Monday 7 February 2022
Subsidy Control Bill
Committee (3rd Day)
Relevant document: 17th Report from the Delegated Powers Committee
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 Bells are rung and resume after 10 minutes. For the Committee’s information, we have no Members taking part remotely today.
Clause 33: Duty to include information in the subsidy database
38: Clause 33, page 17, line 19, leave out paragraphs (a) and (b)
Member’s explanatory statement
This amendment removes the declaration exemption for individual subsidies given under a scheme, meaning those subsidies would have to be entered into the subsidy database.
My Lords, Amendment 38 stands in the name of my noble friend Lord McNicol. I declare my interest as vice-president of the LGA.
Just to revisit the context of this, I believe, very important group of amendments, we are looking at the broader context of accountability, probity and transparency in all things to do with public money, making sure that we do not leave any room at all for corruption or cronyism as we take the Bill forward. We will be considering the whole issue of individual subsidies under £500,000 being excluded from the database. Huge concern was expressed in the other place, at Second Reading and in Committee last week—across all parties, to be fair—and representing a range of different interests which had their comments noted through the consultation exercise that has taken place. We are very concerned at the lack of scrutiny provision also, bearing in mind that we are talking about a system depending on challenge without all necessarily having all the information.
I am extremely grateful to the noble Baroness, Lady Humphreys, and the noble Lord, Lord Lamont, for supporting various amendments in this group. I am very glad to continue discussions on transparency, as I have said, reflecting, as I am sure we all have, on the very interesting exchanges on related subjects in the last meetings. Taken collectively, these amendments will allow us all to see whether BEIS and the Government have updated their thinking on the transparency thresholds and exemptions since the Bill went through the Commons. I think we are all approaching this in a spirit of hope that some serious reflection has taken place on these very important matters.
If we are to have confidence in this new regime and the public authorities that use it, transparency measures will be hugely important. We all have personal experience in this area; every one of us will be familiar by now with the need for regular reporting requirements around official meetings, travel and gifts. All this is done in the spirit of making sure that none of us is above the scrutiny of the public, particularly where public money is a point of consideration. This is not down to any particular group or party; it is simply a practical demonstration of the importance of knowing how public funds are being utilised.
Amendment 38 was tabled as a probing amendment but has taken on a new significance following last week’s discussion where my noble friend Lord McNicol and the noble Baroness, Lady Bloomfield, were at odds on how an unpublished subsidy made under a scheme could be challenged by an interested party. The simple answer is that, if information is not published, then there is no right of recourse should one business or public authority feel undermined by a subsidy awarded to another business and/or by another authority. The Government insist that we do not need to worry since any subsidy over £500,000 will be published, but is it not the case that in many circumstances a subsidy one-tenth of that value can have significant differential impact on the fortunes of two businesses operating in the same field?
Amendments 39, 47 and 48 are to different provisions in the Bill and vary slightly in the burdens that would be placed on public authorities, but they are premised on the same basic point: a threshold of £500 is consistent with transparency rules already followed across much of the public sector. We are talking about consistency, clarity and transparency. If the Government are serious about having a transparent and evidence-based subsidy regime, should we not be able to see the detail of the subsidies being handed out? As with domestically sourced content, having extra data would allow more informed analysis of what schemes are effective and where future efforts should be focused.
We can of course pre-empt some of the Minister’s arguments—for example, that this would place unfair burdens on smaller awarding bodies and that these subsidies have a less distortive effect—but on balance we do not find these compelling, and neither did a number of Members of Parliament or expert witnesses in the House of Commons. I would point out that cost is not an excessive burden; because of the systems that already exist, the burden is estimated to be relatively small, around £20,000 a year. Bodies such as Transparency International and the Centre for Policy Studies are equally putting their weight behind arguments to take this forward.
Amendment 49 is designed to probe why certain SPEI services are excluded from reporting requirements while others are not.
I suspect that we will end up seeing some movement on the matter of monetary thresholds, but I wish to sound a warning on this: we may not be able to settle on £500, but I ask that we do not choose too large a sum or the incentive for authorities just to knock off £1 to get below the threshold and thus sneak in under the regime will remain too tempting. I beg to move.
My Lords, I wish to speak to Amendments 39, 47 and 48 in the name of the noble Lord, Lord McNicol of West Kilbride, to which I have added my name; I also support the other amendments in this group. Taken together, these amendments would improve transparency in the awarding of subsidies and help to spot harmful ones. They would show where the new subsidy spending is working and give businesses the information they need to challenge potentially unlawful subsidies.
As the Bill stands, individual subsidies of less than £500,000 will be excluded from transparency in the subsidy database. As I said at Second Reading, if these rules continue to exist, they will allow for the possibility of multiple subsidies of less than £500,000 to be received by an enterprise. None of that would be published and there would be little other scrutiny.
Amendment 39 would reduce the threshold for entering subsidies into the database to £500 and would bring the subsidy scheme into line with transparency thresholds elsewhere in the public sector. Local authorities, for example, must publish all expenditure over £500, and grants by all government departments and arm’s-length bodies are now published annually by the Cabinet Office.
It has been argued that, in the case of these subsidies, a threshold of £500 is low—perhaps too low—but it is vital that the threshold is set at this level. According to the Centre for Public Data,
“a threshold of, for example, £100,000 would still create distortive incentives for authorities to cluster awards just below the threshold, still allow authorities to make unpublished multiple awards just below the threshold, and would exclude useful evidence for no reason.”
Sometimes, it seems that Governments believe that they own the funds they spend but, in reality, it is the taxpayer who will fund these subsidies. Lowering the transparency threshold will demonstrate to the UK taxpayer that harmful and wasteful subsidies will be identified.
Crucially, it would allow public bodies to answer this important question: how many subsidies of less than £500,000 have they awarded? They could answer the question openly and honestly, with facts and figures. Under the Government’s proposed system, the same question could be met with a vacant stare, as the figures will not be readily available or will not exist. The total of funds awarded would also be unclear.
As the noble Baroness, Lady Blake, said, the Government estimated in their impact assessment that operating the lower threshold would come with a cost of about £20,000—a small price to pay for transparency. However, savings would also be made in the reduction in the number of FoI requests, for example, and fraud risk and fraud recovery costs would be reduced as transparency enables public scrutiny. A transparency database already exists within BEIS for public authorities to report their subsidies, so merely uploading another few rows on to each spreadsheet could provide the transparency that this amendment seeks. All these reasons for this call for transparency also apply to Amendment 48.
I appreciate that Amendment 47 will probably be viewed as problematic by the Minister’s department because, in seeking to introduce transparency into the SPEI financial assistance process, it could create new burdens on authorities. I have no wish to do that. I will listen with interest to the Minister’s response, and reserve the right to bring back on Report an amendment that would deal with the transparency issue alone but would still deliver the flexibility that the Government wish to see.
The 2018 figures show that some £8 billion was allocated to government subsidies in the UK. With levelling up on the agenda along with net-zero targets and R&D, it is very likely that this figure will increase—substantially, we hope. Using the £8 billion as a basis, it is estimated that if the Government’s proposals in this this Bill were enacted, about 50% of the subsidies would not be transparent, so how would the Government be able to account for at least £4 billion-worth of spending of public money?
With transparency comes accountability. In an era of accusations of cronyism and corruption, our ratepayers demand both. I hope that the Minister will understand their demands and be prepared to accept these amendments.
My Lords, I rise briefly to offer Green group support for all these amendments, to which we might well have attached our names were we not caught in this massive legislative pile-up. I should declare my interests as a vice-chair of the LGA and of the NALC. With the amendments having been so comprehensively and effectively introduced by the noble Baronesses, Lady Blake and Lady Humphreys, I shall make just a few additional points.
One of the most popular hashtags in my rather busy Twitter feed is #LandofCronies. There is grave public concern about corruption, cronyism and the nature of decision-making on government spending. Indeed, I put it to the Minister that these amendments collectively could be a great protection for Ministers in future, enabling them to say, “Here’s the transparency. What we’re doing is very clear and very obvious.” I note that in the other place such diverse and broadly respected organisations as the Centre for Policy Studies, the Adam Smith Institute and Transparency International backed similar amendments and that the Financial Times has warned that the new planned flexible regime could pose a “significant risk” and
“On the altar of speed, it has sacrificed scrutiny”—
it being the Government.
We are in a very interesting situation whereby the subsidy regime, having been under the control of EU rules and the UK having traditionally provided much less public funding than most other countries—around £8 billion a year—is now about to increase dramatically just as the controls utterly fall away. This is about showing people what is done; it is democracy and transparency in action. There is broad support for these amendments, so I would be delighted to hear the Minister express that the Government are moving in this direction.
My Lords, I support these amendments. I support the aim of a more flexible scheme than the EU has, and I welcome the Government’s commitment to introduce transparency to their new subsidy scheme, but, as others have explained, this Bill potentially reduces transparency.
The amendments in this group had strong support in the other place, not least from our honourable friends John Penrose and Kevin Hollinrake. I also thank the Centre for Public Data, which has worked with them to provide information to help the Government achieve what they want to achieve perhaps in a better way, which is what these amendments may enable to be done.
I support the use of subsidies to achieve the levelling-up agenda and the net-zero agenda. I think that we all realise that regional growth and infrastructure need an extra boost now. However, can the aim of reducing central control of subsidies and relying on transparency, so that interested parties can challenge subsidies that they believe are unlawful, be achieved by a process whereby those interested parties will not know that there is a subsidy unless it is more than £0.5 million and there could be a series of subsidies just below that which could amount to quite substantial sums? It would help me understand how this aim could be realised if the transparency that I think we could rely on cannot be achieved because the database does not include a record of those very subsidies that are meant to be challenged. I suggest that this seems somewhat illogical, and I urge my noble friend either to bring back his own amendments on Report or to consider accepting these amendments.
I just want to add one very brief word. In a number of the amendments today and on Wednesday, we are really concerned with the movement from the regime that has existed in the EU to a regime more of self-policing. All these amendments interlock, and at the end of the day we will need to pull them together and see how we effect for this country a proper and workable regime.
This amendment deals with one court—the court of public opinion—and we shall turn to the CAT and the Competition and Markets Authority in due course, but it seems to me that, on each of these, the Government have an option. They have to do something to make the move away from the control of state subsidies in the way that the EU did to a more liberal and generous regime. But experience ought by now to have told this Government that, unless there are clear transparency and other mechanisms in place, we will end up with something that will cause more of a problem than we had under the old system. I warmly support these amendments.
My Lords, I shall speak to these amendments very briefly. This has been a bipartisan debate, and there is a consensus across the Committee that amendments along these lines can improve the working of the Bill and make it more acceptable in the court of public opinion. I urge the Minister, if he cannot accept the amendments as they stand today, to consider at least bringing forward his own amendments at the appropriate time.
My Lords, I was not intending to speak to this set of amendments until I received the Minister’s letter—this time before the Committee started rather than during it, which is a great step forward. Unfortunately, the letter creates a problem for me because what I understand from the debate seems not to be represented in this letter, so perhaps the Minister can explain.
On the issue of subsidy schemes, the letter states:
“As my noble friend Baroness Bloomfield stated during the Committee session, all schemes must be uploaded to the transparency database”—
and I understand that to be true, so the scheme will go up on the database. The letter continues:
“This database will be freely accessible and is a key part of the new subsidy control regime, enabling the public and any interested parties to see which subsidies have been awarded, and to whom.”
But my understanding is that people will be able to see only those subsidies that exceed the limit, whereas the implication of the letter is that all subsidies will be accessible to everyone freely via the database. I would like the Minister to acknowledge that that is not the case, whether they are within a scheme or stand-alone, and this letter is therefore incorrect.
My Lords, further to that point, I wish to ask a couple of questions. First, on a factual issue—I have been struggling to find this—what has the typical award been for relatively small schemes that will operate under the Bill? I am familiar with schemes in my former constituency, either under LEADER+ or a number of other schemes, where there was not a single award over £500,000 but there was transparency as to who received it, because that is basically along the principles on which local authorities operate. So my question, really, is: what piece of legislation will trump the duty that the noble Baroness, Lady Blake, referred to? If a local authority has a duty to publish, then ordinarily if it receives a grant through, for example, the levelling-up fund—on which the Minister wrote to me; I thank him for his letter and look forward to the answer to the question on a separate occasion, as I have replied to his office to highlight an omission from it—what will be the primary duty on the local authority as far as making that information public is concerned? Will it be under the duty on the local authority to publish subsidies greater than £500,000, or, if it is defined as a subsidy scheme, will it not be under such a duty?
However, my specific question is: how will this Bill interact with the Freedom of Information Act? The only way that any enterprise or anybody would be able to find out what the award is if it is under £500,000 would be to submit a freedom of information request. I have not seen anything in this legislation which excludes elements of the Freedom of Information Act, and I therefore assume that all elements of the Freedom of Information Act will apply. If that is the case, it is rather pointless having a £500,000 limit for publication if you can get all this information by issuing an FoI request. If the Minister’s response is, as I expect, that the whole thrust is to have less burden on our public bodies for the administration of this scheme, I wonder which is less burdensome: simply publishing what is already used under the e-claims scheme—I understand that most applicants under these schemes will be through the e-claims schemes, and therefore it is a press of a button to publish the information for an award—or responding to an FoI request. If I were a member of a public body, I know which one would be far less burdensome for me. I wonder whether the Minister agrees.
I am grateful to the noble Lord, Lord McNicol, for his amendment, which was moved so ably by the noble Baroness, Lady Blake. I am delighted that the noble Lord, Lord Fox, received my letter before the Committee this time. I will have to learn the lesson that it prompts more questions from him during the debate. It is obviously better if the noble Lord receives the letter after the debate has taken place—I am joking, of course. We always endeavour to get him the information he has looked for as early as possible.
The amendments, taken together, seek to introduce a common threshold for transparency for subsides that are not challengeable on subsidy control grounds because they are not subject to the main requirements in the Bill. They include subsidies given under schemes, minimal financial assistance and subsidies for services of public economic interest.
I say at the start that I am well aware of the debates that occurred in the other place on this important issue, which were alluded to by a number of speakers, and I recognise the strength of feeling behind the calls for greater transparency. I am sure noble Lords are aware that my colleague Minister Paul Scully committed the Government to review the evidence collected as part of the consultation alongside that provided by witnesses to the Committee about the transparency provisions. Officials continue to review the available evidence base and I commit to updating the noble Lord, Lord Fox, and all other Members of the Committee before Report about where we have got to in that review, and I will update Members on the cost impact of the different options as soon as possible.
Transparency of subsidy awards is an important part of this control regime and is a key tool to support the enforcement provisions. It is essential that interested parties are able to see subsidies to determine whether they may be affected and whether they wish to challenge the subsidy award or subsidy scheme to which the noble Lord, Lord Purvis, referred. Of course, the database is a vital tool in providing this transparency. The aim of the database should always be to enable interested parties to see those subsidies that they may wish to challenge. However, it has not been, and should not be, designed to be a general database of public authority spending. Other tools for general public authority financial transparency exist elsewhere, and I think the noble Lord, Lord Purvis, would accept that uploading additional data represents a cost to public authorities, and of course that is ultimately borne by taxpayers.
It is important that the database requirements find the right balance to ensure that appropriate, accurate and timely information is available to the public on the database about subsidies that they may wish to challenge. To respond directly to the concerns of the noble Lord, Lord Fox, I am happy to clarify and confirm that the subsidies on the database are primarily those that are subject to challenge under this regime. I apologise if there was any ambiguity in my letter.
I turn to the amendments put forward by the noble Lord, Lord McNicol—
I thank the Minister for giving way. Just on the point about challenge and that if a subsidy is below the £500,000 it will be part of a scheme, I think he said before that if it was given as part of the subsidy scheme, it would have to meet the seven principles; it would be good if that could be clarified. Probably more importantly, however, is whether a one-off subsidy that is less than the individual subsidy limit—the £315,000—has to meet the principles. My understanding from some of the earlier discussions in the other place is that that was not confirmed or clarified. Can the Minister clarify whether a subsidy that is less than £315,000 has to meet the seven principles or the other energy principles?
Yes, of course. All subsidies need to meet the principles—this discussion is about what parts of those are published. If a subsidy is awarded under the scheme, then the scheme principles would also need to comply with the subsidy control principles.
I apologise to my noble friend, but may I ask for clarification from him as well? He mentioned a cost to implementing this; can he confirm that the Government’s estimate of the cost is £20,000 and that local authorities already have such databases right now?
Just to clarify the points from the noble Lord, Lord McNicol, yes, it would need to meet the scheme requirements if it was given under a scheme. If the subsidy is not minimal financial assistance —so it exceeds £315,000 accumulated over three years—it does have to meet the principles; if it is MFA, it does not need to meet the principles. Reviewing the cost as an impact assessment does not necessarily cover all those options.
So, if it is under the £315,000—sorry, forget the scheme, I confused things by talking about the £500,000 for the scheme. If an individual subsidy is less than £315,000—this is quite important for transparency—it does not have to meet the principles that are laid out in the Bill?
Can my noble friend confirm that the Government’s estimate of the cost in relation to the subsidy scheme—which he referred to as a potential reason why the Government might not accept these amendments—is £20,000 and that local authorities do already have databases that could be used?
That returns to the point that I made earlier. The commitment given by Minister Scully in the other place is that we will review the costs; I committed to return to the Committee with the relevant cost provisions, which I will do before Report.
Amendment 38 would remove, for the purposes of transparency, the distinction between a subsidy awarded under a scheme and a stand-alone subsidy. The amendment seeks to have one, uniform threshold for all subsidies. Taken together with Amendment 39, this new uniform threshold would be just £500.
Subsidies given under a published scheme are currently required to be uploaded to the database if they are more than £500,000. This threshold is set at that level because the database will already include information about the scheme under which these subsidies are given. In our view, this information will be sufficient for others to understand whether their interests will be affected by any subsidy given under that scheme and whether they should therefore seek to challenge the scheme.
The Bill provides for various reasons why a subsidy or scheme cannot be challenged on subsidy control grounds. For example, a subsidy award given under a published scheme cannot be judicially reviewed in the Competition Appeal Tribunal on subsidy control grounds. This is because it is the scheme that is assessed against the principles and is challengeable, rather than the individual award made under that scheme. As such, this Bill does not provide for the possibility to challenge subsidies given under schemes in the Competition Appeal Tribunal. The scheme itself should be challenged, not the individual awards.
Additional information about small subsidies would therefore have very limited value for those concerned about potentially distortive subsidies and would detract from the core purposes of the database. These requirements would lead to additional red tape for public authorities—well beyond the requirements they had to fulfil under the EU state aid regime—and in a great many cases, as I said earlier, the information would simply duplicate what those authorities already publish in appropriate formats elsewhere.
I have been reviewing the code on the publications from local government; local authorities must publish on a quarterly basis any expenditure that exceeds £500, including grant payments, grants, grant-in-aid and credit notes over £500. Public bodies will publish this quarterly already, unless this Bill means they are excluded from doing so if the payment is through a subsidy scheme. If this completely takes away the duty to publish that the public body already has, it makes no sense whatever. I do not understand where the additional burden comes in, given that the local authority publication code is already there for quarterly publication.
Nothing in this Bill affects the existing duties of local authorities and others to publish any financial information that they already do. This Bill concerns the information that needs to be published on the subsidy database. The same point applies to the earlier question from the noble Lord, Lord Purvis, about freedom of information. I hesitate, given the trouble I got into last time, to return to the FoI principles, but nothing in this Bill affects the original FoI legislation or the principles contained in it.
I turn to Amendment 47, which seeks to introduce a transparency threshold of £500, above which subsidies granted as minimal financial assistance would need to be uploaded to the database. As noble Lords will be aware, the MFA exemption allows public authorities to award low-value subsidies of up to £315,000 per recipient over three years, with no requirement to consider the subsidy control principles or other requirements, and no need to upload on to the subsidy control database. I think that clarifies what the noble Lord, Lord McNicol, asked about—what I said earlier on this was probably incorrect, so my apologies for that. The Government have taken this approach to ensure that public authorities can deliver smaller subsidies quickly and easily without undue administrative burden, since they are very unlikely to have any appreciable distortive effects.
This amendment, by seeking to require the addition of low-cost subsidies to the subsidy control database, would certainly introduce an additional burden for public authorities. Introducing a low-value transparency threshold for such low-value subsidies would require additional staff time and costs as the volume of entries would be expected to increase significantly—for what gain, bearing in mind that these subsidies are those that, by their very nature, are unlikely to have any appreciable distortive effects?
On this basis, I do not believe that the amendment would introduce the appropriate balance between sufficient transparency to allow for meaningful scrutiny and an efficient allocation of resource to identify those subsidies that are most likely to harm our economy, either locally or nationally.
Turning to Amendments 48 and 49, as we have discussed before, the Committee will be aware that services of public economic interest—SPEI—are vital services that, without public subsidy, would not be supplied in the appropriate way by the market or, in some cases, would not be supplied at all. This clause exempts certain SPEI subsidies from the transparency requirement in Clause 33 to upload the subsidy on to the database. There are two categories of exemption: first, for subsidies of less than £14.5 million; and, secondly, subsidies for one of the activities listed in subsection (1)(b). In response to the question posed by the noble Baroness, Lady Blake, the reason for the difference is that, in our view, subsidies in the second group are even less likely to distort competition.
These amendments would mean that all SPEI subsidies of £500 or more would need to be uploaded on to the database. I submit that this would represent a significant burden on public authorities, yet it is generally agreed in the Committee, I think, that these subsidies, granted for public services, are unlikely to be unduly distortive.
The same arguments put forward for not setting a transparency threshold of £500 for MFA apply equally here, in that doing so would not represent a balanced or proportionate outcome for our domestic regime. Although noble Lords are right to challenge the Government on the issue of transparency, I would like to set out why reducing the exemption from transparency requirements for SPEI subsidies to £500 would not result in a stronger regime.
First, by its nature, granting subsidies for public services is unlikely to be unduly distortive. This is because the very reason they are needed is that other providers are unable or unwilling to provide the necessary service at a reasonable cost. This goes back to the example we discussed last time, when the noble Baroness, Lady Blake, referred to bus services in rural areas: granting a public subsidy there is unlikely to be distortive because the reason why the public authorities have to provide that service is because nobody else in the market does so. The lower risk of distortion therefore justifies a higher transparency threshold.
Secondly, Clause 29 sets out that the award of a SPEI subsidy must be given in a transparent manner, which means that the subsidy must be being given through a written contract or other written legally enforceable arrangement. As the noble Lord, Lord Purvis, noted, public authorities normally publish these contracts, and it is good practice to do so.
Thirdly, a public authority providing SPEI subsidies must be satisfied that the subsidies are limited to what is strictly necessary in providing that service, with regard to costs and reasonable profit, and must keep that under review. This means that the SPEI enterprise should not gain an unfair advantage over other enterprises; consequently, again, there is unlikely to be undue distortion to competition.
The Government do not share the view that requiring public authorities to upload SPEI subsidies with a value as low as £500 would contribute to a more robust regime. SPEI subsidies are, and will continue to be, subject to appropriate safeguards where public authorities actively ensure that this is the case so that contracts deliver value for money for the citizens in that particular area.
Although I understand the objectives of the noble Lord, for the reasons I have set out, I cannot accept this amendment. I hope, therefore, that he will feel able to withdraw it.
I have a brief question because £14.5 million is a curious number. There is no reason why it should be a round number in millions, but it is strange. Can the Minister explain the genesis of that particular number? Also, could I be cc’d into the Minister’s reply to the important question asked by the noble Lord, Lord McNicol, on the subject of what is in and what is out?
Indeed. The noble Lord, Lord Fox is clearly not tired of receiving letters from me, so I will happily copy him into the letter that I send to the noble Lord, Lord McNicol. I will have to come back to him on his question about the £14.5 million. I will include that in yet another letter—or maybe even the same one.
I thank the Minister for his very full response, as always. The level of detail means that we will indeed require letters. Maybe the simplest way forward is for us all to receive the same response on the issues that we have all raised in Committee, so we are all on the same page.
I do not want to prolong this debate too much. I note that the Minister in the other place, Mr Scully, undertook to review the consultation, including the debates that we have had in this House. I go back to the spirit of hopefulness that I mentioned earlier—or maybe naivety perhaps, but we are all allowed to be naive for a little while, I hope—because this is a serious issue, and it is fairly unusual for such issues to get such cross-party and cross-sector support.
I have a question. When we talk about burdens and costs, I am always intrigued. Could the Minister perhaps write to us with an estimate of the costs if things go wrong—that is, when there is a challenge and it ends up in court in arbitration? That sort of thing happens regularly if you do not have a robust system that is clear and transparent. Burdens work both ways.
There is already a system in place that is tried and tested. Public authorities, whether local authorities, combined authorities, LEPs or devolved Governments, have been working on these matters for a long time, and there is established good practice out there. It troubles me that some of the provisions in the Bill could undermine an enormous amount of work.
Going back to the principles, we are talking about the need for consistency and clarity and, most of all, the fact that we should do everything we can to ensure that every pound of public money is accounted for and accountable and can be followed as it goes through.
Amendment 38 withdrawn.
Amendment 39 not moved.
40: Clause 33, page 17, line 24, leave out “one year” and insert “three months”
Member’s explanatory statement
This amendment would require subsidies or schemes to be entered in the database within three months of being made, rather than one year, if given in the form of a tax measure.
My Lords, I am just waiting for the noble Lord, Lord Lamont, to rejoin us as he has helpfully signed these amendments with me. I shall also speak to Amendments 41, 42 and 43. This is a straightforward group of amendments that, along with the next two sets, deal with the whole issue of transparency. I am grateful to the noble Lord, Lord Lamont, for signing these four amendments. The Bill is interesting in that it throws up some unusual alliances, but that should make for an infinitely better piece of legislation by the end of this process. As we heard in the last group, these are not party-political issues; they are issues aimed at improving the legislation.
Sitting suspended for a Division in the House.
My Lords, this is a straightforward group of amendments and I thank the noble Lord, Lord Lamont, for signing them. My very first reading of these clauses left me with a real sense of confusion and, while I have tried my very best to get into the head of the Minister, or at least those drafting the Bill, I am not sure I have achieved that.
Amendment 40 would require subsidies or schemes to be entered in the database within three months of being made, rather than one year, if given in the form of a tax measure. Amendment 41 would require subsidies or schemes to be entered in the database within one month of being made, rather than six months, if given in any form other than a tax measure. Amendment 42 would require that modifications to subsidies or schemes entered into the database are made within three months of that modification, if given in the form of a tax measure. The final one, Amendment 43, would require that modifications to subsidies or schemes entered into the database are made within one month of that modification, if given in any form other than a tax measure.
This proposed new system is fundamentally different from the previous EU system of state aid and, more importantly, different from pre-authorisation of the subsidies. All parties have welcomed that change, and we do on these Benches; however, the proposed new system of post-award disclosures, monitoring and/or possible challenges will work only if there is complete transparency, or at least a nod towards transparency, be that, as we heard on the previous group, on the amount or, on this group, on timing, or, in future groups, under systems that are put in place to allow those challenges. These amendments are important as the balance in the Bill as it is written does not feel right—the balance between those being able to challenge or look at our businesses or organisations and see what is out there and those who will have already received those subsidies.
As it stands, authorities are being afforded between six months and a year to make their entries to the subsidies database, depending on the form of relief they are offering. Much of the public sector, as we heard in the previous debate, is accustomed to fulfilling transparency requirements within a month of the end of a quarter, so these amendments, similar to the financial ones, are already being adhered to. The financial management through local authorities already adheres to very similar systems to what we are looking to amend here. One might have some sympathy for the Government’s approach if they were equally as generous in the time given to refer matters to the Competition Appeal Tribunal, the CAT, but as we will discuss later, this is not the case. The time limits on appealing are tighter.
Last Wednesday, the Minister rightly took pride in the number of changes being made to the subsidies database, arguing it was now simpler than ever for public authorities to meet their reporting requirements. If that is the case, why would somebody be given a full calendar year to upload their reporting of subsidies? We do not accept that reducing the time limit would place an unacceptable burden on authorities; we believe it would greatly assist efforts to improve transparency and ensure proper accountability for decision-making.
On 26 October, at the first witness session in Committee in the other place, Professor Rickard said on this issue:
“I think six months is too long. If it is a tax break for 12 months, after 12 months a competitor might be out of business”.—[Official Report, Commons, Subsidy Control Bill Committee, 26/10/21; col. 21.]
This group of amendments would rebalance a perceived or real inequality between those receiving the subsidy and those who may be affected by it, and their ability to challenge that subsidy. I beg to move.
My Lords, I added my name to these amendments in the name of the noble Lord, Lord McNicol. I shall not weary the Committee by repeating the points that he made, but I strongly agree with him. I added my name just because I was puzzled and regard as unfair the imbalance between the time given to public authorities to list subsidies and the very short timetable for people to object to them. I do not see why it should take six months to make public what has been done, while one month seems an extraordinarily short time for somebody to challenge it. As may have been said when I was unfortunately out of the room trying to get on PeerHub, one could easily imagine circumstances where perhaps the website was not working very well, and a few days were missed. “It never happens,” the Minister says. Well, we shall see. That would be a first in public sector computers.
There seems to be an imbalance here. What is sauce for the goose ought to be sauce for the gander—or is it the other way round? Six months is certainly far too long and one month is far too short. I agree with everything that the noble Lord, Lord McNicol, said.
My Lords, during the debate on the previous group, the noble Baroness, Lady Altmann, asked, “How will they know?” This amendment seeks the answer to the question: how will they know in time? As the noble Lord, Lord McNicol, said, because of the limits of reporting, we are talking about very sizeable subsidies that could exist with a competitor company for up to a year before a person is able to find out what their company is competing against. I am sure that the Minister would understand that that is not a fair situation, and it is within the gift of the Government to make it fairer.
Both noble Lords spoke about the imbalance; that is, a long time to report it and a short time to appeal it. One would almost think that the Government were seeking to discourage the process of challenging subsidies. I am sure that that is not the Minister’s aim and therefore the best way of expressing that aim is to redress that balance.
Reflecting on the last debate and this one, I think that we are in a bit of a mess around reporting—or, indeed, we are not but the Government are. On the one hand, we have the database with the six-month time limit and a very high ceiling; on the other hand, we have local authority websites with a three-month time statute and a much lower ceiling, and potentially we have FoIs—although the problem is that you need to know something exists before you can FoI it. The Government have therefore knowingly or unknowingly set up a multiple market for information.
If I am a business and I need to know what is happening in my sector, the Minister will say that this information is freely available. It is freely available on a pull basis. I shall have to employ someone to go out there regularly to check whether the information exists, where it is and what is happening in my sector. If I am a small business in a market where the receipt of subsidy could affect my business, I shall have to employ an extra person or part of an extra person to do that. This does not seem a sensible way of dealing with the issue. A central database with a shorter time span and a lower value ceiling would be the best way to help businesses thrive.
I thank the noble Lord, Lord McNicol, and my noble friend Lord Lamont for these amendments, which seek to reduce the time available to public authorities to upload their subsidies to the database. I note the comments made by the noble Lord, Lord McNicol, on the limitation period, which I look forward to discussing in our next Committee session.
As is the case with the thresholds on transparency, our objective here in setting the upload deadlines has been guided by the fine balance between minimising bureaucratic burdens while ensuring that accurate information is available promptly for interested parties to enable them to consider whether to launch a challenge. We agree that subsidies should be available to be seen on the database as soon as is practical. However, there are good reasons why public authorities require longer than the one and three months put forward in these amendments.
First, let me note that public authorities have an incentive to upload subsidies as quickly as possible. The sooner a subsidy is uploaded to the database, the sooner the clock for the limitation period starts to run, and therefore the sooner the public authority and the beneficiary will gain certainty that the subsidy will not be challenged. Public authorities also have a strong incentive to upload subsidies accurately first time round to avoid the possibility of having to amend entries later on.
Upload deadlines as short as one and three months may result in more public authorities needing to amend their entries at a later date. Although this is of course possible on the database, it creates an unnecessary burden for those authorities. This means that the initial period where the subsidy has been uploaded is more likely to contain inaccuracies, which will not help an interested party to know whether they wish to challenge. Surely we agree that, although we all want prompt uploads to the database, upload speed should not come at the expense of accuracy.
Can the Minister confirm that, as we discussed in the debate on the previous group, if this scheme is run by a local authority in England, its duty to publish in three months still stands under the code? If so, this will have to be published within three months anyway, but that is just in a local authority area, not on the national database. So there is this rather ridiculous period of between three months and six months in which it would be uploaded on to the subsidy database. If the Minister’s argument is that doing this in three months will mean having a lot of mistakes in it, he needs to go back to the local authority code, not make assertions here in Committee.
As I said, none of the provisions in this Bill change any of the requirements on local authorities, but the transparency requirements are different in each case depending on what the award is and whether it is under a scheme. Sometimes, if it is a generally approved scheme, there are literally thousands of small grants, for instance. Sometimes the recipients are not identified under local authority transparency but may need to be identified under a particular scheme, depending on the size of the award. The noble Lord is correct that none of the requirements in the Bill change the requirements on local authorities; we are talking about different information for different purposes.
I understand the point made by noble Lords that, in most cases, one month should be sufficient to avoid excessive mistakes that could cause confusion for interested parties. None the less, I note that public authorities face a great many administrative obligations. Therefore, there would be an increased risk of error, or an increased cost in avoiding error, resulting from a deadline of one month—particularly for authorities that give a large number of subsidies in possibly quite complex formats.
Furthermore, the inaccuracies may not result from avoidable human error. To take another example, many subsidy schemes, particularly but not only those in the form of tax measures, are created with estimates for the value of the budget or the individual awards, but the final amounts may vary from that estimate. Sometimes the subsidy award is variable—it could be a performance-related grant—and if the beneficiary exceeds its estimates for the subsidy objective, it may be entitled to a proportionately larger subsidy. In other cases, such as subsidies in the form of tax measures, which I am sure my noble friend would never have been responsible for when he was Chancellor, the variation may be a result of higher or lower than expected expenditure—for example, on research and development—which will in turn affect how much tax subsidy that beneficiary would be entitled to.
This means that a public authority would be able to upload only an estimate initially, which may then need to be revised. These revisions would generally be considered a permitted modification within the meaning of Clause 81, where the budget can be increased, for example, by up to 25% and the subsidy duration by an additional six years. Otherwise, a new entry for the subsidy would need to be made. Where that new subsidy entry needs to be made, the limitation period would start again. For these sorts of subsidies, deadlines as short as those proposed by the noble Lord could lead to poorer-quality data, greater confusion and, potentially, more disputes.
As I have mentioned, subsidies in the form of tax measures are more likely to have performance-related conditions or other variables, and therefore it could take longer to determine the exact amount of the subsidy. Although the public authority will have an estimate for the purposes of establishing compliance with the principles, this may be an upper limit and ultimately not an accurate reflection of the subsidy award amounts.
These final amounts will not be known until the tax declaration has been completed. Even when a tax declaration has been completed, taxpayers can amend it, so the final amount could still change in a 12-month period following the tax declaration’s submission. For these reasons, we have provided public authorities with 12 months from the date of the tax declaration to calculate the exact amount and upload the subsidy to the database.
It is worth pointing out that tax subsidies are already extensively scrutinised, as they are normally given in the form of primary legislation, so each scheme will almost certainly have come before this House before it even starts to dispense funding. As with all primary legislation, full impact assessments will be produced which will give the public and interested parties an opportunity to estimate the subsidy in advance.
It is also worth noting that the consultation we carried out in 2021 included the approach we have now taken in the Bill, including the six-month deadline. Of the responses we received to it, 74% agreed with the Government’s approach, which suggests that respondents agreed with our proposed balance between speed and accuracy. In the light of that, I hope the noble Lord will feel able to withdraw his amendment.
Before the Minister sits down—I ask this as I genuinely do not know—he stated that 76%, or however much it was, of those who responded to the consultation supported the deadlines of six months and a year. Does he know what the consultation said about the other side of this, with regards to the timescales for challenge?
My Lords, the Minister was very persuasive about tax measures. I quite follow what he said about the uncertainties that would surround trying to calculate the cash value of tax subsidies, but he did not spend very much time talking about the one-month period, which is the one that seems a bit unreasonable. It seems as though they are paying more attention to the compliance costs of the public sector than to the costs of the challenger, which ought to be equally kept in mind. Surely one month is a very short period to challenge a subsidy which may have suddenly arrived out of the blue and may require a private sector company to take legal advice on whether it is challengeable. Four weeks to get legal advice, mount a challenge and go through all the formalities seems a very short period of time.
I understand the point that my noble friend is making. As I mentioned in my reply to the noble Lord, Lord McNicol, the limitation period is the subject of separate amendments, so we will have a further opportunity to discuss that in the next Committee session. Again, it is a balance between wanting to provide certainty so that the schemes can proceed and the beneficiary can proceed with some certainty, but I understand the point that my noble friend makes. The whole regime is designed to be as flexible as possible, and probably more permissive in many respects than the EU state aid regime. As I say, we will have a longer period to discuss the limitation period and the challenge on a future occasion.
With regard to companies or interested parties, Clause 76 allows an interested party to make a request to a public authority for information about a subsidy or a subsidy scheme that the authority has given or made, and there has to be a response within 28 days. Presumably, that covers all the subsidies that are then issued under that subsidy scheme by the public authority, in advance of them being uploaded on to the database. Is that correct?
I am grateful, but that was not my question. Regardless of the period of challenge after the subsidy has been updated on the database, Clause 76 allows an interested party to make a request to a public authority for any information about a subsidy or a subsidy scheme that the authority has given or made. That does not state that it is uploaded on the database. It would basically require the interested party to make a request of the public authority for any subsidy issued under that scheme by that public body at any stage. They would have to do it blind, because it would not be on the database, but if they believe that there is a subsidy scheme that they have an interest in, within that certain local market, and they ask for information about that subsidy, that information would have to be provided by the public authority before it has been uploaded to the database. Any greater efficiency or lack of bureaucracy has completely gone if they are able to do that under Clause 76 anyway.
My Lords, I thank the Minister for his response. As the noble Lord, Lord Lamont, picked up, he very much focused on Amendments 40 and 42, rather than Amendments 41 and 43. The Minister is absolutely right that there will need to be a balance between bureaucratic burden and proper transparency and oversight. As the Bill sits just now, I do not believe that the balance is in the right place. I am sure that we will come back to this—after the Division.
Sitting suspended for a Division in the House.
I had nearly finished. I reiterate that we are going to have to come to some sort of agreed position on the bureaucratic burden, which the Minister understandably comes back to, and the issues of transparency, fairness and proper oversight. The last place we want to be is a situation where the Bill—as we believe it does as it is written just now—leaves open the possibility of some businesses being supported and those subsidies unable to be challenged properly. I beg leave to withdraw the amendment.
Amendment 40 withdrawn.
Amendments 41 to 43 not moved.
Clause 33 agreed.
Clause 34: Information to be included in the subsidy database
Amendments 44 to 46 not moved.
Clause 34 agreed.
Clause 35 agreed.
Clause 36: Minimal financial assistance
Amendment 47 not moved.
Clause 36 agreed.
Clauses 37 to 40 agreed.
Clause 41: Exemption for certain subsidies given to SPEI enterprises
Amendments 48 and 49 not moved.
Clause 41 agreed.
Clauses 42 to 46 agreed.
Clause 47: Financial stability
Amendment 50 not moved.
Clause 47 agreed.
Clause 48: Legacy and withdrawal agreement subsidies
51: Clause 48, page 27, line 13, at end insert—
“(3A) The subsidy control requirements under the Act do not apply if they have the effect of causing any unfair economic disadvantage to Northern Ireland as a result of the implementation of Article 10 of the Northern Ireland Protocol.”
My Lords, I have tabled this amendment, to which the noble Baroness, Lady Hoey, has added her name, in order to probe the Government’s understanding of the application of the state aid rules which will apply to Northern Ireland and those which will apply to rest of the United Kingdom as a result of the Bill. I know that on previous days in Committee there has been consideration of the relationship between the different rules. When I looked at the Bill, I sought to put down an amendment which would have brought Northern Ireland into line with the subsidy regime for the rest of the United Kingdom, but I was told that because of the provisions of Article 10 of the Northern Ireland protocol, an international treaty, it is not possible to amend the Bill to have the effect that I would have wished to bring Northern Ireland into line with the rest of the United Kingdom.
My Lords, there appears to be some echo in the Room, and I am not sure what is causing it. I shall stand further back from the microphone—I shall pretend that we are in the Ulster Hall—though I am tempted to do without a microphone altogether. I hope that noble Lords can hear me clearly now.
The subsidy control regime in the Bill would apply to only about 50% of the financial support that will be provided to Northern Ireland with the remainder continuing to fall within the scope of EU state aid rules—those applying to goods and wholesale electricity markets. Northern Ireland will be forced to adhere to the strict rules and conditions of EU law on things such as no expansions, maximum grant rates, only new establishments and so on, and when the projects are large or outside the scope of the exemption regulations Northern Ireland will have to seek European Commission approval. Effectively, we have two regimes which are very different in policy terms and practical effect. Under the UK scheme, things will be automatically approved unless specifically prohibited. In Northern Ireland, we are subject to EU rules under which everything is prohibited unless approved, effectively. They are very different policies, and two different systems are applying in one country.
From time to time, the Government have set out their views on the effects of the operation of Article 10 of the protocol. In their May 2020 Command Paper, they were of the view that the provisions of the protocol would apply only in Northern Ireland. However, they later acknowledged that there was a risk of a maximalist interpretation of Article 10 by the EU, which could give the European Commission extensive jurisdiction over subsidies granted in the rest of the UK—an issue that the Government sought to address by tabling amendments to the United Kingdom Internal Market Bill, but we know how that ended. The European Commission also published a notice to stakeholders in January 2021 setting out its guidance. I would be grateful if the Minister could tell us whether or not, as things stand, he is concerned about the conflicting guidance on the scope of subsidies that would be covered by Article 10.
In July 2021, as we know, the Government published a significant Command Paper arguing that the TCA and the provisions of this Bill
“provide a more than sufficient basis to guarantee that there will be no significant distortion to goods trade between the UK and EU, whether from Great Britain or Northern Ireland, thus making the existing provisions in Article 10”,
referred to in Section 48(3),
“redundant in their current form.”
When the noble Lord, Lord Frost—the Minister responsible—resigned, he said in his statement on 17 December, regarding the negotiations with the EU in this regard, that there had been
“some limited discussions on subsidy control”
but made it clear that:
“The rules need to evolve to reflect this new reality”
of the trade and co-operation agreement and the UK’s subsidy control regime. He said:
“Northern Ireland businesses are facing unjustified burdens and complexity, and the Government cannot deliver aid to Northern Ireland, for example for Covid recovery support, without asking for the EU’s permission.”
Since assuming responsibility from the noble Lord, the Foreign Secretary has said that the UK’s position on the protocol, and with regard to the issue of Article 10, has not changed.
So the Government’s position appears to remain as set out in the Command Paper of July 2021, which states that the aim of their negotiations, their policy objective, is to erase Article 10 from the protocol. I should be grateful if the Minister could therefore indicate what progress has been made in the discussions, particularly on this issue. It is an area that is not discussed much. There is a lot of talk about phytosanitary checks and customs, which are important issues in their own right, but little discussion of the subsidy control regime. However, it is significant for Northern Ireland and I would be grateful for an update.
If negotiations do not result in the objectives set out in the Government’s Command Paper, will the Minister indicate what action they will take on their own account to protect Northern Ireland’s economy and what the timescale is? If action is not taken to resolve this matter, either through negotiations or by action on their own account by the Government, there will be no level playing field across the UK when it comes to the subsidy control regime. Northern Ireland will be at a disadvantage, according to the Department for the Economy in Northern Ireland, compared to other parts of the UK when competing for inward investment, for example. Other parts of the UK could be much more attractive as a location for investment as a result of not having to wait for the Commission to grant formal approvals. In Northern Ireland, approvals will take significantly longer than the new timescales envisaged in the Bill for the rest of the UK; they could have far fewer conditions or restrictions and might well receive greater levels of funding than would be possible under the EU regime in Northern Ireland, which prohibits subsidies greater than 50%, whereas under the Bill subsidies may be proportionate but no maximum is specified.
When these issues were raised in the other place, the Business Secretary responded by pointing to the changes to the protocol being sought by the Government in the negotiations, which would bring all subsidies within the domestic regime. Can the Minister confirm that there is not really any solution other than that indicated by the Business Secretary? If EU law applies, it is hard to envisage that there can be any mitigation. There is certainly nothing in the Bill that would ease the problems that Northern Ireland will face in this regard.
The reality is that the interaction of the protocol with the Bill before your Lordships has the potential to impact negatively on the development of the economy of Northern Ireland, and I hope sincerely that the Government will implement the necessary measures to avoid that bad outcome. I beg to move.
My Lords, I was pleased to add my name to the amendment in the name of the noble Lord, Lord Dodds. It is particularly because of the situation now in Northern Ireland that many of us want to raise this issue at every opportunity—it was raised also at Second Reading. I accept from the beginning that the Government are trying to deal with some of the problems that have come about. They were perhaps seen some time ago, but the Government are now trying to deal with the realities. The noble Lord, Lord Dodds, has given a clear outline of the detail of how the current situation will affect business in Northern Ireland. I want to speak more from the point of view of morality—the idea that, once again, Northern Ireland is being treated so differently and so separately from the rest of the United Kingdom.
At Second Reading, the Minister said—it was said a number of times:
“We are seizing the opportunities of Brexit.”—[Official Report, 19/1/22; col. 1712.]
As someone who was a passionate supporter of Brexit, I want to seize those opportunities, and I want the people of Northern Ireland to be able to seize them, but it is clear that we will have a different regime and that businesses will lose out, whatever happens, unless this is changed. It is a pity that we could not have a real debate and a vote on Article 10 at some stage in your Lordships’ House, but I accept that we cannot do it in this Bill.
We have a form of colony in Northern Ireland at the moment. Northern Ireland now has a foreign market, a foreign customs regime and a foreign VAT regime adjudicated by a foreign court, and now we will have foreign state aid. I know that the negotiations that are going on are slightly above the Minister’s pay grade, but I hope that he will do his bit as the Business Minister to realise and understand just how unfair this is for the people of Northern Ireland. I hope that he will be able to give us some comfort as to how the Government are going to take this forward if the negotiations with the European Union get nowhere, as I expect.
My Lords, the issue of state aid goes beyond even the points that have already been made, because there is theoretically a possibility of reach-back into Great Britain depending on whether a product was subsidised before it left Great Britain and was part of, or added to, another product of a business in Northern Ireland. The truth is that the Minister does not know the answer to these questions.
I do not understand why there is surprise. The Minister may not wish to comment, but the situation in which we find ourselves is a direct consequence of the proposals made by the Prime Minister to the European Union. He proposed the protocol. When I hear the phrase “Let’s get Brexit done”, it drives me mad. Brexit is done for 97% of the United Kingdom; we are still in the European Union for as much as half of our activities.
This was entirely anticipated, but it was not worked out. So, the protocol came along in late 2019 as the deathbed plan to get Brexit done in a couple of months, and this is one of the pickles we are left in. I may have some issues with the wording of the amendment in the name of the noble Lord, Lord Dodds, but its heart is in the right place. He said, if I picked him up correctly, that it is a probing amendment to try to get answers. I totally support that; it is the right thing to do.
However, let us not mess about as to where the genesis of this issue lies. The fact is, if I am correct, that this is now part of domestic as well as international law. Therefore, we do not know because no cases have been taken. We do not even know in which courts they will be heard because it would appear that we now have a choice. Part of our economy is ruled by a foreign power while another is ruled by the national courts, so we in Northern Ireland are to some extent an EU protectorate for a large part of our activities. I have no doubt that this was not the intention of what a lot of people sought in the referendum but, sadly, that is where we are.
In responding to the amendment in the name of the noble Lord, Lord Dodds, might the Minister set out for us whether there is a pathway to finding out exactly how this will work? Until a case is taken, which has not yet happened, it is hard to know. There is also no guarantee that there will be no reach-back into the rest of the United Kingdom with regard to these issues. There can be connections: what if a company happens to be a subsidiary in Northern Ireland? What happens if products are moved to Northern Ireland and become part of another product that is then exported to the European Union? There is a whole range of areas where we could be going.
The Minister will probably struggle with this because, I believe, nowhere in the Government do they have a clue as to how to get us out of it; we will be faced with this problem for a long time to come because, as the noble Lord, Lord Dodds, mentioned, divergence will grow over time. I hear people say, “We have the best of both worlds: we can be in both markets.” That is all well and good until somebody takes a case. If they lose it, it may well prove a barrier to investment. It could do the Province a lot of harm. So, because of the fact that we are in uncharted waters, this will not go away. It will be here for a long time. I wish the negotiations with the European Union well.
I see where the Command Paper is trying to come from, but let us look briefly at this. I hear people say, “Get rid of the protocol”; they said it in the House earlier when we discussed the Private Notice Question. The Government are not even trying to do that. I have here a letter from the Minister; it is about two weeks old. I also have an answer from the noble Lord, Lord Frost, to a Parliamentary Question about Article 16. This is to safeguard it, not get rid of it. They are looking to make it more worker-friendly, but they are not even trying to get rid of it. People need a sense of reality. I hope that, when he replies, the Minister will be able to give us chapter and verse to clear up all the ambiguities—and away we go.
My Lords, it is a pleasure to follow the noble Lord. I was thinking that it is not usual for us to have difficulty hearing what the noble Lord, Lord Dodds, says: it was down to technology and I am glad it got sorted. I welcome his amendment because it is another opportunity for the Minister to address these serious points. As the noble Lord indicated previously in Committee, on my Amendment 53, we have tried, as the noble Lord, Lord Empey, asked us to do, where there are difficult areas, to navigate a way forward. Because he is absolutely right: before his resignation, the noble Lord, Lord Frost, said in the Chamber—I think it was in reply to the noble Lord, Lord Hannan—that the Government’s intention was not to replace the protocol but to improve it.
So, we are in a situation where the noble Lord and I come, perhaps, from a different starting point but reach the same conclusion: we find ourselves in an undesirable situation but it is one of the Government’s making, and if there are ways to ameliorate the position, the Government have to come up with the solutions, because what is not really in question, as the noble Lord, Lord Empey, said, is that the Government are not looking to replace the protocol. We are, then, tasked with trying to remove one of the barriers that the Department for the Economy in Northern Ireland has indicated, which is that uncertainty is itself a barrier, and that has to be recognised. That uncertainty is ongoing, which is already one of the damaging impacts, as the noble Lord, Lord Dodds, indicated.
We are, I think, in month four now of a three-week process that Boris Johnson promised to Jeffrey Donaldson of a short, sharp negotiation on the protocol. Four months in, it might just be that Boris Johnson is not so reliable in the commitments he gives—it is a suspicion of mine, but it may well be the case. Nevertheless, as the Minister, the noble Baroness, Lady Bloomfield, indicated to me last week in Grand Committee, when I asked if it was the case that, if the Government secured everything they asked for in the negotiations, then EU state aid rules will continue to apply:
“To respond to the concern of the noble Lord, Lord Purvis, that state aid rules would continue to apply even if the UK’s negotiating position were accepted, these are specific and limited circumstances. I trust that this will allay the Committee’s concerns on this important issue.”—[Official Report, 2/2/22; col. GC 244.]
It really comes down to “specific and limited”. “Specific and limited” will mean that there is the ability for reach-back. It will mean that, for parent companies, the guidance will stand that they will now have to start to run two sets of accounts. It will mean that there will be dual reporting, depending on whether it is state aid or subsidy control. It will mean that there will potentially be dual challenge mechanisms. It will mean that the CJEU will still define the state aid component elements of it. Whether or not there are streamlines, whether or not it is more efficient, whether it is less bureaucratic, as the Government’s Command Paper said, or whether it is “specific” or “limited”, it still means that it is different; it still means that it is not the UK approach. That, I think, is symbolic, but it is also important in content.
I will not use any of the language of “territorial nature” et cetera; that is not for me to say. I will close with one element, though. In the 100-page document The Benefits of Brexit, there is not a single independent reference to Northern Ireland at all. That was published on the day that the Northern Ireland First Minister resigned. We are in difficulty, Minister, and I think that taking what has been offered by some as a way of making the situation better is something the Government should consider very carefully indeed.
My Lords, it is a pleasure to follow the noble Lord, Lord Purvis, and his detailed analysis, especially picking up and bringing back some of the issues from last week. With his contribution and the others, I will be short. I am grateful to the noble Lord, Lord Dodds, for tabling this probing amendment and facilitating discussion on this hugely important topic. I will focus my short remarks on the bigger picture rather than the specific details, which I think have been covered well enough.
Regardless of where people stand on the Northern Ireland protocol and the Government’s negotiations to reform it, it is a part of international law, as we have heard. This legislation therefore needs to be consistent with it. There are different legal opinions on the matter and, while some are favourable to Her Majesty’s Government’s approach, others suggest that decisions relating to Northern Ireland will at best be complex but at worst be subject to challenge or litigation. Neither of these outcomes would be good for firms, businesses or the authorities operating in Northern Ireland.
When this Bill was in the Commons, the Government were asked if they would pause to allow room for negotiations to continue. The answer was no. Despite the passage of those months, we appear to be no closer.
With that, I will leave my comments and look forward to the Minister’s response.
My Lords, without endorsing what the noble Lord, Lord Purvis, said, I think this is a very important issue—without going into the wider Brexit questions to which he referred—and it is extremely worrying.
I would like the Minister to confirm whether the Government’s position as stated in this Bill, and which was reaffirmed by my noble friend last week when she replied to the debate, is the final interpretation or is an interpretation that is subject to change. As the noble Lord, Lord McNicol, said, there are different legal interpretations of the protocol, and there certainly seem to be different interpretations between the European Union and the UK Government. Does that not therefore affect the assurances that Ministers can give? What certainty can be attributed to the opinion of Ministers as to what is the meaning of subsidies under Article 10 or subsidies under Article 138, and which subsidies are subject to European Union law and which are not?
Last time, I raised with my noble friend Lady Bloomfield the question of reach-back and what would happen if a subsidy was being given to a company in the north of England that was exporting goods to Northern Ireland and whether that would come under the EU regime or the UK regime. She replied by saying:
“The Commission’s … declaration of December 2020 made it clear that Article 10 could affect a subsidy in GB only”—
I stress the word “only—
“if there was a genuine and direct link in Northern Ireland. This would be the case if, for example, the beneficiary had a subsidiary in Northern Ireland.”—[Official Report, 2/2/22; col. GC 244.]
Is that the only case? If there were no subsidiary, would that be a different outcome?
My Lords, let me first thank the noble Lord, Lord Dodds, and the noble Baroness, Lady Hoey, for this amendment. I know that the noble Lord has strong feelings on the protocol and he and I have discussed it many times before. I have also discussed it with the noble Lord, Lord Empey, throughout the progress of our various pieces of Brexit legislation. I know the issues that are involved, and I will hopefully be able to update the noble Lord on our interpretation of the provisions and where I think we have got to—although there is a limit, as I am sure the noble Lord will understand, on what I can say.
I start by emphasising that preventing undue distortion or economic disadvantage to any part of the United Kingdom is one fundamental objective of this regime. Subsidies are inherently distorting, but this Subsidy Control Bill exists to ensure that public authorities minimise those distortions and economic disadvantage, ensuring that the benefits of the subsidy outweigh any negative effects.
Public authorities will need to consider this in making their decisions about whether the subsidy should be given and how it should be designed. That particularly affects any negative effects in parts of the United Kingdom other than the target area of the subsidy, but it also includes the effects on international trade or investment where the public authority may have less incentive to take those disadvantages into account in its ordinary decision-making processes.
As the noble Lord is aware, Clause 48 makes clear that in specific, limited cases EU state aid rules apply to subsidies that affect trade in goods and wholesale electricity between Northern Ireland and the European Union. Subsidies for services will ordinarily comply with the more flexible UK domestic subsidy regime that we are discussing here. In answer to the questions from the noble Lords, Lord Dobbs and Lord Empey, and my noble friend Lord Lamont, and to the concerns about when a subsidy given in Great Britain is in scope of the Northern Ireland protocol, I can confirm that subsidies in Great Britain will, as my noble friend Lady Bloomfield said, be subject to the terms of the protocol only if there is a genuine and direct link to Northern Ireland, which cannot be hypothetical or presumed. Indeed, a subsidiary could be an example of such a link.
This was underlined in the Commission’s unilateral declaration of December 2020. Our position is set out in our statutory guidance first published on 31 December 2020. These subsidies are entirely exempt from the domestic subsidy control regime, so where a subsidy that currently falls within scope of the Northern Ireland protocol is given, it will not have to follow the processes outlined in this Bill, but we recognise that even this does not go far enough. In respect of certain subsidies, Northern Ireland faces a disadvantage.
Therefore, as noble Lords are aware, for this reason, and despite the Northern Ireland protocol applying only in the limited circumstances that I outlined, we are currently in intensive discussions with the EU with the aim of delivering significant changes to the Northern Ireland protocol, including to Article 10. I understand, and I hope the noble Lord will accept, that I cannot comment on the detail of these talks at this time, but it is worth pointing out that the status and applicability of Article 10 at the time the Bill is passed will heavily depend on the outcome of these talks. The guidance on Article 10 and Clause 48 will keep pace with the outcome of those talks. Going back to the point made by the noble Lord, Lord McNicol, I do not believe that there is any utility in pausing the passage of the Bill.
The Government are seeking to prevent any unfair economic disadvantage to Northern Ireland in two ways: first, by proposing this new domestic subsidy control regime, which requires public authorities to consider distortions and economic effects in Northern Ireland or any other part of the UK before giving a subsidy, and, secondly, by negotiating with the European Commission with the intention of establishing that only one set of rules should apply across the entirety of the United Kingdom.
Finally, the way that the noble Lord has phrased this amendment means that it would disapply the subsidy control requirements of the Bill applying in Northern Ireland when certain conditions are met, which I am sure was not his intention as he said that this is a probing amendment. This disapplication would not be permitted under the existing trade and co-operation agreement, and therefore I hope that the noble Lord will understand that I currently cannot accept the amendment.
Before the noble Lord sits down, the noble Lord, Lord Dodds, said that this is a probing amendment, so we all may have issues with the phraseology but that is not the point. Never mind subsidiaries, which I can understand; if a product is supplied to a company in Northern Ireland as part of creating another product which would then be sold into the European Union, whether or not it is supplied from a subsidiary should not really be relevant. It does not matter where it comes from, if it is subsidised in Great Britain. Surely that is how the European Union will look at it, rather than simply saying that it must be a subsidiary. The Minister might be underestimating the potential for reach back or for the subsidy to be challenged by a competitor within the European Union. The Government are taking too narrow a definition of what may be at risk.
I understand the point the noble Lord is making but, to return to the words I used, there must be a genuine, direct link to Northern Ireland—it cannot be hypothetical or presumed. We have issued detailed guidance on the subject, but we accept that the current situation is not good enough, which is why we are attempting to renegotiate the terms of the protocol, particularly Article 10.
I have the text of the Command Paper in front of me. I heard the Minister say that the Government are negotiating for a single scheme to apply for all businesses across the UK. That is not what the Command Paper argues for in paragraphs 63 to 65. I have raised this before in the Chamber and in Committee. The Government are asking for a dual system, where there will be
“enhanced referral powers or consultation procedures for subsidies within scope, to enable EU concerns to be properly and swiftly addressed.”
The Government are not seeking a single system; they are seeking two systems with a streamlined approach for applicants to go to the EU system. Can the Minister clarify that?
We are seeking to have a single regime—the regime we are discussing now—that applies across the whole of the United Kingdom. As I said, this is the subject of negotiation. Intense discussions are going on. I and other Ministers will update the House as soon as we conclude those agreements.
My Lords, I thank the Minister very much for his response to the debate and all noble Lords who have taken part in this short but important exploration of the issues surrounding subsidy control in Northern Ireland as a result of the application of Article 10 of the protocol. Sometimes people say that they are not being listened to, but I did not think that the technology would conspire to try to prevent us being heard. However, I am grateful for noble Lords’ consideration of these important matters.
The noble Lord, Lord Empey, was rightly pessimistic about the Minister’s ability to answer some of the questions raised, although he made a stab at it. However, while he was confident about the interpretation of Article 10—particularly in relation to the scope of its application, which remains to be seen—it will be tested in court. The trouble is that the uncertainty around all this will have a chilling effect. There is no doubt that reach back is a very important issue, but many businesses in Northern Ireland will say, “Yes, this is an important issue, but if you solve it, it will not particularly help us as Northern Ireland will still be subject to the EU regime. It may provide some help and certainty to companies in England, Scotland and Wales, but it does not resolve our difficulties.” There is a bit of danger in seeing reach back as the problem; it is a problem, but this does not resolve the issues in Northern Ireland. That is why I am grateful that the Minister has indicated that the Government’s purpose remains to negotiate changes.
The noble Lord, Lord Purvis, rightly pointed to the wording of the Command Paper. It merits very careful reading to compare what is stated to be the Government’s position and the actuality of the basis of the negotiations. It is something that I have pointed out on a number of occasions in Northern Ireland. I also agree with the noble Lord that, whatever the origins of how we got here, the problem remains to be sorted for Northern Ireland. This is a real predicament.
I therefore urge the Government to take this matter extremely seriously. I know that they do but this is a matter of urgency because, as was stated by the noble Lord, Lord Purvis, when he mentioned short, sharp negotiations—I recently reminded the Prime Minister of this fact—that this was supposed to be a three-week negotiation, beginning in September. Sadly, we have almost reached the middle of February and the inevitable crisis that some of us predicted has happened, in terms of the stability of the institutions in Northern Ireland. Time is in short supply.
I am grateful for this debate. It has been useful. With that, I beg leave to withdraw the amendment.
Amendment 51 withdrawn.
Clause 48 agreed.
Clauses 49 to 51 agreed.
52: After Clause 51, insert the following new Clause—
The subsidy control requirements in Part 2 of this Act do not apply to—(a) the giving of an agricultural subsidy, or(b) the making of a subsidy scheme, so far as it relates to the giving of agricultural subsidies.”Member’s explanatory statement
This new Clause would exempt agricultural subsidies from the subsidy control requirements.
My Lords, I decided to table Amendment 52 having read the detailed concerns expressed by the Welsh Government and NFU Scotland. In this Bill, the Government propose incorporating agricultural subsidies into the same scheme as subsidies for other businesses. That is not the usual approach to agricultural subsidies. The WTO and, of course, the EU have separate and distinct agricultural subsidy regulation.
My amendment does not refer to them specifically, but there are similar concerns about fisheries subsidies. I read the Minister’s comments at Second Reading with care. He said that the Government believe that having agriculture and fisheries in a single scheme
“will help to protect competition and investment.”—[Official Report, 19/1/22; col. 1748.]
However, he did not mention levels of production or the supply of food. That is an important omission because it is the reason why the WTO and the EU treat agriculture separately. Agriculture is subject to the vagaries of weather and disease and is prone to much greater market volatility than other products. If we do not manufacture our own TV sets in the UK, it does not have the fundamental significance that not growing our own wheat would have. For well over 100 years, regular supplies of domestically produced foods at reasonable prices have been regarded as fundamental to our national security. That applies even in the modern world of global markets.
At Second Reading, the Minister also said that the Government’s decision
“was supported by the majority of the respondents to the UK Government’s consultation who answered the question on agriculture and fisheries.”—[Official Report, 19/1/22; col. 1749.]
I have three things to say about that. First, the pattern of agriculture is different in one part of the UK and another. The devolved nations have a very different view on this, and that needs to be reflected.
Secondly, the Government’s response reveals a worryingly majoritarian approach. England is always the majority in any consultation of this nature by sheer weight of population size. This does not mean that it fully reflects the different requirements of the country.
Thirdly, the Government’s justification is that 81% of people who responded to the question in the consultation were in favour of one or both—agriculture or fish—being included. That is tempered by the fact that only 20% of respondents answered that question, so only 80% of 20% were in agreement. That support does not look so great now, does it?
There are good reasons why agricultural subsidies are separated; they have a much broader base, and in some ways they are very different. Unlike almost all other fields of business and production, agricultural subsidies are accepted as normal and necessary. If a devolved Government or local authority, or indeed the Secretary of State acting as an English Minister, decides to subsidise a car plant, then one large flat empty space is much like another. Infrastructure problems can be overcome, roads built, 5G installed, local employees upskilled and suitable courses run at local tertiary colleges and universities.
It is very different with agriculture. You cannot grow peas for the frozen food industry, or strawberries or wheat, on top of a Welsh mountain, but you can grow sheep. Unlike skills and infrastructure, you cannot create new large flat fields in the middle of Wales; you have to live with what you have. Both Scotland and Wales have large areas where farming is, at best, marginal and difficult. The devolved Governments need to be able to take that into account in agricultural subsidy policies. They cannot be expected to compare and compete with the benign climate and landscape of southern England. I would like to make a similar point about, for instance, Cumbria because England has the same variation in its type of countryside that needs to be taken into account.
Farms do not come alone; they need the processing infrastructure to support them. There are profound environmental impacts that flow from farming techniques, and social structures must be maintained. Depopulation undermines agricultural communities and the ability to conduct farming. Agricultural subsidy schemes have to take all that into account.
I would be grateful if the Minister could set out how agricultural subsidy schemes would avoid breaching the restrictions on local content subsidy. The audio-visual sector is already exempt on this point, and surely agriculture should be too. The prohibition on relocation would make a nonsense of efforts to develop associated food processing industries.
There is another distinct reason why the special circumstances in the UK after Brexit dictate that it is important to be able to keep track of funding specifically for agriculture. Very specific promises were made during the Brexit referendum about the advantages for farmers of leaving the EU. More generous schemes were promised, and schemes free from what was criticised as an overly bureaucratic EU-sponsored system. Many farmers became supporters of Brexit—although their unions were very much more sceptical—so it is an item of faith for the farming community that the Government must be clearly accountable for delivering on those promises. That can happen only if a separate and distinct scheme exists for agriculture. It would of course be more difficult to track if it were all part of one grand scheme.
Both the Welsh Government and NFU Scotland make it clear that they accept the need to replace the basis of the EU schemes that have governed agriculture since 1973, but they challenge the approach taken. Existing schemes may be covered by grandfathering rights and legacy schemes from the EU regime, but there is an urgent need for much more detail on how exactly agriculture will be supported against the seven principles that the Government have set out. It is essential that the devolved Governments are properly consulted and agree to the arrangements, whatever they are, because agriculture is devolved, so the mechanism for financial support must be effective as well.
I recall somewhere along the line reading that the Government would outline further information specifically on agricultural principles. I look forward to the Minister’s explanation, as well as an explanation of how all this will fit within WTO rules.
My Lords, I am very happy to support my noble friend on this amendment, to which I have added my name. She has explained quite accurately and in detail why we believe this is necessary.
My first point is about the consultation, which is slightly disturbing. The Minister, the noble Lord, Lord Callanan, wrote to me after Second Reading having said in response to my intervention that 81% of consultees had supported the inclusion of agriculture. My noble friend had pointed out that that was 81% of a much smaller percentage, but more fundamentally, the Minister failed to acknowledge two things. First, if 100% of consultees from Wales or Scotland were against—I am not saying it was quite that close—to suggest that 81% were in favour, which just about represents the imbalance of population between England and the rest of the United Kingdom, is exactly the wrong approach to devolution. Devolution has to recognise that if the devolved Administrations are sufficiently different from the rest of the UK, there has to be some real effort to accommodate that difference. Citing UK statistics is the wrong way to do it.
The other issue is much more fundamental. There was quite a bit of debate within the Conservative Party a few years back about whether subsidising agriculture was justified at all—whether free market economics should be let rip—but, as my noble friend has said, food production is a little bit more important than that. Food security has always been recognised by successive Governments as relevant.
The common agricultural policy aimed for self-sufficiency across the European Union. Its climatic variation meant that that was in a much higher proportion of food consumed than would be the case with the United Kingdom, but that makes us even more vulnerable once we withdraw. What percentage of our food should be produced from our own capacity at home surely has to be an article of serious discussion. Now that we have left the European Union and the Government are actively negotiating trade agreements around the world, some people seem to argue that all that matters is that the food should be cheap—not that it should be secure; it should just be cheap. The consequence is that we have concluded agreements with New Zealand and Australia which many farmers and food producers, particularly in Scotland and Wales, feel have substantially disadvantaged them in terms of what their farming methods are about.
When we move to the next phase, if farming and agricultural support are devolved, presumably they are devolved to allow divergence—because divergence exists. Grandfathering is all very well but it does not look forward far enough, to where land use could change quite radically. On this occasion, I note that the Green representatives are not here; I think they might have something to say.
At Second Reading, I mentioned that the issue of rewilding is beginning to create some degree of tension. Yes, there is a lot of excitement about the idea of trying to return things to nature, and that it might be helpful in terms of climate change, but what will its social impact be? What will its impact on employment be? What will it do to communities? Will it reduce access? Will it reduce the employment opportunities that farming currently provides? Those are real questions. Wales and Scotland—and Northern Ireland, for that matter—want to pursue a policy that determines, for their benefit, what the right balance is.
I have no particular animus for or against Ed Sheeran, but he claims that he wants to spend £200 million of his fortune rewilding as much of the UK as possible. I want to know how much sensitivity he has. What is fine in Suffolk might be a bit different in Inverness-shire or Montgomery or wherever. It is important that he understands that the land use regime in Wales and Scotland is a matter for the people there, not a pop singer in Suffolk. He can do it as long as it fits with that policy.
I say this to the Minister: it is not clear what five, 10 or 15-year idea the UK Government have. Grandfathering existing regimes does not allow for divergence later as we change our use. Basically, it is not consistent for the Government to argue that they support devolved agricultural policy but wish to take control of the subsidy regime that is essential to the delivery of that policy.
It is also not good enough to say that subsidy control is a reserved matter. Of course it is—I acknowledge that—just as the internal market is, but if the conclusion of that is UK Ministers, who are also English Ministers, saying, “What we really mean is that we will do as we please and the devolved Administrations will just have to lump it”, that is no way to secure the future of the United Kingdom. It is also no way to ensure that the devolution settlement can continue to work when it is under so much pressure. The Government need to understand that there is real concern that including agriculture in this Bill has implications that are bad for not just agriculture but the United Kingdom.
My Lords, I am grateful to the noble Baroness, Lady Randerson, for moving this amendment. I am delighted to follow the noble Lord, Lord Bruce; I agree with his comments. At this point, I should declare my registered interest as a member of the Farmers’ Union of Wales. I am one of the last great landowners of Wales, with six acres of land, so I have a direct interest in the outcome of these debates.
There are at least two dimensions to this issue. The first is whether this sort of legislation is appropriate for application to agriculture in general. Over my lifetime, the question of subsidy in agricultural terms has been related to the security of the supply of food and the price of food. Those are somewhat different considerations to those that may be apposite if we were considering subsidy for the steel industry or other industries. We need a system that is fine-tuned to the agricultural reality, which is different in terms of not only the nature of the product but the scale of the operation; that is particularly true in Wales—and in Scotland as well, I suspect—where there are many small farmers. They are small farmers in terms of their turnover and investment compared with the massive investment one might have in the manufacturing industry.
In Wales, farming is more than just a livelihood, it is a way of life—and a way of life that sustains the community. Therefore, consideration of the impact of subsidy, the relevance of subsidy and when it should and should not be available has many more dimensions to be taken on board than if it were a straight manufacturing subsidy question. My background was in the manufacturing industries, as I have explained before, but I am acutely conscious of the difference that exists between agriculture and the manufacturing industries
The other question that arises—it has already been touched on by the previous two speakers, with whom I agree—is of how one relates UK legislation to the different set of circumstances and the different legislatures of Wales, Scotland and Northern Ireland. If there is a different structure of decision-taking and legislation, a different structure of provision of financial support and a different structure in terms of the reality of the land and the type of produce coming from that land, then quite clearly there may be circumstances where a subsidy programme and legislative framework may be absolutely appropriate for England, but not appropriate in Wales, Scotland or Northern Ireland. I would suggest that it is perhaps not appropriate in parts of England either, such as the Lake District or the south-west, where agriculture is quite different. The question therefore arises as to whether we should have any of this in this legislation. It is something that is valid and needs to be discussed and to have a framework, but it is a very different framework from what exists under this Bill.
It is for that reason that I am delighted to support these amendments and I hope that we will have a substantive answer from the noble Baroness the Minister, who knows the circumstances in Wales well. I hope that she will concede that there are issues here that need to be addressed in the context of Wales or Scotland or other parts of the United Kingdom and that, if this question cannot be resolved at this point, it is certainly one to which we should return in a substantive manner on Report.
My Lords, I add my voice to the concern about how agriculture is being treated under this Bill. Of course, under the old European system, agriculture was excluded because all agriculture subsidy had to be consistent with the common agricultural policy. We are now moving into a situation where all four nations of the United Kingdom are considering how to change their agricultural policy from one being primarily to produce food on a competitive and effective basis to one that, while food production will still be important, also makes its contribution to the environmental demands, in particular in carbon reduction and management of water and soil.
That is very different from many of the other industries that will operate under this regime. We have a multiple problem here with agriculture. We have no previous history of consistency—well, the consistency was at the European level—and all other aspects were always devolved. We are going to have four different approaches to the new era in agriculture and all of them in their different ways will have a very heavy environmental dimension, so that the way in which the land is managed provides nature-based solutions to reducing carbon and to producing a food balance within the population that is more conducive to reducing carbon and for water and soil management.
Agriculture’s total exclusion from the regime—as this amendment appears to suggest—may not be necessary, but special treatment will be necessary. Before this Bill passes this House, I hope that the Government will respond by indicating that there will be different treatment for agriculture and respect for the four different nations and their different approaches.
My Lords, it is a pleasure to follow my noble friend Lord Whitty. I agree with all his comments. I am grateful to the noble Baroness, Lady Randerson, for tabling this amendment to enable further and deeper discussion on another of the many concerns that were raised by colleagues across the House at Second Reading.
As we have already debated, although relatively briefly, the new subsidy regime will operate alongside certain legacy schemes, including, but not limited to, basic payments given under the EU’s common agricultural policy. As we have heard, the Government’s decision to include agriculture and fisheries in the scope of the new subsidy regime is an interesting one. BEIS asserts that there is logic in applying the same rules across the board. While that might make sense in some areas, doing so raises other significant issues. As we have heard from my noble friend Lord Whitty, agriculture is fundamentally different and therefore so are the issues relating to the subsidies and the subsidy control systems. That is before we even touch on the issue of devolved responsibilities.
As we know from many hours following debates on the Agriculture, Fisheries and Environment Bills, these are areas of devolved competence. Some of those matters have been addressed in discussions on the UK-wide common framework arising from the Brexit process. However, due to Her Majesty’s Government’s treatment of subsidy control as an entirely reserved matter, there is no common framework on this topic, something that we have already touched on in Grand Committee and will be returning to in later groups.
Specific nations and regions of the UK have very different interests from those of their neighbours. Public authorities will of course be able to do what they deem appropriate in the context of overarching subsidy control principles, but this is one of the areas where we may end up seeing subsidy battles and/or legal appeals. If we can reach agreement in your Lordships’ House, then we may be able to reduce the chances of some of that happening. One potential solution to some of these issues may be for the Secretary of State to establish one or more streamlined subsidy schemes covering agriculture. I ask the Minister: is that one of the department’s intentions?
I want to ask a couple of practical questions that have been subject to initial exchanges between my advisers and the Minister’s office. I thank her office for that information, but it raises some questions. Is it the case that schemes already made under the Agriculture Act, for example, will be treated as legacy schemes for the purposes of this legislation? If the environmental land management scheme, which has already been rolled out, is treated as a legacy scheme but the Defra Secretary of State later introduces a separate agricultural scheme using powers under either Act, will that new scheme be subject to the subsidy controls? If the answer is yes, will that not make it harder for everyone involved to keep track of which requirements apply and when? If so, how exactly does the decision to include agriculture in the new subsidy control regime meet the target of making the new process more straightforward and less burdensome?
A number of other issues arise around devolved authorities, many of which have been touched on. We will come on to them when we look at the CMA but, if we do not make changes to the Bill as it is currently written, we could end up with a situation in which the devolved authorities have responsibility for these delegated areas but no oversight in the Bill—no engagement with the CMA or the subsidy advice unit—and will not be at the heart of the decision-making. I look forward to the Minister’s response.
My father spent half his working life milking other people’s cows and the other half milking cows in a small, tenanted farm. Farming is a way of life across the United Kingdom. You must be committed to it to make it work, so people are anxious when they see this subsidy scheme in such turmoil.
At Second Reading, the Minister said that including agricultural subsidies in the subsidy control regime would
“help to protect competition and investment”—[Official Report, 19/1/21; col. 1749.]
in agriculture and fisheries. First, will the Minister acknowledge that the agricultural subsidy scheme has much wider objectives than simply competition and investment? There is a range of social and other economic benefits that the schemes are supposed to be designed to protect. Secondly, how does including agricultural and fisheries subsidies in the subsidy control regime protect competition and investment better than leaving them where they are: outside the scheme?
My Lords, I wish to ask the specific question of how, if this Bill includes all agricultural support without the delineated areas we have discussed previously in Committee—such as for upland farmers and areas with less favoured status—it will interact with the internal market Act.
My noble friend Lady Randerson specifically referenced hill farmers. I represented many hill farmers; I will debate with my noble friend separately the merits of Welsh lamb as opposed to Scottish Borders lamb, but it is fairly obvious which is the superior product. The point is that specific subsidy support for the type of production rather than the end product is allowed under the subsidy scheme because upland farms have less favoured area status. It was delineated.
However, the Government proposed under the internal market legislation that no discrimination would be allowed on any of the end product—the lamb. We allowed that discrimination because of the less favoured area status for hill farming. I question whether, if all this is now wrapped into the subsidy Bill, this is open to challenge in terms of competition and non-discrimination, as specific support for the production of one product—lamb—will be provided to certain farmers in certain areas but will not be available to others who do not have less favoured area status.
This Bill removes all those delineated areas. Presumably, all that is now within scope of the internal market Act. That means, I think, that none of this area of support can have the assured status that it did beforehand. I strongly support my noble friend’s efforts to get clarity on this.
I thank the noble Baroness, Lady Randerson, and the noble Lord, Lord Bruce of Bennachie, for tabling this amendment and for their concern for the agricultural sector. This amendment seeks to exempt agricultural subsidies and schemes from the requirements of the new domestic regime. I appreciate that the devolved Administrations are particularly concerned about the inclusion of agriculture in the new domestic regime. This issue has come up during our regular engagement, both at ministerial and official level. We have worked hard to understand concerns here, particularly in relation to existing schemes and how they might be considered under the new regime, as well as in relation to the development of guidance on the principles. We have sought to reassure that existing schemes and subsidies will be able to continue indefinitely.
There is good reason for including agriculture in the new regime. Having agriculture covered by the same single, coherent set of rules as other sectors will protect competition and investment within agriculture while ensuring consistency for public authorities and subsidy recipients. The Bill’s design ensures that public authorities are empowered to give subsidies that best fit their local needs. The purpose of a subsidy control regime is to provide common subsidy control rules for all authorities in the UK, allowing devolved authorities and all other public authorities to spend and carry out their own policy principles.
I know that the noble Lord, Lord Whitty, was concerned about agriculture in the EU. It is not quite right to say that agriculture was entirely exempt from the EU subsidy control mechanisms. Although most activity under the CAP was carved out from state aid rules, the CAP itself aimed to minimise distortions of competition and trade in the agriculture and forestry sectors, alongside state aid block exemption rules. Some activity was notified under the general state aid rules.
In response to the point made by the noble Baroness, Lady Randerson, it is also not entirely right to say that agriculture was fully exempt. This regime will impose far fewer constraints on public authorities, including the devolved Administrations, to give agricultural subsidies compared to the CAP. This approach elicited a strong response in the public consultation on the future subsidy control regime with, as I know we have mentioned, 75% of the respondents who answered the question on agriculture agreeing that it should be included in the scope of the new domestic regime. As the noble Baroness set out, not every respondent answered every question in the consultation; that is absolutely clear from our consultation response.
The subsidy control principles and other requirements in the Bill are sensible and straightforward and should apply equally to agriculture as they do to other sectors. I do not believe that any public authority should seek to give a subsidy that does not comply with these common-sense principles. I believe that these rules will allow public authorities to tailor subsidies to local needs and agriculture-specific market failures, which, as the noble Baroness, Lady Randerson, and the noble and learned Lord, Lord Thomas, emphasised, is so important. The duty on public authorities with respect to the subsidy control principles helps to protect competition and investment within the UK and ensures good value for the taxpayer. In response to the noble Lord, Lord Fox, this is the key benefit of their inclusion.
As the noble Lord, Lord Bruce, pointed out, the new regime is the most important aspect of the Bill. I believe that it will empower the UK Government and the devolved Administrations to design agricultural subsidies in ways that meet their policy needs and particular circumstances, whether that is a different legislative framework, a different financial support mechanism or a different type of land—for example, for hill farmers, as the noble Lord, Lord Purvis, pointed out. I am happy to confirm that, with specific market failures based on specific conditions, such as type of land, there is no requirement to treat every farmer in the same way. None the less, in response to the noble Lord, Lord McNicol, it is worth noting that the Bill also makes provision so that any subsidy schemes that are already in place at the time the Bill comes into force, such as rural development programmes or basic payment schemes, are considered legacy schemes and can continue on the same terms as before.
Finally, in response to the query of the noble Lord, Lord McNicol, we are keeping streamlined routes for agriculture under consideration. I hope noble Lords will recognise the importance of including agriculture within the regime, but also the provisions in the Bill that ensure that existing schemes, even with some permitted modifications, are able to continue as they do now. To respond to the noble Lord, Lord Wigley, now that the UK has left the EU, agriculture is no longer subject to EU state aid rules or the common agricultural policy. This has created a regulatory gap, which is best addressed by including agriculture in the new UK domestic regime.
I am grateful to the Minister for her response on the points that I raised, but does she accept that agriculture is a very different industry from the others covered by this sort of Bill and should have its own legislation? She mentioned consultation. What was the response to consultation from the agriculture industry and the farming unions?
While I absolutely accept that the agriculture industry is completely different from others that will be covered by the Bill for many of the cultural reasons that have been brought up by others, I do not have the information that the noble Lord requests, but we will write, because we undoubtedly have it back in the department.
Less favoured area status was mentioned by my noble friend. In Scotland, 86% of the land has less favoured area status. If we have gained, as we have over many years, a reputation for prime Scotch beef, for example, it has been done by an integration of finishing farmers and suckler cow premiums on the hills. The Minister said that that could be a legacy scheme, but we are doing trade deals with New Zealand and Australia, which may want to challenge that. I think that people want reassurances that such schemes, legacy or adapted in future, will not fall foul of the implications of the Bill. That is the sort of concern that our farmers are facing at the moment.
I register those concerns. Consultation with the devolved Administrations continues, but I repeat that the subsidy schemes of each devolved Administration can be devised in the context of the particular differentiation between each separate authority.
I do not think the Minister addressed the point regarding the interaction with the UK internal market Act, which has also given rise to some concerns. She said that the Bill would be able to focus on agriculture-specific market failures. As my noble friend indicated, it is not market failure as such; it is the circumstances in which the industry operates. Is the Minister saying that, for all these schemes, the CMA will be the unique body that now determines the viability of all the geographical areas? The CMA is the body that has the authority under this Bill to consider whether the schemes are operating according to the principles. Defining what market failure would be within agriculture, on the different types of land, will now ultimately be for the CMA, which is a ridiculous situation to be in.
I reassure the noble Lord that the CMA has an advisory function; the tribunal will be the body that decides. The subsidies will be devised by the local authority, or the devolved Administration, so that they can use the CMA for advice.
To go back to the earlier point, the Bill will allow the Scottish Government to provide subsidies to less favoured areas should they so wish.
To reiterate, the CMA has only an advisory function. It is the responsibility of the public authority to decide.
We have to read this debate in the context of the previous debates. As the Minister has previously said, the Government want to move away from delineating support for geographical areas, so it is utterly pointless to say that a scheme for less favoured area status could be devised, because the flexibility from this Bill means that Glasgow could provide any agricultural subsidy to any farm anywhere, which is frankly ridiculous.
If it is not the CMA’s responsibility under this Bill, it is the competition tribunal’s. How on earth will the competition tribunal have the capacity to judge all the areas for geographical support, for agricultural support and for industry support? It seems a bit of a nonsense.
Let me give a specific example. Herefordshire County Council decides, within the seven principles of the Bill, to subsidise the production of beef in Herefordshire, brands it “Herefordshire beef from Hereford animals”, and then markets it in Aberdeenshire at a rate that undercuts Aberdeen Angus or whatever it is that my noble friend Lord Bruce is peddling in his area. It seems to me that this Bill puts in place a chaotic situation that cannot be managed. We do not know what an area is, we are allowing flexibility for any authority to take action as long as it sits within the seven principles, and then we are going to rely on the CAT to adjudicate. Is this really what the Government have in mind?
This has been an interesting debate. The noble Lord, Lord Wigley, will understand my point when I say that, as a former Assembly Member for Cardiff Central, I did not think I would be leading on a debate on agriculture—at one point I still had a farm in my constituency, but they built on it.
I learned a lot about agriculture as a Minister in two Governments. I learned about the concept, which comes up time and again, that farming is a way of life. It is a way of life wherever you are a farmer. I have lived in East Anglia and it even applies there where you have the grain barons, because if your farm fails, you lose your home. That is what makes things different from most other occupations. All speakers, with the exception of the Minister, have echoed my concerns.
I want to pick up a couple of points very briefly. Clause 41 refers to a specific amount of money for subsidy below which you will not have transparency. That amount of money is astronomical in relation to subsidies for farming and totally inappropriate. If those figures are used, there will be no transparency even for subsidies of the largest order for the largest farms. That cannot be right.
This is, of course, a probing amendment and I am specifically seeking information on how the special circumstances of agriculture will be dealt with. I hope the Minister will send us some very long letters to explain the situation because there are so many complexities and contradictions in the Government’s position. The EU treated subsidy as exceptional, in general, and something that must be justified, but it treated agricultural subsidy as normalised within a strict policy structure. The WTO treats agricultural subsidy as normalised, but the Government are now apparently applying the approach where subsidy is exceptional for agriculture. That is the basis of the seven principles. You cannot apply those seven principles in the same way that you do to other industries and businesses. Agriculture is not subsidised because of market failures; it is subsidised to ensure supply of a basic requirement of life at a reasonable price. The complexity of the Government’s situation is made worse because of the uncertainties already being felt within the market from the trade deals with Australia and New Zealand which provide additional hurdles.
The Minister has emphasised the importance of consistency, but you cannot apply consistency across very different agricultural landscapes and climates. Can she please write to us and provide information on whether the consultation responses were broken down by the Government across geographical location? I am not just talking about the percentage of responses from Wales or Scotland; I think it should also be broken down across England, because hilly and mountainous areas in the north of England face the same issues.
The Minister spoke about legacy schemes. That reassurance is helpful in the short term but not in the long term, because farming develops and schemes will have to change. How will it be regarded by the Government if a devolved Government decide to base a new scheme entirely on a legacy scheme? If you do not do that, of course you will get allegations that you are applying unfair sets of rules—one set of rules to one and another set of rules to the other. But if you do that, you are immediately lapsing into a system where subsidy of agriculture is to be the norm.
Can the Minister also write to me to explain whether the processing of agricultural products—which is of course an essential part of developing an agricultural market—will be included and given the same rules as the rest of agriculture?
Will the Minister please now accept that, as written, this Bill just does not fit agriculture? I can see she wishes to respond.
There are a couple of points I would like to address now, and obviously I will cover the other points in greater length in writing. Just to reassure the noble Baroness, on the minimum financial assistance in the Bill that she referred to, for most subsidies, including agriculture, it is £315,000 rather than the figures in Clause 41. If the figures are far too high for agriculture, then they will simply be exempt from the requirements and none of those concerns will apply. We are looking at whether the £315,000 is set at the right level, and we have the power to change it for specific sectors.
In answer to the noble Baroness’s question, I am afraid that we did not ask respondents to the consultation where they were based because it is a UK-wide regime, but we will write with more detail if we have it back in the department.
Lastly, as the noble Baroness brought up the difference between the WTO and the EU regimes, I just say that the Agreement on Agriculture within the WTO and the new subsidy control regime fulfil very different purposes. The AoA is an international agreement aimed at reducing distortion of international trade in agriculture; the proposed domestic subsidy control regime facilitates compliance with our international commitments but goes beyond this by protecting UK competition and investment. The WTO provisions are no substitute for a domestic subsidy control regime. The EU is a case in point of a system that has both WTO subsidy commitments and its own internal regime, and this is the approach that we are taking for subsidies in all sectors in the UK.
I will write with any further responses that I need to make, having reviewed Hansard in the morning.
I thank the Minister for that. I fear that she makes my point for me in terms of Clause 41. My argument is that there needs to be transparency on this, and the amounts of money are set so high that there will not be that transparency. If this scheme is going to work on a farm-by-farm basis, which is what it will have to do, the Government will need to set separate, different and lower figures for agriculture. The Government really need to go away and look at this again.
Please could the Government consider applying some real-life worked examples of how this would apply in different parts of the UK—even within different parts of England? They need to be worked through, and public authorities need to have further information on how this would work. I urge the Government to discuss this issue with local authorities and the devolved Governments before the walls of our systems are bulldozed through in the latter stages of the Bill. I beg leave to withdraw the amendment.
Amendment 52 withdrawn.
Clause 52: Mandatory referral to CMA
Amendment 53 not moved.
Clauses 52 agreed.
Clauses 53 and 54 agreed.
Clause 55: Call-in direction
54: Clause 55, page 30, line 40, after “State” insert “, the Scottish Ministers, the Welsh Ministers or the Department for the Economy in Northern Ireland”
Member’s explanatory statement
This amendment extends the call-in powers under this section to the Devolved Administrations.
My Lords, in moving the amendment in the name of my noble friend Lord McNicol, I am grateful to the noble and learned Lord, Lord Hope of Craighead, and the noble Lords, Lord Bruce and Lord Wigley, for signing some, and in some cases all, of the amendments in this group. The amendments would extend the call-in power afforded to the Secretary of State to the devolved Administrations in Wales, Scotland and Northern Ireland—I can see a theme developing in these amendments. I know from experience that consultation is a tough thing to do properly. We are seeing repeatedly a lack of appropriate and meaningful consultation and that really needs to be addressed, along with the sense of a lack of respect in dealing with other areas and other bodies that need to be included so that a fair and level playing field can be established.
To be clear, in the Bill at the moment the Secretary of State has the power to direct a public authority and request a report from the CMA in relation to a proposed subsidy or scheme. As currently drafted, that does not extend to the devolved authorities; they do not have the equivalent powers to call in or challenge subsidies. The question for all of us is why that should be the case. It is yet another example of the significant disparity of power under the proposed subsidy regime, even though the devolved authorities clearly have an interest in the application of the regime in their respective nations.
The Government may not feel it is appropriate to give devolved authorities exactly the same power as the Secretary of State—for example, it may make sense to constrain their powers to decisions taken within their jurisdictions—but surely those authorities need some ability to refer matters to the CMA. Another aspect of this measure is that the Secretary of State can issue a call-in direction that requires granting authorities to respond outside of England in relation to subsidies within the CMA. Why does that not happen the other way round?
As we know, we have had a number of debates on devolved matters, but we remain to be convinced that Her Majesty’s Government are moving in the right direction when it comes to matters of devolution. These amendments are an opportunity for the Minister to prove us wrong and illustrate that there has been some movement as a result of the very many representations in this area.
There is also the vexed area whereby a call-in by the Secretary of State could significantly slow down progress in granting financial support for inward investment. This could result in that investment being lost. There are also very sensitive cross-border issues, as we have discussed, which present further challenge and could result in a perceived conflict of interest where they are not appropriately addressed.
I leave it to the noble Lord, Lord Fox, to introduce his amendments, which seek to further extend these provisions. We will, as always, listen to the Minister’s response with great interest. We must get away from the very real sense that Whitehall, unfortunately, is determined to hang on to power rather than really move forward on devolution, to which I believe this subsidy Bill could give great store. I beg to move.
My Lords, I am very pleased to have added my name to this group of important amendments. We are pressing a real depth of concern about the UK Government’s attitude to the devolution settlement altogether. With this Bill and the internal market Act, the Government are using the case for reserved powers to appear to be testing the devolution settlement, not quite to destruction, but to considerable tension.
These amendments ask why it is right that the Secretary of State has the right to instruct a public authority to seek a report from the CMA but the same Secretary of State—who is also the Secretary of State for England—is not susceptible to being challenged over any subsidy scheme that he or she has devised that may be perceived by any or all of the devolved Administrations as contrary to their interests or concerns. As the noble Baroness has said, it may not be the case that there should be absolute equality—we do not have a federal system yet—but we need recognition that it is simply not good enough that the Secretary of State can ignore, cast aside and overrule the devolved Administrations without them having any comparable right to challenge the English regime, never mind the UK regime. It is important that Ministers show some sensitivity and understanding on that.
This Committee does not need me to tell it that I have no sympathy with the SNP case for breaking up the United Kingdom or for independence. My view is that the SNP is a monumentally incompetent, obsessive political party that has no capacity to lead Scotland anywhere useful. However, the fact remains that it is in a mood to try to use every opportunity to stir up discontent and break the UK apart. The Government should not be helping it. They should be looking at how they can show, clearly, openly and honestly, that they are trying to set up a system based on mutual respect and understanding.
Even though the powers are reserved and the Secretary of State, in his capacity as Secretary of State for the United Kingdom, may be the decider of last resort, it should be as a last resort. Until you get to that position, it is important that the devolved Administrations have balanced and comparable powers. My simple question is this: why is it right that the Secretary of State can challenge Scotland, Wales and Northern Ireland on a scheme, but they have no right to challenge him or her on a scheme applied within England, which is what the Bill says?
My Lords, just as the noble Baroness, Lady Blake, suggested, I shall speak to Amendments 55, 57 and 59 in my name. We are back trying to break up the monolith again. In the Bill, the Government seek to centralise the power in the Secretary of State in Westminster and, as my noble friend Lord Bruce set out, that person is Secretary of State for both England and the United Kingdom.
At the same time, we are relying on a set of individuals who can make judgments and try to report things to the CMA. Meanwhile, we are disintermediating a huge set of government. In other contexts, the Minister has been very fulsome in his praise of the ability of local authorities, local government and, indeed, the devolved authorities to understand their markets and needs of the businesses and enterprises in their area and act in this new, fabulous, flexible way. However, these knowledgeable and expert groups of local government and devolved authorities are not being given any role in potentially policing what may happen when a market breaks down. There is a dissonance in that process.
We have also seen of late a Government who publish a huge paper on the subject of an increasing role for local government and, indeed, unitary local government under mayors. It seems to me to be greatly remiss if mayors in this Government’s brave new world were not given the sort of powers that the Secretary of State seeks to protect for himself or herself. Breaking this down to another level, the amendment is very much to probe what the Government have against local authorities having a role in policing the economies that the Minister has said they are so knowledgeable about, so I look forward to hearing what the Minister has to say in that regard.
My Lords, I cannot allow this debate to go without intervening very briefly. We have had arguments about the consultation with devolved authorities in previous deliberations of this Committee and I am not going to repeat those points. What I want to do, however, is to stress the need for equivalence, and for that equivalence to be perceived, between the role of the Secretary of State in the context of England and the devolved authorities in the context of Wales, Scotland and Northern Ireland because if we do not have that, we are building up a formula that is bound to cause problems.
I cannot possibly allow the comment about my friends in the SNP to go unchallenged, because they, of course, work very hard indeed in the interests of Scotland, as has been recognised by such a large majority of Scottish voters. However, the debate here is not about the relative strengths of the parties; it is about getting a system in this legislation that works. In the absence of a federal or confederal approach—and that, ultimately, will have to be the context in which these things are addressed—in the meantime, for goodness’ sake, let us get a formula that at least appears to be fair and does not have built within it the contradictions which this Bill has at present.
I was expecting more interventions before my reply—I offer my apologies.
These amendments relate to Clause 55, which provides, as has been stated, that the Secretary of State can direct a public authority to request a report from the subsidy advice unit for a proposed subsidy or subsidy scheme. This so-called call-in power will be used as a safety net where the Secretary of State considers that a subsidy or scheme is at risk of not complying with the subsidy control requirements or that it poses a risk of negative effects on competition or investment in the UK and therefore warrants further scrutiny.
In the majority of cases, the most potentially harmful subsidies will be those that meet the criteria for subsidies of particular interest. The Government’s proposal for how these criteria should be defined has been set out in illustrative regulations that have been made available to this Committee. However, it is inevitable that there will be some subsidies or schemes that fall outside those boundaries but would still benefit from the additional scrutiny offered by the SAU. The call-in power is a safety net. It provides a mechanism to catch potentially concerning subsidies that are not caught within the “subsidies of particular interest” definition and have not otherwise been voluntarily referred to the subsidy advice unit. It is expected that such subsidies will be few and will reduce further as the regime settles in.
When the Secretary of State decides to exercise this call-in power, the direction must be published. In addition, the subsidy advice unit must provide annual reports on its caseload, including any subsidies or schemes called in by the Secretary of State. These annual reports will be laid before Parliament. This transparency will help to ensure that the power is being used appropriately and that Parliament has oversight of how and when the power is being used.
Amendments 54, 56, 58 and 60 would allow the devolved Administrations to refer a subsidy or subsidy scheme to the subsidy advice unit under the terms of Clause 55. Similarly, Amendments 55, 57 and 59 would extend the power to call in subsidies for review by the subsidy advice unit to all local authorities in the United Kingdom.
The Secretary of State’s responsibilities and interests in the subsidy control regime are UK-wide. The subsidy control regime is a reserved matter. The UK Government are responsible for the compliance of the UK subsidy control regime in all parts of the United Kingdom with our international obligations, including the trade and co-operation agreement with the European Union. It is therefore right that the UK Government have responsibility for the referral mechanism that deals with any subsidies that fall outside of the established criteria for further mandatory scrutiny. It is also right that the UK Government oversee the functioning of the regime as a whole, including the caseload of the subsidy advice unit.
In response to the specific concerns raised by the noble Lords, Lord Bruce and Lord Purvis, I believe it is important that the positions of the devolved Administrations and other public authorities are taken into account in the exercise of this function. I assure noble Lords that the Secretary of State would take it extremely seriously if he received a request from another public authority to call in a particular subsidy or scheme. Of course, he would engage with the substance of that request and consider it on its merits, but I hope it goes without saying that officials and Ministers in my department would discuss the matter appropriately with the public authority that raised the concern; this would apply even if it were a subsidy given by the UK Government.
If the Secretary of State has acted as Minister for England and a devolved Government want to get the Secretary of State to call something in on the grounds that they are not happy with it perhaps being uneven or giving an unfair advantage to a company operating in England, what Chinese walls—that is, what process—will the UK Government put in place to ensure that the Secretary of State, who has just made a decision on England’s behalf, will not then judge himself or herself when the issue is called into question by a devolved Government?
The noble Baroness is approaching this issue in completely the wrong way. First, this is a UK-wide regime, so the Secretary of State is acting in his capacity as UK-wide Minister responsible for it. We have said that we will take it extremely seriously if a devolved Administration request a referral to the subsidy advice unit. We are currently in discussions with the devolved Administrations on how such a system could be codified. However, the key point is that this is just a referral to the subsidy advice unit. It is not rendering a subsidy illegal; it is not challenging it.
Directly relating to the point made earlier by the noble Lord, Lord Bruce, a devolved Administration have exactly the same rights as the Secretary of State or a local authority or anybody else to challenge the decision. The right for the Secretary of State to call in a proposal is just to refer it for advice from the subsidy advice unit; it is not to challenge the decision. The challenging of a decision takes place in the Competition Appeal Tribunal.
The case that the Minister makes is a case against what he took through in the internal market Act. Under that Act, the Secretary of State is responsible for the economic impact on the whole of the United Kingdom, but a national authority can refer a regulation made by the Secretary of State to the CMA—in fact, one or more of them can refer. Why can they do that in the internal market Act but not in this Bill?
I do not think that is relevant, because no one had any doubt about the fact that the internal market is a reserved power. They are both reserved powers; in the internal market Act, the Secretary of State acts on a reserved basis for the whole of the internal market, but it allows a national authority to refer a decision of the Secretary of State to the CMA if it has doubts about that measure. Subsidy control is a reserved matter—there is no doubt about that—but the subsidy Bill prevents a national authority referring a decision by the Secretary of State to the CMA. Why?
I think the noble Lord is getting confused between the subsidy advice unit and the Competition Appeal Tribunal. Exactly the same right exists for devolved Administrations, the Secretary of State or a local authority to challenge a decision in the Competition Appeal Tribunal. This call-in power is related strictly to the ability to request an opinion from the subsidy advice unit. That is where I think the noble Lord’s confusion comes in. The same right exists for authorities to challenge a subsidy, but there is an overall policing function which belongs to the UK Government to look after the international obligations of the UK under agreements such as the TCA.
I am talking about a call-in that is exactly the same as in Section 36 of the internal market Act. I am not talking about tribunals; I am not talking about it being adjudicated. I am not confused; I am talking about referrals. The internal market Act allows referrals from a national authority; this Bill does not. All I am asking is why there is a difference between the two.
It is because the responsibilities are different. They might all rest within different parts of the CMA, but the responsibilities under the internal market Act are different to those under the Subsidy Control Bill that we are debating today. The policing of the Act is of course the responsibility of the UK Government; it is a reserved responsibility, but the same right to challenge a decision exists for the Secretary of State as it does for the devolved Administrations. Using the ability to refer a decision to the subsidy advice unit, we are saying that we will take a request from a public authority or devolved Administration very seriously under the Secretary of State’s call-in powers, but, in addition to that, we are currently in discussions with the devolved Administrations to see whether it is possible to reach an agreement on some sort of codifying mechanism to refer decisions to the subsidy advice unit.
We hope that no UK government subsidies would require referral, but I can tell the Committee that Ministers will 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.
To respond to the concerns of the noble Baroness, Lady Blake, the Secretary of State would always take into account any urgent circumstances, whether in considering the use of the call-in powers or in the exemption from mandatory referral for subsidies of particular interest set out in Clause 64.
To address the point raised by the noble Lord, Lord Bruce, I emphasise that the devolved Administrations—a point I made earlier—and other public authorities may indeed bring challenges against the UK Government in the Competition Appeal Tribunal where they feel the interests of people in the areas in which they exercise their responsibilities may have been adversely affected by the granting of a subsidy. I re-emphasise that we are continuing to work with the DAs as the Bill progresses through Parliament and beyond. This includes close co-operation on any ongoing subsidy cases. I reassure the noble Lord that we are trying to codify their ability to request the use of the call-in powers where appropriate. As always, this close working will continue as we move towards implementation and once the new regime is up and running.
A further reason for reserving the call-in power to the Secretary of State is to ensure that the subsidy advice unit is neither overstretched nor enlarged beyond the appropriate level for its role in this regime.
I am glad that those conversations are taking place, but is not the danger that if the devolved Administrations do not have the opportunity to get that advice, they might as well move to a direct challenge? It makes the friction more extreme rather than less. I accept the point the Minister is making about not wanting lots of frivolous requests, but if the right to request at all is denied, the danger is that there will be more contentious challenges.
We are not denying the right to request, which is why we are currently in discussions with the devolved Administrations to try to codify the system, but we have to accept the reality that they have a fundamental objection to subsidy control being reserved to the UK Government. They do not believe that it should be a UK-wide function. While we can agree and discuss many of the details, it is a black or white situation whether it is reserved to the UK Government. We feel it should be. That was Parliament’s decision in the United Kingdom Internal Market Act. The devolved Administrations do not agree with that, but it is a fact, so while it is possible to agree with them on many of the details, and we have engaged extensively at ministerial and official levels, we cannot resolve the fundamental difference of opinion on the overall principle.
There is a risk that this amendment would overburden the subsidy advice unit with numerous and unnecessary directions for referrals. The noble Lord, Lord Bruce, talked about the ability of the current Scottish Administration to put friction in the relationship and to seek to cause division where there is perhaps no division at the moment, and that would require substantial and unpredictable additional resources. In contrast, given my department’s responsibility for and its relationship with the Competition and Markets Authority, the Secretary of State will be able to take referral decisions that factor in the overall workload and capacity of the subsidy advice unit and will work with others in government to ensure the unit is appropriately resourced to deliver its functions over the medium and long term.
We appreciate that the new regime represents a significant shift from the requirements of the previous EU state aid regime and that public authorities will need to familiarise themselves with the new requirements and processes. Public authorities will already be used to the interim arrangements under our international obligations, including in the trade and co-operation agreement, which require an assessment of a prospective subsidy or scheme against six principles. As always, my department stands ready to support further through guidance and advice to help to ensure that public authorities in all parts of the United Kingdom are prepared and feel comfortable making their own assessments and giving out subsidies, hopefully without the need to seek advice from the subsidy advice unit. Therefore, for the reasons I have stated, I am unable to accept the amendment and hope that, given the explanations I have provided, the noble Baroness will feel able to withdraw the amendment.
I am sure that it does not fall to me to remind the Minister that the Secretary of State might be a woman as well as a man.
I would be grateful if the clarification that the Minister gave to the noble Lord, Lord Purvis, could be given to all of us in writing, as it would be really helpful in trying to move this forward. I am slightly concerned that there is a bit of a patronising element creeping into this, and I think that we need to be very careful about that in terms of how we build the relationships going forward.
It really remains to be said now that we perhaps need to reserve our position on this as we move to the next stage, in the light of ongoing discussions and consultation as the Minister has outlined. I think that we would all like the opportunity to go back to base and to understand how these discussions are continuing. I am sure that we will then come together to make decisions on how to move this forward at the next stage. With those comments, I beg leave to withdraw the amendment.
Amendment 54 withdrawn.
Amendment 55 not moved.
55A: Clause 55, page 30, line 40, after “State” insert “or the CMA”
My Lords, I shall also speak to Amendments 57A, 57B and 60A. The purpose of this group of amendments is to give the CMA the right to call in subsidies quite separately from the mandatory referral process, not just those referred by the Secretary of State. The amendments would not give the power of veto to the CMA and would still leave the Competition Appeal Tribunal as the final arbiter. They are designed to introduce some independent enforcement of the rules into the process. In recent years, we have seen more independence given to bodies such as the Bank of England or the OBR. These amendments try to give the CMA, in its new role, a degree of independence for enforcement.
The noble Lord, Lord McNicol, earlier drew a contrast between the position under this Bill and how it was under the EU, namely that no subsidy was legal until it was approved. This is a much more permissive regime which relies heavily on being policed by competitors and citizens who, for the reasons that we discussed earlier in the series of amendments about the thresholds and the timing, may not always spot the need to draw attention to a subsidy that has been granted.
Let me say that I fully accept that subsidies are necessary for social purposes, for areas of deprivation and for remote communities, sometimes just to soften the blow of industrial change. But we also know the reality that subsidies distort competition; there is sometimes a temptation for Governments to throw good money after bad; one can have the politicisation of subsidies; and one can have pork barrelling. The provisions in these amendments are designed to prevent that happening.
This country needs to improve productivity. We need to strengthen the competitiveness of the UK economy and one way in which that can be done is by having a Government who are disciplined and subject to an independent discipline in their use of subsidies. The Government have been spending a lot of money recently on subsidies, some of which I accept are well justified, but we have a list of areas into which money has been injected—electricity, airlines, train operators, OneWeb, the steel industry. When we were discussing this earlier, the noble Lord, Lord McNicol, referred to the absence of a strategy. I am not personally an enthusiast for an industrial strategy, but I find it difficult to see the rationale for all the subsidies that the Government have given.
I have referred before to the Chancellor of the Exchequer’s future fund. In fairness, the Chancellor said he thought people would have a lot of fun with the investments into which he had put taxpayers’ money. More and more information has come out about it. It was recently revealed that millions have been ploughed into one online betting company. Large amounts of money have been deployed into a luxury Caribbean firm selling holidays on private islands, with some of the properties costing £400,000 a week to rent. There are also the cannabis producers, the dating agency—and Bolton Wanderers, which is also getting a direct injection from the Government.
I can understand that the Government want to help small businesses, but in that case help the generality of small businesses, not just one particular business. There may be lots of small Caribbean holiday companies that need help; why should this one be singled out? No doubt Bolton Wanderers needs help, but what about Scunthorpe and Grimsby Town? Why should one dating agency be favoured over another? If you are going to help small businesses then do it by a grant scheme to which small businesses can apply, or by tax relief, which they can benefit from—schemes that can apply to a generality of businesses.
On top of all that, we have had, as has been mentioned several times in this debate, the mysterious investment of £400 million into OneWeb, which required a directive to the Permanent Secretary before he would approve it. The Government really have been extraordinarily reticent about the purpose of that investment, and the amount of information that has been given to Parliament has been very meagre indeed. There is a cause and a need for explanation and investigation of many of these investments.
The words “market failure” are often mentioned; they were mentioned today and in our debate the other day. Market failure can be used to justify almost anything that Governments want to do: a firm cannot find money; the Government want to give it a subsidy, so they just label it “market failure”. But what exactly is market failure? The Minister referred to it the other day, and we have had it referred to several times. One might define market failure as barriers to entry or inadequate information being available to all market participants, but it is another reason why Governments can just slither off the hook and give money to someone for, perhaps, political reasons.
We need to have a careful look at what is called market failure. The British Business Bank was set up in order to cope with market failure but is itself now the subject of great criticism by the Public Accounts Committee for not overseeing the Covid loans properly. So much for its ability to correct market failure.
The whole point of my referring to these rather questionable subsidies, as I regard them, is that I do not think the Government ought to be able to mark their own homework on these issues. They need an enforcer and an independent view. I say that what is wrong with the Bill is that it is designed to give expression to the agreement that was struck with the European Union, the TCA; it is not really a rigorous enforcement of subsidy control at all. The regime is very permissive compared to what we had in Europe and relies far too much on individual citizens and competitors as enforcers. Those who are affected have to spot and know about the subsidies, and they have to do that within a very tight time limit. As I said earlier, what if the website is not working? All these things can make it very difficult for the competitor to take the action to control the subsidies being given to people with whom they are competing.
We need to have more independence in the process. We need the CMA to have the ability to investigate on its own initiative. We need a degree of independence, similar to that which is increasingly being given to government agencies. I hope the amendment will commend itself to Members of the Committee, and I beg to move.
My Lords, I warmly support the noble Lord, Lord Lamont, in this amendment. Earlier this afternoon, I spoke about the centrality of enforcement in the regime introduced under this Bill. I need not repeat what I said then, but it is important to look at the mechanism of enforcement.
Without doubt, the CAT is completely independent —we will turn to that on Wednesday, I hope—but one must look at litigation as a means of enforcement with a degree of reality. I hope the Minister can say something then about the cost of proceedings before the CAT, whether matters such as third-party funding have been canvassed, as to whether the insurance industry will fund people for these challenges, and how the enormous cost, both in lawyers and economists, of proceedings before the CAT will make it a mechanism for effective enforcement. However, that is for Wednesday; today, we are dealing with the CMA.
It strikes me as very odd to think of the Minister being independent in respect of his colleagues’ decisions as Ministers. I assume there is no decision yet to set this Minister up as a sort of Attorney-General, with his own responsibility directly to enforce, being accountable exactly for what he does. Otherwise, unless there is an independent aspect of the Minister completely separate from his political position, it seems unreal to expect him to refer the decision of another government department to grant a subsidy scheme or a subsidy. He accepts that all payments made by the Government in this respect will come within the principle.
Therefore, when looking at this, one must look at the reality that the CMA’s report will be the most effective enforcement mechanism. I know that it is only advisory, but how many times have noble Lords read, “We did this on advice”? On a matter within the expertise of the CMA, I would be very doubtful that people would challenge it, unless they were advised that it was seriously wrong. The essence of this amendment is that the CMA is the obvious body to provide the real and effective enforcement in the real world in which we live.
There is one other point I want to ask the Minister about, and that is the scope of the Minister’s ability to refer. He can obviously refer the question of whether the subsidy breaches the principles in the Act, but is it clear in the Bill that he can refer the question of whether some assistance that is being given is a subsidy? For example, we discussed earlier whether equity investments would be a subsidy. What happens if the local authority says, “Of course, any bank would have done this”? But that really is questionable. Can a reference be made on that by the Secretary of State? In a form of tax concession, is the CMA entitled under these provisions to express a view on these important matters which trying to deal with at some later stage—before the CAT, for example—will be very difficult? It is much better that things are dealt with now.
In view of the hour, that is all I wanted to say at this stage on this series of amendments, but I regard them as vital to the effective enforcement of the Bill. It has been a privilege to join the noble Lord, Lord Lamont, in speaking to these amendments.
My Lords, it is always a genuine pleasure to follow the noble and learned Lord in his analysis of these issues. I support the noble Lord, Lord Lamont, in seeking a degree of clarification on why the Government are reluctant for the CMA to have a more proactive role in offering advice.
The Government made the decision to bring forward what is in effect a framework Bill—as the noble Lord, Lord Lamont, highlighted, we have had a number of such Bills—and have said that a lot of it will be fleshed out in either regulation or guidance. The consistency of the application of that guidance is the critical aspect of this, however. We have seen the cost: it is potentially hundreds of millions, if not billions, of pounds, if we are to believe the noble Lord, Lord Agnew. He said that, with the flexibility that comes with not having specific rules, we see what can happen with the lack of consistency—and that was a Minister doing a 10-minute interview with an individual company and then making a decision at the end of it, as he said. He was a Minister who absolutely had decision-making power.
To link that with the previous issue, if the Secretary of State is also a Minister for England and, in addition, the area concerned is agriculture, but the Minister with responsibility will be the BEIS Minister, that highlights some of the areas of concern that there could be. Therefore, the ability of an independent body such as the CMA to have the power to call in and build up a caseload of how it is itself judging the principles and application of those principles will be very important. In the absence of that caseload being built up, we will continue to have a situation where each public body will itself define how it interprets the principles.
The Minister may argue that that is a good thing, but that may not necessarily be so. If you have a wealthy public body that defines market failure differently from a less wealthy public body, ultimately it will only have to go to challenge. Trying to avoid that situation is the intent behind these amendments. I looked at the Treasury’s Green Book, which the Minister referred to. It is the defining body. It has four example of what market failure might be, in addition to what is in principle A within the Bill. There is no existing CMA set of defined markets or set of reports considering how the seven principles will operate; this is a brand-new territory, and it may be a number of years before we come to this situation. Some of the witnesses who gave evidence to the Commons processes said that there will be a major chill effect because of that uncertainty.
Avoiding that aspect, the desirability of an independent body such as the CMA having responsibility under this Bill for putting flesh on the bones of the principles and the definition of market failure is important. We will not be able simply to rely on the guidance from the Government, especially because we know that it might change very quickly. We are already on our second, if not third, set of guidance with regard to the subsidy control principles in Northern Ireland, and the Minister alluded to the fact that we may be on another set before this legislation comes into force. We cannot simply rely on guidance; therefore, there is real merit in these amendments. I am supportive of the noble Lord bringing them forward.
My Lords, I think we will have a hard stop at 7.45 pm, so I will try to be brief. Even then, though, I am not sure that we will get through everything. Obviously I am grateful to the noble Lord, Lord Lamont, for tabling his amendments in this group; they sit very nicely with my amendment.
There are some general concerns over whether the CMA is the appropriate body to undertake all this work but, putting that to one side just now, it seems counterintuitive not to give the responsible regulator the ability to initiate its own investigations—especially because, as the noble Lord, Lord Lamont, rightly said, this is a very permissive regime in terms of how it has been pulled together. It is fundamentally different from the European state aid regime and we expect it to be policed by competitors and citizens, and that is only if they have checked the database and if the subsidy has been of a high enough level to make it on to the database—more than £315,000, I think. Even then, they will be able to make those challenges only within a tight timeframe.
On the amendments, although my Amendment 61 is quite detailed, again, we really are not precious about the wording in it or who has oversight, whether it is someone from our own Benches or those of the noble Lord, Lord Lamont—or even if the Government themselves wish to bring an amendment to look to give the CMA, as an independent body, more powers to follow through and ensure that transparency is actually there. My amendment would give the CMA the power to conduct post-award investigations in cases where it believes, God forbid, that a public authority has failed to comply with the requirement. With that, I end my remarks and look forward to the Minister’s response.
I am grateful to noble Lords. I know that time is getting on; hopefully I will have a chance to get through my remarks in the time we have available. This is an important debate and I recognise that, if it were not for the time, other noble Lords might also have wanted to intervene on the role of the Competition and Markets Authority in this new subsidy control regime.
I listened with particular interest to my noble friend Lord Lamont’s reflections on subsidy. In response, I would say that it is important to emphasise that the Bill does not, of course, replace our gold-standard mechanisms—my noble friend may have been responsible for many of them—for managing public money and for the transparency and scrutiny accorded to the UK Government’s spending decisions. I also note that we addressed the concept of market failure in the illustrative guidance we sent round; we believe that it is a fundamental part of the guidance that will be published before the regime comes into force.
Before I address the amendments, let me take this opportunity to lay out why we have taken the approach we have in the Bill as it stands; I hope that this will address the concerns of the noble Lord, Lord Purvis. We start from the knowledge that public authorities, in my view, take their statutory obligations seriously. The subsidy control principles and other requirements are straightforward and sensible, and we expect the vast majority of public authorities to comply with these requirements in giving the overwhelming majority of their subsidies. This regime empowers public authorities to make subsidy control decisions without excessive bureaucracy or regulation of the kind that I think most people accept is found in the EU state aid system and nowhere else in the world.
With this in mind, we proposed the functions of the subsidy advice unit set out in the Bill for two closely related reasons: first, to support public authorities in giving the subsidies that are most likely to be distortive; and, secondly, to ensure that those subsidies are subject to additional scrutiny and transparency before they are given. As the noble and learned Lord, Lord Thomas, set out, we think that this is an extremely important role. Once a subsidy or scheme has been referred, the subsidy advice unit will not attempt to replicate the role of the public authority in giving that subsidy in the first place or deciding whether or not to give a subsidy. Of course, it will also not replicate the role of the Competition Appeal Tribunal in applying the law to every aspect of the case. The subsidy advice unit will not carry out its own independent evaluation of the impacts of the subsidy; nor will it come to a definitive judgment on the public authority’s legal assessment of whether the measure is a subsidy, to answer the question from the noble and learned Lord, Lord Thomas.
The guidance will be thorough on this point. It will be a legal matter rather than something for the advisory unit if it comes to a dispute. The unit will provide a thorough and proportionate evaluation of the public authority’s own assessment of compliance, providing advice on both the methodology of the assessment and the design of the subsidy as it considers appropriate.
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. The SAU would be acting without the understanding and body of evidence that the public authority will have created in developing the subsidy in the first place. The SAU does not have the same margin of discretion that in my view a public authority ought to have over its own decision-making for its own functions, and for which it is both expertly and of course democratically accountable.
As I set out earlier today, most of the subsidies that are more potentially distortive can be identified in advance. That is why we will lay regulations to define those subsidies and schemes that either may or must be referred to the subsidy advice unit respectively.
I will defer again to the illustrative regulations and the policy statement that we published last month as an indication of our intentions here. However, as a safety net for unexpectedly concerning subsidies and schemes—we just had a debate on this in the previous round—we have provided for the Secretary of State to have the option to refer particularly concerning subsidies to the subsidy advice unit, either before or after they have been granted.
There is no intention to build up an extensive monitoring function within my department or the CMA to carry out this function. It is designed to catch a very small number of particularly worrying subsidies that could potentially cause undue harm to UK competition or to our international commitments where those come to the attention of the Secretary of State. As I have said, public authorities comply with their statutory obligations as a rule. This system therefore strikes the right balance. We will allow the public authority to make subsidy decisions quickly and with confidence to assist the development of their local economy.
Amendment 55A and so on would allow the call-in powers currently provided to the Secretary of State to be exercised by the SAU as well. I recognise noble Lords’ concerns that the system gives too great a responsibility to the Secretary of State—
So shall we finish at this point and start again on Wednesday. Is my noble friend Lord Lamont available for the next Committee session on Wednesday afternoon? We are talking about suspending at this point, because we have run out of time, and returning to this group of amendments then.
Debate on Amendment 55A adjourned.
Committee adjourned at 7.48 pm.