Subsidy Control Bill

Public Bill Committee, 28 October 2021.

Virendra Sharma (Labour, Ealing, Southall)

Before we begin, I have a few preliminary announcements. May I encourage Members to wear a face covering except when speaking or if they are exempt, in line with the House of Commons Commission’s recommendations? Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings.

We now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. Please note that decisions on amendments do not take place in the order they are debated, but in the order they appear on the amendment paper.

The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates. A Member who has put their name to the leading amendment in the group is called first. Other Members are then free to catch my eye to speak on all or any of the amendments in the group. A Member may speak more than once in a single debate.

At the end of a debate on a group of amendments, I shall call the Member who moved the leading amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or seek a decision. If any Member wishes to press any other amendment in a group to a vote, they need to let me know. We will start with clause 1 stand part.

Clause 1 - Overview and application of Act

Paul Scully (Conservative, Sutton and Cheam)

It is a pleasure to serve under your chairmanship, Mr Sharma.

Clause 1 provides an overview of what each part of the Subsidy Control Bill will cover and establishes its application to other legislation. It sets out the definitions, the requirements, the exemptions, the functions of the Competition and Markets Authority and the enforcement of the control requirements. Subsections (7) and (8) specify that if a subsidy is granted or a scheme is created using powers contained in either primary or secondary legislation, the requirements will apply unless an Act of Parliament specifies otherwise. It is a straightforward, uncontroversial overview of the Bill and its application.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his opening remarks on clause 1 stand part. We support the clause, but I will make a few remarks on it. It provides an overview of the Bill. There are concerns that we will discuss further later, but that I want to mention in relation to the overview in clause 1.

As we said on Second Reading, we recognise the need for subsidy control legislation that establishes the framework for state aid post Brexit, but the new regime proposed in the Bill will work only if it provides transparency, oversight and scrutiny. While the Bill’s chapters reflect what the key issues are, there are areas where the Bill does not provide sufficient detail and clarity.

We are concerned about a number of areas. First, crucial aspects of the regime are yet to be defined. The Bill may establish a regulatory framework of subsidy control, but it fails to provide any real indication of how, where, and on what scale the Government plan to spend subsidies. As Alexander Rose said in his written evidence,

“there is currently no preferential system to incentivise investment into disadvantaged regions.”

The Bill also fails to provide a fair role for the devolved Administrations, and we are concerned that there is not enough balance between efficiency and oversight, particularly related to the CMA. We will debate some of these issues later, but it is important to note in our discussion of the overview why we will want further debate on the gaps in the Bill, and that we will seek to amend it in Committee.

Clause 2 - “Subsidy”

Paul Scully (Conservative, Sutton and Cheam)

Clause 2 is the cornerstone of the new subsidy control regime. It sets out the definition of a subsidy for the purposes of the Bill, and it is a fall-in test, so to be a subsidy, it must be given, directly or indirectly, by a public authority using public resources; it must confer an economic advantage on one or more enterprise; it must be specific, meaning it must benefit one or more enterprise over others by conferring an economic advantage; and finally, it must have, or be capable of having, an effect on competition or investment in the United Kingdom, or on trade or investment between the United Kingdom and other territories.

There is a non-exhaustive list of financial assistances that may count as subsidies in subsection (2). Subsections (3) and (4) establish that financial assistance provided by an intermediary will constitute a subsidy where the funds originated from public resources, or the nature of the relationship between the public authority and the intermediary is such that the decision is effectively that of the public authority. Subsection (5) establishes the point at which a subsidy is deemed to have been given.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks on clause 2. We support the clause standing part of the Bill, but there are some areas that I would be grateful for the Minister’s comments on. He described the fall-in test: where the condition in each limb of subsection (1) is met, financial assistance is defined as a subsidy. That definition applies to goods and services. Subsection (2) outlines the means by which a subsidy is given. That effectively includes a direct and indirect transfer of funds. Could the Minister outline what that means for tax reliefs? Perhaps he could provide clarity on what the boundary is, and say what is and is not regarded as a subsidy.

Subsection (3) refers to a person who is not a public authority, but could be treated as one for the purposes of subsection (1). Will the Minister clarify who this is intended to refer to? Who could fall under the scope of subsection (3)? That is important, because it defines who has the authority to bring forward and grant subsidies. We would like greater clarity about what is intended by that; it was not very clear from the explanatory notes. That also relates, to some extent, to subsection (4).

We do not have an issue with subsection (6), but would like clarification on what is defined, and on why the subsection relates to “modification for air carriers”. We do not have a major problem with that; I just thought it would be helpful to clarify it, as it is the first time it comes up in the Bill.

Paul Scully (Conservative, Sutton and Cheam)

Largely, the definition of subsidies in the clause has been designed to be consistent with international obligations, especially those arising from the trade and co-operation agreement with the EU, but it does lay the foundation for a bespoke domestic regime, hence the discussion about the UK internal market. A lot of the terminology included is based on domestic legal precedent, such as the definition of an enterprise and the like. On the question about the “person”, that is what I meant about the intermediary; should a public authority not have a direct payment, or if any subsidy comes through a third party, that third party is the person defined in the Bill. Largely, as is the case for tax and aviation, all these definitions sit within the framework of our international obligations under the TCA.

Clause 3 - Financial assistance which confers an economic advantage

Paul Scully (Conservative, Sutton and Cheam)

Clause 3 establishes that financial assistance should not be considered to confer an economic advantage if it could reasonably have been provided on market terms. It is a small but necessary addition to the core definition of a subsidy for the purposes of the new regime. One example is a loan; it would not be considered to confer an economic advantage if it might have been provided by a bank on the same terms. Similarly, a public authority purchasing goods and services at market rates would not be considered to confer an economic advantage as long as the public authority follows the appropriate procurement processes.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks on clause 3. We have no general comments, but could clause 3(2) be brought in as a challenge if, for example, a cheaper loan could arguably have been obtained in the market? To avoid challenge, would that be something that the public authority needed to verify when granting the subsidy, and when a subsidy is posted, would there need to be some sort of confirmation that such a check had been made?

Paul Scully (Conservative, Sutton and Cheam)

The domestic subsidy control regime in its entirety is a bare-bones framework. It empowers public authorities in the UK to design subsidies and other policy interventions, including loans, without facing excessive bureaucracy or lengthy pre-approval processes. It does not have an EU-style regulator that acts as the gatekeeper and provides the definitive decisions on specific cases. However, we will provide guidance in due course that will help public authorities and recipients understand the practical applications of the definitions, and what authorities will need to do to comply with the subsidy control regime, including in the example that the hon. Member mentions.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I hope, from what the Minister says, that there will be tighter guidance on how a public authority ensures that the subsidy it is giving is compliant, and on whether it will need to verify or confirm that—saying, “I confirm that,” or “All this complies with x”—in any entry it needs to make. During the evidence session, it was highlighted that there is a gap in auditing the quality of the checks a public authority makes; if there is no process for that to be recorded, it is not transparent.

Paul Scully (Conservative, Sutton and Cheam)

Clearly, anybody giving a subsidy, be they the UK Government, the devolved Administrations or a public authority, would need to keep their own internal audits in case of challenge. However, the guidance that we will develop—with full consultation and discussion with interested parties, including the devolved Administrations, businesses and public authorities, to make sure we are answering the right questions—will have that level of detail.

Clause 4 - Financial assistance which is specific

Paul Scully (Conservative, Sutton and Cheam)

The purpose of clause 4 is to elaborate on the circumstances in which financial assistance is not considered to be specific where it benefits one or more enterprises over others for the purpose of the new regime. Subsection (2) confirms that financial assistance is not specific if different enterprises are treated differently in a way that can be inherently justified by the nature of the financial assistance. For example, in the case of a special levy for environmental purposes, treating certain goods or services differently can be justified by the effect that the levy aims to achieve.

Subsections (3) to (7) set out further considerations that are relevant to whether a tax measure should be considered specific, as the hon. Member for Feltham and Heston mentioned. Subsection (4) sets out the situations in which tax measures may treat enterprises differently without being considered specific by reference to the normal taxation regime. One example is that a tax relief measure by a local authority that advantages one or more local enterprises over another is likely to be considered specific, but it will not be specific if all enterprises in the local area benefit. Subsection (5) makes provision for identifying what the normal taxation regime is by reference to its overall objective, its features and the level of autonomy that the public authority has in the design of the taxation regime.

Subsection (6) confirms that a levy with a non-economic public policy objective would not be specific if treating enterprises differently can be justified by objective criteria—for example, the criterion of limiting negative impacts on public health or the environment. Subsection (7) confirms that any carve-out from the levy will also not be considered specific if the same conditions as those in subsection (6) are met. I recommend that the clause stand part of the Bill.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks on the clause. Will he clarify what guidance sits behind it? This is a similar issue to that raised on clause 3(2). A concern was raised by some of our witnesses about potential tax reliefs not being defined as a subsidy, but having the same outcome as a subsidy for all intents and purposes. We obviously want to ensure that there is integrity in the implementation of the regime, so that it does not give rise to concern that there are subsidies being made through the back door that are not subject to the regime’s transparency and control measures. Will the Minister confirm that guidance will be developed around this, to make it very clear what the delineations are, and will that guidance be given and explained to local authorities?

Another issue that came up in evidence was that local or other public authorities that have not been involved in granting subsidies before want to be sure that they are making the right decisions, and want to understand the regime and the intentions of the Government.

Paul Scully (Conservative, Sutton and Cheam)

Absolutely. First of all, the guidance will give advice on the application of provisions, including the duty to consider and act consistently with the subsidy control principles. We will develop that guidance with full consultation and discussions with other parties, so that we can all look at all the measures, including the tax-specific measures. The guidance will be published in good time to allow public authorities and other stakeholders to understand the key requirements of the new regime before it commences. It is so important that we get the transparency correct and that, as the hon. Lady rightly says, we ensure the integrity of the system.

Clause 5 - Section 2: modification for air carriers

Paul Scully (Conservative, Sutton and Cheam)

The clause establishes a more specific competition test to determine whether financial assistance for air carriers providing air transport services is a subsidy for the purposes of the Bill. Specifically, the clause will require that public authorities assess whether that financial assistance has an effect on competition between air carriers in the provision of air transport services, either within the UK or between air carriers of the UK and those of another country, or could have such an effect. An assessment of that kind more precisely reflects the specific characteristics of the market for air transport services provided by air carriers, as well as meeting our relevant international obligations.

Virendra Sharma (Labour, Ealing, Southall)

I call Seema Malhotra.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I have no comments or questions on clause 5.

Clause 6 - “Public authority”

Paul Scully (Conservative, Sutton and Cheam)

Clause 6 establishes the definition of the term “public authority” for the purposes of the Bill. It sets out the standard definition of a public authority, denoting a person who exercises functions of a public nature. It is consistent with UK legislative precedent. It does not include either House of Parliament, the Scottish Parliament, the Welsh Senedd or the Northern Ireland Assembly. Provisions relating to the subsidies and schemes in primary legislation are included under clause 78 and schedule 3.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks on clause 6. We have no further issues in relation to it.

Kirsty Blackman (Scottish National Party, Aberdeen North)

It is a pleasure to be part of this Committee. I wonder whether the Minister could explain a little more the logic behind the exclusions. I have read the explanatory notes, and the intention is still not entirely clear to me. I do not think that I have a problem with it—I think it makes sense— but if he could explain it a little more that would be really helpful.

Paul Scully (Conservative, Sutton and Cheam)

I am very happy to respond. The provisions for subsidies given by Parliament, the Scottish Parliament, the Welsh Senedd and the Northern Ireland Assembly are set out in clause 78 and schedule 3, which provide for the giving of subsidies by means of primary legislation. They are covered separately to reflect the unique legal and constitutional position of Acts of Parliament. The legislature is considered to have given a subsidy when it is given under a duty imposed by primary legislation. Those subsidies are captured by schedule 3, but if a subsidy is given under a power in primary legislation, the relevant public authority will be the Minister exercising that power.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Just to clarify, is the logic that the devolved Administrations and the Houses of Parliament can continue to give subsidies in primary legislation, and that is why an exclusion, or a separate provision, is in place relating to them? Is it partly to do with not being able to bind future Parliaments, or is that totally separate from what we are discussing?

Paul Scully (Conservative, Sutton and Cheam)

It is more to do with the fact that public authorities have been added as an extra, whereas state aid did not go down that far. The public authority definition at the beginning widens the definition of who can give subsidy control, whereas it is established that the UK Government and the devolved Administrations, including the Scottish Parliament, can continue to give as they do now.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

This is a helpful discussion. Further to that point, is it to differentiate—I think the Minister alluded to this—who has the power to grant the subsidy? For example, the Houses of Parliament may not but the Secretary of State or Ministers may. Is that the distinction that we should read here, or am I confusing things?

Paul Scully (Conservative, Sutton and Cheam)

Essentially, the things that tend to be given will usually be given with the agreement of the Houses of Parliament. Although it may be the UK Government that award the subsidy, it will clearly be on the back of parliamentary powers that they do so. That is where we are coming from.

Clause 7 - “Enterprise”

Paul Scully (Conservative, Sutton and Cheam)

The clause establishes the definition of “enterprise” for the purposes of the Bill. Under the new regime, an enterprise is any person or group of persons under common ownership or common control offering goods or services in a market. Importantly, the definition applies only to the extent that the person is engaged in such activity. It is purposely broad, it is consistent with our international obligations and other UK legal precedents, and it will ensure that the new subsidy control rules apply widely to protect UK competition and investment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

Will the Minister clarify whether that definition extends to social enterprises and co-operatives for the purposes of organisations that may be involved in economic activity? Will those organisations be within scope to potentially receive subsidies from public authorities?

Paul Scully (Conservative, Sutton and Cheam)

If a person is not engaged in economic activity, they will not be defined as an enterprise. Generally speaking, a charity or community group is unlikely to carry out economic activity. However, we are not explicitly excluding anyone from the definition of enterprise just because of their legal form. The hon. Lady talks about social enterprises, which are obviously different from charities, because some can be normal companies but do not make profits or have shareholders. However, that is economic activity, so those would be included within the definition.

The test looks at the activity that is proposed to be subsidised, rather than the legal form of the subsidy recipient. One organisation may be considered an enterprise in some contexts and for some activities but not others. One example might be a medical research charity that has a retail arm. Support given to the medical research activity is not a subsidy, because the research is not economic activity, even though the charity’s retail operation may be considered an enterprise.

Kirsty Blackman (Scottish National Party, Aberdeen North)

I have a couple of questions. I am aware of social enterprises in Aberdeen that make and sell frames or make bread and run cafés and things like that. It sounds as if that would be included within the definition of economic activity, because they are selling things to the general public, even though their main purpose is to ensure that people who are disadvantaged in society are given the opportunity to get work experience and things like that. It would be helpful if the Minister could say whether he intends the clause to cover all economic activity, regardless of who is doing it, but that the subsidy relates only to the arms of those organisations that are undertaking the economic activity; and that the clause applies across the board to charitable organisations and social enterprises as well as normal businesses, so long as the thing they are doing is classed as economic activity. Have I got that right?

Paul Scully (Conservative, Sutton and Cheam)

The hon. Lady has got that right. Some charities have a commercial retail arm that are taxed and approached in different ways. For example, Help for Heroes has a retail arm as well as the main fundraising arm. There is clearly no intention for subsidies of cake sales or anything like that—money may be handed over, but that is fundraising—whereas retail involves the selling of things. I am not saying that that specific example will involve in any subsidy, but such an example, where a separate business is aligned to the charity, is where the enterprise comes in that covers the economic activity that we are describing.

Clause 8 - Persons under common control

Paul Scully (Conservative, Sutton and Cheam)

The clause elaborates on what is meant by common control for the purpose of identifying an enterprise. It sets out the circumstances where common control arises: where one or more corporate bodies is controlled by one person or a group of persons, or where there are interconnected corporate bodies. An interconnected corporate body is where a subsidiary or subsidiaries exist.

A person, or a group of persons, is treated as having common control when, directly or indirectly, they can control or materially influence the economic activity of another corporate body, which also applies where there is no controlling interest over the corporate body. Interconnected corporate bodies or a group of persons under common control are considered to be a single enterprise for the purpose of the subsidy control regime. The clause will ensure that the rules under the regime are applied fairly, regardless of corporate structures.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments on clause 8. For the purposes of clarity around where public resources may go, will he explain what the clause means if, in a group of companies, one of them is granted a subsidy? Could that subsidy be shared with others in the group? I am not fully clear what the clause means.

Secondly, what if one of the other companies in the group has interests abroad? Is there something in the legislation that prevents public subsidies in the UK going through company structures within the same group to then subsidise activities abroad? I would be grateful if the Minister could clarify that—it is genuinely not very clear.

Paul Scully (Conservative, Sutton and Cheam)

The hon. Lady gives an interesting example, which I may need to clarify afterwards. However, the essential drive behind the clause is to provide effective definitions so that public authorities can identify the characteristics of an enterprise receiving a subsidy to make sure it complies with the requirements in the first place.

A public authority should not give a subsidy to a business that is a subsidiary of a large parent company without considering that large enterprise as a whole. A subsidy designed to support a microbusiness, for example, would be inappropriate in that kind of situation. The whole group has to be considered to assess the incentives of the recipient and whether the subsidy is an appropriate and proportionate way to address that market failure.

Another example might be the minimal financial assistance exemption. Two companies under common control should not both receive subsidies of £200,000, for example, as minimal financial assistance. That would exceed the threshold of £315,000 for a single enterprise.

The measures must apply regardless of the way an enterprise is structured. The clause gives public authorities the clarity to identify where the subsidy actually ends up and whether it is being used for its intended purpose—rather than, as the hon. Lady says, the possibility of it being moved abroad or to another part of the group, which would not achieve the aims for which the subsidy was given.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for those points. However, there could be an unintended difference between what the Government intend and what the law and guidance, if not clear, could result in. I would be grateful if the Minister could come back in writing to explain, specifically, what the Government’s intentions are for the guidance that may be given to an enterprise receiving a subsidy as to whether, once it has been given, there are controls on where the subsidy could be passed on to. I know that somewhere else in the Bill, it says that if a company’s ownership changes, the subsidy can pass through, but this is a point about clarity and guidance regarding what controls exist once that subsidy is given.

Secondly, on this point about potential ownership of a group or the enterprise, are there any constraints or guidance—or is there an intention of producing any guidance—in relation to companies that may be, for example, foreign-owned but trading here, where some subsidies could end up going into other countries? Is there clarity about how that is potentially going to receive guidance or be regulated to ensure it does not happen, if that is the Government’s intention?

Paul Scully (Conservative, Sutton and Cheam)

I thank the hon. Lady for her questions, and I appreciate that clarity is required on this issue. I will give her a fuller answer in writing. What I will not be able to do, though, is pre-empt the guidance, which as I say we will be developing through discussion as we progress after the framework Bill has been approved. However, the definition of a wholly owned subsidiary can already be found in section 1159 of the Companies Act 2006, so again, this is taken from legal precedent.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for that. He is referring to subsection (5), but it would be of benefit to the Committee to receive a response in writing on those broader points.

Paul Scully (Conservative, Sutton and Cheam)

I should add, as I said in my original response, that when public authorities are giving the subsidy, it is important to ensure that that subsidy is going to the enterprises for the purposes of the market failure that they are trying to correct.

Clause 9 - The subsidy control principles and the energy and environment principles

Paul Scully (Conservative, Sutton and Cheam)

Clause 9 establishes that the subsidy control principles are set out in schedule 1 to the Bill, and that the further principles for public authorities awarding energy and environment subsidies are set out in schedule 2 to the Bill. Those common-sense principles, requiring that subsidies are an appropriate, proportionate means of addressing a specific policy programme, are set out in clear terms in the relevant schedules. I commend the clause to the Committee.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. Labour has no further issues with this clause.

Schedule 1 - The subsidy control principles

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 6, in schedule 1, page 51, line 8, after “concerns” insert “and areas of deprivation”.

This amendment includes areas of deprivation as an example of the equity rationales that subsidies should address.

Under EU state aid rules, subsidies could be, and indeed were, targeted at areas of economic deprivation, significantly aiding struggling regions. Labour recognises the ongoing debate about assisted areas or other ways in which there could be a successor scheme to those rules, in order to support better and more effective targeting and transparency about where public resources are going, and indeed to support the levelling up agenda. We are concerned that this is not explicit in the Bill; it is merely alluded to in guidance. This important principle needs to be explicitly in the Bill for those who might be interpreting legislation in the near future or who want it to be a regime that stands the test of time and has the confidence of all four nations.

As Professor Fothergill highlighted, as the Bill currently stands we could be treating investment in a wealthy part of Guildford on the same basis as a potential investment in a less prosperous part of Grimsby. That seems counterintuitive to the oft-quoted term “levelling up”, which highlights a policy priority for Governments of all persuasions and is a new term for what we have all talked about: increasing equality and making sure there is prosperity in all parts of our country. It is important that we all agree on the need to make sure that public resources are being used to the best effect and to achieve the best outcomes for those areas of greatest need.

Professor Fothergill went on to say:

“You would not be attempting to incentivise the levelling up of the United Kingdom. In certain places, if we really are serious about levelling up, we have to put more resources into that effort, and we have to use state aid as one of the tools for delivering new jobs.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 11, Q7.]

I would be grateful for the Minister’s response on that. Does he agree that the Bill should include a stronger mandate for reducing economic inequality? The notes on the Bill’s intention allude to levelling up, and the Government created a specific Department for levelling up. Given how much the Government have been talking about levelling up, I must say it was surprising not to see it more explicitly in the wording of the Bill. Could the Minister respond to that?

We are concerned about the overall principles. I understand that they are derived from agreements within the TCA, but they can be amended. It is not that we do not have the authority to do that. Where, if not here, do the Government intend to include and support the equity rationale that subsidies are supposed to be addressing? We believe that the amendment would make it clear that the new subsidy regime can and should play a role in reducing regional and sub-regional inequality. It is a simple way of addressing the issue within the Bill.

Paul Scully (Conservative, Sutton and Cheam)

As we have heard, amendment 6 seeks to include areas of deprivation as an example of the equity rationale that may be addressed through subsidies. Firstly, I would like to use this opportunity to welcome the hon. Lady’s commitment to the levelling-up agenda. The Government are clearly committed to ensuring that prosperity and opportunity is shared across all parts of the UK. The domestic subsidy control regime will facilitate this. It will allow public authorities to deliver investment in skills, local infrastructure and new technologies.

Principle A within schedule 1, as well as the wider subsidy control system, has been designed to allow public authorities to address inequality and disadvantage through the use of subsidies. The principle specifies that subsidies should pursue a policy objective that either remedies a market failure or addresses, to quote from schedule 1,

“an equity rationale (such as social difficulties or distributional concerns).”

As currently drafted, schedule 1 clearly covers investment in disadvantaged or deprived areas; as such, the amendment is unnecessary. Through guidance, we can come up with more specific clarity to public authorities, but I do not believe it is helpful to list in the Bill every policy objective that a subsidy may address. As I say, the specific examples will be covered and elaborated on in guidance, which is a more appropriate place to address the practical application of the subsidy control principles. I therefore suggest that the hon. Member for Feltham and Heston withdraws the amendment.

Kirsty Blackman (Scottish National Party, Aberdeen North)

May I ask the Minister for some clarity on that? He says that he expects that more information about principle A will come out in guidance. Does he expect that that will encourage granting bodies to look at reducing inequality in some of the subsidies that they make?

Paul Scully (Conservative, Sutton and Cheam)

It will set that out in guidance. The hon. Member for Feltham and Heston talked about the evidence session, and Guildford got quite a bad rap, having come up a couple of times as the example. None the less, we want to ensure that we directly address issues of inequality and disparity through the levelling-up agenda. That will come out through guidance and ensure that we address exactly what the hon. Member for Aberdeen North was saying.

Kirsty Blackman (Scottish National Party, Aberdeen North)

One more try on this. Does the Minister expect that the Government’s levelling-up agenda will be part of the direction of travel in the guidance, so that the guidance will encourage granting authorities to line up with the Government’s levelling-up agenda?

Paul Scully (Conservative, Sutton and Cheam)

In terms of levelling up, it has been designed to provide a bespoke and dynamic framework. It allows public authorities to deliver bespoke subsidies that are tailored to their local needs, which will indeed address the UK Government’s priorities, such as levelling up, but within their own areas. Public authorities are best placed to work out how to address the inequality and disadvantage within regions, as well as between regions, so we have developed an approach that ensures that disadvantaged areas have the maximum freedom and reassurance to receive the levelling-up subsidies and best meet the characteristics of the area.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I will make a few remarks and then clarify whether I will push the amendment to a vote. I will respond to some of the points raised, and I thank the hon. Member for Aberdeen North for her comments. It is important to ensure that a more explicit intention is incorporated in the wording of the Bill, but I worry that that will not be achieved as explicitly as it ought to be, if it is so squarely in line with the Government’s intentions.

I want to come back on one of the points that the Minister made. We have spoken about the evidence in relation to Guildford and Grimsby, but he makes an important point. Every area has better-off, prosperous parts and others that are worse off, which is why it is important to think about levelling up not just between regions but within them, as he said. Indeed, I know that some wards in my constituency have some of the worst records in the country for children going to university. Some of them have improved, but some London wards can be as poverty stricken as other parts of the country, which is why we need to have a more mature debate about levelling up that looks at some of those issues. What is important is that this will be an ongoing discussion throughout the course of the Committee. We have not fully closed off whether, and how, there should be a successor to the assisted areas map. We take the point about the boundaries not always being clear if we do try and have a map, and I have concerns about that having unintended consequences, such as excluding areas further down the line that may have good reason to be considered for subsides. However, there is an important principle here, and I do not want us to lose it. I will not be pushing this amendment to a vote today, but I do think that it is one that with further discussion and clarity—reviewing some of the evidence—we may want to come back to at a later stage.

Paul Scully (Conservative, Sutton and Cheam)

I agree with many of the hon. Member’s remarks, as I am the Minister for London as well. We are talking about addressing areas of inequality within regions, as well as between regions. By having a blunt tool, we can sometimes miss out on those pockets of deprivation, as well as the wider issues—both need to be covered.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to ask leave to withdraw the amendment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 7, in schedule 1, page 52, line 6, at end insert—

“(c) the United Kingdom reaching its net-zero commitments.”

This amendment adds the impact on the UK’s net-zero commitments as a particular consideration for public authorities before deciding whether to give a subsidy.

Virendra Sharma (Labour, Ealing, Southall)

With this it will be convenient to discuss amendment 8, in schedule 2, page 52, line 15, at end insert—

“(c) delivering the UK’s net-zero commitments.”

This amendment would ensure that subsidies related to energy and the environment incentivise the beneficiary to help deliver the UK’s net-zero targets.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

Thank you for allowing me to speak to the amendment, Mr Sharma. I want to speak about why I think this is so important. The reason for this amendment is that the Bill should prevent subsidies that unnecessarily harm or impede the UK’s work towards net zero. In the Bill as it currently stands, subsidies not related to energy or the environment can meet all of the subsidy control principles, but could work against the Government’s overall goal of moving towards net zero.

To prevent this the Government are seeking to amend principle G of the schedule, in order to state that the subsidy’s beneficial effects must outweigh any negative consequences they may have on the UK’s net zero commitment. This was supported in evidence by Alexander Rose from DWF Group, who noted that all civil servants would be mandated to take account of net zero. Why not extend that thinking to other public authorities and to every single subsidy? Similarly, subsidies related to energy and the environment should not impede the UK’s work towards net zero. More than that, they should actively work towards the UK reaching its targets. We are having this debate and seeing the Bill pass through Committee during COP26; in fact, we are leading into COP26 and we will pick up after it. Does the Minister agree that if the Government want to show they are serious about this, we should be thinking about how to ensure that when public money could be used to support policy objectives, we include the United Kingdom reaching its net zero commitments as part of that?

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

I find nothing objectionable in what the hon. Lady is saying or indeed the amendments. However, possibly due to what she has said about the Government’s amendment and what is already in the Bill, I do not know whether what she is proposing is entirely required. Directly underneath where her proposed sub-paragraph (c) would be inserted, principle A in schedule 2, on the aim of subsidies in relation to energy and environment, refers to the aim to deliver

“a secure, affordable and sustainable energy system”,

and, in sub-paragraph (b), the aim to increase

“the level of environmental protection compared to the level that would be achieved in the absence of the subsidy.”

Both are very much in line with, and compatible with, our aim to reach net zero.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the hon. Gentleman for his comments. My understanding is that the energy and environment principles would apply to subsidies in relation to energy and the environment. We are talking about a slightly broader principle here, which is that any subsidy granted under the regime should not have a harmful impact on achieving our net zero outcomes. That would seem to be a slightly perverse use of public money when net zero is such an explicit goal and when civil servants will need to be working towards it. Indeed, as Dr Barker outlined on Tuesday,

“the green industrial revolution that we are all seeking to work towards in order to achieve net zero is also something that will require…partnership between business and Government”,

and

“an effective subsidy system can be part of that.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 39, Q52.]

These amendments are simply saying that if we are serious about what achieving net zero will mean, we should not allow a system to be established, at the same time as COP26, that could work against that, and do so using public money.

Kirsty Blackman (Scottish National Party, Aberdeen North)

For the avoidance of doubt, my colleague and I support amendments 7 and 8, which are both incredibly sensible. As is quite often the case in Bill Committees, I wish I had thought of them earlier and tabled them first.

I agree with the hon. Member for Feltham and Heston about COP26. This is happening now, and it is a moment that we can take advantage of to get towards net zero commitments. COP is coming up and there is a groundswell of public support for trying to make a difference. This is something on which my colleague and I also moved amendments during proceedings on the Advanced Research and Invention Agency Bill. We wanted ARIA’s No. 1 priority to be a focus on net zero. We also wanted a commitment from the Government that ARIA would itself operate on a net zero basis, because we are beyond the time for talking about this. In order to meet the UK Government and the Scottish Government’s commitments, we need to be taking action on this, rather than just talking about it.

It is all well and good to have in place the stuff that my neighbouring MP, the hon. Member for West Aberdeenshire and Kincardine, talked about for energy and environment subsidies, but we need that for all subsidies, whether they relate to energy and the environment or anything else. This should run through everything that the Government are doing. For every decision in the Budget, which is being discussed in the main Chamber, we should be asking, “How does this get us towards net zero and reducing our carbon output?”

I just do not think we are there yet. It does not feel like the Government are taking this seriously enough, and it is not just this Government. Governments around the world are not taking this seriously enough. We need to be there now and making that commitment. If the subsidy control regime is intended to work and to stand the test of time, and if we are looking towards those net zero targets, we need that to be in this Bill. At the very least, we need a strong commitment from the Minister that subsidies in relation to not just energy and the environment but other areas will be more favourably looked on, or less likely to be rejected out of hand, if they specifically work towards reaching the UK’s net zero targets, and particularly if they work towards something that is carbon negative. We are not doing enough of those things, so if more of the new policies that come through were carbon negative, it would be much easier for us to get to our net zero target. If the Minister could make some strong commitments on that, it would be hugely welcome, but I will be happy to support the amendments tabled in the name of the Opposition.

Bill Esterson (Labour, Sefton Central)

It is a pleasure to see you in the Chair for these sittings, Mr Sharma.

I completely agree with everything the hon. Member for Aberdeen North says and with what my hon. Friend the Member for Feltham and Heston said in moving the amendment. What is needed from Government is the commitment to hit net zero and the mechanisms to do so. That needs to go right across Government, in everything we do.

I take on board the point the Minister has already made in today’s deliberations that not everything is in the Bill; I understand that and I accept it. However, as the hon. Member for Aberdeen North argued extremely well, there is a strong—we would say an essential—case for net zero to be at the heart of the regime put in place by this legislation.

Schedule 2 does not mention transport, agriculture or housing insulation, to name just three examples, so it is not comprehensive as currently drafted. That is why we need to go much further to meet the scale of the challenge in the subsidy control regime that we are debating putting in place. The Budget yesterday did not address net zero, and it is frankly extremely worrying that it did not, especially in the run-up to COP26.

I am afraid the announcements last week did not constitute a plan and were nowhere near meeting the requirement to hit the net zero targets this country is committed to in the timely fashion that is needed, especially in terms of the front-loading we all now understand is essential in all areas except the energy industry. It is needed in transport, in building insulation and in agriculture; it is needed across industry. Unless this is in the Bill, setting out the requirement for net zero to be at the heart of the subsidy regime, I am afraid we as a country, and this Government as a Government, will not be doing what is needed.

Alexander Stafford (Conservative, Rother Valley)

Do we need to put net zero down on the subsidy as it is? If the hon. Gentleman remembers our Paris agreement only a few years ago, he knows we agreed to get to net zero by later this century. Now we have moved it forward to 2050, and I hope—I am sure the Government hope—that we will move our net zero agreement even further forward as time progresses. Will this proposal not make the Bill a bit out of date in a few decades’ time, when it should stand for longer?

Bill Esterson (Labour, Sefton Central)

The amendment, because of the way it is phrased, envisages those changes and the increasing urgency. Let us remind ourselves that, on our present track, we are looking at a temperature rise of more than 1.5 °C through the existing commitments and policy decisions not just of this country but of Governments around the world. It is important to acknowledge that we cannot do it on our own, as we are responsible for only 1% of emissions, but when we are trying to show world leadership with the presidency of COP26, it is incumbent on us to show that leadership in everything we do, and we, as Members on this Committee, have an opportunity right here, right now to support making that commitment and putting it into legislation.

Given the way the amendment is crafted, the wording,

“the United Kingdom reaching its net-zero commitments”,

does stand the test of time as and when things change. The challenge the hon. Member for Rother Valley makes is another reminder that we need to bring things further forward and that it has become important to do that over time. At the moment, we have interim dates to hit, with ambitions in 2030, and the Government have made some progress there, but by no means enough to do what is necessary to keep us to 1.5°.

Stephen Flynn (Scottish National Party, Aberdeen South)

The hon. Gentleman is making some salient points in response to the hon. Member for Rother Valley. However, once the Government eventually hit their net zero targets, will they not want to maintain those targets and not reverse that journey? In such case, the remarks of the hon. Member for Rother Valley would be completely irrelevant.

Bill Esterson (Labour, Sefton Central)

That is a good point. The hon. Gentleman is right that this does not end when we reach net zero—that is the first point. The second point is that if we need a change, we can amend the legislation later. Right now, however, this is the crucial change that the country and the world need to make. I reiterate that we as Members of the UK House of Commons—those of us here today—have an opportunity to make a statement and a commitment and to put this change on the face of the Bill.

Kirsty Blackman (Scottish National Party, Aberdeen North)

I got so carried away with my attempts to convince the Government to get to net zero as soon as possible that I forgot to ask questions when I stood up previously. It would be useful if the Minister could clarify why there are two schedules. Why does the treatment differ between the two areas? There is a difference in the treatment of subsidies in relation to energy and the environment compared with subsidies relating to any other area, and I do not quite understand the logic of having two different things. One set of principles could have covered everything, including moving toward net zero. If the Minister will explain why there are two separate schedules and why the two areas are being treated differently, that would be incredibly helpful.

Paul Scully (Conservative, Sutton and Cheam)

Let me answer that point before I speak to amendment 7. The two schedules and the additional principles are there literally just to adhere to our international obligations.

Hon. Members can rest assured that our new subsidy control regime will support the UK in meeting our net zero target by 2050, first by facilitating strategic and appropriate subsidy interventions with minimal bureaucracy and delay and secondly by ensuring that energy and environment subsidies are assessed against additional principles that promote carbon neutrality and sustainability.

The hon. Member for Sefton Central said that he could not see net zero in the Budget, but the spending review backs up the net zero strategy published the week before. The Budget will fund our strategy, which will then leverage private money and create jobs and opportunities in markets that will drive towards net zero.

Turning to amendment 7 itself, it is unnecessary explicitly to require public authorities on the face of the Bill to consider the negative effects of subsidies on the UK’s net zero commitment as part of their compliance with principle G. Public authorities will clearly need to consider the effects of subsidies in the round before awarding them, but the amendment would give undue prominence to net zero considerations with respect to subsidies that may have entirely unrelated objectives, such as high street regeneration or providing training opportunities for young people.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Does the Minister agree that this is the most important thing for every single one of us? Whether people are regenerating high streets or doing anything else, they should be ensuring that they are also moving towards net zero.

Paul Scully (Conservative, Sutton and Cheam)

I agree that we should be doing so, but what I am saying is that we do not need to do it in a process-driven way. It should be done, in the first place, in the devising and implementation of policy. I do not want to create two separate processes, because that might lead to public authority having to make assessments for every single subsidy that is awarded or made, even when there is no meaningful impact—just look at that bureaucracy. What we need to do is ensure that we enmesh net zero thinking in our policy development at every layer of government, rather than just listening for signals. Clearly, we need to take that leadership at COP26. We realise that this is the time to lead and to act, for all international Governments.

Unfortunately, the Bill will not have completed its parliamentary process by the time everyone leaves Glasgow. None the less, we need to ensure that we set out the strong work that we are doing. We have already announced policies that involve subsidies in some sectors, such as the clean heat grant and the contracts for difference scheme, announced by the Chancellor in the March 2020 Budget, providing up-front capital grants for the installation of low-carbon heat pumps and, in limited circumstances, biomass boilers. Those schemes will help consumers to overcome the higher up-front costs of low-carbon heat and will build the supply chains for it ahead of the introduction of regulations for existing buildings off the gas grid later in the decade. Those schemes—all schemes—will have to meet the terms of the domestic principles, which should also ensure that the money is well targeted and achieves good value for the taxpayer.

We have established the green jobs taskforce, which advises on how Government, industry and the education sector can work alongside other stakeholders to realise the opportunities of a green industrial revolution, supporting green jobs and skills, and ensuring that those opportunities are open to all. The evidence collected by that taskforce and its recommendations are being considered by Government as part of the development of the ongoing net zero strategy, which was published last week. We will develop that.

Those are the clear leadership principles that we should be promoting and pushing out to international colleagues from Governments around the world, who are coming to Glasgow this week and next, ahead of COP26. However, we do not need just this one principle, understandable as it is, in the Bill. Principle G already singles out negative effects on competition or investment within the UK and on international trade and investment. That is appropriate, as such distortions go to the very heart of what the subsidy control regime is for. By definition, a subsidy must have effect on competition, investment and trade, and distortion is common to all subsidies, regardless of what they seek to achieve.

Net zero considerations, however, are not inherent to all subsidies. Some subsidies will of course help businesses to reduce their emissions, but a great number will not have any meaningful or, importantly, measurable impact on the UK’s greenhouse gas emissions.

Amendment 8 would add to schedule 2 a requirement for energy and environment subsidies and subsidy schemes to deliver, or to incentivise the beneficiary in delivering, the UK’s net zero commitments. The intended effect is that a public authority planning to grant an energy or environment subsidy or scheme would not be able to proceed unless it was satisfied that that subsidy or scheme contributed towards net zero commitments.

It may be useful to recap that energy and environment subsidies must be assessed against a number of additional principles, which are set out in schedule 2. Those common-sense principles are designed to ensure, for example, that public authorities consider the need for energy and environmental subsidies to achieve reductions in emissions or otherwise increase the environmental protection relative to the level achieved without subsidy. They also ensure compliance with the UK’s international obligations under the trade and co-operation agreement with the European Union.

We share the commitment to the net zero agenda, as I expressed. We believe that subsidies correctly designed and targeted can be a powerful means to achieve that.

Kirsty Blackman (Scottish National Party, Aberdeen North)

The Minister is doing a good job of explaining what is intended by some of this, putting some meat on it, which is helpful. Will he explain what environmental protection means?

Paul Scully (Conservative, Sutton and Cheam)

There is a wide definition of environmental protection beyond net zero, as big and important as that is. The principles in schedule 2 fully support the UK’s priorities on net zero and the wider protection of the environment. The additional requirement to assess the subsidy or scheme against the net zero priorities is therefore unnecessary and may actually discourage public authorities from granting energy and environmental subsidies designed to achieve other valuable aims, such as an affordable energy system or increasing biodiversity. I humbly ask the hon. Member for Feltham and Heston to withdraw the amendment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks and all hon. Members who have contributed, including the hon. Members for Aberdeen North and for Aberdeen South. I will push amendment 7 to a vote, and will do the same with amendment 8 later. The wording has been quite carefully constructed. Schedule 1 states:

“Subsidies’ beneficial effects (in terms of achieving their specific policy objective) should outweigh any negative effects, including in particular negative effects on—(a) competition or investment within the United Kingdom; (b) international trade or investment.”

Amendment 7 would add:

“(c) the United Kingdom reaching its net-zero commitments.”

I have not heard from the Minister a strong argument as to why we would not want public authorities granting subsidies using public resources to ensure that beneficial effects outweighed any negative effects on the UK’s achieving its net zero commitments. That principle is significant, and it should be in the Bill, so I will push the amendment to a vote.

Paul Scully (Conservative, Sutton and Cheam)

The schedule sets out the seven general subsidy controls, including how public authorities should consider and assess a policy objective, and make sure a subsidy is proportionate and that it incentivises and leads to a change of behaviour in a beneficiary that would not have happened had they not had the subsidy. It does not include normal business expenses. It provides that alternative policy levers that are likely to cause less distortion should be considered before a subsidy, and that subsidies should be designed in a way that meets the policy objective and minimises the impact on competition and investment within the UK’s internal market.

Finally, principle G requires public authorities to conduct a balancing test to assess the effects on competition and investment in the UK and on international trade or investment, and to determine whether the benefits of a subsidy are greater than the negative effects of providing it. I commend schedule 1 to the Committee.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks. Notwithstanding the debate that we have just had and our ongoing concerns, which we want to return to later in the consideration of the Bill, we support schedule 1.

Kirsty Blackman (Scottish National Party, Aberdeen North)

I would like to ask a few questions, particularly about principle F in schedule 1, which says:

“Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.”

If someone was looking to invest in the United Kingdom, create jobs, start a business or bring a specific arm of a business to a certain place, and Aberdeen were to subsidise that, which would therefore have a negative effect on Cardiff, because Cardiff was not getting the jobs and Aberdeen was, is that excluded as a result of principle F? It concerns me that pretty much every subsidy that could be given will have a potential negative effect on another part of the UK because it would be incentivising investment, or whatever, in one part of the UK.

I am concerned that principle F can be read either as not meaning anything or as something that is too restrictive for what the Government are trying to achieve with what they are doing. I am thinking about what the Government are trying to achieve because a number of Government Back Benchers stood up on Second Reading and said, “This is great, because it means we will be able to get lots more investment and put lots of subsidies into our area.” If that is the Government’s intention, which I think it probably is, I worry that the risk-averse nature of granting authorities means that they will be concerned about doing that, in case they fall foul of the principle. If the Minister gave us a bit more clarity on how the principle is intended to work, that would help granting authorities to make the right decisions in order to subsidise economic development in their areas.

Paul Scully (Conservative, Sutton and Cheam)

I thank the hon. Lady for that important question. The answer to her first question is no. It is more about fitting in with the levelling-up agenda, which is what hon. Members talked about on Second Reading—attracting subsidies to an area. For example, we have seen a lot of renewables investment, including offshore wind and the manufacture of equipment, in Teesside and Humber. We have seen the setting up of gigafactories in the north-east and other areas, and such inward investments provide stimulus in those areas. There are natural clusters of businesses in those areas, but it is more in this regard—the distortive effects of, say, moving companies from one area of the UK to another, and adhering to the United Kingdom Internal Market Bill, which we debated last year. It is about ensuring that that works, rather than being in some sort of race between the devolved Administrations of the nations, or between regions, to attract inward investment.

Kirsty Blackman (Scottish National Party, Aberdeen North)

If, for example, an offshore wind farm is built off the coast of Teesside, rather than off the coast of Aberdeenshire, because of the subsidy regime that is in place, that is, by its very nature, disadvantageous to Aberdeenshire. That is what I am trying to work out here.

I think I get what the Government are intending: they are trying to stop a subsidy race. That is the intention behind the schedule, but I feel that the schedule does not achieve it. I am concerned about how the provision is worded, because any subsidy will be advantageous to one region and not to another, which is the intention behind subsidies. There could be more clarity on that principle so that it achieves what the Government want and does not preclude local authorities, or any other granting authority, from making decisions that will advantage their areas.

Paul Scully (Conservative, Sutton and Cheam)

Essentially, the framework and the clause minimise, but cannot eliminate, distortion. That is the purpose of the Bill.

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

This is relevant to principle G, which says:

“beneficial effects…should outweigh any negative effects, including…competition or investment within the United Kingdom”.

I cannot see where the hon. Member for Aberdeen North is coming from when she says that more clarity might be good for local authorities and other granting bodies. That is quite clearly addressed in the Bill, so the Government are clearly trying to stop the negative effects she has described.

Paul Scully (Conservative, Sutton and Cheam)

My hon. Friend makes a good point. The Bill weighs up the benefits versus the disadvantages, and minimises rather than eliminates distortion—we cannot eliminate distortion. We have talked about this a number of times, and we will continue to, but the upcoming guidance will start to flesh out some of the specifics, which it is probably not appropriate to get into now.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Principle G absolutely does help, but it does not fix the problem. Ensuring that the positive effects outweigh the negative effects is good and grand, but comparing a windfarm in Teesside and a windfarm in Aberdeenshire relates to balance rather than the positive effects outweighing the negative. That just encourages the same investment and the same number of jobs in one place in the United Kingdom rather than in another. That is why I am concerned that G does not exactly fix that issue.

Schedule 2 - The energy and environment principles

(Afternoon)

Schedule 2 - The energy and environment principles

Paul Scully (Conservative, Sutton and Cheam)

It is a pleasure to serve under your chairmanship, Ms Nokes. The schedule lists the additional energy and environmental principles that energy and environment subsidies must be evaluated against, in addition to the subsidy control principles in schedule 1. These common-sense additional principles are designed to ensure, for example, that public authorities consider the need for energy and environment subsidies to achieve reductions in emissions, or otherwise increase the level of environmental protection relative to the lower level achieved without the subsidy. There are also more specific principles in schedule 2, including, for instance, those regarding subsidies for electricity generation adequacy, renewable energy and cogeneration. This schedule is key to complying with our obligations under the trade and co-operation agreement with the European Union, and I commend it to the Committee.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

It is a pleasure to serve under your chairship, Ms Nokes. I thank the Minister for his remarks on schedule 2. I have no further comments to add—we will be supporting this schedule stand part—other than to allude to the debate we had earlier about making more explicit within the schedule the need to deliver the UK’s net zero commitment, and that subsidies should contribute to that goal. That is an area that I am sure we will come back to when debating later parts of the Bill, but we will support this schedule stand part today.

Clause 10 - Subsidy schemes and streamlined subsidy schemes

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 9, in clause 10, page 6, line 30, leave out paragraph (a) and insert—

“(a) is made by—

(i) a Minister of the Crown,

(ii) the Welsh Ministers,

(iii) the Scottish Ministers, or

(iv) a Northern Ireland department; and”

This amendment would extend the power to make streamlined subsidy schemes to the Devolved Administrations.

Caroline Nokes (Conservative, Romsey and Southampton North)

With this it will be convenient to discuss amendment 16, in clause 10, page 6, line 30, after “Crown” insert

“, or other primary public authority, as defined in subsection (3),”.

The purpose of this amendment is to allow the Scottish Ministers, Welsh Ministers and relevant Northern Ireland department, as well as other public authorities, to make streamlined subsidy schemes.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I am pleased to be able to move amendment 9 on behalf of myself and my hon. Friend the Member for Sefton Central. We have proposed the amendment because we recognise that the streamlined subsidy schemes play a significant role in this legislation. Clause 10 defines subsidy schemes and streamlined subsidy schemes: unlike subsidy schemes, streamlined subsidy schemes can be made only by a Minister of the Crown, but they do create a route for certain subsidies to be passed more easily and quickly, and on occasion have the potential to effectively contribute to key policy objectives and targets, which is their purpose.

The question is why the Government have allowed only the Secretary of State to create streamlined schemes. In our view, the restriction not only limits the potential of the Bill, but undermines the important role of the devolved Administrations. Those Administrations are more likely than the Secretary of State to understand what subsidies and schemes may be most beneficial for their respective nations or areas, and by preventing them from being able to create streamlined schemes, the Government are potentially hampering the effectiveness of subsidies in Scotland, Wales and Northern Ireland. As Daniel Greenberg explained in our evidence session on Tuesday,

“throughout the Bill, you see ‘Secretary of State, Secretary of State, Secretary of State’—all powers of HMG—and you think, “Hold on, the devolved institutions are also public authorities. They appear in the list of public authorities in clause 6, so why is it that they do not also share Secretary of State powers?”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 61, Q80.]

While Labour understand that power over UK subsidies should ultimately reside in Westminster, preventing the devolved Administrations from creating streamlined schemes undermines their important role in our democratic structure, as well as the responsibilities that they have in their respective nations. It should also be noted that any proposals for streamlined schemes must be laid before Parliament, as set out in subsection (5). Any streamlined subsidy schemes created by the devolved Administrations could be subject to ample parliamentary scrutiny. Labour is therefore seeking to amend the clause to allow Welsh Ministers, Scottish Ministers and Northern Ireland Departments to create streamlined subsidies. We believe that the amendment would help increase the effectiveness of subsidies across the UK while respecting the role of the devolved Administrations. We also support the SNP’s amendment, which I think would have a very similar effect.

Kirsty Blackman (Scottish National Party, Aberdeen North)

It is a pleasure to take part in the Committee’s proceedings with you in the Chair, Ms Nokes. I want to say a couple of things. I agree with almost everything that the hon. Member for Feltham and Heston said, apart from the idea that the Secretary of State should have powers over what happens in Scotland, because obviously I believe that Scotland should be independent—but that is probably an argument for another day.

The powers of the Scottish Parliament were voted for democratically in a referendum that showed the Scottish people’s will that a Scottish Parliament should be created. Those powers have been discussed on many occasions, including in subsequent Scotland Acts. The powers of the Scottish Parliament, having been agreed democratically, are part of our democracy, whereas the powers that Westminster has do not seem to have ever been discussed or voted on democratically.

As regards what the Opposition spokesperson said about upholding the democratic nature of the United Kingdom and the democratic powers of the Scottish Parliament, the Welsh Parliament and the Northern Ireland Assembly, I think it is really important that the ability to make streamlined subsidy schemes be included. If the Government are going to talk about levelling up, which I am sure they will—they generally do on such matters—they should consider that those devolved bodies, which are elected to represent those areas, have a huge amount of knowledge and are much closer to the places they represent. They should be able to make streamlined subsidy schemes too, because I believe, as many people do, that they would make them better than Westminster is likely to.

Robin Millar (Conservative, Aberconwy)

It is a pleasure to serve with you in the Chair, Ms Nokes. It is important to recognise what the constitution of the UK says, and that is very clearly that powers and competences are reserved to the United Kingdom Government. We do not have a system of equivalence; there is no equivalence between a devolved Government and the UK Government, because sovereignty rests here. I know that equivalence features in some of the contributions we are hearing, but there is no place for it in our constitution. The devolved powers and competences are very clearly defined, which is absolutely correct. The suggestion that the Secretary of State’s powers should be replicated elsewhere does not fit with our proper constitutional model.

In response to the comment from the hon. Member for Aberdeen North about powers being discussed and voted on, we do of course discuss and vote on powers in the UK Government every time there is a general election, and frequently through sittings like this too, so I am happy that there is extensive consideration of them.

On the point about streamlining, it is important to understand some of the limitations, which are themselves discussed within the devolved Administrations, in particular on the number of elected members. For example, there is currently a discussion within the Welsh Senedd about increasing the number of its Members, and one of the reasons is to improve its ability to scrutinise itself. For all those reasons, I hope that I have made a helpful contribution to the discussion.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Is the hon. Member’s concern about streamlined subsidy schemes that he does not believe the Welsh Senedd has enough Members to agree to such schemes?

Robin Millar (Conservative, Aberconwy)

No, I was observing that there is a discussion taking place within the Senedd about the number of Members, and one of the arguments for increasing that number is about improved scrutiny, because having more Members would allow for greater and more effective scrutiny of internal operation, and therefore any decision made, whether on a streamlined subsidy scheme, funding, grants or whatever, would benefit from that extra scrutiny.

Paul Scully (Conservative, Sutton and Cheam)

Streamlined subsidy schemes have an important role to play in supporting public authorities to deliver well-designed subsidies: subsidies that address market failures but minimise the risk of excessive distortion to competition, investment and trade and that are not subject to mandatory or voluntary referral to the subsidy advice unit under the provisions of chapter 1 or part 4. The Government intend that streamlined subsidy schemes will be a pragmatic means of establishing schemes for commonly awarded subsidies, including in areas of UK strategic priority, that all public authorities in the UK would able to use if they wish. They will therefore function best when they apply across the entire UK. The Government will design them so that they are fit to be used in all parts of the UK. In addition, clause 10 sets out the procedural requirements when making a streamlined subsidy scheme, including the requirement that it is laid before Parliament.

The practical effect of the amendment would be to require devolved Administration Ministers to lay streamlined subsidy schemes before the UK Parliament, both when they are made and if they are modified. The appropriateness of that procedure is questionable, given that devolved Ministers are not directly accountable to the UK Parliament.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Can the Minister give an example of a streamlined subsidy scheme?

Paul Scully (Conservative, Sutton and Cheam)

The streamlined subsidy schemes will be worked up as we come up to the commencement of the Bill, so I will not set out a list of streamlined moots as yet, but they are there for something that is common and not necessarily devolved in particular areas that needs to be rolled out at speed with minimum interruption to the public authorities. The obvious example––it is not necessarily a streamlined moot––in recent years is the grant scheme that we have had in covid, which came under a lot of pressure from having to ask for exemptions within the European Union to get the framework available there, which meant that we could not roll it out to the extent that we wanted to, as quickly as we wanted to.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Does the Minister think it possible that some of the streamlined subsidy schemes that will be made are likely to encroach on devolved areas, even though they are being made for the whole UK? If so, does he believe that when a streamlined subsidy scheme is laid before Parliament it should talk about the consultation that has been held with the devolved Administrations responsible and explain why, if they disagree with the scheme, the Government are going ahead anyway?

Paul Scully (Conservative, Sutton and Cheam)

Rather than a streamlined scheme encroaching on the devolution settlement, it is important to stress that any public authority in the UK will be free under the Bill to create a subsidy scheme for its own purposes. Schemes have many of the same attributes that streamlined subsidy schemes have in that only the scheme, and not the individual subsidies awarded under it, needs to be assessed under those principles. Schemes offer a similar administratively light touch means of awarding many subsidies that are also open to any and all public authorities, including the devolved Administrations. What we are saying is that the streamlined subsidies are best used when they are available across the UK but schemes are available to the devolved Administrations, to the public authorities and indeed to the UK Government to award. They are more bespoke and tailored. Because of that, I ask the hon. Lady to withdraw the amendment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks. Perhaps it is something that I have not seen, but could he clarify where it is specified that streamlined subsidy schemes would need to be UK-wide? I could not see it in the legislation.

Paul Scully (Conservative, Sutton and Cheam)

What I was saying was that streamlined subsidy schemes do not need to be UK-wide. We are not putting that on the face of the Bill. They work best and are more effective when they can be rolled out across the UK, because schemes effectively do a very similar thing. It could be more bespoke and more tailored to a local area, economy or whatever the subsidy relates to.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. It feels as if this area is not sufficiently defined. I cannot see why we would not want to have better symmetry of powers between the devolved nation Administrations.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Is not a reason that this could distort competition between different parts of the United Kingdom? If an example of a streamlined subsidy scheme is the business rate grants for hospitality, whole parts of the UK—Scotland, for example—could provide a huge amount of support across the hospitality sector, which would unfairly disadvantage the rest of the UK. Is that not an example of how this might be a danger?

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I am not sure I fully agree with that. Surely it would mean that it was incompatible with the principles in schedule 1. I think that the principles would preclude that. I come back to the point that at the moment we have an asymmetry of power. I cannot, in the circumstances of streamlined subsidy schemes as they are currently defined, see why that should not be a power that is there for the devolved Administrations. It is important to go further with the amendment, and I would like to put it to a vote.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Just to come back on what the hon. Member for Thirsk and Malton said, business rates are already devolved in Scotland. We already have a more generous system of allowances. People at the lower end of income, pay or value of properties pay less than they would in England anyway. So we already have that in place. It does not have to come in as part of a subsidy scheme or streamlined subsidy scheme, as far as I am aware.

The hon. Member for Feltham and Heston is correct. The Minister seems to be saying that the schemes will apply across the UK, but nothing in the Bill says that this will apply across the UK for any of the streamlined subsidy schemes that come through. The Government could create a streamlined subsidy scheme that applied only in Blackpool, for example. The fact that it is a streamlined subsidy scheme does not mean that it has to apply across the UK.

I did not get a straight answer from the Minister about devolved competencies. Is it intended that the UK Government will make streamlined subsidy schemes that trespass on areas of devolved competency and apply those across the UK? If that is the case, I am even more concerned about this than I already was. If they are going to do that only in reserved areas, that makes sense, but given the Government’s tendency to reduce the power of the Scottish Parliament and the other devolved Administrations, I am not sure that I have a huge amount of trust in the fact that the streamlined subsidy schemes will not trespass on the devolved areas.

Paul Scully (Conservative, Sutton and Cheam)

The streamlined schemes are not effectively the most commonly used ones. They are few and far between. The schemes will be far more tailored. They do very similar things and provide similar freedoms in terms of ease of access. A scheme, whether streamlined or not, needs to be assessed against the principles. Every streamlined subsidy scheme will be laid in Parliament after it is made. Any streamlined subsidy scheme that is amended will be laid in Parliament. That will ensure transparency for those schemes. We will publish a number of schemes and lay them before Parliament before the regime is commenced. Public authorities will therefore have sufficient time to understand the parameters of streamlined subsidy schemes before the subsidy control regime commences.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 10, in clause 10, page 6, line 32, at end insert—

“(4A) A streamlined subsidy scheme may be made, in particular, for the purposes of providing support to areas of deprivation.”.

This amendment would clarify that streamlined subsidy schemes may be made for the purposes of supporting areas of deprivation.

I will keep my remarks brief. As I stated earlier, the Bill provides an opportunity to target funding towards areas of deprivation. In our view, that is not made as explicit as it needs to be in the Bill. If we are looking at levelling up, tackling deprivation and equity of outcomes, we would want a streamlined subsidy scheme, in particular for the purposes of providing support to areas of deprivation. We have tabled a similar amendment to schedule 1, but are seeking here to amend subsection (4) of clause 10. The amendment would explicitly clarify that streamlined schemes can be used to support projects to tackle economic deprivation.

Paul Scully (Conservative, Sutton and Cheam)

As we have heard, the Government intend streamlined subsidy schemes to be a pragmatic means of establishing schemes for commonly awarded subsidies. That includes subsidies in areas of UK strategic priority that all public authorities in the UK will be able to use if they so wish.

The Government are fully supportive of action to assist areas of deprivation and to facilitate the levelling-up agenda. The new domestic subsidy control regime will give authorities the flexibility to deliver subsidies where they are needed to support economic growth, without facing excessive bureaucracy or lengthy pre-approval processes. We will also publish guidance to make clear how the principles should be applied by public authorities when considering subsidies that advance the levelling-up agenda or promote the economic development of relatively disadvantaged areas.

We would not want to pre-empt work to develop the streamlined subsidy schemes by committing here and now to privilege one specific policy objective over all the others in the Bill. In any case, the Bill does not set limits on the policy objectives that a streamlined subsidy scheme can pursue. Seeking to specify particular objectives in the Bill may lead to the power to create streamlined subsidy schemes being interpreted in an unduly narrow way in the future. I therefore ask the hon. Member to withdraw the amendment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I had wanted to press the amendment to a vote, but perhaps I can ask the Minister for further clarification. If, in the further guidance that may be coming on streamlined subsidy schemes, we can return to the question of the objectives and purposes for which those schemes are made, I am happy to withdraw the amendment today and come back to the point in future discussions.

Paul Scully (Conservative, Sutton and Cheam)

I am grateful to the hon. Member. It is important that we continue to talk about this issue, so I am happy to discuss it further.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to ask leave to withdraw the amendment.

Paul Scully (Conservative, Sutton and Cheam)

As we have heard, the clause confirms that public authorities can create a subsidy scheme and that a Minister of the Crown can create a streamlined subsidy scheme. I have talked about the fact that they are a pragmatic means of establishing schemes for commonly awarded subsidies in areas of UK strategic priorities. All public authorities in the UK will be able to use them, if they so wish.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. In relation to the discussions that we have had, and our concerns about some of the areas under clause 10, I will not be proposing that we vote against it standing part. However, there are concerns. If there were some mechanism or means by which we could abstain, we would seek to do so. There are some big gaps in clarity regarding some of the clause’s powers and what they can be used for, and we would like greater definition and scrutiny.

Clause 11 - Subsidies and schemes of interest or particular interest

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 11, in clause 11, page 6, line 40, at end insert—

“(1A) Regulations under this section must be made by no later than three months after this Act receives Royal Assent”.

This amendment would require the Secretary of State to make regulations giving the meaning of “subsidy, or subsidy scheme, of interest” and “subsidy, or subsidy scheme, of particular interest” no later than three months following Royal Assent.

I am grateful for the opportunity to move amendment 11. I mentioned earlier that this Bill has many issues when it comes to devolution. We want a four-nation settlement to be integral to how the regime is implemented. It has to have the confidence of the whole nation, and it must deliver sustainable outcomes across the whole of the UK, but Professor Fothergill summarised on Tuesday:

“From the point of the view of the devolved Administrations, for example, the passage of the Bill will still leave them pretty much in the dark as to what they can and cannot do.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 12, Q8.]

Clause 11 highlights yet another devolution issue. It gives the Secretary of State the power to define schemes of interest, and of particular interest, after the Bill receives Royal Assent. How the Secretary of State chooses to define these areas will have a significant effect on the legislation and its implementation. Given the importance of these definitions, could the Minister explain why the Government have not gone further and included them in primary legislation, instead leaving them up to the Secretary of State? Does he not agree that Parliament should have the opportunity to properly scrutinise such significant definitions at this stage of the Bill?

Does the Minister also recognise that it would therefore be of concern to the devolved Administrations to be excluded from the making of these definitions? Daniel Greenberg expressed on Tuesday how the Bill falls short on

“explanation of some of the systems and mechanisms that will inevitably be required to go on underneath the surface in order to reflect the economic competencies of the devolved Administrations”.––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 60, Q80.]

As I have said, the devolved Administrations have an important role to play in the creation and implementation of subsidies in their respective nations. As such, there is an important part for them to play in the process of defining and setting these significant terms.

Paul Scully (Conservative, Sutton and Cheam)

As we have heard, amendment 11 would require the Government to make the regulations within three months. The Government fully recognise the importance of establishing clear definitions for the categories in a timely fashion, both to create certainty for public authorities and to set the parameters for the work of the subsidy advice unit.

Regulations under clause 11 are subject to the affirmative procedure. Therefore, a draft of the regulations will be laid for debate and approval by both Houses of Parliament in sufficient time to allow for the final regulations to be made for the commencement of the regime, and with a sufficient lead-in time for the public authorities. We expect commencement to be in autumn 2022, subject to the passage of the Bill and secondary legislation through Parliament. Therefore, there is plenty of time and I do not believe that the amendment is necessary.

Finally, the Government may need to lay additional regulations under clause 11 at some point in the future. For example, the global economic conditions may change, meaning that we need to amend the definitions. The amendment could prevent the Government from laying essential regulations after the period of three months following Royal Assent. The hon. Lady asked why the subsidies of interest criteria are not in the Bill. We want to ensure that we have the flexibility to develop them in a changing world, so they do sit better within regulations. I therefore ask her to withdraw the amendment.

Kirsty Blackman (Scottish National Party, Aberdeen North)

To flip that on its head, if the Minister expects and hopes that the regime will be implemented in autumn 2022, will he confirm that he also expects and hopes that the regulations under this clause will be made in advance of the summer recess in 2022 to allow authorities the time to look at them properly and digest them in advance of the scheme coming in?

Paul Scully (Conservative, Sutton and Cheam)

Clearly, we want to make sure that the regulations go through due parliamentary process and that colleagues have plenty of time to see them, discuss them and scrutinise them. That is absolutely appropriate. We also want to give businesses time to see what is on the horizon, and to give public authorities—those awarding authorities—time to adjust to the new framework.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his remarks. On the basis that we want to ensure that there is time for scrutiny—and I think he alluded to some assurances that things will move as quickly as possible—I beg to ask leave to withdraw the amendment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 12, in clause 11, page 7, line 8, at end insert—

“(4) Before making regulations under this section, the Secretary of State must seek the consent of the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland.

(5) If consent to the making of the regulations is not given by any of those authorities within the period of one month beginning with the day on which it is sought from that authority, the Secretary of State may make the regulations without that consent.

(6) If regulations are made in reliance on subsection (5), the Secretary of State must make a statement to the House of Commons explaining why the Secretary of State decided to make the regulations without the consent of the authority or authorities concerned.”

This amendment would require the Secretary of State to seek the consent of the Devolved Administrations before making regulations under this section. Where such consent is not given within one month, the Secretary of State may make the regulations without that consent, but must make a statement to the House of Commons explaining their decision.

It is my pleasure to speak to this amendment. It would require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. As the Minister just mentioned, the Government may wish to bring forward further regulations to make changes under clause 11. We propose that if such consent is not given within one month, the Secretary of State may make the regulations without that consent, in line with other principles here and in the United Kingdom Internal Market Act 2020, but must make a statement to the House of Commons explaining that decision.

As I have outlined, we are very concerned that there needs to be a fair and equitable four-nations solution in how this legislation is developed and implemented. That will be an important part of its success and the confidence that people have in it over time. As I have said, the devolved Administrations have an important role to play in the implementation of subsidies, and they should play their part in defining and setting the significant terms in the legislation.

If the Secretary of State is unable to gain the devolved Administrations’ consent—I hope that it will be forthcoming on the basis of there being constructive dialogue between the nations, and those mechanisms being set up in good faith—it is important that that has the scrutiny of the House of Commons, and that the Secretary of State makes a statement to the House explaining what the issues were and why agreement was not reached.

As I have said, the regulations will have an important effect on the subsidy regime. It is bad enough that they are not included in primary legislation, but it is important that dialogue happens to ensure that the best regulations are made under this clause. I hope that the Minister will agree that the definitions need to be set in partnership and in discussion with the devolved Administrations, and that it would be a sign of confidence in the regime to seek that consent.

Kirsty Blackman (Scottish National Party, Aberdeen North)

I have a couple of points on this amendment, and I want to give it my wholehearted backing. I agree that the devolved Administrations should be consulted on these regulations. I would probably go further and have them not proceed if the devolved Administrations did not agree, but we are where we are.

I am a serving member of the Procedure Committee, and we have discussed this at huge length recently in our report and our look at how the territorial constitution works, and how the devolved Administrations relate. One thing that is brought up regularly is that if the UK Government proceed with something in the absence of legislative consent, there is no clear mechanism for the UK Government to explain to Parliament why the process has happened in advance of legislative consent. For me, it seems like the very least that the UK Government should do if something proceeds without consent.

That is important in relation to legislative consent motions for primary legislation where something trips over into devolved competencies, as we have seen a number of times in recent years. When it comes to these regulations, I think it is really important that the devolved Administrations are in agreement with what happens, because, in the main, they will be guaranteed authorities implementing subsidy schemes in the devolved areas. The Scottish Parliament has authority over the local authorities in Scotland so it will oversee some of their work, particularly when it comes to directing them how to best improve their local areas. If the UK Government are to proceed without the consent of the devolved Administrations, they must come and explain to us why.

I note that the UK Government and Scottish Government, as well as the other Administrations, have regular conversations about how things could go forward, but I feel there is a significant amount of disagreement at the moment in many areas. It would be very good if we could all come to an agreement about what “particular interest” means. If we cannot, I believe that this House should know why the UK Government think that agreement has not been reached, and why they intend to proceed anyway.

Paul Scully (Conservative, Sutton and Cheam)

Obviously, the Government welcome the devolved Administrations’ ongoing interest in the Bill, and we continue to engage with them on a regular basis. In coming up with this framework, I think we have had at least 34 official-to-official engagements and 10 or so ministerial-to-ministerial engagements with the devolved Administrations. It is important that we continue that spirit of discussion, because we have to set the right definitions for the subsidies of schemes of interest or particular interest.

Having those appropriate definitions is really important to ensure that the subsidy advice unit is focused on the subsidies and schemes that are most likely significantly to distort competition and investment in the UK, or that may do the same to our trade with other countries. It also means, as we have heard, that regulations made under clause 11 may need to be amended quickly in the event that economic conditions change rapidly, for example. A requirement to seek the consent of the devolved Administrations each time the power is used risks introducing significant delays into the process.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for his comments. As the Institute for Government has made clear in its commentary on the Bill,

“a successful system needs buy-in from all parts of the UK…any regulations should be made in consultation with the devolved administrations…government must take a collaborative approach to writing the regulations that will determine how the system will actually work.”

The Minister has made the argument himself, really. In his opening comments, he rightly praised the work that has already taken place, as well as all the conversations—the 34 official-to-official meetings and the 10 Minister-to-Minister meetings—that are happening. That precedent has already been set, and there is clearly a commitment on all sides for that to continue.

The Minister also made the point about urgency, but surely one month is a reasonable timeframe within which to check and consult that we are on the right course, and, if the Governments are still not in agreement, to proceed as the reasonable compromise in our amendment sets out.

Paul Scully (Conservative, Sutton and Cheam)

The spirit is certainly there, but I do not want to bind future Administrations to a requirement to respond in emergency situations.

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

I concur with my hon. Friend. We have seen in the past few years—with British Steel, for example—that the Government have had to move incredibly quickly to get subsidies in place. Adding that one-month period could determine the success or failure of such subsidies in supporting a specific UK industry. Time is of the essence.

Paul Scully (Conservative, Sutton and Cheam)

Absolutely. The Government have determined—as we did in debate on the United Kingdom Internal Market Act 2020—that subsidy control is a reserved matter, so it is right that subsidy control policy is made and voted on in Parliament. Clearly, we must ensure that those schemes are scrutinised, and we will continue to engage with the Scottish and Welsh Governments and the Northern Ireland Executive, as we have done in drafting the Bill and since its introduction. We are committed to engaging with them regularly and listening to their views during the Bill’s passage and beyond. That includes engagement on the definitions of “subsidy, or subsidy scheme, of interest” and “subsidy, or subsidy scheme, of particular interest”. I therefore ask the hon. Member for Feltham and Heston to withdraw the amendment.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. I also thank other hon. Members who have contributed, particularly the hon. Member for Aberdeen North, who brought her expertise and experience from the Procedure Committee to the discussion. That was quite helpful as it highlighted a wider issue about better defining how the House can more effectively support the goals of our devolved Administrations and of Westminster in a more coherent way.

This quite measured amendment would

“require the Secretary of State to seek the consent of the devolved Administrations before making regulations under the clause. Where such consent is not given within one month, the Secretary of State”

can go ahead. The amendment deals with making regulations under the clause, and would ensure that the process was working properly.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Does the shadow Minister agree that because the clause deals specifically with schemes of interest and of particular interest, it is pretty unlikely that a situation will arise whereby an economic failure needs to be addressed in the space of a month, but cannot be addressed because the Government cannot change the definition of “interest” or “particular interest”?

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I think the hon. Member is right on this—the definitions would not necessarily change in those circumstances, and some of that is more about the speed of being able to grant a subsidy—but I am not sure I followed the logic of the intervention, although I appreciate that there is a concern there and it is important that we iron out those scenarios. However, I am not sure the intervention is pertinent to the issue being debated now.

I will press the amendment to a vote.

Paul Scully (Conservative, Sutton and Cheam)

The clause will enable the Secretary of State to make secondary legislation to define subsidies or subsidy schemes of interest, or of particular interest. We know that some subsidies are more likely than others to pose a risk of distorting international trade or competition within the UK. International trade disputes, including at World Trade Organisation level, may have arisen in particular sectors. As we heard earlier, that is especially common in sectors of long-standing global over-capacity, such as steel. Subsidies to enterprises operating in sectors that have historically faced a higher proportion of disputes may therefore warrant a proportionately higher level of scrutiny before they are given.

The Bill will establish the mechanisms for the referral of those subsidies and schemes to the subsidy advice unit, but it is important that the Government have some flexibility to modify the criteria over time in response to market conditions or the periodic reviews that will be carried out by the SAU to ascertain how the domestic subsidy control regime is working. Both Houses will have the opportunity to debate any regulations in draft to ensure that the criteria for what constitutes “of interest” or “of particular interest” are robust and capture the right subsidies and schemes for additional scrutiny.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I will add nothing further to the comments made during our discussion of the amendments. There are areas that we continue to be concerned about, but we will not oppose the clause standing part.

Clause 12 - Application of the subsidy control principles

Paul Scully (Conservative, Sutton and Cheam)

The clause is central to the new subsidy control regime. It will impose a duty on public authorities to consider the subsidy control principles before deciding whether to give an individual subsidy or make a subsidy scheme. A public authority cannot go on to give the subsidy or make the scheme unless they are of the view that it is consistent with those principles. That duty does not apply when a subsidy is given under a scheme. That is because the terms of the scheme must be consistent with the principles themselves, and any subsidies must therefore comply with those terms.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. This is an important clause, so we obviously support it standing part of the Bill. I seek his view on a couple of points that came up in relation to earlier clauses regarding how a public authority will confirm that the subsidy is in line with the principles—we talked about that in the debates on clauses 3 and 4 standing part of the Bill—and ensure that the quality of information that is then published reflects the consideration process that the public authority went through.

Earlier, the Minister talked about the expectation that public authorities will keep their own records of how they made assessments that the subsidy being provided would not distort competition, and that there were not ways in which it could have been available in the market on more favourable terms, and so on. It is important from a transparency and public confidence point of view that it be clearer how it would need to be demonstrated, or at least confirmed, by the public authority that it had considered the subsidy control principles and what records might need to be kept should there be a concern at a later date.

Paul Scully (Conservative, Sutton and Cheam)

In the first instance, an interested party can request the public authority to provide information demonstrating how it has complied with the duty under clause 76. Under part 5 of the Bill—

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I think there will be a further debate to have on the interested parties point. The important thing is what the public authority might be expected to do.

Paul Scully (Conservative, Sutton and Cheam)

Absolutely. I was going to say that the interested party can, obviously, make a challenge—commence a judicial review of the decision. The duty to consider and act consistently with the principles does leave room for legitimate judgment by public authorities.

On the question of what standard will be applied when looking at that, should it be judicially reviewed, the Competition Appeal Tribunal will apply the judicial review standard when hearing challenges. None the less, the guidance that is going to be published will provide advice on the practical application of provisions, including the duty to consider and act consistently with the subsidy control principles. That guidance will be published in good time for public authorities and other stakeholders to understand the key requirements of the new regime before it commences.

Clause 13 - Application of the energy and environment principles

Kirsty Blackman (Scottish National Party, Aberdeen North)

I beg to move amendment 17, in clause 13, page 7, line 30, leave out

“in relation to energy and environment”.

This amendment would require public authorities to consider energy and environment principles when giving any subsidies, not just those related to energy and environment.

The reason I tabled the amendment is something that we covered earlier today in relation particularly to net zero and thinking about the obligations that we all have to ensure the protection of the environment. I think it is really important, as the Minister agreed earlier today, that in every policy decision that is being made by every authority, whether it is granting a subsidy or doing anything else, those authorities are considering the environmental principles of that decision.

This proposal would ensure that consideration was given to the energy and environment principles in schedule 2 in relation to every subsidy that was given. That is not too much for us to ask of granting authorities. They are giving subsidies, and we have to remember that the subsidies they are giving represent significant amounts of money. We are talking about hundreds of thousands of pounds; we are not talking about when a local authority gives a grant of 100 quid to a small community council to put up Christmas lights. As we are talking about big sums of money, it is totally reasonable that we expect these public authorities—which do anyway a huge amount of audit, and a huge amount of sense checking of any spend that they do and consideration of any spend that they do— to think about all that spend. They should do so not just in relation to subsidies, but in relation to the energy and environment principles.

I probably would have written schedule 2 slightly differently. I maybe would have had slightly different energy and environment principles, including the Opposition’s suggestions around net zero, but given that those are in the Bill and that schedule 2 is in the Bill, it is totally reasonable for us to say that those authorities should consider the energy and environment in everything they do. That is not explicit or even implicit in schedule 1, in terms of the concerns that authorities have to look at with regard to the principles there. This is hugely important.

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

Given that we did not accept the hon. Lady’s earlier amendment, does she not worry that this new proposal might weaken the Bill further with regard to what she is talking about—environmental protections?

Kirsty Blackman (Scottish National Party, Aberdeen North)

I think that, actually, schedule 2 does provide some environmental protections; I am quite comfortable in saying that. It does not do everything I would have wanted it to do. It does not create a requirement to meet the carbon commitments and move towards net zero in the consideration of the principles. However, increasing the level of environmental protection is in there, and it is important that all authorities are thinking about increasing the level of environmental protection in whatever they are doing. Now is the time for the UK Government to make that explicit in relation to everything that everybody is doing, whether it is subsidies or something else. That is why the amendment has been tabled.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the hon. Lady for her explanation of the amendment. We certainly recognise the intention behind it, which was something we looked at and gave thought to. We share the view that climate and environmental considerations should be taken into account in assessing all subsidies, and ensuring that all subsidies are assessed in the context of the UK’s net zero commitments is important. That is a real gap in the Bill—for example, transport subsidies might sit outside the scope of schedule 2, and therefore a public authority might not be required to consider the environmental questions and impact relating to those.

Labour believes that hardwiring the net zero considerations into all subsidy decisions would be better achieved by amending schedule 1, as our amendment would have done. I hope that as we proceed with our debates in the House and the period of COP26, which is just ahead of us, we can return to how we embed that principle in the legislation. These are principles of general relevance, so that is where we see a general requirement to consider net zero sitting a little more comfortably. That is why, while we support the intention behind the amendment, we would prefer to reconsider how we look at embedding the general principle of net zero more widely in the legislation.

Paul Scully (Conservative, Sutton and Cheam)

I remind hon. Members that the principles in schedule 2 include general matters such as requiring energy and environmental subsidies to be aimed at, or to incentivise the beneficiary in, delivering a secure, affordable, sustainable energy system, or to increase the level of environmental protection relative to that which would have been achieved in the absence of the subsidy. The schedule also includes a number of more specific principles, covering for example the decarbonisation of emissions linked to industrial activities or subsidies to electricity-intensive users to compensate for rises in electricity costs.

While I recognise the commitment shown by the hon. Member for Aberdeen North to our transition to net zero—subsidies that are correctly devised, designed and targeted can be a powerful means to achieve that—public authorities grant subsidies for many reasons and in connection with many policy objectives.

Kevin Hollinrake (Conservative, Thirsk and Malton)

The UK is pretty much a world leader in tackling climate change, second only to Sweden in the Climate Change Performance Index. We must look at this question in the context of what the United Kingdom does, rather than something so specific. Would not the amendment effectively open the door to a lot of judicial challenges on whether subsidies were always in the interest of energy and the environment? Is that not opening the door to a lot of problems in the granting of subsidies?

Paul Scully (Conservative, Sutton and Cheam)

It might be. Whether there would be a slew of judicial reviews remains to be seen, but certainly, there is a question whether subsidies for other policy objectives would be awarded in the first place, because it would be too onerous to do so. Let me take the example of subsidies for training young people. There are some valuable economic and societal purposes there, but depending on what we are training the young people for, they do not always necessarily have much connection to the energy and environmental principles.

Expanding the principles in schedule 2 to include all subsidies may discourage public authorities from granting subsidies in pursuit of otherwise valuable aims. We do not want that to happen. The additional principles in schedule 2, which apply to energy and environmental subsidies and to subsidy schemes, fully support the UK’s priorities on both net zero and protecting the environment. I want to ensure, particularly given this morning’s discussion and the fact that we are in the lead up to COP26, that we are championing those priorities and continuing to lean in and show global leadership from the front. In this instance, owing to the reasons I have set out, I ask the hon. Lady to withdraw the amendment.

Kirsty Blackman (Scottish National Party, Aberdeen North)

I thank the Minister, the Opposition and the hon. Member for Thirsk and Malton for their comments. I agree that this amendment is not the best possible way of achieving our aim, and that other amendments moved this morning—particularly the amendment to schedule 1—would be a better way to go about embedding net zero in our commitments. Unfortunately, the will of the Committee was tested this morning, and schedule 1 went unamended. Hopefully it will be amended on Report, or the Government may choose to change it to include net zero commitments in the principles, but this is where we are in the absence of them doing so.

If we are talking about subsidies to get young people into employment, every local authority, or whoever is granting the subsidy, should ensure that they do so in a way that does not take us away from our net zero targets. That should be part of the decision-making process for every decision we make, whether it is about training young people or building an offshore wind farm. My concern, which was raised by the Opposition this morning, is that that is not embedded in everything the UK Government are doing, and it should be. I tabled this amendment because net zero should run through everything that everybody does, but I beg to ask leave to withdraw the amendment.

Paul Scully (Conservative, Sutton and Cheam)

The clause establishes that public authorities granting energy and environment subsidies, or establishing schemes to award such subsidies, must assess them against the additional principles in schedule 2.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

We support clause 13.

Clause 14 - Introductory

Paul Scully (Conservative, Sutton and Cheam)

The clause sets out the purpose in general terms of chapter 2 of part 2 of the Bill, which prohibits several categories of subsidy from being given and establishes requirements on the giving of other categories of subsidy.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

We support clause 14.

Clause 15 - Unlimited guarantees

Paul Scully (Conservative, Sutton and Cheam)

If the Committee will bear with me—

Caroline Nokes (Conservative, Romsey and Southampton North)

I will try to move more slowly.

Paul Scully (Conservative, Sutton and Cheam)

The notes for clause 15 stand part are not in my pack but fortunately, because of technology, which does not require a subsidy, I can tell the Committee that the clause prohibits subsidies in the form of unlimited guarantees of an enterprise’s debts or liabilities if this guarantee is either unlimited in monetary terms or in its duration.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I understand that the clause, as the Minister describes, provides that an unlimited guarantee for the debts or liabilities of an enterprise is prohibited. That does, as I understand it, reflect the commitments in article 12.7 of the UK-Japan comprehensive economic partnership agreement on subsidies, and article 367 of the EU-UK trade and co-operation agreement. Perhaps the Minister could confirm that these commitments are rolled over from the EU and Japan agreements.

Paul Scully (Conservative, Sutton and Cheam)

As I said, the clause ensures that we continue to comply with our international obligations, which have included those prohibitions on unlimited guarantees for many years.

Clause 16 - Export performance

Paul Scully (Conservative, Sutton and Cheam)

We are back to old-fashioned analogue for this part of the Bill Committee. The clause prohibits subsidies that are contingent, whether in law or in fact, on export performance. It permits two types of subsidies to be given for export credit support, including short-term export credit insurance for non-marketable risks, and an export credit, an export credit guarantee or an insurance programme as permitted by the agreement on subsidies and countervailing measures. It also defines key terms and specifies a list of marketable risk countries.

Kirsty Blackman (Scottish National Party, Aberdeen North)

I have a quick question on subsection (7), which says that a direction given under subsections (4) or (6) must “be laid before Parliament” and

“be published in whatever manner the Secretary of State considers appropriate.”

It makes sense that it is laid before Parliament. I am not sure what that means, although I probably should. Does it mean that a written statement on the changes is laid before Parliament? Do the words

“be published in whatever manner the Secretary of State considers appropriate”

mean that it will be published for the public or for granting authorities to see? What method does the Minister think might be considered appropriate? Are we talking about putting it on gov.uk, for example, or about writing to organisations to let them know why the changes have happened?

Paul Scully (Conservative, Sutton and Cheam)

The clause basically allows the Secretary of State to give a direction to amend the list in order to respond to any changes in market conditions. That direction must be laid before Parliament and published.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Specifically on that point, if the Minister does not mind, does “laid before Parliament” mean a written statement or does it mean regulation? I am confused. If he does not have an answer, I would be happy to speak to him later.

Paul Scully (Conservative, Sutton and Cheam)

I will write to the hon. Lady.

Kirsty Blackman (Scottish National Party, Aberdeen North)

Specifically on the words “must be published”, I would be keen to know how the Government might publish the direction. I am not asking the Minister to tie himself down, but I want clarity that it will be published in such a way that those who are affected by it are likely to see it, rather than it being hidden away somewhere in the back of gov.uk, where they would not trip across it unless by accident.

Paul Scully (Conservative, Sutton and Cheam)

I will clarify that, but there is no purpose in hiding it. We want to give certainty to businesses and the public authorities.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. It is quite a long clause. It does not appear to be one that we need to raise real concerns about today, but I would like to raise some points of clarification, because the question is whether there is anything deeper in there that could have other implications.

According to the notes, the clause establishes

“rules around subsidies for goods and services designed to be contingent, whether in law or in fact, on export performance”

which may include, for instance,

“subsidies to cover the price difference between domestic market prices and international market prices. Subsidies of this kind are prohibited unless specific conditions or terms are met, in line with the UK’s international obligations under”

various other pieces of legislation such as the TCA. The clause establishes that

“short-term export credit support, where this support is not in the form of support for marketable risk for buyers in marketable risk countries… is not prohibited.”

In the light of some of the circumstances we are seeing in relation to differences in domestic prices and international market prices, I would be grateful for greater clarity on what the overall clause is there to achieve and whether it will work in the interests of businesses in the UK and support of them.

Paul Scully (Conservative, Sutton and Cheam)

The significant distortive effect of export subsidies on our international trade has been recognised for many years, so except for certain types of export credit, export performance subsidies for goods are prohibited under the World Trade Organisation’s agreement on subsidies and countervailing measures. This Bill obviously complies with that agreement.

Clause 17 - Use of domestic goods or services

Paul Scully (Conservative, Sutton and Cheam)

Clause 17 prohibits subsidies that are contingent on the recipient using domestic goods or services over imported goods or services. Such subsidies are generally known as local content subsidies, and since they benefit domestic businesses, they are generally regarded as being distortive to trade and therefore often result in inefficient outcomes for consumers. Again, local content subsidies for goods are prohibited under the World Trade Organisation’s agreement on subsidies and countervailing measures.

Subsidies to the audio-visual sector are exempt from that prohibition: it may sometimes be appropriate to give subsidies to that sector that require local content, in light of its contribution to our nation’s cultural objectives. That approach is in line with our international obligations and reflects the approach taken by many of our trading partners, including Canada and New Zealand.

Subsection (3) clarifies that certain types of subsidies should not be considered local content subsidies—for example, when the Government incentivise an enterprise that is not currently based here to locate production in the UK, or to train or employ workers in the UK.

The clause facilitates our international obligations under the terms of the trade and co-operation agreement with the European Union and as a member of the World Trade Organisation, and I commend it to the Committee.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

We support clause 17 standing part of the Bill.

Kirsty Blackman (Scottish National Party, Aberdeen North)

This is one of the issues that has frustrated me most about the entire Brexit thing: a whole bunch of left-wing Brexiteers thought that these subsidies would be allowed in the event of our leaving the EU and coming out of its state aid system. They thought that we would be able to incentivise local content, and a lot of people in left-wing areas supported Brexit for that reason, but it is expressly prohibited by the WTO and the trade and co-operation agreement. I am just rising to vent my frustrations briefly; I am not going to vote against the clause.

Clause 18 - Relocation of activities

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I beg to move amendment 13, in clause 18, page 10, line 13, at end insert—

“(3A) This section shall not come into force until the Secretary of State has laid before Parliament a report complying with subsection (3B).

(3B) The report must explain how the prohibition established in this section is consistent with—

(a) reducing deprivation across the United Kingdom; and

(b) the Government’s policy on the establishment of freeports in the United Kingdom”.

This amendment would mean that the prohibition in clause 18 does not come into force until the Secretary of State has laid before Parliament a report explaining how that prohibition is consistent with reducing deprivation across the UK and the Government’s freeports policy.

I am grateful for the opportunity to move this amendment, which would mean that the prohibition in clause 18 would not come into force

“until the Secretary of State has laid before Parliament a report explaining how that prohibition is consistent with reducing deprivation across the UK and the Government’s freeports policy.”

Clause 18 provides that a subsidy is prohibited if it is conditional on relocation from one part of the UK to another, and that the relocation would not occur but for the giving of the subsidy. Subsection (2) clarifies the meaning of an enterprise relocating existing activities: such a relocation occurs where the business carries on activities in one area of the UK before the subsidy is given, and it ceases to carry on those activities in that area after the subsidy has been given and instead carries them on in another area of the United Kingdom. Clause 18 is intended to protect the UK’s internal market and prevent subsidy races between parts of the UK.

The Government’s March 2021 consultation document anticipated clause 18, and suggested that measures could be introduced to prevent the uneconomic relocation of economic activity between England, Scotland, Wales and Northern Ireland. The important word there is “uneconomic”, which is notably missing from what appears to be a slightly blunter instrument in clause 18 as currently drafted. The Government’s consultation cautioned:

“Any additional measures here would need to recognise the value of subsidies which seek to address regional inequalities.”

However, clause 18 does not seem to do that. There is no acknowledgement of the value of subsidies that seek to address regional inequalities. Alexander Rose of DWF Group said on Tuesday that relocations can be highly beneficial to the economy.

As we know, there seems to be confusion in the Government about what levelling up actually means. Every Government Member probably has their own definition—a slogan still in search of a strategy. The Minister will be relieved to know that I will not ask him to provide a definition, but I will ask him to explain how clause 18 is consistent with reducing inequality across the UK.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Is it not quite obvious? We are trying to target new investment to go into those regions, rather than existing investment being transferred from one part of the country to another. Is that not what the clause is trying to say?

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I hear what the hon. Gentleman says, and that is indeed what it is probably trying to do, but the problem is not only that it potentially undermines levelling up; it could also undermine and challenge the Government’s freeport policy. In the Queen’s Speech and the 2021 Budget, the UK Government announced eight new freeports in England, which are intended to promote regional regeneration and job creation and to become hotbeds of innovation. However, it is notable that no mention of freeports was made in the Government’s consultation on subsidy control policy, which closed on 31 March.

Under the Government’s freeport policy, significant subsidies, particularly tax reliefs, move to a particular site. In fact, they are conditional on a relocation. Are these tax reliefs—enhanced capital allowance, enhanced structures in building allowance, business rate relief and relief from national insurance contributions—which are conditional on relocating to a freeport, prohibited or not by clause 18? We heard significant reservations about clause 18 from our expert witnesses on Tuesday. As Jonathan Branton from DWF Group put it:

“Having a prohibition in the Bill, even a badly worded one, is potentially too blunt a tool, which might backfire.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 56, Q77.]

Amendment 13 would mean that the prohibition in clause 18 would not come into force until the Secretary of State has laid before Parliament a report that explains how the provision is consistent with both reducing deprivation across the UK and the Government’s freeport policy. This modest amendment is designed to ensure that the Government have properly considered the impact of the clause 18 prohibition on tackling regional inequality and on the freeport policy. However, we are not convinced at the moment that sufficient thought has been given to that impact.

Beyond our concerns about whether the Government have considered the impact of this provision on their claimed commitment to levelling up across the UK, there are also questions about how public authorities should interpret the clause 18 prohibition. Specifically, the prohibition applies where a subsidy is conditional on moving all or part of the economic activity from one area of the UK to another, but I cannot see where we have had a definition of “area”. Will the Minister explain whether “area” refers to a nation of the United Kingdom, a region, a local authority, a town, a village or any or all of the above? What about a council subsidising a business to move from one part of a local authority to another? There might be perfectly sensible and sound economic and regeneration reasons to do that—for example, to make way for an infrastructure project—but presumably this would be caught by clause 18. Therefore, it is arguably prohibited. Will the Minister clarify the interpretation of the current wording of clause 18?

Stephen Kinnock (Labour, Aberavon)

My hon. Friend is setting out very clearly the rationale for our amendment. I would add, in response to the comments from the hon. Member for Thirsk and Malton, that this is about incentivising and ensuring that the measure is used in a positive way.

Our concern is that the wording of the clause is a very blunt instrument. It could be interpreted by a business that was looking to invest in either Middlesbrough or Mayfair that already has a base in Mayfair as a disincentive against favouring an investment in Middlesbrough. That would surely fundamentally undermine the Government’s own levelling-up agenda. The amendment would reassure businesses that they can be incentivised to invest in Grimsby rather than Guildford, without it being a binary choice between one or the other—it is much more nuanced.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

My hon. Friend is absolutely right to put the amendment in those terms—it seeks to bring clarity. The Minister will probably appreciate that these are complicated questions for enterprises that may be in receipt of subsidies for positive reasons that meet the objectives of the regime and public policy goals. Clarity for public authorities in granting those subsidies is also important, ensuring that they are not subject to challenge when they genuinely want to achieve positive outcomes, but would be caught under the fairly blunt definition in clause 18. I look forward to the Minister’s response.

Kirsty Blackman (Scottish National Party, Aberdeen North)

The concerns I raised on principle F of schedule 1 are very similar to the ones being raised here. The Government have an intention here, but the clause will not achieve that intention; it is also too restrictive.

I love this amendment; it feels hugely cheeky. I know it is very serious, but I love the way it is drafted—how sad is that?—and I quite like the way both issues are put together in the same amendment. It makes sense that this measure is included alongside the amendments moved earlier by the Opposition on areas of deprivation. There is also the freeport element. The clause basically rules out freeports and the way the Government have explained they are intended to work, which is massively concerning if that is the Government’s plan.

If, for example, a Government Department was to relocate from Whitehall to Salford—I cannot think which Department might be doing that—and if there is going to be some sort of incentive for them to do that, that relocation would be prohibited. Surely that is something that the Government want; if they did not want it, they would not be doing it. They want Government Departments to be able to relocate to places outside Whitehall and to bring jobs to those areas. I am glad they are doing that, but it now would not be able to provide any subsidies for that to happen. That does not make sense.

If the Government’s stated aim and objective is to try to level up places to ensure more jobs, there is going to have to be some level of relocation. That is going to have to happen. We are going to end up in a situation where the Department for Business, Energy and Industrial Strategy does not have 400 staff here and has 400 staff in Salford instead. Surely that is a good thing, rather than a bad one. It would be helpful if the Government could clarify what is meant here.

I agree with the amendment. I agree with the report. We covered areas of deprivation this morning. The freeport thing, however, is unsolvable unless the Government provide us with more information, whether by the Minister explaining, changes being tabled for future iterations of the Bill—perhaps on Report—or the report asked for by the Opposition being provided.

Paul Scully (Conservative, Sutton and Cheam)

I shall cover a few of the points raised. To take the example of a local authority wanting to incentivise a business to move back to its high street or something like that, the Bill would not prevent local authorities from offering subsidies to support regeneration.

As for what constitutes an “area” in the relocation prohibition, it is not a defined term in the Bill. Public authorities will therefore have to apply common sense in their interpretation. The objective is to prevent the relocation of all, or part of, existing economic activity between different areas of the UK, but there will be circumstances in which relocation within an area may occur. For example, where a business has an existing presence in a region and moves within that region, it is unlikely to engage the prohibition. Again, that will come in guidance.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

The Minister might say that that will come in guidance, but the scenario that he just outlined does not seem to be consistent with the wording of the clause. Even if the local authority was to agree a move from one end of its area into a high street, and even if all the existing economic activity was relocated, that would not have occurred but for the giving of the subsidy. Activity would be carried on in an area of the United Kingdom different from where it was before. Will the Minister reflect on that? It might be helpful to read that again, even against the scenario he just outlined.

Paul Scully (Conservative, Sutton and Cheam)

The regenerative example that I gave would fit, but it will be fleshed out in guidance. Let me come to freeports quickly, because that issue complies with the principles and prohibitions set out in the Bill, including in the clause.

When designating freeports, bidders are required to explain how their choice of tax site locations minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. The focus of freeports, however, is to encourage new investment and to create new businesses and jobs, rather than harmful displacement, so tax sites will be designated only once the mitigation of displacement and other factors have been demonstrated by the successful bidder in its tax site. We are confident that the risk of harmful displacement has been minimised.

In summary, the subsidies will not be conditional on the relocation of existing economic activities.

Kirsty Blackman (Scottish National Party, Aberdeen North)

The Minister has made a good case on subsidies for the purpose of regeneration, but that is not stated in the clause. At no point is it stated that the regenerative ideals or decisions to produce regeneration in an area trump the clause.

Paul Scully (Conservative, Sutton and Cheam)

I said that the clause does not prevent local authorities from offering subsidies to support regeneration. None the less, we will supply more support through guidance, because we want to give public authorities the confidence to apply subsidies in that scenario and similar ones.

The purpose of the clause overall is to prohibit wasteful subsidies that serve only to poach economic activity from one area to another. I must say, the ears of the good people of Guildford must be burning after their third mention in a couple of days—

Bill Esterson (Labour, Sefton Central)

What about the good people of Mayfair?

Paul Scully (Conservative, Sutton and Cheam)

As Minister for London, I do not think that this is aimed at the good people of Mayfair.

We do not want to prevent levelling-up subsidies that attract investment to disadvantaged areas. The clause achieves that by prohibiting subsidies that explicitly require enterprises to relocate existing economic activities from one area of the UK to another, where that relocation would not have occurred without the subsidy. We have said that. The amendment, however, risks delaying the commencement of the clause, which might allow subsidies to be granted that could poach economic activity from disadvantaged areas.

Stephen Kinnock (Labour, Aberavon)

I have a brief question. Why would the Government not want to make it a condition? Either the Bill is an empty vessel that will just regulate certain activities or it has a public policy objective. Schedule 1 clearly states that public authorities must explain and assess the policy objective behind the subsidy.

If the policy objective of the Bill is levelling up, why would the Government sometimes not want to actually give public authorities the opportunity and ability to make it a condition of a subsidy for an entity to relocate to another part of the country that will benefit from the investment? I can understand that sometimes it should not happen and sometimes it should, but amendment 18 offers a more nuanced position where it can be explicitly said, “For reasons of levelling up, we are driven by this policy objective and we want the opportunity to incentivise accordingly.”

Paul Scully (Conservative, Sutton and Cheam)

Basically because this is a framework Bill. The policy objective of the Bill specifically is not levelling up. It enables levelling up through the framework, but it is the spending and subsidy themselves that are the policy objectives we are talking about. That is why schedule 1 refers to having to explain those policy objectives. Ultimately, this is a framework Bill that allows a permissive approach to subsidy, rather than the opposite—the state aid regime that we had when we were a member of the EU. The Government are fully committed to making sure that the UK subsidy control regime does support disadvantaged areas and facilitates the levelling-up agenda.

As part of the broader consideration that public authorities are required to undertake when assessing a subsidy, the subsidy has to be compliant with the principles within the Bill, and the wider impacts of the subsidy on competition and investments in other parts of the UK must be taken into account. We will publish guidance to make clear how this requirement should be applied by public authorities when considering subsidies that advance the levelling-up agenda or promote the economic development of relatively disadvantaged areas.

I welcome the interest in freeports, which are one of the Government’s flagship programmes to support levelling up and economic recovery. They are there to encourage new investment and create new businesses. The freeports offer follows the subsidy control principles set out in the Bill. They are an example of the UK Government levelling up economic growth across the UK—a strategic interest, which the domestic regime has been designed to reflect.

Kevin Hollinrake (Conservative, Thirsk and Malton)

On the Minister’s earlier point about technology needing subsidy, actually touchscreens, GPS and the internet were all developed initially through public funding, both in the US and the UK. Is the clause not trying to prevent companies from gaming the system by trying to pit one local authority or area of the country against another through a bidding race to bring their jobs to a certain part of the country?

Paul Scully (Conservative, Sutton and Cheam)

That is exactly right. Look at subsidy control regimes around the world. Witnesses in the evidence sessions focused on America and the subsidy race between various states, which is exactly what we are trying to avoid through this sensible and proportionate measure. Accordingly, we believe that requiring the Secretary of State to report to Parliament on clause 18’s consistency with the Government’s strategic priorities to do with supporting deprived areas and freeports is not necessary. The new UK domestic regime is designed to ensure that disadvantaged areas have maximum freedom and reassurance to receive levelling-up subsidies that best suit the characteristics of the area. I request that the amendment be withdrawn.

Bill Esterson (Labour, Sefton Central)

It is great to see you back in the Chair, Ms Nokes.

Clause 18 is crystal clear about preventing the use of subsidies to enable businesses to move from one location within the UK to another. The example of the high street is crystal clear, as is the example of the freeports. I will come back to the point about promoting new investment in freeports shortly.

The Minister talked about issuing guidance to go with the provision. That is the way the legislation has been crafted, which I think we can all understand. However, guidance will always be open to interpretation, and what takes priority? Is it the primary legislation—the very clear statement set out in clause 18 that a subsidy is prohibited if

“the relocation of those activities would not occur but for the giving of the subsidy”?

How is that overcome by the guidance? That is the point that all Opposition Members who have spoken have tried to get to, whether with the example of the regeneration of high streets or that of freeports.

The Minister talked about the justification for freeports and the support that the Government have given. My hon. Friend the Member for Feltham and Heston made the point that freeports were not part of the consultation for the legislation, and they are ruled out by the clause. It could not be much clearer.

On the point about freeports being just about new investment, the evidence base—the report published by the UK Trade Policy Observatory, and the commentary by Adam Marshall when he was director general of the British Chambers of Commerce—shows all too clearly that they are exactly about relocation and displacement, and all the things that the Minister said that they should not be about. His point that they do not deliver displacement from one deprived area to another is undermined by the evidence base provided by the UKTPO and the British Chambers of Commerce.

I am afraid that we have not had an adequate answer from the Minister on how all those circles will be squared, and how the primary legislation of clause 18, which he wants to go through unamended, will not override attempts to use subsidies to support local areas in the examples that we have given him and that he says we should not worry about. I am afraid it comes back to a point that we have made a number of times, and will continue to make, I suspect, through the Committee’s deliberations: specific statements need to be added to the Bill to provide reassurance and to make the framework a much more workable system of subsidy.

Without that, things will be left wide open. As much as the Minister defends the Government’s freeport policy, notwithstanding the analysis that I have given from those experts, and claims that local authorities will be able to sort their high streets, and despite his response to my hon. Friend the Member for Aberavon about supporting more deprived areas otherwise, I am afraid that without additional content going in at this stage, or on Report, or in the House of Lords, we will be left in a position where the framework will leave awarding bodies open to judicial review because of the uncertainty and the contradiction that will almost inevitably be left in place between the primary legislation of clause 18 and whatever he puts in guidance.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I listened to the Minister’s response and the contributions to the debate. I remain concerned that the clause is worryingly worded in terms of what could be permissible under it and what might not be. In the light of that, it is important that we press what is a very measured amendment to a vote.

Paul Scully (Conservative, Sutton and Cheam)

As we have heard, clause 18 prohibits subsidies that explicitly require enterprises to relocate economic activities from one area of the UK to another, where this relocation would not have occurred without the subsidy. I should say that the purpose of the provision is only to prevent subsidies that are explicitly contingent on a relocation—in other words, that the business ceases its economic activities in the previous area. We believe that the approach strikes the right balance: it prohibits some of the most potentially harmful subsidies without preventing levelling-up subsidies that attract investment to disadvantaged areas.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. He has our concerns on the record. We will not oppose the clause, but I think this is an important area. Perhaps I will write to the Minister about this, which I hope will help to make sure the provision is as positive as it can be for the purposes of the Bill.

Clause 19 - Rescuing

Bill Esterson (Labour, Sefton Central)

I beg to move amendment 14, in clause 19, page 10, line 29, after “exceptional circumstances” insert

“including the protection of critical national infrastructure and industries of strategic national importance,”.

This amendment clarifies that protecting critical national infrastructure and industries of strategic national importance may constitute exceptional circumstances.

Caroline Nokes (Conservative, Romsey and Southampton North)

With this it will be convenient to discuss amendment 15, in clause 20, page 11, line 15, after “exceptional circumstances” insert

“including the protection of national security and industries of strategic national importance”.

This amendment clarifies that protecting critical national infrastructure and industries of strategic national importance may constitute exceptional circumstances.

Bill Esterson (Labour, Sefton Central)

We broadly support the measures in clause 19 on rescue subsidies, and we want to strengthen the measures by adding, with amendments 14 and 15, the important areas of critical national infrastructure and security.

Clause 19 prohibits subsidies from being given to ailing and insolvent enterprises unless the subsidy would prevent social hardship or severe market failure. In these cases, the subsidy should act only as “temporary liquidity support” to provide the enterprise with time to prepare a restructuring plan. That is exactly the right way to phrase the clause thus far, because we recognise that public money should not be used to prop up failing businesses. We are pleased that the Government are in the right place here.

However, we recognise that the Government have a poor track record on protecting and supporting industries of national importance. I am afraid that the case of the steel industry a few months ago is a prime example. Until 5 pm on the day before the trade remedies were due to expire, the Government had not intervened to overturn the recommendations of the then trade remedies investigation directorate, which right at the end came into operation as the Trade Remedies Authority. Its recommendations were to drop steel safeguards, and it took significant lobbying from the steel sector, individual businesses, trade unions, the Trades Union Congress and Labour Front Benchers to push the Government to realise what a catastrophic mistake it would have been had those safeguards been dropped at that time.

The steel industry outlined how the industry was then lurching from crisis to crisis, and to a degree it still is. Over a number of years, the laissez-faire approach to the production of steel has been at the heart of that. Steel is a crucial national industry: it is critical to our national security and it is critical, or it should be, to our infrastructure production. We should be supporting that industry. That is what our amendments are about, and steel is a very important example. There are other examples of the Conservatives’ reluctance to show an interest in nationally significant businesses, such as the takeover of Morrisons by Clayton, Dubilier & Rice just recently—another business of great importance to national infrastructure.

Amendments 14 and 15 would ensure that rescuing and restructuring subsidies can be given to ailing or insolvent enterprises if they are of vital strategic importance.

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

Will the hon. Gentleman expand on how Morrisons would fit into the definition of “national critical infrastructure”, as set out in amendment 14?

Bill Esterson (Labour, Sefton Central)

Morrisons, as one of the big four supermarkets, is crucial to our national economy. The problem is that the Government do not show enough interest in businesses of such strategic importance.

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

Will the hon. Gentleman give way on that point?

Bill Esterson (Labour, Sefton Central)

As the hon. Gentleman has been wearing a mask today, I will.

Andrew Bowie (Conservative, West Aberdeenshire and Kincardine)

I thank the hon. Member; he is too kind. The decision to allow Morrisons to be taken over, in the way that it was, was made because it was deemed that that would be good value for shareholders, but also good for the company in general—it would be able to reinvest in its infrastructure here, in the United Kingdom. The decision was actually supporting one of the big four supermarkets to provide jobs and employment for this country. To try to define it in this way and say that the Government should step in when businesses like that are under threat of takeover—even when those takeovers could be to the advantage of that company and to the British people—would be, I think, a retrograde step.

Bill Esterson (Labour, Sefton Central)

I am grateful to the hon. Gentleman for intervening. I think he is rather missing the point, which I tried to explain the first time around. I am making the point that the Government showed no interest in what was going on with Morrisons, nor the merits of what was happening.

Coming back to steel, the Government have belatedly woken up. Before I was intervened on, I was actually going to say that perhaps there are signs of improvement on this front. The Government have shown some interest in improving things, because there are amendments in the Budget that would give the Secretary of State for International Trade powers to overrule the recommendations of the Trade Remedies Authority. I am therefore mildly hopeful that we are seeing an improvement in policy and approach from the Government on that measure alone.

Stephen Kinnock (Labour, Aberavon)

My hon. Friend is making some very important points. We have clearly sparked a debate about what constitutes critical national infrastructure and what constitutes businesses that are vital to our national security and our national interest. We can certainly have a debate about businesses operating at the consumer end of the spectrum, but there are other examples. The steel industry is an obvious one, but look at the issues around AstraZeneca and the attempted hostile takeover by Pfizer; look at Arm, or at the way in which private equity is taking over our defence industry. Our country has become the capital of the world for hostile foreign takeovers. We have more than any country in the OECD, and we face a world in which aggressive Chinese-backed investment vehicles and businesses are looking to take over businesses that are potentially coming out of the pandemic distressed and vulnerable.

Caroline Nokes (Conservative, Romsey and Southampton North)

I will just make the point that this is an intervention—a short one.

Stephen Kinnock (Labour, Aberavon)

National security is at the heart of our magnificent amendment. Let us not carry on being up for sale to everybody.

Bill Esterson (Labour, Sefton Central)

I am grateful to my hon. Friend for adding some extremely important examples to my point.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Can I give the hon. Gentleman some other examples?

Bill Esterson (Labour, Sefton Central)

Not yet; let me answer my hon. Friend first before I take what I am sure will be an incredibly important and insightful intervention, as always—it does not mean he is right. It is extremely important that we take nationally significant businesses seriously, that we have a regime that enables us to support them when appropriate, and that we take on board what is in the national interest. That is the purpose of our amendment. I will take the intervention from the hon. Member for Thirsk and Malton, even though he is not wearing a mask today—he did partly on Tuesday.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I understand the hon. Gentleman’s point about national infrastructure and inward investment, but would he and the hon. Member for Aberavon not concede that Tata’s investment in the UK steel industry is important? Investments in Jaguar Land Rover, which was a failing business before it was taken over, were important for the UK and they protected and effectively created lots of jobs. If the hon. Member for Sefton Central thinks that foreign direct investment in the UK is bad—I know Morrisons is an important company in Yorkshire—is it also bad that our UK-based private equity businesses invest in other countries?

Bill Esterson (Labour, Sefton Central)

No, not at all. I have no idea at all why the hon. Member thinks that is where my or my hon. Friend’s arguments were going. We are very much in favour of foreign direct investment to this country and investing overseas as well. Indeed, the success of foreign direct investment in the north-east of England under the Thatcher Government has been put at risk by the attitude of this Government towards the Japanese and the rather strained relations, which hopefully are beginning to repair since the UK-Japan deal. However, let us not underestimate the reputational damage that was done by the way some of that was handled.

Alexander Stafford (Conservative, Rother Valley)

Conservative Members appreciate what you are trying to say, but the fact that there is a lot of confusion and concern about how you are saying it shows me that the amendment should not stand. Rather than just saying “exceptional”, which covers what we need it to do, we have this definition. Even under “critical national infrastructure”, 13 industries are officially defined by the Centre for the Protection of National Infrastructure, none of which is steel. We can argue for steel, but it is not actually listed in the official categories. It just creates confusion. That is why I do not think the amendment works.

Caroline Nokes (Conservative, Romsey and Southampton North)

I remind Members that interventions need to be short, and can we lose the yous, please?

Bill Esterson (Labour, Sefton Central)

Thank you, Ms Nokes. That intervention rather makes the point that I was making in the previous debate about the need for definition in the Bill around what we mean by various terms and the need to avoid leaving things open to chance in guidance and interpretation. I take the hon. Gentleman’s point, but this is why we need a bit more clarity in primary legislation.

Continuing with the steel industry, not least because we took evidence from UK Steel, if some support is not given in the short term to the UK steel sector to support its decarbonisation and reduce the massive energy costs associated with the industry, we could soon see steel, which is a vital strategic industry for the UK, facing imminent threat. I do not think anybody disagrees on the strategic importance of the steel industry at a national level.

In the evidence sessions, Richard Warren spoke about the costs of renewables and carbon taxes in relation to electricity prices:

“The UK steel sector pays between 80% and 100% more for its electricity than its counterparts in the EU. Those exemptions have reduced our electricity prices. There is a still a big gap, but they are really important to improving competitiveness in the UK.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 50, Q72.]

He made the point that it was in the national interest to support the industry. He said:

“Net zero or low-carbon forms of steel production will add anything from 30% to 50% to the costs of steel production”.

On the cost of steel production, he said:

“If other countries are not moving at precisely the same speed or putting the same constraints on their industries, you will need some sort of intervention to correct that market failure.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 57, Q77.]

That is why we think there is a very strong case for putting this provision into primary legislation.

More widely on the issue of net zero, this point is backed up by the written evidence from the Institute for Government, which says that it is

“sensible to require some additional process to ensure that the subsidy is designed well.”

That was in relation to major infrastructure that could contribute towards net zero. That is what our amendments are trying to achieve, and it is why we think they are so important.

Anything that is in the national interest or the interests of national security demands an additional level of support and attention, including attention to the way it is worded. Again, I am afraid we come back to the point that not having this set out in primary legislation creates weaknesses, and leaves the prospect of challenge and of the regime not operating as well as it should.

Paul Scully (Conservative, Sutton and Cheam)

As we have heard, amendment 14 relates to clause 19. The Bill provides that in order to give either a rescuing or a restructuring subsidy, the public authority giving that subsidy must be satisfied either that it contributes to the objective of the public interest by

“avoiding social hardship or preventing a severe market failure”,

or that there are

“exceptional circumstances that justify the subsidy”

despite that test not being met. The amendments would specify that those exceptional circumstances would include the protection of critical national infrastructure, industries of strategic national importance and, in the case of amendment 15, national security.

I fully agree that public authorities should be allowed to grant necessary and appropriate rescue and restructuring subsidies in order to protect critical national infrastructure, national security, and industries of strategic national importance. I am therefore pleased to be able to provide reassurance to the hon. Member that, as it stands, the Bill does so. The reasons are twofold: first, clause 45 contains a general exemption from all subsidy control requirements for the giving of a subsidy with the purpose of national security. Secondly, the conditions set out in clauses 19 and 20 will allow for rescue and restructure subsidies in order to protect critical national infrastructure and industries of strategic national importance. In my view, many hypothetical rescue and restructure subsidies for those purposes could in principle meet the first test in clause 19(4)(a) and clause 20(5)(a) of being in the public interest by

“avoiding social hardship or preventing a severe market failure”.

Where that condition is not met on the facts, but there are other exceptional circumstances in play, clauses 19(4)(b) and 20(5)(b) already provide for exactly that situation, so it is not necessary to attempt an exhaustive list of potential exceptional circumstances that could be relevant to the clause. That would risk unduly influencing public authority behaviour. On the one hand, it risks encouraging inappropriate rescue and restructure subsidies in circumstances that are not genuinely exceptional on the facts, and where they could have excessive harmful effects on domestic competition. On the other hand, it could discourage the use of rescue and restructure subsidies in circumstances that are genuinely exceptional and merit such interventions, but are not specifically listed in the Bill.

The purpose of clauses 19 and 20 is to prevent aimless bail-outs of failing enterprises, while allowing public authorities to provide temporary rescue support for enterprises that it is in the public interest to rescue and restructure. Those subsidies should not be undertaken lightly, in order to maintain a competitive free-market economy and facilitate compliance with our international obligations, including those in the TCA with the EU. As such, I ask the hon. Member to withdraw his amendment.

Bill Esterson (Labour, Sefton Central)

I am grateful to the Minister for drawing the Committee’s attention to where the points covered by our amendments exist elsewhere in the Bill. I have reservations about the strength of those clauses, which I explained in my speech and will not revisit, but there is reference to the protection of national security in the Bill. Whether it is adequate, time will tell. I know that the Minister or a member of his team will bring these measures forward in secondary legislation. We think they are better in primary legislation and that there should be more detail at this stage, but we accept the assurances the Minister has given, and we will not push the amendment to a vote. I beg to ask leave to withdraw the amendment.

Paul Scully (Conservative, Sutton and Cheam)

The clause prohibits rescue subsidies to ailing or insolvent enterprises unless the three specific conditions are met: there must be a credible restructuring plan, the subsidy must be limited to temporary liquidity support, and it must be in the public interest, unless there are exceptional circumstances.

Clause 20 - Restructuring

Paul Scully (Conservative, Sutton and Cheam)

The clause prohibits restructuring subsidies to ailing or insolvent enterprises unless four specific conditions are met. This clause does not apply to deposit takers or insurance companies. Again, the enterprise must have prepared a restructuring plan and, unless there are exceptional circumstances, a restructuring subsidy must only be offered if it is in the public interest. Restructuring subsidies can only be given to enterprises that are small or medium-sized, and they must also be contingent on an enterprise’s not having received a restructuring subsidy before, or five years having passed since it did, although there are exceptions to that.

Bill Esterson (Labour, Sefton Central)

The Opposition do not oppose this clause.

The rest of the debate is in Hansard.