course, international comparisons are somewhat beside the point for our UK-specific approach. It is worth while bearing in mind, though, that the mere fact of establishing a coherent regime for the purposes of subsidy control would place the UK somewhere near the top of the list of the most comprehensive subsidy control regimes. Outside the European Union, no other international partner or competitor will enjoy such a comprehensive and transparent approach to the regulation of subsidies.
This legislation was predicated in the TCA, as my noble friend points out. We are of course meeting our obligations. One of the purposes of this legislation is to meet our international obligations, not just under the TCA but with other trade agreements that we might strike as well.
In our view, an interventionist regulatory role is not necessary for the effective scrutiny of subsidies and would be detrimental to the smooth development and deployment of subsidies where they are needed. I have confidence that public authorities will take their statutory obligations under this regime very seriously and, in fulfilling those obligations, public authorities will be supported by comprehensive guidance. As a result, I do not anticipate that breaches will be by any means a common occurrence. My noble friend referred to the EU state aid regime, which is a different system, but it is revealing of public authorities’ attitudes to their obligations that since 1999, the European Commission has ordered UK public authorities to recover aid on only four occasions.
I said that it was a different regime but was pointing out the number of times that subsidy has been recovered since 1999. My point is that it is not a frequent occurrence. I totally accept that it is a different system and that they are different regimes, but it served as an example of the behaviour of UK public authorities.
In the event of such breaches occurring, a private person asking the court to review the legality of a public authority’s action is a well-established route for ensuring that those authorities do not exceed their powers or act irrationally, and for preserving the rights of the individual against the state. Indeed, it is the normal way for challenging the actions of public authorities, and that is why we have broadly replicated the judicial review process in this Bill, with some subsidy-specific adjustments and additions. I know that noble Lords sitting at the back will be much more familiar with that regime than I am.
Today and in other Committee sessions, your Lordships have asked, in the absence of an enforcer—I will not attempt to repeat my noble friend Lord Lamont’s Latin experience—who will challenge subsidies and how a potential interested party will know about a subsidy that may affect their interests.
The subsidy control requirements are not a regulatory abstraction; they are there to prevent unnecessary distortions of competition. Where a public authority has failed to assess a subsidy against the principles, there is likely to be harm. Anyone whose interests may be affected by the subsidy, be they individuals, businesses or other public authorities, including the devolved Administrations, they have standing to challenge it. The people best placed to decide whether to bring a challenge are those who are actually operating in the relevant sector and area.
Transparency declarations will provide enough information for people to assess whether their interests may be affected by a subsidy. I once again underline that every subsidy or scheme that is in scope of the main subsidy control requirements and that may be challenged in the Competition Appeal Tribunal is also subject to the subsidy control transparency requirements, with the exception of certain SPEI subsidies, as we debated the other day. For those subsidies that present a greater risk to the market, or where the public authority is less sure of its assessment, the CMA reports will provide further information still.
On the point made by the noble and learned Lord, Lord Thomas, about the costs of pursuing a challenge, in practice an interested party is likely to take legal advice before deciding to ask for a review of a subsidy, and of course that will incur costs. However, as with other kinds of legal proceedings, the CAT can award costs to whichever party is successful. The pre-action information request process will be an important opportunity for a potential interested party to find out more about a subsidy and make a decision about whether to proceed with a challenge, and then to make a decision informed by the likelihood of success, most likely following advice.
I turn to Amendment 67 from the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Lamont, and I return to some of the arguments that I made in respect of the grouping we finished at the beginning of this afternoon’s session. The subsidy advice unit is an advisory body; it is intended to advise public authorities on the most potentially distortive subsidies and, by doing so, to provide a measure of additional scrutiny and transparency to the benefit of interested parties and, ultimately, the public at large. Ultimately, the SAU will shine a light on the underlying assumptions that have led to the development of a subsidy or scheme. It is for the public authority to exercise its own judgment with respect to that information. I have confidence that public authorities will take their responsibilities under this regime seriously and, where the CMA has issued a report, the public authority will give appropriate weight to the CMA’s conclusions.
In response to the question from the noble Lord, Lord McNicol, about the purpose of SAU reports, they will provide a public indication of the quality of a public authority’s assessment. It is in a public authority’s best interests to demonstrate that they have properly considered the potential distortive impacts of a proposed subsidy or scheme, and that offering such a measure is justified and proportionate to the policy problem that they are trying to address. Should a public authority fail to take proper account of the CMA’s conclusions, the report means there will be a significant amount of information about the subsidy in the public domain, beyond what would already have been required by the transparency database. Interested parties will therefore be all the more able to assess whether the subsidy may affect their interests, and of course to mount a challenge if they so wish. There may be a difference of opinion on this, but I am afraid that I just do not agree that there should be a role for the CMA in this.
In response to the Latin question of the noble Lord, Lord Lamont, about who will guard the guards themselves, I repeat that, assisted by guidance, which will help public authorities to understand their obligation—I have cited the example of a number of repayments previously—I think we can expect a high level of compliance with the regime. As the noble and learned Lord, Lord Hope, observed, the Competition Appeal Tribunal will build up a body of case law which will then be an important additional source of guidance for public authorities.
As I said to the Committee on Monday, of course I hope that no UK government subsidies would require referral, but Ministers intend to be open-minded to calling in a UK government subsidy for SAU scrutiny where that is requested by another public authority or considered desirable for other reasons. Furthermore, where necessary, the Secretary of State has the ability to refer subsidies to the Competition Appeal Tribunal. However, I would be surprised and disappointed if he or she had to challenge a subsidy made by a UK government department, but he or she could certainly do so if they felt that a subsidy risked competition and investment within the UK or compliance with the UK’s international obligations.
I turn now to Amendment 71, tabled by the noble Lords, Lord Fox and Lord Lamont, and the noble and learned Lord, Lord Thomas. This would have the Competition Appeal Tribunal refer specific subsidies to itself for decision. I would submit that that is highly unusual and would potentially compromise the CAT’s neutrality. Of course, there are practical objections to this amendment as well. As with all courts, the tribunal’s expertise, resourcing and premises are equipped for hearing cases, not for gumshoe investigatory work. I do not think that the noble Lords are really suggesting that this should be the case.
Both amendments pose the question of whether the judicial review model of enforcement is adequate, which I suspect is a bigger question than the one that we are considering now. As I explained a few moments ago, this Bill already positions the UK’s subsidy control regime as perhaps one of the most robust in the world outside the EU, and the enforcement model in this Bill is more than adequate for it. I hope that I have been able to reassure noble Lords on that point.
Of course, I am therefore unable to accept amendments that go so completely against the grain of this regime. I suspect that I have not convinced noble Lords, but I have done my best, and therefore hope that they feel able not to press their amendments.
My Lords, I thank all noble Lords who has taken part in this debate. If we are embarking on a new regime, we must make certain that it is effective—not because of whatever the EU says but for the good of our own nation and economy. Without an effective regime, this will not work.
We have taken different approaches—and I am extremely grateful to all who supported this amendment. The noble Lord, Lord Lamont, took the point of principle: who is going to look after those who make the decisions, particularly the Government? Who is going to refer them? Litigating against a Government, who have a bottomless pit, is very difficult—and, of course, there are political considerations against doing so.
The noble Lord, Lord Fox, asked what sort of regime this was, and whether there was a regulator. Whatever the Minister might say, the CMA is a kind of regulator in the market—unless the Minister is to say that there is no regulation at all. But this is law, so someone must have to enforce it.
Then there is the problem that I have referred to, of hard economic reality. Is it realistic to accept private enforcements? The benefits have been shown by the noble and learned Lord, Lord Hope: that we really need a body of case law to strengthen the regime, and the importance of that will become apparent later.
For all those reasons, I am afraid that I am one of those whom the Minister has not managed to persuade, but I do not think that he thought he had. But I beg leave to withdraw the amendment.
Amendment 67 withdrawn.
Amendment 68 not moved.
69: Clause 70, page 40, line 16, at end insert “, the Scottish Ministers, the Welsh Ministers or a Northern Ireland department”
Member’s explanatory statement
The purpose of this amendment is to remove any doubts about the position of the devolved governments being interested parties.
I am going to be very brief about this. The point emerged in the earlier remarks of the noble Lord, Lord Bruce, and deals with the question of standing. I want to deal only with the technical point. It is obvious that where the Minister, qua his responsibility as the Minister for England, grants a subsidy, the position of the devolved Government should be exactly the same as if the Minister in England were able to challenge a decision of the devolved Government. There should be parity. We have talked a lot about equity, which I shall return to, but it seems that there is no equity.
The short point of this amendment is to try to ensure there is no dispute about standing. Standing sometimes causes very serious difficulties. If, however, the Welsh or Scottish Government felt that the action of the Secretary of State or some authority in England was disadvantaging people or a particular enterprise in Wales or Scotland, they should surely have the standing to bring that to the CAT. If, for the reasons I have already adumbrated, private enforcement is not successful—and the Minister has said nothing to persuade me that it will be—this is even more reason to have more custodians of the public interest looking to ensure that our noble and other Ministers in London actually stick to the principles of the Bill. I beg to move.
My Lords, I will be equally brief. The omission of Ministers of the devolved Governments at this stage of the Bill is stark and astonishing. It immediately begs the question why, because the devolved Governments are specifically mentioned elsewhere in the Bill, although they are not given equality of treatment. Here, they are simply omitted. As indicated by the noble and learned Lord, Lord Thomas of Cwmgiedd, we need clarity here.
We particularly need clarity because there is equality of treatment on issues such as common frameworks. There could well be a conflict between what has been agreed by the UK Government in that context and what is in the Bill. I look forward to the Minister’s response.
My Lords, I rise to speak to my Amendment 79, which neatly follows the questions of the noble and learned Lord, Lord Thomas of Cwmgiedd, about standing.
On 13 January, the following fanfare was announced from Downing Street:
“Prime Minister to chair new council with devolved governments”.
The No. 10 press release described this as a
“Landmark agreement on how UK government and devolved governments will continue to work together”,
and how an agreement on this “has been reached”. It promised “new ways of working”, “Reaffirmed principles” of
“mutual respect, maintaining trust and positive working”
and formalised a “council”, led by the Prime Minister, “overseeing strengthened working”.
I am going to come to the document that lies behind the press release in a moment. Of the five things the Government say this is going to achieve, they end with the principle about conflict resolution:
“Resolving disputes according to a clear and agreed process”.
I am trying to seek consistency in this Bill, which has been severely criticised for the relationships it is trying to and has to build with the devolved Administrations. At the same time, we have another document, setting up more machinery of government, which will look at resolving disputes. I understand that resolution of disputes is in the common frameworks procedure, but there is very little in the Bill about how the devolved Administrations can resolve disputes. I suspect—I am pretty certain—that there will be a lot of criticism over the coming months and years from the devolved Administrations.
In the document which lies behind the Prime Minister’s announcement, about the review of intergovernmental relations, there is a two-page section in which the first paragraph states:
it is an independent secretariat managing the council—
and that is all Governments in the United Kingdom—
“can reject the decision of a government”—
again, that is any Government—
“to raise a dispute.”
So this is a dispute mechanism which has clearly been put in place by the Government to provide an opportunity for the Administrations to raise their disputes. I do understand that if it is enshrined in law, if the legislation is there, it makes it trickier, but as the noble and learned Lord, Lord Thomas of Cwmgiedd, asked, what happens when somebody wants or objects to an interpretation, particularly that of the Secretary of State, and this process escalates?
The Bill contains a lot of procedures which could well lead to a dialogue between the devolved Administrations and the Secretary of State. There is also a huge amount of what is called “guidance”—which we shall come to later—and a number of documents are going to emerge which will perhaps put flesh on the bones of some of the things we have been talking about in the Bill.
My question is this: will this arrangement announced by the council and by the Prime Minister, no matter what this Bill comes to and no matter what the processes described in it are, allow, as the intergovernmental relations document states, any Government to bring a dispute before all the other Governments? There are 30 or 40 lines and another page about how that dispute has to be resolved and the use of an independent secretariat.
If the right relationships as described in the document from the Prime Minister were built into this Bill, I would rather hope that it would minimise the necessity for such a dispute mechanism to arise. My test of this is to ask the Minister the following question. Given the announcement, and given the availability of this procedure, is there anything that he can see apart from the legislation before us that a devolved Administration could not refer to this council? If that is so, there is a strong case for making it easier for the devolved Administrations to engage through the mechanisms of this Bill without having to go through all the processes which would lead to the dispute mechanism outlined by the Prime Minister. I am asking for consistency, and I hope that the Minister can provide it.
My Lords, I am delighted to support the amendment put forward by the noble and learned Lord, Lord Thomas of Cwmgiedd, and agree strongly with the points that he made in opening this short debate. The devolved regimes must surely be in a position in which they can be regarded as interested parties. It stands to reason that that must be the case in certain circumstances, and there must be provision within legislation for those certain circumstances to be looked after in the context of this Bill.
I was delighted to have the opportunity to add my name to Amendment 79 put forward by my colleague, the noble Lord, Lord German. I support the points he made in regard to it. The need for some indication to the devolved regimes that they are partners has surely come out of the debates we have had in the last three or four sittings of this Committee. It is time that the Government found some way of indicating that they are prepared to work on a partnership basis. These two amendments pave the way for that, and I hope the Government can respond positively.
My Lords, I put my name to Amendment 69 as well, and I support exactly what my noble and learned friend Lord Thomas of Cwmgiedd said about it.
It is worth noting that the definition of “interested party” has to be read together with Clause 70(1). The point is that to apply to the Competition Appeal Tribunal you have to be two things: an “interested party” and “aggrieved”. The definition takes you part of the way there. I am thinking in particular of the Secretary of State, who is an interested party but in order to apply has to demonstrate that in some respect he or she is aggrieved by the making of the subsidy decision.
I am puzzled by the situation in which the Secretary of State may be aggrieved. I wonder whether the Minister, when he comes to reply, can put a little more colour on this provision so that we understand it. In particular, if it is possible to contemplate that the Secretary of State is indeed aggrieved, it strengthens the case for saying that the devolved Administrations should be included as well, because the chances are that they too could be aggrieved in exactly the same way. Perhaps the Minister can explain how the whole clause is intended to work.
I have very little to add; it has been covered comprehensively. I was happy and pleased to add my name to Amendment 69.
We have talked a lot about equity and balance, and the final group of amendments probably has even more of the issues raised in it so, rather than repeat everything that has been said, I am more than happy to endorse it. We will then pick up the final issues around engagement and involvement with the devolved authorities and central government in the final group.
My Lords, before I speak to the detail of these amendments, this is perhaps a good opportunity to update the Committee on our progress in seeking legislative consent for the Bill, as we promised in our first Committee session on 31 January.
These amendments, and a number of others we have debated, touch on the UK-wide and devolved aspects of the Bill. As we have discussed on numerous occasions, subsidy control is reserved, but there are clauses in the Bill that alter the executive competence of the devolved Administrations. From the very beginning, the UK Government, at both ministerial and official level, have worked closely and extensively with the devolved Administrations in designing the new subsidy control regime. We have worked to secure their support for LCMs for the Bill. I pay tribute to my officials and those in the devolved Administrations for their ongoing efforts in this space.
Our strong preference remains to secure legislative consent, and we will keep all avenues open to achieve this and to remedy the significant concerns of the devolved Administrations. Of course, we also want to ensure the operability of the new regime. Negotiations are still in progress, but I assure noble Lords that I will keep the House updated at the earliest opportunity, without prejudicing the content of those negotiations. I also assure the Committee that, should any amendments be necessary to reflect the outcome of those negotiations, we will table them as soon as possible prior to Report to enable your Lordships’ House to consider and scrutinise them with sufficient time.
I am grateful for that “no progress” update from the Minister. With regard to the current situation in Northern Ireland, including the suspension of the Assembly and the resignation of the FM/DFM, can the Minister state whether any of this legislation will be implemented in Northern Ireland during this suspension?
The legislation is UK-wide so it will apply in Northern Ireland but, clearly, the absence of the Assembly will make it extremely challenging to get the Executive’s consent. However, we certainly will continue to engage with officials.
I want to give some context on all the engagement we have done. Since July 2020, BEIS Ministers and officials have had 75 meetings in total with their counterparts in the devolved Administrations. These are not just talking shops, as has been implied, but sessions of meaningful engagement. For example, our engagement has included sharing draft objectives and building-blocks for the new subsidy control regime; sharing both the Government’s consultation and the consultation response ahead of publication; and sharing our illustrative guidance and regulations in advance of publication, as well as continued engagement as this Bill passes through Parliament. This engagement will need to continue as the regime is implemented. In fact, at this very moment, officials are working with their counterparts on a memorandum of understanding that formally sets out a mutually agreed process for engagement on the crucial next phase of policy development and implementation.
Moving back to the detail of the amendments before us, I will start with Amendment 69. Again, I thank the noble and learned Lord, Lord Thomas of Cwmgiedd, for moving the amendment, which is supported by a number of noble Lords. It would give the devolved Administrations the ability to challenge any subsidy in the Competition Appeal Tribunal, whether their interests have been affected or not. As was confirmed at the Dispatch Box in the other place, the devolved Administrations—or, indeed, any other public authority —will generally be able to apply to the CAT to review a subsidy decision where the interests of people in the areas in which they exercise their responsibilities may be affected by that subsidy. This would be a good opportunity to correct what I said on Monday: this is not exactly the same position as the Secretary of State.
The fact that the devolved Administrations are not named in this clause is by no means intended to exclude them or any other party whose interests may genuinely be affected by the granting of a subsidy. Clearly there will be limits, and the interests of the devolved Administration or local authority in a particular subsidy cannot be totally tenuous. However, the broad definition in the Bill gives the CAT maximum discretion so that, whatever the facts of the case might be, it can deem the right people as interested parties.
The reason why the Secretary of State has universal standing to challenge a subsidy, in contrast to the devolved Administrations and local authorities, is that he or she—whoever occupies that office—is responsible for the overall operation of the subsidy control regime and, as I keep saying, for the UK’s compliance with our international agreements in this reserved policy area. Neither of those reasons apply to the devolved Administrations or local authorities. It is wrong to suggest, as some noble Lords have suggested previously, that simply because the devolved Administrations exist, the Secretary of State’s horizons and duty of care are limited only to England.
It is also worth mentioning that the Government expect that the Secretary of State would use this ability only in exceptional circumstances where, in his or her view, a subsidy threatens the whole integrity of the subsidy control framework or our compliance with international agreements. It would be inappropriate to legislate that the devolved Administrations are an interested party in all cases, implying that the Secretary of State does not carry out his or her role as the responsible Minister for the subsidy control regime for everyone in all parts of the United Kingdom.
I turn now to Amendment 79, tabled by the noble Lords, Lord German and Lord Wigley. I am glad that the noble Lords referred to the recommendations of the Review of Intergovernmental Relations through the amendment. The UK Government take these co-operation mechanisms with the devolved Administrations, as set out under this review, very seriously, and we are always open to ways of strengthening these relationships. We are open to using the intergovernmental relations structures to resolve any disputes, in accordance with the IGR principles. That said, this amendment would in effect bypass a number of earlier stages in the dispute resolution process, which has already been agreed between the UK Government and all devolved Administrations. Escalation to the Council is the last resort. As I mentioned on Monday, we are also working closely with the DAs to establish a formal process for raising case-specific concerns with the department once the regime is up and running.
Let me also stress that there is no need to incorporate this provision into the Bill for disputes to be able to come under the IGR structures. Moreover, I do not anticipate that there will be any great need to refer matters of interpretation to those structures. It is important to bear in mind that there is of course a distinction between case-specific dispute, which is a matter of legality, and a public authority’s compliance with its legal obligations, for which the proper place to resolve such disputes is ultimately the CAT and a dispute or discussion between Governments on their roles and responsibilities.
There is little scope for that type of confusion over the roles and responsibilities of the UK Government on one hand and the devolved Administrations on the other in this regime. The Secretary of State for Business has responsibility for the overall operation of the regime and the UK’s compliance with its international agreements. The UK Government may also create streamlined routes to encourage subsidies that further their strategic priorities. In all other respects, UK government departments and the Secretary of State himself are in the same position as the devolved Administrations. They are public authorities within the scope of the Bill. UK government departments are treated in exactly the same way as any other public authority. All public authorities are similarly subject to the Bill and empowered by it.
As I said earlier, my officials continue to have a regular set of meetings with their DA counterparts on all subsidy control matters; these will continue, along with regular ministerial engagement. Where there is a need for dispute resolution, that dispute will come into the ambit of the agreed intergovernmental relations process.
I recognise the strength of feeling in relation to Amendment 69 in the name of the noble and learned, Lord Thomas, but I simply do not agree that either that amendment or the other would be a necessary or useful addition to the Bill. Therefore, with respect, I urge the noble and learned Lord to withdraw his amendment.
I thank all noble Lords who have spoken in this short debate; I do not want to lengthen it with a long reply. I will say only one thing. The Minister has not really answered my noble and learned friend Lord Hope’s question as to the meaning of “aggrieved”. It seems to me that one area in which the devolved Administration may wish to get involved is where a decision is made that does not directly affect their interests but they feel that the decision is wrong in principle and may set a bad precedent. It is that reason—their interest as Governments in upholding the rule of law and the operation of this—that I do not believe was answered by the Minister’s statement, but I will read it carefully. In the meantime, I beg leave to withdraw my amendment.
Amendment 69 withdrawn.
Clause 70 agreed.
Clause 71: Time limits for applications under section 70
70: Clause 71, page 40, line 37, leave out “one month” and insert “three months”
Member’s explanatory statement
This amendment would extend the time limit for applications to the tribunal under Clause 70 from one month to three.
My Lords, I rise to move Amendment 70 in the name of my noble friend Lord McNicol. I am sure that we can be brief on this matter and that, given the complexity of the other amendments we have been discussing, it is one that the Minister will be able to consider with a good outcome.
We are looking to extend the time limit for applications to the tribunal under Clause 70 from one month to three months. Of course, we have touched on this area several times through our many discussions over the last three sessions and, indeed, today. There is a real concern that the Bill does not provide enough oversight for the new subsidy regime; we have heard different elements of this through the amendments that have been put forward. As noble Lords have observed, there is a significant disparity between the time given to authorities to publicly disclose their subsidy decisions and that given to interested parties to refer matters to the Competition Appeal Tribunal. Only interested parties and the Secretary of State can legally challenge subsidies, and must do within one month of the new subsidy being published. Our contention is that this is unreasonable.
Amendment 70 seeks to extend the current one-month period to three months. This would still remain a modest time period given that, as things stand, there will be either six or 12 months for subsidies to be uploaded on to the database. It is quite possible that different interested parties and enterprises might have entirely valid complaints that would be upheld by the CAT but, for any number of reasons, they might be unable to refer the matter to the CAT within the one-month time limit.
I hope that this amendment will be agreed to but, if the Government are unwilling to extend the current arrangements, can the Minister at least commit to allowing referrals outside that window in certain cases? I beg to move.
My Lords, I will speak briefly in support of the amendment in the name of my noble friend Lord McNicol, spoken by my noble friend Lady Blake. It is one of the most important amendments that the Committee has considered. In my speech at Second Reading, I made the point that the combination of transparency and comprehensiveness of the data that is provided and the time period allowed to interested parties to appeal it lies at the core of the effectiveness of any new regime. As my noble friend Lady Blake pointed out, there is asymmetry between the length of time given to public authorities to put data into the public domain and the very short time period proposed for interested parties to appeal it. Can the Minister name any instance where the Government are subject to a one-month deadline for a significant decision that they have to make?
I do not even think that the one-month deadline is particularly helpful in reducing the workload that may come to the tribunal because, the shorter the deadline, the more an interested party may feel that it has to submit an appeal without having had the time to do the work fully to assess the position. So I urge even more strongly than my noble friend Lady Blake that the Minister considers the case for a change to three months, and I ask him to say, if he is not willing, why he thinks that the one-month deadline is fair and effective.
My Lords, I am pleased to speak in support of this modest amendment. As the noble Baroness said, the issue has been raised before, and one month is a totally unrealistic timescale. To my mind, it indicates a clear governmental preference to reduce scrutiny of decisions on subsidies that are made in general.
It is especially an issue because this also involves agricultural subsidies and agriculture is, in large part, based on small businesses. I shall give you a picture: farmers in Wales are not commonly monitoring the decisions taken by local authorities in, for instance, eastern England, which might cause them to feel aggrieved. It might take them some time to get up to speed on the implications of those decisions. It might surprise some people, sitting in the centre of London, to know that wi-fi in the centre of Wales is not wonderful. Many communities still rely on the postal service and weekly newsletters, for example from the farming unions. There can be lots of reasons why information that would worry small businesses affected by a subsidy decision would take some time to filter through.
In general, I can think of a host of reasons why one might miss this deadline—for example, summer or Christmas holidays provide an interruption of several weeks to ordinary business. I join the noble Viscount in his point that it could simply be counterproductive. People may think that, if in doubt, they should lob in an appeal to the tribunal because, in reality, they would not be able to find all the information required in the timescale this Bill provides. On a previous group of amendments, the Minister referred to the pre-action information request process. I believe that process will find itself exceptionally heavily used, if the Government do not see that this timescale is far too tight to be practical.
I rise briefly to add my support to the concerns expressed by other noble Lords that a one-month timeframe, especially for smaller companies, is not only challenging but potentially unachievable and could cause significant detriment to our promising smaller companies. They may be harmed by a subsidy, possibly unintentionally, and this could deny them the opportunity to appeal against that which could be harmful to their business. I urge my noble friend to consider the reasonableness of this amendment. If he is not able to accept it now, could he explain to the Committee how, in practice, this one-month timeframe is reasonable and could reasonably be met by those potentially affected?
I intervene briefly to strongly support my noble friend’s amendment and other noble Lords’ comments. One solution that the Minister might be tempted to suggest is to allow them to get it in within a month but add more documentation later. That would be easy.
I refer the Committee to the proposed new rule 98A(7) of the Competition Appeal Tribunal Rules:
“The Tribunal may not extend the time limits provided for in this rule unless it is satisfied that the circumstances are exceptional.”
Probably none of the things that noble Lords mentioned would be classed as exceptional, which confirms that one month is hopelessly short. I very much support three months or even longer, if anyone has a better idea.
My Lords, I thank the noble lord, Lord McNicol for this amendment, and the noble Baroness, Lady Blake, for speaking to it. I also thank the contributions of other noble Lords—and the noble Lords, Lord Fox and Lord Lamont, reflected on this issue during the Monday’s session.
An interested party, which is anyone whose interests are affected by the subsidy, may apply to the Competition Appeal Tribunal for a review of the subsidy within one month of the subsidy’s upload to the transparency database, if there has been a post-award referral to the CMA within one month of that report, or if a pre-action information request has been made within one month of the response to this request. The limit has been set at one month so that we can give legal certainty to public authorities and subsidy beneficiaries as swiftly as possible. It is important to avoid creating such prolonged uncertainty that it acts as a brake on legitimate subsidies.
We must also ensure that interested parties have sufficient time to consider a subsidy before asking the CAT to review it. That is just what this Bill does. An interested party, perhaps a competitor who is thinking of approaching the CAT to review a subsidy, can make a pre-action information request to a public authority. The limitation period is then extended until one month after the public authority has responded. Since the pre-action information request gives the public authority up to 28 days to respond, in practice, the limitation period can run for two or three months after the publication of the subsidy or scheme on this database.
If the argument is that we are only giving one month to raise a complaint or to look into this, why are the uploading timeframes six months and/or one year? If the Government want to create legal certainty for the organisation that is giving the subsidy, surely, as the noble Lord, Lord Lamont said on Monday, what is good for the goose is good for the gander. If they want that legal certainly, deliver that within the one month in terms of the upload to the database. Then there is parity and legal certainty.
As the noble Lord, Lord McNicol suggested, we explored this point fully last week. There are good reasons for it. If it is a tax subsidy, the full amount might not be clear. It might be variable, based on a number of different reasons, and the fact of giving a subsidy may well be published in other transparency obligations that local authorities or the devolved Administrations already have. However, I understand the noble Lord’s point.
In response to the noble Baroness, Lady Blake, Clause 71 also makes it clear that in exceptional circumstances, the tribunal may extend the time limits for bringing a challenge. This amendment would extend the general window for bringing a challenge from one month to three months, which is too long. It is longer than the challenge periods available in other areas where business decisions are dependent on the decisions of public bodies, such as procurement and planning decisions, where the limitation periods are 30 days and six weeks, respectively. In those areas, the harmful effects of prolonged uncertainty have been recognised through the shorter challenge periods available. The same reasoning applies in the subsidy control context. If the general limitation period for challenging subsidy decisions was extended to three months, as this amendment proposes, public authorities and subsidy beneficiaries could in practice have to wait as long as five months before having reasonable legal certainty about a subsidy that they have granted.
There is a risk that this could have a chilling effect, not only on the giving of subsidies but on the timely use of them by beneficiaries. For example, a subsidy could take the form of a loan guarantee for a capital investment, such as buying new machinery. Your Lordships will appreciate that some beneficiaries may be reluctant to go ahead with purchasing that machinery for as long as there is a possibility that the subsidy decision could be quashed and a recovery order made.
The noble Baroness, Lady Blake, and the noble Lord, Lord McNicol, asked how the Government can justify giving public authorities six months to fulfil their transparency obligations but providing interested parties only one month to challenge a subsidy. I recognise the strength of feeling on the length of time on the transparency deadline and how this compares with the limitation period. During Monday’s Committee, I set out the reasons why the deadline is set at six months: it allows for better-quality data where subsidies are based on an estimate, and it gives public authorities greater ability to upload their subsidies in bulk, and therefore to reduce administrative burden.
In contrast, the limitation period is set at one month to strike a balance between the opportunity for challenge and providing legal certainty. It is that desire for legal certainty that means it is firmly in a public authority’s interests to make a transparency upload as quickly as possible, as of course the limitation period does not start until it does. In practice, the limitation period will rarely be just one month. When someone thinks their interests may be affected by a subsidy and needs more information, they will make a pre-action information request, which prolongs the limitation period for up to two months.
While I continue to believe that the time limits provided for in this clause strike an appropriate balance between offering an opportunity for challenge and providing legal certainty for beneficiaries, I have heard the strong feelings expressed by all parts of the Committee and will have a look at it before Report. I hope the noble Lord, Lord McNicol, will feel able to withdraw his amendment.
I am interested in this concept of a chilling effect. What evidence is there for that, and what consultation has there been? There may or may not be a chilling effect. It seems like more of an idea than a practical reality. I have a suggestion that might help. The Bill could start out with a longer reporting time—perhaps 60 days, or something along those lines—and the evidence, or otherwise, of a chilling effect could be gathered. If necessary, and if the reality of a chilling effect actually emerges, the Government could come back and reduce that period by statutory instrument.
I think that is the first time the Liberal Democrats have proposed giving the Government more secondary legislation powers, but I understand the noble Lord’s point. As I said, I have heard the strength of opinion on both sides of the Committee and will reflect further on this matter.
I thank the Minister for those final comments, which I think are a measure of the contributions we have heard tonight and the strength of feeling on this issue around the Room. My noble friend Lord Chandos really put his finger on it. He is absolutely right that the unreasonableness of this time limit will lead to people putting in appeals just in case more information comes to light. That is a very real proposition.
The case against the one-month limit has been very well made. I thank the noble Baroness, Lady Randerson, for her insight into rural areas and the aspect of holidays, and the noble Baroness, Lady Altmann, for highlighting the real aspect of it being challenging and unachievable. There are so many elements in this that need to be taken away. I thank noble Lords for listening to the arguments that have been made with this amendment today and over a period of time. With those comments, I beg leave to withdraw the amendment.
Amendment 70 withdrawn.
Clause 71 agreed.
Clauses 72 and 73 agreed.
Amendment 71 not moved.
Clauses 74 to 77 agreed.
Amendment 72 not moved.
Clause 78: Subsidies and schemes in primary legislation
73: Clause 78, page 45, line 15, leave out from second “of” to end of line 16 and insert “financial assistance provided, or schemes for the provision of financial assistance made, by means of primary legislation.
(2) Nothing in this Act applies to the giving of any such assistance, or to the making of any such schemes, except so far as provided for by that Schedule.”Member’s explanatory statement
This amendment clarifies that the subsidy control requirements under the Bill apply in the case of financial assistance provided directly by primary legislation only so far as provided for by Schedule 3 to the Bill.
My Lords, I rise to speak to two amendments that have a relationship I shall endeavour to explain as rapidly as possible, bearing in mind the hour. Amendment 73A relates to Schedule 3 and deals with the very extraordinary powers in this Bill, giving the High Court the power to overrule primary legislation of the devolved legislatures. This is a very real problem. I shall speak largely from the point of view of the judiciary and what we are intending to do.
Before I turn to that, I would say that, if we look at agriculture or anything else where there is an attempt by the four Governments of the UK to agree something that deals with the support of subsidies, it is extraordinary that anything that is legislated for in England is exempt, but what is legislated for elsewhere is not. There is a constitutional reason for that, and I know what the Minister will say, but it is not a matter of practical reality or public perception. It is important that we consider this.
The first extraordinary part of this is that power is given not to the Competition Appeal Tribunal but to the High Court or the Court of Session in Scotland. To my mind, it is worrying that you give to a first-instance court the power to overrule a decision and an Act of a democratically elected primary legislature. Normally, these matters would go to the Supreme Court. Secondly, and much more importantly, is it right that we should put our judges in a position to make decisions about what are effectively the principles in the Bill? People may remember something called the Human Rights Act and the very broad powers it is said to give judges to make decisions. That has had a degree of criticism. Why do we want to do this in a piece of legislation where the phrases are so ill defined? I shall come to that in the second amendment I intend to speak to. We should exercise the greatest degree of care in giving judges the right to overrule the legislature. I am not certain about the extent to which there has been widespread consultation with the judiciary about this, or with others, but this is the first and very significant step.
There is an extraordinary constitutional provision that has to deal with whose rationale is looked at. I do not want to go into the details of that, because that is more a subsidiary point, and I bear in mind the time—but there is an extraordinary constitutional innovation in the clauses in this part of the schedule.
Of course, it might be said of these principles—and I think this is possibly the Minister’s line—that all of this is very vague and there are not going to be many challenges, so do not worry. However, I am afraid people have left provisions in legislation on that basis and it has come back to bite them. What would worry me about this is if something enshrined in the decisions of the Scottish, Welsh or Northern Irish Parliaments or Assemblies, is challenged by someone. What about it happening in the field of agriculture? Someone who is importing goods would have the right to initiate this sort of action, with its very serious constitutional consequences, whereby a judge would have to make a decision, quite often, I imagine, in relation to the principles that are so ill defined.
That takes me neatly to my second series of amendments, which deal with the definitions and status of guidance. I will leave the noble Lord, Lord German, to deal with the question of whether the guidance is binding. It seems unarguable to me that it is not binding.
What I am much more interested in—this highlights the difficulties caused by Schedule 3 and the construction of the Bill as a whole—is the Minister’s power to give guidance as to the meaning. Ordinarily, it is Parliament that decides what something means and, if it does not, it leaves it to the judges. Sometimes, it is put in secondary legislation. However—this is extraordinary—here we are putting the meaning of the wording into guidance.
There are two fundamental problems with that. First, we have visited the word “equity” on a number of occasions—I might call it a word for all seasons—but, even at this late hour, I feel that I ought to refer to John Selden’s famous note about equity. He said:
“Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is equity. ‘Tis all one as if they should make the standard for the measure we call a foot, a Chancellor’s foot; what an uncertain measure would this be? One Chancellor has a long foot, another a short foot, a third an indifferent foot: ‘tis the same thing in a Chancellor’s conscience.”
I refer to that because it is the essence of the problem with the word “equity”. With the utmost respect, I believe that this Committee ought not to shirk its responsibilities in defining what is meant by this and how it applies in certain circumstances. It might be said, “Well, we are constrained by the fact that these are taken directly from the TCA”, but is that in fact a constraint—or do we hanker for the way in which these vague principles were left to the judges in Luxembourg? Do we want to give our judges that pleasure as well? I doubt it, but I am not sure that it has been fully thought through.
It therefore seems to me that we ought to look at this very carefully. There is the constitutional principle in relation to the Minister being able to give guidance on meaning; it plainly is not binding but he should not be giving such guidance because that is a matter for the courts or Parliament. Parliament should not shirk its responsibility to define what some of these things mean. We should not leave it to judges—unless, of course, there is a hankering for, as they do in Europe, leaving things to the judiciary in Luxembourg. This time, however, it would be the judiciary in Westminster, Edinburgh or possibly Belfast—but not possibly in Cardiff.
My Lords, it is always a pleasure to talk after the noble and learned Lord, Lord Thomas of Cwmgiedd, who manages to enlighten us all with observations that might have passed us by if we had not had the wonder of his words.
In Amendment 74 in my name, which would amend Clause 79, I treat “non-binding” as a sine qua non. The reason I put it in was to allow us to have a discussion and debate about the whole extraordinary clause on guidance. All I seek, of course, is for the Minister to agree that it is non-binding. I am sure that he will do so because all the facts speak for themselves, but there is a high head of steam building up in this Committee about the way in which guidance is being used. I will come back to the spearheading on that and how it has moved on but, basically, this Bill has what we call—Parliament also uses this phrase—“have regard to” guidance. This is a problem because it places an expectation that the guidance will be followed unless there are cogent reasons for not doing so.
Subsections (5) and (6) of Clause 79 give the game away a bit. Clause 79(5) says
“the Secretary of State must consult such persons as the Secretary of State considers appropriate”
before making the guidance. What is appropriate is not specified. Clause 79(6) says:
“A public authority must have regard to guidance issued under this section.”
“Must” is very important in this respect.
When the Minister introduced the Bill at Second Reading, he said:
“This guidance will support public authorities to ensure that subsidies deliver strong benefits and good value for money for the UK taxpayer, and ensure”—
again we have the use of that word “ensure”—
“that subsidies are being awarded in a timely and effective way, to give businesses the certainty and confidence that they need.”
This sentence is very important:
“The guidance will also ensure that public authorities fully understand their legal obligations, and make clear which subsidies are permitted and which are prohibited.”—[Official Report, 19/1/22; col. 1710.]
If the guidance goes to that level of explanation, it is clearly not appropriate to be guidance; it should be something over which this Parliament has its say. That is the primary problem we are facing: once we have cleared this Bill, we will have no further say about this guidance in Parliament.
Subsections (5) and (6) are the escape clauses, and use of the word “must” is critical all the way through. That gives a lie to having regard to guidance, placing an expectation that this guidance will have to be followed unless there are cogent reasons not to.
This Parliament should have consultation on all these matters. Perhaps we should share with the Minister the fact that there was a debate on these issues in this House, when Parliament was of the view that the meaning of these words should be explained. In a succession of Bills, the distinction has been blurred between what is true guidance, which helps people to understand, and regulations that lay out the details of the procedures that people are obliged to follow.
The Delegated Powers and Regulatory Reform Committee stated in its most recent report that
“the fact that guidance would be produced after consultation with interested parties cannot be a reason for denying Parliament any scrutiny role”.
Earlier in Committee, I asked the Minister whether the guidance would be produced in draft before the Bill’s passage through the House is completed. I was given no reassurance on that, so I will repeat the question: will draft guidance be produced in advance of the Bill concluding its passage through this House?
Two other committees of this House, the Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments, have also reported on these matters. The Government’s response to the Constitution Committee in January 2019 said:
“The Government agrees that guidance should not generally be used for the purposes of interpreting legislation.”
The Joint Committee on Statutory Instruments said:
“A key element of the rule of law is for legislation to be clear. Where legislation has been drafted so as to leave gaps in the law or areas of uncertainty, guidance (and particularly non-statutory guidance) cannot be used to fill those gaps as if it were the law itself.”
There is a head of steam building from what committees have said—the Constitution Committee, the DPRRC, the SLSC and the Joint Committee on Statutory Instruments. I am trying to remember all the acronyms. Four committees of this House have said that this is not the way to proceed.
This head of steam is building in this House and a campaign is emerging, spearheaded by Conservative Members. I hope the Minister will not allow this Bill to fall into the “naughty list” category that they are assembling. I look forward to his explanation of the significant use of guidance in the Bill and particularly the recognition that this guidance is expected to be followed.
My Lords, I was delighted to hear the speech of the noble and learned Lord, Lord Thomas, who raised matters of considerable importance to which we will undoubtedly have to return on Report. I support the comments made by my friend, the noble Lord, Lord German.
I shall not speak at length. We have been over and over, time after time, the question of the relationships with the devolved institutions, so I ask the Minister this simple question: will the Secretary of State give an assurance that, in every instance where guidance may have an implication for the Welsh, Scottish or Northern Ireland Governments, he will actively consult them prior to issuing the guidance?
My Lords, I rise to speak briefly to my Amendment 80, which is a probing amendment. It is grouped with this lot of amendments, but it is a different subject, and I will try to be as quick as I can.
It relates to Clause 85, headed “Crown application”, which provides that the Act will apply to the Crown, but excluding Her Majesty in her private capacity, Her Majesty in right of the Duchy of Lancaster, and the Duke of Cornwall. I am afraid that this continues the debate about the uncertainty of the role of the Duke of Cornwall and the Duchy. It is one little hobby-horse that I have been pursuing for many years, and I apologise for that. I refer noble Lords who want to get into the detail to the Second Reading of my Private Member’s Bill, the Duchy of Cornwall Bill, on 26 October 2018, which seems a long time ago.
Since the Duchy of Cornwall says that it is in the private sector—I am assuming that the Duke and Duchy are synonymous—why should the Duke of Cornwall or the Duchy be given special treatment in this Bill? No other big landowner or property owner is allowed special treatment. I understand why Her Majesty in her private capacity and the Duchy of Lancaster are, but the Duchy of Cornwall says on its website:
“The Duchy of Cornwall is a … private estate … established by Edward III in 1337.”
This was confirmed in the second-tier tribunal in 2016, after a Mr Michael Bruton had claimed that the Duchy was in the public sector and therefore needed to do an environmental study on putting Japanese oysters into the Helford river in Cornwall, which it owned. In the First-tier Tribunal, Mr Bruton had won, largely because the Duchy’s representative said, “To all intents and purposes, we believe we are above the law”, which is quite an interesting statement. Of course, the Duchy then appealed to the next-tier tribunal and, not surprisingly, with all the free legal advice it gets from the Government, it won. The tribunal’s decision was:
“The Duchy of Cornwall is not a public authority for the purposes of the Environmental Information Regulations 2004.”
Why should the Duchy of Cornwall be treated differently from anyone else—any of us—to whom this Act will apply? If the Minister is not able to answer that question today, perhaps he could write to me. He might want to contact the Duchy itself. I warn him that the last time I raised this, in the leasehold reform Bill debates about three or six months ago, the Minister agreed to write to the Duchy of Cornwall, the Duchy of Lancaster and the Crown Estates about the leasehold reform Bill. We got good responses from the Duchy of Lancaster and the Crown Estates but, as far as I know, no response from the Duchy of Cornwall.
I do not think that right, because the Duchy of Cornwall must have given views on this Bill and I would like to know what it said. Did it send a letter? Did the Minister have correspondence? If so, can he put it in the Library? If he did not, how was this decision made? I think it very unfair that the Duchy of Cornwall—probably uniquely among big estates in this country, whatever their rights and wrongs—should be given this special treatment, for it means an exemption to the Bill.
My Lords, I think we have a hard stop in 20 minutes, so I will be very brief. I am grateful to noble Lords who put down amendments in this group, including the Minister; I hope there will be lots more to come from the Minister. My Amendment 75 has been signed by the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord German and Lord Wigley, and I appreciate their support on this, as well as in the debates on many other devolution-focused amendments.
I was going to say, judging by the previous responses on the devolved authority amendments, that I did not think we would hear much change, but actually the Minister’s response to the last debate was heartening, so hopefully this amendment regarding the devolved authorities will receive the same response. I will leave it there. As we finish Committee, I note that the comments made in the DPRRC report were very telling, and I look forward to discussions with the Minister and officials between now and Report. I hope that we can address some of the DPRRC’s concerns.
My Lords, I am pleased to say that we are now on the final group of amendments. I have made it through thanks to the supply of copious quantities of cough lozenges, so I thank Ruth for those.
I first thank the noble Lord, Lord German, for tabling Amendment 74, the noble and learned Lord, Lord Thomas of Cwmgiedd—
I have had some expert advice from the Whips here. I thank the noble Lords for Amendments 73A, 74A and 74B, the noble Lord, Lord McNicol, for Amendment 75, and the noble Lord, Lord Berkeley, for his fascinating Amendment 80, which I will come to.
Amendment 73 is my amendment, the government amendment to Clause 78. This is a minor and technical amendment that will provide greater clarity in the Bill as drafted. It clarifies that the provisions in Schedule 3 to the Bill are to apply to subsidies in devolved primary legislation and primary legislation made by this Parliament. This is because the word “subsidy” is defined as something given by a public authority excluding a legislature. Nothing else is added into scope by this amendment; it simply makes absolutely clear how the provisions in Schedule 3 apply, for the avoidance of any doubt.
Secondly, the amendment makes it clear that it is only the provisions in Schedule 3 that apply to primary legislation made by this Parliament and devolved legislation, and not other provisions of the Bill. Again, this does not make any amendments to the substance of the Bill but just provides clarification.
Amendment 73A was tabled by the noble and learned Lord, Lord Thomas of Cwmgiedd, who wishes to probe the purposes of Schedule 3 with regard to the devolved Administrations. Clause 78 applies the provisions in the Bill to subsidies made by means of primary legislation, as set out in Schedule 3. Because of the specific nature of these subsidies, the obligations on those responsible for them need to be set out separately. To respond to the concerns of the noble and learned Lord, I will set out my belief that Schedule 3 as a whole ensures that the subsidy control regime will be comprehensive and robust, while at the same time taking into account the UK’s fairly unique constitutional make-up.
This also implements the provisions of the TCA, which itself recognises the sovereignty of Parliament but requires us to apply the subsidy control principles to devolved legislation. We would not be compliant with our international requirements if we introduced further exemptions for subsidies in devolved primary legislation. The schedule applies to subsidy control principles, prohibitions and other requirements and exemptions made under this Bill to subsidies granted or subsidy schemes made by means of devolved primary legislation. The schedule also deals with referrals to the subsidy advice unit for both devolved and Westminster primary legislation. Notably, the provision does not include any provision for mandatory referrals. This is because of the unique legislative provision and the procedure for these subsidies. This means that there will be procedural delays or disruption to the progress of primary legislation.
Finally, the schedule makes provision for a review in the courts where a challenge is brought, as the noble and learned Lord, Lord Thomas, set out, considering that the lawfulness of provisions in devolved primary legislation is a sensitive task. Given their expertise in sensitive tasks, the appropriate courts to review such subsidies would be the Court of Session in Scotland, the High Court in England and Wales, and the High Court in Northern Ireland.
Turning to Amendment 74, tabled by the noble Lord, Lord German, Clause 79 gives the Secretary of State the power to issue and update guidance on the practical application of provisions in the Bill. This will support public authorities and businesses to understand the key elements of the new subsidy control regime. As I have already set out, the Government have published a portion of illustrative guidance to give an indication of our intentions here, and to invite feedback from your Lordships and other interested parties. This amendment would specify that the guidance issued under Clause 79 was non-binding in nature. This probing amendment raises some interesting questions around the degree to which guidance is legally binding.
Clause 79 places a duty on public authorities to have regard to the guidance when designing a subsidy scheme or giving an individual subsidy. This gives the guidance more prominence and what we consider to be the appropriate role in this regime. While statutory guidance is quite rightly not the law, public authorities are none the less used to having regard to such statutory guidance to help them understand and implement legal requirements. Guidance cannot change the law that it is anchored to and expands upon but, in setting out what public authorities should do to comply with the law, it has an important role in explaining the legislation.
As Clause 79 states, public authorities should have regard to the guidance so far as it is applicable. In that sense, it is clear that the guidance is not binding and that public authorities may depart from it, but only where it is not applicable. However, where they do so, they must have good reason, and their reasoning may be challenged and may need to stand up to scrutiny through the courts.
In response to the question asked by the noble Lord, Lord German, on whether draft guidance will be available during the parliamentary passage of the Bill, I highlight again that the Government have provided illustrative guidance during parliamentary passage. The final guidance will be made available sufficiently in advance of the new regime’s commencement to enable public authorities to understand it and prepare for the new regime.
Amendments 74A and 74B would prevent the meaning of the subsidy control principles and the energy and environment principles from being dealt with in guidance rather than in the Bill. The power to issue statutory guidance, as is currently provided for in Clause 79, will allow the Government to offer detail to public authorities on how to comply with the subsidy control requirements. As such, the guidance will play a central role in the effective functioning of the new regime. The Committee in the other place heard from a number of witnesses highlighting this fact and the importance of public authorities having appropriate guidance to understand the practical application of the Bill. It is not the Government’s intention to change the meaning of the subsidy control or energy and environment principles through guidance. As I have said, this would not be possible. Guidance will instead have the purpose of explaining and clarifying the regime, in ordinary language, for the benefit of those who will need to use and understand the practical effect of the Subsidy Control Bill.
Amendment 75, tabled by the noble Lord, Lord McNicol, would
“require the Secretary of State to seek the consent of the devolved administrations before issuing guidance under Clause 79”.
As I have already set out, we have engaged extensively with the devolved Administrations in developing the policy for the new subsidy control regime and, of course, we will continue to do so, including for the statutory guidance. We greatly value the input from the devolved Administrations. It is in all our interests to ensure that the regime works for the whole of the UK and enables the UK’s domestic market to function properly.
I note that there is already a requirement in the Bill for the Secretary of State to consult such persons as they consider appropriate before issuing guidance. Sadly, I cannot accept the amendment. A formal consent mechanism could slow down and inhibit the issuing and updating of statutory guidance. In my view, it is important that the Government are able to update guidance quickly should circumstances change, for instance due to the development of any new UK case law. Delaying changes would be unhelpful for public authorities and subsidy recipients alike. As I have already said, it is my view that it is simply not necessary.
Clause 79(5) places a duty on the Secretary of State to consult such persons as appropriate before issuing the guidance. These persons may include the devolved Administrations, businesses and public authorities. Amendment 76, which I have tabled, would ensure that the requirement in Clause 79(5) is met by consultation on the guidance carried out before the Act comes into force.
The Government will engage on the shape and content of the future statutory guidance in the coming months, building on the public consultation we carried out last year before the introduction of the Bill. With a view to this, illustrative guidance was published in January, which gives a sense of what the final guidance on the practical application of the subsidy control principles will look like. This is intended to enlighten stakeholders as to the proposed structure and contents of future guidance and will, we hope, act as an aid for future discussion and engagement.
I entirely agree with the view of the other place that the guidance should be made available in advance of the commencement of the regime. To this end, any consultation will necessarily need to take place before Clause 79 commences. I think it prudent to put beyond doubt that the duty under Clause 79(5) would be met in those circumstances. For this reason, I hope that the Committee will feel able to accept my amendment.
Finally, I come to the fascinating Amendment 80 from the noble Lord, Lord Berkeley. I thank him for tabling it because it opened a new area of discussion that I had not really considered before. I understand that the noble Lord intends it also to be a probing amendment; I will treat it as such. Clause 85 establishes that the Bill applies in full to the Crown. As part of this customary provision, the Crown does not include Her Majesty in her private capacity, Her Majesty in right of the Duchy of Lancaster or the Duke of Cornwall. The noble Lord, Lord Berkeley—I know that, as he said, he has a long-standing interest in the affairs of the Duchy of Cornwall—explained that the amendment has been designed to probe the application of the Bill to the Duchy of Cornwall. I can confirm to him that the Duchy of Cornwall is a possession of the Duke that provides personal revenue. The Duke of Cornwall is not a public authority unless he is exercising functions of a public nature.
It’s interesting stuff, this. I suspect that the noble Lord, Lord Berkeley, is not going to get an invitation to an investiture.
Anyway, the ownership of the Duchy of Cornwall is a private matter. Where the Duchy operates on a commercial basis, depending on the specific facts at hand, it may meet the definition of an enterprise in Clause 7; lawyers have had fun drafting this. None the less, and importantly, the Duke’s relationship with the Duchy as its owner is not the exercise of functions of a public nature. It therefore falls outside the scope of the Bill.
To close, I hope that, with the explanations I have been able to provide, noble Lords will feel able not to move their amendments and to accept my Amendments 73 and 76. As we have now reached the end of the final grouping of amendments, marking the end of Committee, I express my sincere thanks to all noble Lords who have taken an interest for their thoughtful, insightful and probing discussions on this important Bill. Lastly, I thank the team of officials who have supported us in so doing. I can give an assurance that my department and I will of course reflect closely on all the points made by noble Lords, and I look forward to further engagement in advance of Report.
Amendment 73 agreed.
Clause 78, as amended, agreed.
Schedule 3: Subsidies provided by primary legislation
Amendment 73A not moved.
Schedule 3 agreed.
Clause 79: Guidance
Amendments 74 to 75 not moved.
76: Clause 79, page 46, line 13, at end insert—
“(7) The requirement in subsection (5) may be met by consultation carried out before this section comes into force.”Member’s explanatory statement
This amendment ensures that the requirement in Clause 79(5) to consult on the guidance issued under Clause 79 may be met by consultation on the guidance carried out before the Act comes into force.
Amendment 76 agreed.
Clause 79, as amended, agreed.
Clauses 80 and 81 agreed.
Clause 82: Gross cash and gross cash equivalent amount of financial assistance
77: Clause 82, page 47, line 35, at end insert—
“(e) provision in regulations or schemes made under this Act.”Member’s explanatory statement
This amendment ensures that regulations made under Clause 82 may make provision about how the gross cash amount and the gross cash equivalent amount are to be determined for the purposes of regulations or schemes made under the Act.
Amendment 77 agreed.
Clause 82, as amended, agreed.
Clause 83 agreed.
Amendments 78 and 79 not moved.
Clause 84 agreed.
Clause 85: Crown application
Amendment 80 not moved.
Clause 85 agreed.
Clauses 86 to 92 agreed.
Committee adjourned at 8.28 pm.