Brexit: Competition and State Aid (EUC Report) - Motion to Take Note

– in the House of Lords at 11:42 am on 24th May 2018.

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Moved by Lord Whitty

To move that this House takes note of the Report from the European Union Committee Brexit: competition and State aid (12th Report, HL Paper 67).

Photo of Lord Whitty Lord Whitty Chair, EU Internal Market Sub-Committee

My Lords, this inquiry was conducted by the EU Internal Market Sub-committee between September 2017 and January this year and was published in February. My thanks as ever go to the members of my committee, several of whom are going to speak today, and particularly to the members of staff and to our specialist adviser, Professor Erika Szyszczak. We were pleased also to receive a response from the Government within the deadline—a decidedly better record than many of our Brexit reports have received. So our thanks go to the BEIS Minister, who has also given us a reply on the CMA’s role as a post-Brexit state aid body. Congratulations to BEIS, and I hope that other departments will follow suit.

The speed of the ministerial response may be due in part to the fact that most of the report is relatively non-contentious in the sense that the Minister, broadly at least, agrees with us. This reflects the fact that the UK’s domestic competition framework has been closely modelled on the EU’s, but it is equally true to say that the EU model itself was based on the earlier precedent of British law and British experience. That does not mean that there is no dissent; witnesses were generally positive about the UK competition regime in its interaction with the EU, but concerns were raised about consumer protection and consumer rights, about tackling market dominance in new-fangled forms of markets such as online platforms, a topic on which the sub-committee had previously reported, and about delays and bureaucracy in the EU state aid approval process.

Repatriation of policy to the UK in these areas poses some complex problems in our relationship with the EU post Brexit and for the UK internally. A deep and comprehensive free trade agreement with the EU would undoubtedly retain some mutual arrangements on fair competition, state aid and public procurement. Indeed, any modern free trade agreement with any major economy would probably have some such provisions—as, to a degree, would trade on WTO terms. As in many areas, “taking back control” is therefore a relative term.

Nevertheless, the prospect of taking back control has raised some old arguments about these policies, especially on state aid, to which I shall return later. First, on the immediate short-term implications of Brexit, the Competition Act, under which UK procedures operate, sets out a consistency principle that obliges UK courts to ensure that there is no inconsistency between the application of domestic anti-trust prohibitions and EU law. That principle will clearly go after Brexit, but the Government apparently agree with the retention of some sort of duty on UK courts to take account of European competition jurisprudence. There is no clear indication what form that would take. I should be grateful if the Minister could give further detail on that: will it be “should have regard to”, “may have regard to”, “should take into account”, or whatever? Any comments would be helpful.

The domestic system of merger control currently operates alongside EU merger regulations. This arrangement is known as the “one-stop shop”. The loss of UK access to the one-stop shop at European level will lead to a need for separate notifications for markets that go beyond the UK to both the CMA and the European authorities. It will therefore mean not only an increased workload for the CMA but some businesses being faced with duplicate inquiries and costs.

The Government’s response says that they intend to limit the impact of the loss of the one-stop shop by increasing the efficiency of the CMA. I am not sure that goes far enough. Should the Government not seek an arrangement that would modify, reduce or, in some cases, abrogate the need for a UK merger review when a transaction has already, or in parallel, been notified to the European authorities?

Contributors to the inquiry set out a number of common transitional issues relating to anti-trust, merger control and state aid. They involve the status of cases still live at the point of exit, future cases that relate to pre-exit behaviour and pre-Brexit cases where remedies and commitments need to continue to be monitored by the authorities. That raises the whole question of the enforcement gap. Given the UK’s red line on the involvement of the European Court of Justice in these matters, has any further progress been made in negotiations on how such things would be dealt with after Brexit?

I will raise one tangential issue. There was discussion in the committee as to whether we should mention this, as it involves the employment of lawyers, and we were not quite sure whether it was relevant to the inquiry—but as we are a sub-committee that deals with non-financial services in the Brexit context, we thought that we should raise it. The UK is effectively the leading jurisdiction for private individuals or businesses seeking damages for breaches of EU anti-trust law. Litigants are attracted to the UK for the skill of its lawyers, the clearness of its procedures, et cetera. Many of those features may well continue. Nevertheless, there was anxiety that that substantial—and, indeed, remunerative—part of EU legal services may cease with Brexit.

The Government say in their response that the UK’s attractiveness as a jurisdiction should not be affected, but they acknowledge that the legal base for pursuing claims based on Commission decisions will be subject to negotiations about future civil justice co-operation. Again, does the Minister have any further detail on those discussions and negotiations so far?

Those are the transitional problems. The key issue is where future UK policy goes. While there was broad consensus from witnesses that there should be general continuity of policy in these areas, there was also recognition that we would have the opportunity and scope to look at policies again. This applies particularly to policy on mergers, for example—on attitudes to the public interest dimension and to overseas takeovers—and even more so to the most difficult area of state aid. Some of these are quite old arguments that are now posed in a new post Brexit context.

I shall take each of the main areas separately. First, on anti-trust, the global nature of competition has resulted in a broadly consistent international approach to competition policy. While it was made clear to us, and we agreed, that the UK should maintain the principles underpinning its competition policy, there will be some opportunities post Brexit to improve the regime, for example in the area I mentioned earlier in relation to the market dominance within digital areas such as online platforms. The Government say that they do not intend to fundamentally change the UK’s competition law and enforcement framework, but they have, for example, said that they are taking steps, independent of Brexit—allegedly—to strengthen this framework, including granting additional resources to the CMA and completing their review of UK competition policy by April next year. I ask the Minister whether there might be commitments in the future UK-EU relationship that could limit or prevent the UK in future from taking a more innovative, independent approach to enforcement.

Secondly, on the merger side, the discussions we have had on mergers policy in this country in the last few years has been overshadowed a bit by the Cadbury takeover by Kraft, which was one of the most controversial foreign acquisitions of a UK firm in recent years, and indeed one where the conditions imposed by the UK authorities were subsequently ignored by the acquiring company. That has rather coloured people’s views on the effectiveness of our merger policy, and some view Brexit as an opportunity to revise and strengthen the public interest criteria in merger control.

We, however, concluded that historically it has not been EU state aid rules that have seriously restricted the UK authorities looking at wider merger control criteria. However, it is the case that it is likely that Brexit will mean increased pressure internally to change current UK legislation and practice. The pressure on overseas takeovers could be in one of two directions—one from a protectionist view to defend UK-owned assets, and the other from the globalists who want to be more welcoming to international investment. Our general view is that we should keep things broadly as they are.

The Government recognise that a reliable merger control regime is important, but of course they themselves have opened the door a little by proposing some new public interest regimes in relation to security issues in the October 2017 National Security and Infrastructure Investment Review. This has amended the threshold tests for the military and dual-use sectors and parts of advanced technology—which could be quite a substantial part of the economy. How will the Government balance future changes in merger control because of these domestic pressures with their stated desire to ensure that we continue to be broadly aligned with European processes? In relation to resources, are the Government convinced that the additional resources provided to the CMA will be sufficient to cover the increased number and complexity of cases?

In terms of negotiations the UK and the EU start from a position of extensive mutual assistance on competition matters through what is known as the European Competition Network of national competition authorities. We would hope, and the Government would hope, that we will maintain that co-operation. What kind of role, if any, would the Government see for the CMA in the European Competition Network, which has provided us with a very substantial degree of benefit over the years?

The last area is state aid, and it is the most complex area that we considered. The EU is, of course, conferred with exclusive competence in this area, and its rulings are applied directly and enforced directly by the Commission. EU state aid rules have clearly been a source of frustration for some and, in some cases, have been painted as the central obstacle to government intervention—a particular example, allegedly, being the recent crisis in the steel sector. However, we concluded that, in general, successive Governments have found EU state aid rules flexible enough to provide support where they have wanted to provide assistance for major projects. Indeed, we found that other EU member states had managed to spend significantly higher sums on state aid, suggesting that it is not really EU rules themselves that are the barrier. To take a topical example, an incoming Chancellor—say, John McDonnell—could quadruple state aid spending in this country without matching the level of other leading economies such as Germany, and in most cases would do so without incurring EU state aid censure. That is not to say that he would not run into trouble with some other bits of EU legislation, but not on state aid provisions.

For post-Brexit state aid policy and institutions, we need a new state aid authority, which will have a dual perspective: first, to ensure that proposed state aid does not contravene our international obligations under our free trade agreement with Europe or, indeed, with anybody else, or indeed under WTO rules. It is likely that any significant free trade agreement will have some such provisions. The EU has been clear that it seeks an agreement that ensures a level playing field between parties on competition matters, and there will need to be co-operation between the CMA and the proposed trade remedies body that is going to be set up under the Trade Bill—if and when it makes progress in another place.

Secondly, as well as those international obligations—and, in a sense, for the first time—the new authority will decide whether state aid, including public procurement aspects, granted by UK bodies, is compatible and does not distort the European or international market or, indeed, the UK internal single market. That is a bit of a novel responsibility, which could cause significant internal political tensions. That is why we emphasised the need for the Government to act in concert particularly with devolved Administrations and local government when they draw up their post-Brexit state aid policy, and the CMA takes on that responsibility.

It is, of course, also true that under EU rules there are substantial block exemptions from state aid limitations, which includes most public services and agriculture, for example. In immediate terms, those will be transposed under the withdrawal Bill, but we would like to hear from the Government whether that is likely to be altered in future or whether we will continue to try to retain the same block exemptions that are in European law. More explicitly, will the £23.6 million additional finance for the CMA be sufficient for it to take on the state aid role, as well as providing resources for the substantial increase in the number of merger and anti-trust cases? Could the Minister report on the views of the devolved Administrations on establishing the UK-wide state aid regulator?

Building a coherent post-Brexit competition and state aid framework will be of vital importance to the UK and, throughout our inquiry, we were told that the UK has a robust and well-respected competition regime and that Brexit does not necessitate a fundamental revision. However, we see some pressures and opportunities for the UK to take a more innovative approach. The repatriation of responsibilities for state aid approval will be the fundamental change, and it is important that government works to involve and secure the support of local government and the devolved Administrations in that.

In determining the UK’s future approach to state aid, the UK will have the opportunity to address criticisms of the complexity and bureaucracy faced under the current EU regime, as well as related issues such as public procurement procedures. The UK will have the opportunity to create a system that is easier for small businesses, in particular, to understand and for consumers to appreciate and benefit from.

In general, this report and our relative consensus with the Government on it should indicate a way forward, but there are some issues that I would like the Government to address, which I hope I have spelled out in the course of my speech. I beg to move.

Photo of Baroness Noakes Baroness Noakes Conservative 12:00 pm, 24th May 2018

My Lords, when the UK took the momentous decision to leave the EU nearly two ago, the underlying rationale for the EU committee structure in your Lordships’ House was largely destroyed. This was set up to scrutinise EU proposals that would impact the UK. According to my countdown app, just before I rose to speak, there are only 311 days and 11 hours before we leave the EU. Much of what we are now scrutinising is unlikely to be implemented in the UK, and so scrutiny, at the moment, has little or no meaning. I had expected that the EU Select Committee and its six sub-committees—absorbing the energies of 70 or 80 noble Lords—would, by now, have been reduced and streamlined. But the committees have been busily converting their purpose to scrutinising Brexit. Since the referendum, over 30 reports entitled “Brexit this” or “Brexit that” have been issued. There is a clear role for your Lordships’ House in holding the Government to account in this hugely important policy area, but I query whether we have got the balance right, either in the use of our own resources or—more importantly—in the burden we impose on the Government, given the scale of their task in preparing for Brexit. That both Ministers and officials have dealt with your Lordships’ scrutiny in good heart is a tribute to them. But the question that I pose to the House is whether we should be acting in this way and whether we are being reasonable and proportionate.

The report that we are considering today is from the sub-committee that has the internal market in its title—though it does not deal with goods or financial services and might better be called the “odds and ends” EU sub-committee. I am a member of this odds-and-ends sub-committee and, despite my views on the utility of the EU committee work at the moment, I pay warm tribute to the noble Lord, Lord Whitty, for being an excellent chairman.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I am grateful to the noble Baroness for giving way. Does she not agree that, on this question of how Brexit would affect state aid, my noble friend Lord Whitty, in his role as chairman, has made a number of observations that show how important and topical it is? I do not understand why the noble Baroness is taking this opportunity to criticise the role of the network of sub-committees. This is a good example of it doing its job very well.

Photo of Baroness Noakes Baroness Noakes Conservative

My Lords, I was only trying to say that I thought the amount of effort being devoted to this particular aspect of government policy could be regarded as disproportionate, given that the fundamental rationale for the EU Select Committee and sub-committees was to scrutinise the proposals emerging from the EU which would affect the UK. It has stretched its current terms of reference to deal with Brexit matters but, since there is a large number of sub-committees with a large number of noble Lords involved, we tend to produce reports on a very large number of issues, many of which overlap and cover the same underlying issues; for example, mobility of labour. I am merely challenging the proportion; I am not challenging whether any particular aspect of any particular report is or is not interesting or useful.

Perhaps I may continue. I will not deal with the report overall, because the noble Lord, Lord Whitty, has already ably summarised that. The Government have provided a very speedy reply which is comprehensive within the constraints of the current state of negotiations with the EU, which is entirely understandable. The response indicates—although it is too polite to say so in terms—that our report did not identify any new issues beyond those already on the Government’s own list of Brexit things to do. I think that that supports my critique about how well your Lordships’ House is spending its time.

I shall focus on two areas: mergers and state aid. On mergers, one important implication of our leaving the EU is that we will no longer be subject to the decisions of the Commission and the jurisdiction of the European Court of Justice in relation to mergers which affect solely the UK. At the moment, the Commission can and does claim exclusive jurisdiction over mergers which engage no issues whatever outside the UK. These are inevitably the larger transactions affecting the UK. It is right and proper that these cases should return to the exclusive competence of the Competition and Markets Authority.

Of course, mergers that cross the border between the EU and the UK may become a little more complex in future in that both the Commission and the CMA could be involved. The one-stop shop is currently a convenient mechanism for businesses involved in cross-border EU-only mergers. But many mergers engage interests that go beyond the EU and thus may well inevitably involve more than one global competition authority, and the loss of the overall one-stop shop will barely affect those. In my view, the loss of the one-stop shop is therefore a marginal issue.

The report rightly emphasises the desirability of strong co-operation mechanisms going forward, and there need to be mechanisms to allow the sharing of data. But in practice this is unlikely to affect merger cases, because the parties should be happy to agree to data sharing in order to speed up clearance processes. None of our witnesses thought that data sharing and co-operation will in practice be a showstopper.

There was also general agreement that our overall competition policy, for mergers in particular, would not change markedly post Brexit. That is partly because there is a broadly converged global approach to competition and mergers. However, Brexit will allow the UK to develop incrementally; for example, in faster and more responsive processes and in more innovative solutions. We will be free to develop in ways that our own Parliament determines. Our courts can develop their own jurisprudence and, in particular, will not be constrained by the ECJ’s overarching principle of developing the EU internal market. So the general view was that not much is likely to change for now but that we will in future be able to change our policy in ways that suit our economy. That, in my view, is the one big message from this report.

I will turn briefly to state aid. The report is clear, as the noble Lord, Lord Whitty, has already pointed out, that state aid rules are not a major issue for the UK economy at the moment; indeed, the UK is one of the smaller countries in the EU in terms of spend on state aid per head of population. The UK managed perfectly well without a state aid authority before we joined the EU, but it seems that we will not be able to leave without one. There seem to be two reasons for this. First, it is likely that any future free trade agreement will need something to guard against unfair competition due to state aid. Secondly, a bizarre consequence of devolution is that we will apparently need an authority to determine whether there are state aid distortions within what we now have to call the UK’s own internal market.

Since our report was issued, the Government have confirmed what was widely suspected, namely that the CMA will take over the state aid authority role. In that connection, it was good to see that the CMA has received nearly £24 million this year in connection with Brexit preparations and an additional £3 million for additional staffing for the additional caseload. The CMA, in evidence to our committee, was itself relaxed about the adequacy of resources for the task given to it, and I see that one of its executive directors, Dr Michael Grenfell, reiterated that in a speech this week.

I have a couple of questions for my noble friend the Minister about the Government’s role in relation to the CMA, and these touch on the CMA’s independence. First, at present the Government appoint the board of the CMA. In future, the CMA, as the state aid authority, will be sitting in judgment on the Government’s actions from a state aid perspective. This is quite unlike other public sector bodies. Does my noble friend agree that the independence of the CMA, which I know the Government value, needs to be underpinned by appointment processes which are demonstrably independent of the Government? The judicial appointments model offers a useful precedent here.

Secondly, the Government have issued to the CMA what they describe as a “strategic steer”. Do the Government think that that will continue to be appropriate once the CMA has assumed a new role in relation to state aid? It seems to me that a strategic steer comes perilously close to being a direction to the CMA by the back door, and that would clearly be wholly inappropriate in relation to state aid decisions.

Thirdly, within the strategic steer, the Government currently commit to a presumption that they will accept the CMA’s recommendations but allow for policy override. I do not think that that will be good enough for state aid responsibilities. Will my noble friend agree that the Government will need to show a firmer commitment to abide by the CMA’s decisions in relation to state aid?

Those are points of detail. The main message is that no burning issues arise from this report, and certainly none that the Government are not already fully engaged on.

Photo of Baroness Donaghy Baroness Donaghy Labour 12:11 pm, 24th May 2018

My Lords, I thank my noble friend Lord Whitty for introducing this debate and for steering us through a subject which is a potential minefield. If you can achieve a unanimous report with such a variation of political views as those held by me and by the noble Baroness, Lady Noakes, you are indeed a master of the universe—either that or one of us was asleep on the job. I accepted that we were looking at a snapshot of what we do now and what we need in the immediate post-Brexit future, and that debating the wider public interest effects was for another day.

Dr Michael Grenfell from the Competition and Markets Authority referred to,

“a challenge to the ‘market competition’ consensus that has prevailed in policy-making, at least in the advanced industrialised world, for the past three decades”.

He acknowledged that,

“the coming years may well see changes to competition policy to reflect these wider public concerns and policy trends”.

He was referring not just to the EU referendum but to the election of Donald Trump and the rise of populist parties, both left and right, in countries across Europe and to what commentators had called “an expression of the public mood”.

However, frustrating as it might have been, the committee concentrated on the job at hand, which was about the immediate future. What was remarkable about the evidence that we took was that nearly everyone said the same thing. One can draw one of two conclusions from that: either the existing system is working well or the witnesses believe that maintaining tight control over the current system is preferable to any alternative. Those who want a more buccaneering approach to trade and mergers will be disappointed by the report, and those who do not believe that the system works well for consumers and who believe that greater use of the existing state aid provisions would be welcomed will also be disappointed. Therefore, it could be argued that the report is about right because it disappoints everyone except the CMA.

The report might seem dry and boring on the surface but it is the thin crust covering a maelstrom of political debate about ownership and control, and about appropriate assistance for the regions. In my view, successive Governments have not maximised their ability to use state aid for important social measures. According to two legal experts in EU state aid law, the UK would have to triple the amount that it spends on state aid to match the proportion of GDP spent by Germany. In 2015, the UK spent 0.35% of GDP on state aid schemes, excluding railways, France spent 0.62% and Germany 1.22%. The Italians and the Germans subsidise their steel industries but, somehow, the rules did not apply to the UK to do the same for Redcar steelworks. Conversely, there are over 800 companies with state ownership in the EU—one of which will be printing our passports soon.

It is clear, therefore, that the so-called liberalisation of the market has been the policy of successive Governments, which probably explains why state aid in the UK has been pushed into the sidings. I question whether the existing set-up protects the consumer: no consumer choice in the water industry; Hobson’s choice in the energy so-called market; and unacceptable quality of broadband coverage in significant parts of the country. Perhaps market power has taken over from competition. A Financial Times article pointed out that lack of competition in banking cost customers £6 billion a year, or £116 each, according to a competition inquiry in 2016. In the energy so-called market, another inquiry found that we are paying £1.7 billion too much every year. The Financial Times wrote:

“Despite official investigations galore, neither has been addressed”.

I will now turn to the government response and select a few issues. The government response makes it clear that the CMA will receive additional funding as our report indicated and has concluded that it will take on the new role as the UK state aid regulator—another area of concern in our report. I think the Government are seized of all the issues and are giving a priority to this in negotiations. The Minister reiterated the Prime Minister’s statement that:

“As with any trade agreement, we must accept the need for binding commitments—for example, we may choose to commit some areas of regulations like State aid and competition to remaining in step with the EU’s”.

That is a significant statement. The Government have also confirmed that existing state aid rules will continue to apply during the implementation period and that they do not plan to make fundamental changes to the UK competition framework, as has already been said.

In response to our comment about delays in bureaucracy in the EU state aid approval process, the Minister simply said that aid givers are always advised to take advantage of the pre-notification procedures to engage in constructive conversations with the European Commission as early as possible. So no government help there then.

On our comment about consumer concerns regarding pricing and dominance in some markets, the Government announced that they would be issuing a consumer Green Paper. I will be asking the Minister a question on that later.

My noble friend Lord Whitty has already covered the issue of having regard to EU law and precedent. Briefly, on our request for clarification, the Minister welcomed our arguments and then said that the Government will,

“take account of the views in the Committee’s account”.

I think that is what is known as a delphic comment.

The Government have accepted the importance of information sharing in merger cases, and this will form part of their negotiations. It refers to businesses agreeing confidentiality waivers to allow confidential information to be shared between enforcement agencies.

Our request that the Government should take account of the future of specialist legal services in the UK in recommendation 5 has been answered with a polite brush-off.

Our report refers to the opportunities for the UK to develop a more effective competition enforcement regime. The Government have responded that they are already taking steps under their industrial strategy, including publishing a review of the existing competition regime by April 2019 to make sure it is working as effectively as it can and publishing a consumer Green Paper that tackles markets that are not working well for consumers and businesses. What form will the review of the existing competition regime take? Will the views of stakeholders be sought and taken into account or will the CMA be marking its own homework? Secondly, when can we expect the consumer Green Paper and how will it interact with the Domestic Gas and Electricity (Tariff Cap) Bill which has just had its Second Reading?

On local government and the devolved Administrations, the Local Government Association, while recognising that its primary function is not to be a vehicle for state aid, submitted that leaving the EU could provide an opportunity to reform the state aid process, simplifying it and introducing greater local flexibilities for councils—for instance, to support smaller-scale local authority activities which deliver public benefits but not unduly distorting competition. The LGA also supports the development of a UK regional aid policy aligned with the industrial strategy. This would provide local government and its partners with the flexibility to tailor interventions and investment to best support local growth.

The Government noted the concerns expressed and,

“shares the ambition to see a UK State aid regime operate as effectively as possible”.

The only solution was to transpose the general block exemptions regulations into UK law, a cautious and predictable response but disappointing for local government.

The devolved Administrations are a key area to resolve. The institutions surrounding them did not exist when we entered the EC and this will present us with a new way of working on these issues.

Photo of Lord German Lord German Liberal Democrat 12:21 pm, 24th May 2018

My Lords, I join others in thanking the noble Lord, Lord Whitty, for his chairmanship of this committee and for the report that has emerged. I also thank the committee staff, who have been moving with the sands of time, and therefore the noble Lord’s skilful chairmanship of the committee has been absolutely essential in taking us to this stage.

It will not surprise noble Lords that I do not agree with the noble Baroness, Lady Noakes, on the roles of the European Union Committee and its sub-committees. The primary purpose of the committees of this House is to scrutinise the Government’s relationship with the European Union. These matters are top, front and all that dominate their work in relationship to Brexit—it is the one show in town—and it is perfectly appropriate for committees to carry out this kind of scrutiny.

The noble Baroness has raised issues on which I agree with her—I will come to them in a moment—but I do not agree that there are not new issues raised in the report. The issue of state aid, on which I want to focus, did not exist prior to our membership of the European Union, and what happens next is of critical importance, particularly to the poorer parts of the United Kingdom which have a lower success rate than the south-east of England.

Regarding the committee’s report, on the issue of mergers, acquisitions and anti-trust issues it was demonstrated that we have a robust policy in this country at the moment and that continuing the robust nature of our policy is important. The UK regime is perhaps a leader in this matter, and the issues considered and agreed raise only one major fundamental difference, and that is whether or not the UK regime can continue to engage with, and continue our membership of, the European competition networks. There is benefit in being able to share, learn and work with others even though we may be separated from them. However, when the committee started taking evidence, it became clear that state aid was increasingly cutting through as a key issue which needed to be understood and progressed.

In their response, the Government have said that they do not yet have a state aid policy, but we will need one from day one of our exit from the EU. That end-point could occur whenever the transition or implementation phase comes to an end, so there is time for the Government to come up with a state aid policy for the UK and, therefore, the issue is one that they will have to address. Given that, beginning to address it now is critical in order to avoid the uncertainty that will otherwise result for those parts of the United Kingdom where legal powers enable them to promote and support industry and business development.

As we know from the government response but did not know at the time when we took evidence from the Minister, the CMA will be the state aid authority. I draw the conclusion that we were told at the time of the evidence session, and before we were told that the CMA would take on the state aid authority role, that the £23.6 million which had previously been announced by the Government was for the CMA to undertake Brexit-related issues within its existing responsibilities and that it was therefore not related to the new responsibility of becoming the state aid authority, which of course resulted from the evidence given by the Government in response to this report.

However, I agree absolutely with the noble Baroness, Lady Noakes, that the body has to be independent of government, since it will be advising not only on the state aid regime which the UK Government may have responsibilities for but also that for which the devolved Administrations may have responsibility—and, further on from them, the elected mayors and perhaps the northern powerhouse, which may gain some traction as well. The question of what form that independence for the CMA will take and how it will be guaranteed in its state aid role is pretty critical. I agree with the comments of the noble Baroness, Lady Noakes, in that respect.

The other issue, which was touched on, by both the noble Lord, Lord Whitty, and the noble Baroness, Lady Donaghy, is that the state aid rules are not a barrier to developing business and enterprise in this country. As we have heard, we would have to triple the amount we spend on state aid as a proportion of GDP in order to match the amount that Germany spends on such aid. We might wish to spend more, and we are certainly not among the big spenders. But neither do the state aid rules prevent state ownership, which some people are in favour of and indeed some parties have already set out their stall on this matter. The EU already has 800 state-owned companies working within it, and therefore no barrier is imposed by the state aid rules should any future UK Government wish to go in that direction, which I hope they will not.

EU structural funds, which is the funding that the European Union provides to this country and will be coming back to the UK should we ever leave the EU, already permit distortion to the level playing field, which is a principal pillar of the single market and the customs union. These funds have been greatly useful in west Wales and in the valleys, where GDP has persistently been below 75% of the EU average for the whole of the past 20 to 25 years. The ability to develop infrastructure for business training support and business assistance programmes, which have received European funding and are available in most other parts of the United Kingdom, clearly shows that there is some need to be able to support the different parts of the United Kingdom. State aid is a facilitation of the infrastructure, but despite this, business in the UK has not been a major user of the interventions which have been permitted.

I should also point out the change that has occurred since devolution. Those Members of the House who were involved in political life prior to us joining the European Union will of course be aware that, at that stage, we had regional selective assistance programmes, which were a major subject of dispute within government. But think what will happen now, as those disputes arise between those with the legislative powers to execute those changes. Business development support is certainly something that is within the power of the devolved Administrations. As a former Minister for Economic Development in the Welsh Government, I had to use those powers to the extreme when we faced the closure of steelworks in Wales, where we needed to provide as much assistance as we could to create and retain part of the steel-making fabric in other parts of Wales.

There are now new players on the agenda, apart from Wales, Scotland and Northern Ireland. In the future, this could mean that mayoral powers and local government might be given more in the way of business support. In its new role, the CMA will have to reflect both those changes and the interests of each of those legislative bodies, which it will adjudicate on. So it is not sufficient for the CMA to take instruction from the UK Government alone.

That brings me to the issue of frameworks. The Government’s response to the report mentions that they will need a framework because, although the CMA will be the regulator, it will not provide the strategic framework in which a UK single market will operate. If a UK single market is to operate with those different legislatures, it will need instruction, direction or some form of agreement—at least a fabric of agreement—from them on the framework in which it will operate. As noble Lords just heard, there will be a difference, for example, in the water industry. Some parties in this Chamber may want to nationalise the water industry, but I would point out to those of us who are recipients of water from Welsh Water that it is a not-for-profit organisation, and I do not think that the people of Wales would want to change that—thank you very much. Blanket policies that try to operate across the United Kingdom will certainly not work in the interests of parts of the UK where legislative powers exist to make sure that these things are dealt with at different levels.

So the framework that is about to be discussed is urgently important. Who will determine it? In the debates on the European Union (Withdrawal) Bill, issues relating to powers for Scotland and Wales were the subject of great dispute. While the UK Government have reached an agreement with the Welsh Government, they have not reached one with the Scottish Government on how they will operate certain powers. There is a lesson in this: the UK Government ought to work now with the devolved Administrations, local government and mayors to try to find a way in which this framework can be put together.

Of course, a route for that to happen is through a joint ministerial council, which is meant to bring together Ministers from the different Administrations to come to an agreement. I believe that there is now a role for a JMC to be put on a statutory basis and become the body that will issue and develop a strategy that has the agreement of the whole United Kingdom, so that the CMA can operate in its new state aid role. As we know, the current agreement with the Welsh Government on the European Union (Withdrawal) Bill is that the various powers that reflect on the Welsh and UK Governments have been frozen until the framework is in place. That agreement was reached by the UK Government with the Welsh Government but has not yet been reached with the Scottish Government. That route was taken because the Government needed some process by which they could advance on how those powers would be developed and used. We need joint agreement very rapidly.

Finally, I want to ask the Minister some questions about the future. First, when will the Government begin engagement with the devolved Administrations on the structure of a future framework for state aid, or whatever they might think of as a suitable name for the new subsidy regime for the United Kingdom?

Secondly, does the Minister anticipate that any form of trade deal with the EU, or indeed any other country, will require some form of state aid restriction? We know that the WTO rules are different from the EU rules, but do the Government anticipate some form of state aid restrictions inevitably being put before us?

Thirdly and finally, do the Government agree that some formulation for determining the future state aid regime similar to the joint ministerial committee is an appropriate mechanism? Given the variety of frameworks, not least those identified during the passage of the EU withdrawal Bill through your Lordships’ House, is a permanent statutory structure of a joint ministerial committee an appropriate way of dealing with it?

Photo of Lord Wigley Lord Wigley Plaid Cymru 12:35 pm, 24th May 2018

My Lords, I am glad to have an opportunity to take part in this debate. I do so as a member of the sub-committee, although the report before us today is based on an investigation which had commenced before I joined it late last year. I was happy to put my name to the report, albeit based on the limited information I had gleaned after joining the committee. I thank the noble Lord, Lord Whitty, for the inclusive and helpful way in which he chairs the committee meetings and for his focused introduction to today’s debate. I also pay tribute to the work of the excellent staff who serve that committee.

I want to address briefly just one aspect of the report. That relates to the vexed issue of state aid—as we have heard from many contributors today—and how it bears in the context of devolution, and specifically to the challenges that it poses for the Welsh Government and the National Assembly. I identify with the comments made by the noble Lord, Lord German. We tried to put the JMC on a statutory basis as an amendment to the EU withdrawal Bill, but that was not acceptable to the Government. I have no doubt that we will need to return to that matter.

I shall focus first on the background to this issue. Noble Lords will be aware that the Wales Act 2017 changed the model of devolution regarding which powers are devolved to the Welsh Government and the National Assembly for Wales from a conferred powers model, whereby all the devolved powers were listed, to a reserved powers model more similar to that of Scotland, by which all powers not listed in the Bill are considered devolved.

The powers reserved from Wales to Westminster number in the hundreds, but they do not include state aid. Whitehall departments were widely consulted in this process and were, effectively, given a veto, which inevitably meant that they sought to hold on to every conceivable power they could. Yet they did not specifically hold on to state aid as a reserved matter. So, whether by design or by accident, state aid was deemed by this Act to be a responsibility of the National Assembly.

However, it now transpires that the UK Government wish to extend the number of powers reserved to include such policy fields as food geographical indicators and the subject of today’s debate: state aid. This is the background to accusations from both Edinburgh and Cardiff—of which we have heard already today—of there being effectively a power grab. It has caused immense anger, for reasons I shall outline in a moment.

I turn to the body of the report. It states:

The UK will have significant decisions to make with regard to future State aid policy … It will be important for the Government to involve, and secure the support of, the devolved administrations in determining the shape of this future State aid regime”.

The report emphasised this particularly forcefully in the context of any decision relating to how the state aid regulatory function should be undertaken. In the event, the Government opted for placing it in the hands of the Competition and Markets Authority, the CMA. The decision appears to have been taken in parallel with our committee’s investigation. That of course is totally understandable given the pressure to get post-Brexit structures into place in good time.

However, our report had recommended specifically, at paragraph 219, that the Government should,

“involve and secure the support of the devolved administrations in this process”— that is, developing the regulatory framework—

“including in agreeing the terms of reference, remit and priorities of any new UK State aid authority”.

The report further warned of the dangers of the UK Government being perceived to be both rule-maker and rule-taker in this matter.

The Government, in their response of 29 March, glaringly failed to accept this point, merely stating:

“The Government … recognises that the regulation of State aid is a UK-wide issue”.

I ask noble Lords to please note that it does not say that they have the power; they just rest their case on a bland assertion that they “recognise” it. So we have no securing of the support of the devolved Administrations, as recommended by the committee; we have no mutual agreement of the terms of reference; and we have no agreement of the regulatory body’s remit and priorities. The Government have flagrantly ignored the central point of this report in this matter and have not even deemed it worth while explaining why they have done so. It is little wonder that this has caused such acrimony in Cardiff and Edinburgh.

This glaring failure of the Government to respect and involve the devolved Administrations is central to the stand-off that has developed between London, Cardiff and Edinburgh between last December and this month and led to the Scottish Parliament refusing a legislative consent order for the EU withdrawal Bill. This area of controversy is over and above the 24 areas listed where agreement was not forthcoming, and perhaps I should remind the House that the refusal of the LCO by Scotland’s Parliament is supported by Labour and Liberal Democrat MSPs as well as SNP Members. The failure of the Government to recognise the sensitivity of this issue, flying in the face of the committee’s warnings, is what has turned the whole issue sour—quite unnecessarily so. It has been a ham-fisted botch job which will echo for many years to come, and I will explain why.

There are important reasons why powers over state aid should reside in Wales following Brexit. The Welsh Government have responsibility for economic development in Wales; they have subsumed into them the work of the former Welsh Development Agency. The economic damage that leaving the European single market and customs union would do to Wales is potentially tremendous. Export-driven industries, of which we have a high proportion in the manufacturing sector in Wales and on which so many jobs rely, would face serious difficulties if tariff and non-tariff barriers were placed on them. The Tata Steel crisis last year showed that Wales cannot expect Westminster to offer support to our industries in that context; or even facilitate interventions used in other EU steel-producing countries to safeguard their industries. Jobs were eventually saved when the Welsh Government themselves committed to supporting the plant in Port Talbot with a package of support worth tens of millions of pounds, a demonstration that the Welsh Government were in charge of the state aid aspect of their work.

The fundamental truth is that the UK Government’s priorities for state aid are not aligned with the predictable needs of the Welsh economy. State support is used only rarely by the UK Government, in circumstances such as the banking bailout that followed the 2008 financial crash. London’s free market economy model is at variance with the social priorities so highly valued in both Cardiff and Edinburgh. Furthermore, the recent transfer of tax powers to Wales, which will take another step next year when income tax is partly devolved, means that for the first time my country will be responsible for raising some of the money that it spends. It is only morally and politically right that it is allowed to spend this money in ways it deems appropriate, including to use a proportionate state aid vehicle where that is necessary and where it does not unduly distort the UK single market.

I am simply making the point that the priorities of government in Wales and Westminster are different, and therefore it is only common sense that relevant powers should lie with the appropriate Executive. If they do not, every time there is a threat to a strategically important industry in Wales, such as a steelworks, and the Welsh Government are prevented from intervening by the CMA, the whole sorry saga will flare up again. Every time a car or aircraft factory threatens, post Brexit, to move production to a European mainland location and the Welsh Government seek to save the jobs, if the CMA blocks it on the basis of state aid considerations, it is the CMA that will face the political odium.

The Government’s failure to follow or even to acknowledge our committee’s recommendations in this regard will make life totally impossible for the CMA. I wonder whether Ministers warned the CMA chairman of this likelihood when they discussed the matter with him. This culpable failure to think through the issue will stoke up resentment between the devolved Administrations and Westminster—a resentment that could have been avoided—and ultimately could well provide the backdrop to a second Scottish independence referendum. The Government are playing with fire without realising it—in the midst of a post-Brexit powder keg which could blow us all to kingdom come.

In conclusion, I draw to the attention of the House the recently reported survey which is highly relevant to this report and which may make less than comfortable reading for both sides of the Brexit debate. The survey draws on the findings of the Legatum/Populus report of last autumn and shows that while opinion is still closely balanced—depending on the questions asked—on most aspects of the Brexit issue, the one aspect on which there is a clear-cut majority relates to the widely shared hope that Brexit will enable government to intervene to safeguard jobs that are at risk in a way that has been impossible in recent years because of EU state aid regulations.

It is clear by now that the vote to quit the EU, which was particularly high in old industrial areas such as the south Wales valleys and north-east England, was most emphatically not a vote to re-establish a UK single market on the same free market principles as have underpinned the EU single market. This is something Mr Corbyn has clearly understood, and it is a central factor in the Scottish refusal to give the withdrawal Bill legislative consent—and why Mr Corbyn personally backed that stance. It reflects a fundamental refusal to see Brexit as merely replacing Brussels with London and for everything otherwise to continue as was, which is the central tenet of the withdrawal Bill. This all comes into focus with the state aid issue, which Westminster will ignore at its peril.

Photo of Lord Inglewood Lord Inglewood Conservative 12:46 pm, 24th May 2018

My Lords, I was not a member of the committee but despite—or because of—that, I congratulate the committee and the chairman because this is a very important and complicated topic and the report is important, albeit, as I shall suggest, we are still talking about unfinished business.

Competition and state aid policies form one of the unsung but crucial parts of the contemporary marketplace which is our economy. After all, we need a free, regulated and fair marketplace which is necessary and appropriate for a 21st-century society and contributes to stability, prosperity and personal freedom. The origins of this in this country go back deep into the 20th century, as the report points out, and were integral to the European Economic Community, as it then was, right from the beginning; I refer, for example, to Articles 85 and 89 of the treaty. As people have said, it is hard enough to do this within a single jurisdiction but it is much more complicated to do it across jurisdictional boundaries, which in turn need common institutions to administer and enforce what is in place.

I am one of those unfashionable and eccentric people who consider that the European Union single market was one of the extraordinary legal, diplomatic and political triumphs of the 20th century, albeit it has not yet even been completed. In some quarters I may well be considered a dinosaur—possibly even one clad in ermine—but so be it.

If a country leaves the EU, it leaves all this behind it, but no man is an island, least of all a global trading nation, and these things cannot be looked at introspectively. Domestically, as we have already heard, the consequences of leaving are systemically reasonably straightforward and align with the processes we are considering in the context of the European Union (Withdrawal) Bill. Internationally, however, it becomes rather more complicated because the reality, as is recognised in the much looser WTO rules, is that at least some framework dealing with a number of these topics is both appropriate and necessary. In the case of arrangements going beyond that, the requirements, such as those in the context of the European Union, are likely to be more stringent. If this country is looking for comprehensive, frictionless trade into the EU post Brexit, it is more or less completely wishful thinking not to suppose that something giving effect to the vast generality of existing EU rules will be required. This is a proposition with which the Government seem to concur.

However, it is not simply a matter of the rules. There is also the question of enforcement. Currently, as we know, Brexit is defined by the Government as leaving the jurisdiction of the European Court of Justice, so how can we achieve that? It is true that the EFTA and EEA mechanisms exist but I am not sure whether like is really being compared with like. After all, Iceland, Liechtenstein and Switzerland’s economies are not comparable with our own and they have an entirely different relationship with the economy of the European Union.

When I was working on the detail of the single market, quite some years ago now, one perennial problem was the difficulties thrown up by non-tariff barriers and creative, partial and partisan legal interpretations. Just as those difficulties were an issue then, I expect that similar things may turn out to be an issue in this context in the future. An additional problem that I anticipate could be that if we secure trade agreements of some kind of superior character with other nations around the world, they may well want to reciprocate arrangements covering such things with us. While those agreements may be compatible with WTO rules, how will they lock into whatever arrangement we may put in place with the European Union? Before we know where we are, we would be in the world of having to deal with the kind of problems that used to arise across Europe with the question of parallel imports.

In the whole debate in this country about these topics, we spend far too much time talking to ourselves about what we want and insufficient time thinking about what the counterparties with whom we will be—and are—negotiating would like to have. In the case of the EU, I dare say that the counterparties are a trifle disgruntled with us but, to secure a deal, it has to be agreed by both sides. We have to find ways of meeting both sides’ aspirations.

As we know, the current plan is that we are jettisoning membership of the European Union on 29 March next year but, as yet, we really have no idea what is to follow it. As I understand it, it increasingly looks as if the Government are going to say to us, “Well, we don’t know what’s coming next—but trust us”. That looks to be close to signing a blank cheque and, when I was brought up, I was told that was a very foolish thing to do. It is a view that I subscribe to still. It is now all about not leaving the European Union but what we are going to get next.

The point is that we currently do not know and the crucial moment will be the withdrawal agreement. That agreement seems rather akin to getting on a train at the station—but when you get on one, you need to know your destination. You otherwise risk being like the heroine who was sung about by Marie Lloyd on the music-hall stage:

“Oh! Mister Porter, what shall I do?

I want to go to Birmingham

And they’re taking me on to Crewe”.

We need to know when we board that train what the destination will be. As far as competition and the other policies we are discussing are concerned, we need to know what that framework is going to be, and currently we do not.

Photo of Viscount Chandos Viscount Chandos Labour 12:53 pm, 24th May 2018

My Lords, I thank my noble friend Lord Whitty and the other committee members for this important and interesting report. I also thank the Government for their response which, as my noble friend pointed out, was rather more prompt than we are seeing on many other reports. Indeed, last week I spoke in a debate on one report where, after 13 months, there had been no response at all. I draw your Lordships’ attention to my entry in the register of interests.

Anti-trust, merger and state aid policies are hugely important to the workings of a social market economy and, for that reason, I very much agree with what the noble Lord, Lord Inglewood, has just said. They are at the heart of balancing the benefits of the markets for employment, growth, prosperity and tax revenues with the specific interests of consumers, over and above their participation in a successful and efficient economy. Under the EU regime, these policies have generally been applied well but, not surprisingly, not perfectly. In the area of anti-trust and mergers, for instance, Res Publica gave evidence to the committee and said:

“Something has gone wrong with our markets and something has gone wrong with our competition law”.

That view is held, within reason, across the ideological spectrum.

We should ask whether it would have been better if we had been outside the EU throughout this period. Today is literally the eve of the implementation of GDPR. Admittedly it is around privacy and data, but none the less it is a great example of the European Commission’s initiatives relating to the largest internet and data companies and it has also taken energetic and vigorous action against them in the areas of competition and tax.

What then should be the future in this area after we have left the EU? It seems important that there should be active co-operation, as the committee recommended, for instance through a relationship with the European competition network, and renewed and rigorous focus by the CMA. Should that include a change to broader public interest rather than narrower competition issues? In the speech that other noble Lords have referred to, Michael Grenfell of the CMA posed that question. I recognise that that is outside the scope of the committee, but it is inevitably a live and important topic. As the movie would have it, “It’s Complicated”. In 2005, there was a proposal for Pepsi to take over Danone. The Anglo-Saxon financial community mocked the French for treating yoghurt and mineral water as strategic assets, but five years later we found that cream eggs and tonic water were perhaps as strategic to us as yoghurt and mineral water were to the French. More recently, issues surrounding the hostile take of GKN by Melrose have brought renewed focus on this issue. I hope that there will be continuing debate over the months to come as we fine-tune, I hope, competition policy in the UK post Brexit.

In the area of state aid, there is no doubt that the EU regime has caused problems and issues, but however complex and important they may have been to local government, devolved Administrations and others, it is fair to say that they are minor in the scheme of things. Other noble Lords have highlighted the extent to which we have been modest investors of state aid in industry and the economy. One of the leaders of the leave campaign said to me, before the referendum, that the reason for leaving the EU was that the UK just did not know how to play the EU game. That may to some extent account for the relatively modest deployment of state aid and the tendency to see the EU as the constraint on greater exploitation of it. That comment rather begs the question: if the UK did not understand how to play the EU game while it was a member, why would it understand how to play that game during its negotiations to leave?

I believe it is right that there should be a formal regime after Brexit and that responsibility for it should be assigned to the CMA. The Secretary of State for Exiting the EU, in a speech in Vienna at the end of February, when I suspect he was taking his sensible pills, said:

“It cannot be right that a company situated in the European Union would be able to be heavily subsidised by the state but still have unfettered access to the United Kingdom market. And vice versa”.

None the less, harnessing the power of the state in a careful and selective way on the economic stage is an important and valid ambition. It need not and should not involve massive nationalisation; rather, it should involve targeted and discriminating initiatives.

The CMA and, before its formation, the Office of Fair Trading and the Monopolies and Mergers Commission have always needed unimpeachable independence. Arguably, the addition of state aid to the CMA’s remit reinforces the importance of that. Therefore, it seems all the more surprising that the newly appointed chair of the CMA should be appointed as, initially, a Conservative Life Peer. While the noble Lord, Lord Young of Cookham, clarified on Tuesday that he would sit as a non-affiliated Peer, it should not have needed the Institute for Government and the noble Lord, Lord Newby, to flush this issue out. That is a regrettable start to the new regime at the CMA.

I commend this excellent report to your Lordships and hope that the Government, in addressing the vital issues raised by the committee, will be more sure-footed than they have been to date.

Photo of Lord Aberdare Lord Aberdare Crossbench 1:02 pm, 24th May 2018

My Lords, it is a pleasure to serve on the EU Internal Market sub-committee. This report, pace the noble Baroness, Lady Noakes, seems to be a good example of the committee inquiry process working as it should. The committee has a membership of all the talents, with an outstanding chair in the person of the noble Lord, Lord Whitty, and first-rate staff support. It has been supported by a splendid special adviser, Professor Erika Szyszczak, who gets no mention at all in the report, perhaps because the spellchecker could not cope with a name that includes three Zs. The topic is relevant and important. We had input from a range of knowledgeable witnesses and produced what I believe is a constructive and helpful contribution on the issue. We even received a timely and generally positive response from the Government, followed—again within a reasonable timescale—by this debate.

There was broad consensus that the current EU competition system for anti-trust and mergers, with responsibilities divided between the Commission at EU level and national competition authorities in each member state, works pretty well. The UK regime is seen as robust and effective and the CMA is well respected. The transition deal reached by the Government since the report’s publication addresses some of the concerns expressed in the report—for example, over the need to give businesses greater clarity and certainty, and to ensure that they would have to make only one set of adaptations to their systems and procedures. Other issues remain unresolved, such as how competition cases that are live at the point of exit will be dealt with.

I will comment, I hope briefly, on three areas: first, what potential opportunities or improvements might arise from the UK taking back control of its competition policy; secondly, issues relating to state aid; and, thirdly, broad questions relating to the future framework for competition policy across the UK.

Criticisms of the current system for anti-trust and mergers relate largely to delays and bureaucracy, as well as concern about insufficient attention being paid to the concerns of consumers who are, after all, meant to be the ultimate beneficiaries. Several suggestions were made about how to improve the processes of investigation and enforcement after we leave the EU: for example, greater use of interim enforcement measures; setting time limits for parts of the process; focusing more on the actual effects of corporate behaviour than its specific form, as the Commission tends to do; expanding the public interest criteria for assessing mergers; or revising thresholds for triggering action on them. Some of these ideas were also proposed in the sub-committee’s earlier report on online platforms, and could be particularly useful to address fast-moving digital markets and issues posed by dominant online platforms, which have been so prominent recently.

Of course, any such changes may need to be balanced against the constraints of seeking to negotiate a comprehensive competition agreement with the EU, which might well include binding commitments limiting the scope for change, so any divergence from EU rules may be relatively small, at least initially, and take place only gradually. There may also be some drawbacks of our leaving, such as businesses having to make dual notifications of mergers, or some reduction of private damages actions based on breaches of competition law, for which, as we have heard, the UK has established itself as Europe’s foremost jurisdiction.

What opportunities does the Minister envisage to enhance the effectiveness of our competition regime after Brexit, what may they mean for the arrangements we make for continued co-operation with the EU regulatory regime and the European competition network, and how far and how fast may we begin to divert from the EU regime?

State aid presents a different challenge. It is currently regulated entirely at EU level, with no existing UK regulatory structure. Provisions on state aid are likely to be a required element of any deal with the EU. As the Prime Minister herself said, it would be a serious mistake to try to beat other countries’ industries by unfairly subsidising one’s own. At the same time, any new structure for managing state aid in the UK must take account of the needs of the UK’s own single internal market, extending across the devolved nations, regions and local authority areas and addressing their particular needs and priorities, while avoiding the risk of subsidy races between different parts of the UK, all of which have up to now had to follow common EU rules.

The Government stated view is that,

“the UK should be prepared to establish a full, UK-wide subsidy control framework, with a single UK body for enforcement and supervision, at the point this is required”.

They have also concluded that the CMA would be best placed to take on this role. This raises a number of questions, including how the CMA’s independence will be assured and whether there is any risk of conflict between its new state aid role and its existing competition function. Above all, how will the interests of the devolved nations and other regional and local bodies be taken into account in defining the new rules and by the CMA in enforcing them? In its evidence, the Welsh Government stated that,

“a UK internal State aid framework needs to be drawn up cooperatively and consensually between the UK Government and the Devolved Administrations as equal partner”, and that:

“The Welsh Government would expect to be involved in the appointment of the board or panel members of any future UK-wide State aid authority, as well as agreeing the terms of reference, ongoing remit and priorities”.

Some of those aspirations were taken up in the committee’s recommendations. How does the Minister believe that the Government and the CMA should respond to those aspirations?

That leads me to my third topic. It seems unlikely that Brexit will bring major changes, at least in the short term, to the way that competition policy operates in the UK. Looking to the longer term, what form of regime would best meet the needs of the UK’s internal market, and what institutional arrangements most effectively deliver it?

The sub-committee recommended that a first step towards addressing these questions should be for the Government to undertake a wide-ranging consultation exercise, gathering views and ideas from the devolved Administrations, regions and local authorities, as well as from businesses and consumers in general. Indeed, as the noble Baroness, Lady Donaghy, mentioned, the LGA in its evidence set out some ideas on how a future UK state aid regime could provide greater simplicity and flexibility for councils to deliver public benefits.

I conclude by asking the Minister what plans there are, if not for a consultation, at least to pursue other ways of identifying opportunities to maximise the potential benefits of a competition regime free of the constraints of the current EU system.

Photo of Lord Wei Lord Wei Conservative 1:10 pm, 24th May 2018

My Lords, I, too, thank the noble Lord, Lord Whitty, for tabling this debate and for his very able chairmanship of the committee, and in particular for steering us through the creation of this report. I declare my interests as set out in the register.

Broadly speaking, I am relatively happy with the findings of the report and its recommendations, but with some significant caveats. It is a solid document and I pay tribute to my fellow committee members, our adviser and our officials, as well as to those who contributed evidence to our inquiry.

The topic of competition and state aid as we near Brexit is vital to the country’s economy and future as we seek to build new global trade deals and bolster existing relationships. I would argue that this area is one where we ought as a country not just to aim for continuity beyond our departure from the EU, whenever that ends up being, but to invest and be more muscular in our approach. As a country, I feel that we have not always benefited from the existing regulatory and anti-trust infrastructure through our membership of the EU, and indeed from the state aid framework of which we have been a part. While rational, I feel that it has at times been an obstacle to companies and social organisations making a difference and growing. Yes, the machinery in Brussels and elsewhere has often pursued high-profile cases against larger players from the technology and other industries. However, as we have seen in our previous report on digital platforms, often the investigations initiated occur many years after the issues under dispute, and the fines, relative to the size and turnover of the companies concerned, are not always that punitive.

As a Conservative and a believer in free markets, I feel that for capitalism to function well there needs to be rigorous enforcement of anti-trust measures, as well as the use of lighter-touch yellow card systems, and even an approach that looks at abuses in the area of supply chains. With the status quo, I fear that what may be close to being a monopoly or oligarchy in the UK, can be overlooked for many years because it has not reached the scale that would trigger appropriate measures at a European level. We also know from previous research that some larger firms deliberately buy and shut down start-up competitors at just the level below the threshold when such a deal would attract the attention of the competition authorities. So my question to the Minister is: do the Government have plans to make better use of the freedoms that being out of the EU will give them to create a more flexible and vigorous regime for competition regulation and enforcement, in the interests of consumers, and even in the interests of smaller businesses and start-ups?

Some might say that such a regime would incur greater costs, and that we have benefited from the resources and staffing capacity of the EU to pursue some of the better-resourced firms in a co-ordinated way. Indeed, it is true that, as a country, we have the ability to leverage off the machinery of the EU to pursue those firms. But, as I have highlighted, there is a cost to outsourcing our capability—one that is borne by our consumers and our industries, and perhaps even by our wider economy through reduced productivity from less competition. To enable greater innovation and lower costs for ordinary people, I would argue that the CMA and other bodies in this area ought not just to have resources to scale up to backfill the cases in future that the EU will no longer take from us, but have even greater resources to be able to pursue a vigorous approach using both formal and informal methods. That would pay dividends for the country and ultimately be recouped through growth and increased taxes, and through more new entrants local to these isles having access to markets that have been closed off to them.

As for state aid, I can understand the sentiment in the report which seeks to continue the same measures on state aid to avoid a regional race to the bottom. But, like other noble Lords in this debate, I see Brexit as a major opportunity to review the way in which we go about enforcing state aid rules. This is truly an area where we have tended to gold-plate in the past—and I declare an interest as having been involved in companies or organisations that, historically, have bid for sums from local government or bodies subject to state aid. The picture has been one of delays and paperwork, where the sums involved have been relatively low, such that I am certain that many worthy projects that would have benefited our cities, nation and planet no doubt never saw the light of day because those involved decided against applying, given the trouble involved. Surely, as our cities re-emerge and become powerhouses once again, and with the potential for government departments to procure from more innovative start-ups and social organisations, and thereby reduce costs and improve outcomes, we ought to be using Brexit to streamline state aid, increase the caps and empower procurers to tap into the entrepreneurial energy out there. What plans are there are to do this, and do the Government share my concerns that the current system is hampering progress?

I want to use my remaining time to cover one issue raised by the government response to the report in relation to the role of the CMA, indicating that state aid will fall within its remit after Brexit. Given the points I have just made, it seems to me that there ought ultimately to be a separate and independent body altogether, which we might choose to call the PMA, or Procurements and Markets Authority, to carry out state aid and other functions. It would perhaps be empowered to hold to account government and the devolved Administrations, as well as, over time, non-government organisations and businesses, on procurement decisions generally, not just in relation to state aid. It would ideally process state aid applications in a more streamlined manner, and ensure fairness in the government procurement process, opening it up so that more players can have a chance, rather than just those which make the lives of our civil servants more convenient and lower-risk.

It could also have a hand in tackling abuse of suppliers by large organisations, and even play a role in developing best practice in how to manage procurement in the relationship between government and the public with utilities and quasi-monopolies, such as water companies, trains, energy companies, retail banks, and large public sector service providers, which is currently a hot topic. Currently, when these bodies fail to deliver, this tends to lead to an argument to nationalise them, which in my view just shifts the monopoly provider role to government, and does not solve the core issue of performance, diversity, and affordability. A post-Brexit PMA could learn lessons from around the world, such as how the Canadians regulate their banks—for example, by increasing the amount of capital they need to hold if they do not adhere to high corporate governance standards—and work with regulators to apply best practice and move away from a targets-driven bureaucratic culture that creates barriers to entry and costly red tape to one that incentivises providers to be responsive and responsible suppliers of services to citizens and government alike.

Would the Government be open to looking at such solutions post Brexit? Such an approach would, in turn, free up the CMA, ideally with a very visible lead prosecutor such as you have in the United States, to go after local instances of oligarchic anti-trust behaviour, using both formal methods such as through the courts but also informal methods with consumer groups and other whistleblowing mechanisms to bring to light anti-competitive behaviour wherever it may be found. What plans do the Government have in this area, and have they given thought to being a bit more creative in the coming transition?

I believe that, with Brexit, we have a historic opportunity to truly champion a better model of growth for our citizens. It is historic because, if you go back to the era of Peel, Cobden and the abolition of the Corn Laws, we have been a nation that has sought to lower the cost of living for our citizens through lowering tariffs and increasing competition—something that we should be proud of and which formed the basis for the modern incarnation of my own party. But I fear that, in our desire to complete a smooth transition, we may be taking too tentative a path, rather than rediscovering our historic purpose to champion the rights of the needy, the small business and the self-employed, the charity, and the ordinary citizen, to have a better and sustainable life, and to have a greater choice of providers in their lives.

This report has highlighted that it is possible to recreate in some ways what already exists outside the EU, but it also rightly points to the potential to go much further, to be more ambitious, and to think more deeply about the role that we want our competition and state aid framework to play to bring about fairness and more of a level playing field for our citizens and businesses alike. This report should be seen as a great start. The question is whether this Government and future ones can build on it to make the most of the opportunities that Brexit will bring.

Photo of Lord Hunt of Chesterton Lord Hunt of Chesterton Labour 1:19 pm, 24th May 2018

My Lords, it is a pleasure to follow the noble Lord, Lord Wei, and his remarks about the growth of some SMEs having been deterred by aggressive financial pressures. I also welcome this report of the House of Lords EU sub-committee, under the fine chairmanship of my noble friend Lord Whitty. I am not a member of that committee, but the document we have received is excellent.

Over the years, one has noticed that the UK Government’s policies on competition and state aid have varied according to the political parties taking power, unlike in major European countries, where there has been more consistency over the years. My own experience of state funding, research and development has been as a research scientist in various universities, as a director and consultant of technological companies in the UK and in European countries, and as director of the Met Office, which certainly benefited from UK and European state funding, to the great benefit of its technological development. I have declared these interests in the register.

Recently, I have also been a member of the House of Lords Science and Technology Select Committee, which received evidence from larger companies about how smaller UK companies—SMEs—were making limited use of state aid from the European Commission. The larger companies were concerned about what will happen to these smaller companies, which are of course part of the chain feeding into the large companies. There was general criticism of the policies of the coalition Government, which withdrew funding from regional development agencies in 2010. There has really been no proper substitute for that—and this does not come from me, a Labour person; it was a big company commenting on this. There has since been some return to regional development agencies, with limited funds available to local enterprise bodies. Perhaps they will be expanded in future.

The question is: what will happen after Brexit and will the funding and organisational arrangements be as effective as possible? It would be interesting to hear from the Minister how the UK will collaborate with the European Commission on state-aided funding and competition. The most significant statistics about the levels of state aid are given in the House of Commons briefing paper, which other noble Lords have referred to, including my noble friend Lord Whitty. Some 0.35% of capital is used by the UK on state aid, 0.62% in France and 1.22% in Germany, which shows that other European countries are using state aid more readily and extensively than the UK. The UK could expand its state aid to industry, whether in or out of the European Commission, as my noble friend Lord Whitty emphasised. But how should state aid be applied most effectively for industrial and technological strategies and/or for general development in the UK—for the economy, infrastructure and the environment?

Very noticeable—though other noble Lords have not mentioned it—is the wording of the Government’s response to recommendation 17, and I suggest that noble Lords read it. It shows, surprisingly, the continuing government ambivalence about state aid, which may be relevant in future:

“Rather than propping up failing industries or picking winners, the Government is keen to create the conditions where successful businesses can emerge and grow in all industries and sectors”.

The most reverend Primate the Archbishop of Canterbury was here earlier; perhaps he would have been able to exactly parse this very subtly worded remark. Nevertheless, the deprecatory remark of “picking winners” still seems part of government thinking. It is not seen that way by other European countries. By contrast, in France and Germany, there is total enthusiasm for support for all kinds of industry, including those that might be in danger on a national basis and those that might be “winners”. As the noble Viscount, Lord Chandos, said, there was a famous French case of supporting the yoghurt industry. It was laughed at in Britain by the Financial Times and elsewhere, but has in fact proved very successful. The other important feature, which, again, other noble Lords have not emphasised, is that state aid in France, Germany and Spain, as I have seen, is strong and differentiated between the national, regional and even sub-regional levels. You can see how it works. For example, in Toulouse, there was a local campaign to develop industry, with a target of hiring 10,000 engineering technicians and others as it was developed.

In its policy of standing by, the UK has seen the decline of certain of our major industries, such as electrical engineering, and the leadership role in Airbus—the UK is now a contractor, whereas it used to lead it with France and Germany. Big elements of the manufacture of steel rails, on which we were a world leader, now happen in the Netherlands. As the noble Lord, Lord Wigley, emphasised, state aid is vital in the devolved regions. The UK Government seem unable to understand the implications of their policy. The House of Lords Select Committee on Science and Technology has been studying industrial strategy in relation to life sciences, and its report was produced a couple of weeks ago. The Government have stated their aim of developing new and large pharmaceutical companies that will have many billions of pounds’ turnover—that is their ambition—over the next 20 years. But how will those winners be chosen or evolve if the Government do not believe in “picking winners”, which surely should be strategically developed through collaboration between industry, the National Health Service and research? Foreign pharmaceutical companies are always impressed, as they reported to our committee, with the research, but are not so impressed with the UK being the place for economic investment.

In developing the UK’s future energy supply, state aid will be essential, and done in collaboration with state-aided and private companies in other countries. There should be no hesitation in identifying critical areas: wind energy, fission and fusion. These are also consistent with the necessary global environmental goal of reducing carbon emissions, which is a very strong aim of the Government and supported by all the major parties. I declare an interest in this area.

I note that the Government have in the last few months chosen certain companies and technologies for their large and smaller state-aided investments in these areas. However, no one is quite clear how these decisions are being made and how they will be made in future. That is the big question about state aid: who decides who receives it? That remains an imponderable, and I look forward to the Minister’s reply to that.

The other feature is that there will be other vital strategic uses of state aid, which must surely include the development of new industrial products allied to government regulation and overseas aid. Most recently, that applies in particular to the changes in the use of disposable plastics, with enormous volumes now going to the oceans, with unknown health and environmental consequences. This is a remarkable new environmental danger that has emerged in the past two years, and the Government are now gripping that problem. However, tremendous investment will be needed to find solutions in this area. Regrettably, at a recent EU meeting—literally last week—the European Commission, working with industry and environmental organisations, failed to agree on an industrial, commercial and regulatory basis. But that will be the place where this enormously important issue will be discussed. The question, which goes back to my earlier remark, is how the UK will be involved in such strategic issues, because as sure as eggs is eggs, that is where the big issues will be decided. That is an example of where state aid should be applied urgently, as we discussed last week at a meeting of the All-Party Group for Polar Regions. This is also an example of how the UK will have to continue to work with the EU on all the big issues of science, economics and government.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords) 1:29 pm, 24th May 2018

My Lords, I start by thanking he whom we must call “the master of the universe”, my noble friend Lord Whitty, for his skill in bringing forward a committee report which I think meets the test of committee reports which I have observed over the years. I do not think that any particular measure for that test has as yet been defined, but if a report is good enough to bring not only those who participated in it but others to the debate, that is obviously a tick; if it gets a quick response from Ministers, that is another tick; and if the combination of the report and the ministerial response produces a good debate then you have a winner. I think that “master of the universe” should be the routine accolade for those who chair these committees and are able to fulfil ticks in all three boxes. In passing, as others have mentioned, it is quite unusual to get a quick response from any department, and I congratulate the noble Lord and his department on producing one. To get one which allows an early debate is a double win.

My noble friend Lady Donaghy said that she thought you could read this report on a number of levels. First, it is an analysis of a series of problems thrown up by the decision to exit the European Union. Secondly, it is a disquisition on where this country has got to in its own measured way in coming up with a set of procedures for the complex area of dealing with companies and how they operate, and in a sense the report also fulfils that. Thirdly, it reveals the way in which we have failed to grapple with some of the deeper issues surrounding the whole policy area of state aid and state companies, and the questions of why and under what conditions mergers should be allowed. Fourthly, it is also about consumer choice. Both this country and the EU have been very bad at making sure that consumers are involved in these matters and that they are the ultimate beneficiaries of the policy choices made. I am grateful to my noble friend for that because, without that point being made, some of this debate might not have had quite the resonance that it should.

I have only three major areas that I want to cover. One is whether we will be able to work with our European colleagues—currently our partners—in the future. There is also the narrow question of whether the references in our current law explicitly linking us to the jurisprudence of the European Commission and the European Court of Justice will continue in some form or other. It is not clear from the current Government’s present position whether that is the case and they are struggling to get out of that. A measure of success in terms of Brexit seems to be whether any policy announced or to be announced will continue to be covered by ECJ jurisprudence. Even if that is not the case, it is quite clear from this report that there will be a continuing need to keep in step with our colleagues, not least because there will be mergers involving companies which trade either to or from the European Union and we will need to have some regard to the jurisprudence.

Emerging leaks about the withdrawal agreement and transitional agreement seem to suggest that the European Court of Justice will continue to have a direct role, at least until the end of the transitional period in December 2020. Can the Minister indicate whether this might be a longer-term issue, with particular reference to competition and the need to work closely with our European partners?

There is then the question of how we will manage the divergence that will inevitably set in once we separate from the European Union. The divergence will partly be statutory and will therefore presumably be under our own control, but it will also partly emerge from judgments of courts and statements in cases that come before various authorities, whether in this country or in others. However, we will also have to adapt to the fact that it might be necessary to have a more flexible approach to many of our industrial sectors—certainly the ones that feature heavily in our industrial strategy—than would perhaps be the case with some of the more traditional ones. We will be diverging in an evolutionary way but there might need to be a bit of revolution about that, particularly as we get a sense of how these new technology companies and the new sectors that emerge from them work in practice.

In a sense, this may be a problem that we cannot solve today or have any views about, but it would be helpful if the Government could confirm for us when they can that this is an issue that they are on to and to which special attention will be paid. In passing, I notice, for instance, that we are now getting some frameworks for the future EU-UK partnership, and I have here the one on data protection. It is quite interesting that we are now making policy by spreadsheet rather than by papers—this is a series of slides that you can riffle through in a matter of seconds, although it is supposed to tell you the entirety of our negotiating position. It is a funny way of going about it, but will there be one on the question of how competition law will be developed? It is not mentioned in either of the two reports that have come out, one of which is on science and research and the other of which is on data protection, but it is alluded to in both of them. It would be helpful if the Minister could share his thoughts on that.

The divergence that may come naturally because of the way in which the two bodies will separate, or will come organically because we need to move far faster and more smartly on those sectors that will cause us more trouble in this area, may or may not have a link to the third thing—the question that I mentioned at the beginning about how our overall policy will change. It should and could change towards a consumer focus—I hope that will be the case—but, as I will come to in a minute, the CMA has no consumer representatives on its board, so how will it access that new consumer interest? There have also been calls for a move towards a more prosecutorial approach to competition enforcement—that increasingly comes out as one reads the papers around this—and perhaps towards a more economics-focused, effects-based approach to competition decisions rather than simply market power. I would be grateful if the Minister could share some thoughts on that.

We had quite a few contributions in this debate about whether the move away from the one-stop shop under the EU merger control will have an effect. Clearly, it will have an effect. We are still in the shadow of the unfortunate circumstances of the Cadbury-Kraft and recent GKN-Melrose mergers, where public interest has not been seen to be either effective or enduring in how it was used to analyse and treat these mergers. My narrow point is not that work is not going on here—I know that it is. As my noble friend Lord Whitty mentioned, we have already passed in your Lordships’ House measures that have relaxed the shares element of merger analysis and changed the conditions under which the targeting company has to fulfil a certain share of the market amount. At the moment, these are narrowly confined to defence and security issues, but there is read-across to media and to the other exemption, which is financial stability.

In both these situations, the Government have hinted that they are still thinking about additional strategic considerations, such as economic, social or environmental policies. Can the Minister give us any more information about that? The last time he was asked, I think he said that something would be coming out soon. “Soon” is an elastic word, and I have not yet heard whether it will be before the Summer Recess or whether we are talking about Christmas. It would be helpful to know that to inform the debate. Has what we have seen recently been a ground-clearing exercise for that, or are we still waiting for more substantial thoughts on it?

Finally, on the question of institutions, it is clear that the Government have recognised that more work will be going to the CMA. It is good that they have increased the budgets so that it will be able to cope, particularly with the Brexit-related work that will come forward in the next year or two. However, as others have said, that was done before the recognition that a state aid authority is required and the CMA would be best placed to take on that role. However, three important points have been made, and the noble Baroness, Lady Noakes, was the first to make them. The whole issue, including state aid, raises the question of the independence of the CMA. We have to be clear that that will change, including changes to the way in which people are appointed, with particular reference to the chairman, which we also talked about. The model here might well be the ICO. Although that is clearly an agency created and supported by the Government, stress is placed in all the funding documents and in the legislation we have just seen—the Data Protection Bill—to ensure that the independence of the ICO herself is not in any sense threatened. I would be grateful for a response from the Minister on that.

The wider question here is whether we can see any problems. The idea is that the CMA is focused on third-party mergers, and in some senses anti-trust cases, and state aid, which will of course involve issues that will affect the Government both nationally and locally. Whether that requires additional independence is an issue on its own merits and is not to do with the organisational structure or, indeed, membership of the board of the CMA.

On state aid and the devolved institutions, the announcement that the CMA will be the state aid authority is interesting given what happened in the recent debates on the EU withdrawal Bill, as mentioned by the noble Lords, Lord Wigley and Lord German, and others. It will pour petrol on a large fire and will be a real problem if we do not sort it out. It is clear that some of the powers returning from Brussels will go straight to the devolved Assemblies and Parliament. The powers will include trade and the possibilities of state aid, and therefore they will prosecute this issue with considerable vigour. If it is already decided that the only agency able to make decisions on such matters is a UK-wide one, under what conditions does that follow the devolution structures? If everything that should be devolved is devolved when it is not specifically reserved, the Government will have to be agile in their arguments to ensure that people understand—even if they do not accept it initially—the case for the CMA being the state aid authority and a UK body.

Even if that is the case, the questions raised by the noble Lord, Lord Wigley, and others about how we set the formal structures around which these negotiations can take place are only the beginning of a huge discussion about what is effectively creating a federal state in the United Kingdom. This is not small beer. It is a matter of significance with which we need to grapple, and it will not help if decisions are taken piecemeal about elements of it—even though they are important elements—without having regard to the wider issues. This may be above the pay grade of the Minister—he is smiling, so he has obviously got prepared remarks—but I put on record that this issue needs a great deal more attention and discussion, and I look forward to hearing his response.

Photo of Lord Henley Lord Henley Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 1:41 pm, 24th May 2018

My Lords, I thank the noble Lord, Lord Stevenson of Balmacara. I will not say what my pay grade is in terms of what I can and cannot comment on in my response to this debate.

Like other noble Lords, I thank the noble Lord, Lord Whitty, for producing this report. I echo the words of his noble friend Lady Donaghy when she referred to him as a master of the universe for achieving a degree of consensus on his committee, particularly between herself and my noble friend Lady Noakes. I do not think that that is necessarily a difficult matter. More generally, I thank all those members of the committee who have spoken in this debate for their work. I also thank the other three speakers—my noble friend Lord Inglewood, the noble Viscount, Lord Chandos, and the noble Lord, Lord Hunt—who added their wisdom to this useful debate.

The noble Lord, Lord Hunt, reminded the House that in one of his former guises he was the director of the Met Office. I visited him once and I have the photographs to prove it. However, that was 23 or 24 years ago. We were both somewhat younger then and I do not know what colour my hair was in those days—I think probably darker than it is now.

As I have said, I thank the committee for producing this report. I thank the noble Lord, Lord Stevenson, for reminding the House that on this occasion the Government responded to it in a timely manner. I hope that has been useful to the debate. I am also grateful to the House authorities for ensuring that the debate took place at a convenient time.

This brings me on to the comments made by my noble friend Lady Noakes. She asked about the future role of the EU Committee and its various sub-committees. I obviously cannot comment on that matter—that is certainly, as the noble Lord, Lord Stevenson, would put it, beyond my pay grade. But I noted what the noble Lord, Lord Lea of Crondall, who is not in his place, said about that matter in his intervention. It is for the House authorities to take those comments on board. However, from a purely personal point of view I hope that we will continue to receive valuable reports such as this one because they provide a useful basis not only for debate but for the Government to set out their position; on this occasion it is their position on competition and state aid.

We take competition seriously. As all noble Lords would agree, competition encourages enterprise and efficiency and it benefits the consumer, who we must always keep at the forefront of our consideration, by lowering prices and increasing choice. Moreover, it improves international trade. It is a key mechanism for raising productivity and growth and for delivering an economy that works for everyone, which is a core aim of our industrial strategy that we set out late last year and are busy implementing at the moment. I think that we can also all agree that the United Kingdom has led the way globally in the field of competition law and enforcement, and that we have one of the strongest competition regimes in the world. Our law is transparent and its enforcement is based on economic reasoning which is carried out by the Competition and Markets Authority, an independent and specialist body that is recognised internationally.

I want to say a little about the authority later in response to some of the comments about governance made particularly by my noble friend Lady Noakes and the noble Lord, Lord Aberdare, because it is an important issue. We estimate that last year the CMA delivered in direct financial benefits some £18.60 to consumers for every £1 it spent, and I shall say a little more about the enhanced resources available to it.

I shall start with our EU exit and competition. We are committed to preserving the strengths of our competition regime during our exit negotiations with the EU and thereafter. Beyond the changes that are necessary to ensure that the regime is fully operational as soon as we have left the EU, we do not plan to make any fundamental changes. My right honourable friend the Prime Minister has set out our clear objectives for the exit negotiations with the EU. I shall make a point that has been made repeatedly at the Dispatch Box by others: the negotiations are ongoing and noble Lords will not expect me to be in a position to comment on them in detail. The aim is to restore our control over UK law, ending the jurisdiction of the ECJ, ensuring a smooth and orderly exit from the EU, preserving free trade with European markets without being a member of the single market and striking new trade agreements with other countries. We will continue to work closely with the CMA and sector regulators to meet those objectives while also preserving the strengths of our competition regime.

On competition law and state aid, perhaps I may make it absolutely clear again to the noble Lords, Lord Whitty, Lord German and Lord Wigley, and all other speakers who have mentioned this, that we will continue to be engaged with the devolved Administrations on these issues. Obviously it is not for me to speak for the devolved Administrations—the noble Lord, Lord Wigley, smiles, but he would not expect me to do so—but on the Government side we can make it quite clear that we have already been having what can be described as meaningful discussions with the devolved Administrations. We have found significant common ground. For example, all the devolved Administrations believe that a UK-wide common framework is necessary, and we will continue to develop that regime. We will continue to engage with the devolved Administrations; for those who mentioned local authorities, that will be true for mayoral authorities and others as well. Dare I say it, the noble Lord, Lord Wigley, was being unfair when he said that there was a glaring failure to engage. I want to repeat that we are engaged and will continue to engage. I hope that we can make progress on that remit. The question of whether we go down the route of a joint ministerial committee—as the noble Lord, Lord German, suggested—and whether that is an appropriate mechanism should be dealt with in those discussions as a matter for future work.

We are also attentive to the views of business groups, legal professionals and academics. I think it was the noble Lord, Lord Whitty, who put in a plea for his and my learned friends; he was right to do so and we acknowledge their expertise. We are grateful to legal professionals and academics, including those who gave evidence as part of this inquiry. We plan to carry out further engagement in the future as we develop the legislation necessary to implement our departure from the EU.

A number of questions were asked about our priorities, both after we leave the EU and on competition. First, I should set out—as I think everyone will agree—that it is important to establish clarity on arrangements with the EU on the important separation issues, such as who has jurisdiction over live cases and new cases relating to pre-exit conduct. That will be crucial to delivering certainty and stability for businesses, enforcement authorities and consumers.

Secondly, it is important to ensure that the CMA has access to the financial resources and people it needs to take on the additional case load that we expect once we leave the EU. The CMA was recently allocated an extra £23.6 million to make essential preparations for its expanded role following the UK’s exit from the European Union. That money is not purely for the exiting work, as implied by the noble Lord, Lord German, but for the extra role that we are asking the CMA to take on in relation to state aid. We are confident in the CMA’s readiness to meet the demands and exploit the opportunities that will arise from our exit. We are confident that it has sufficient resources. We announced that money in the spring Budget and, as part of the Autumn Budget, the CMA was given an extra £2.8 million—as announced in the industrial strategy—to increase its enforcement activity. That will further enhance its impact on increasing competition in markets and cracking down on businesses that breach competition law.

Thirdly, the Government are keen to ensure that the CMA and its EU partners can continue to work closely together to avoid outcomes that may harm consumers. To do so, we aim to negotiate a strong, ambitious future co-operation agreement with the European Commission on competition matters. I assure the noble Lord, Lord Whitty, that we hope that it will continue with its strong record of co-operation with the national competition authorities through the European competition network. Obviously, our future relationship with that network will depend on exit negotiations with the EU.

Perhaps I may touch briefly on some of the points raised by the noble Baroness, Lady Donaghy, about the competition review, what form it will take and whether we would listen to the views of stakeholders. As I am sure the noble Baroness remembers, it is a statutory review required by the Enterprise and Regulatory Reform Act 2013 and it will lead to a report to Parliament. The noble Baroness asked when the consumer Green Paper would be published. I can assure her that it has already been published: it was on 11 April, so it is waiting for the noble Baroness to read and it will take account of a wide range of stakeholder reviews.

I acknowledge the committee’s request for further clarity on state aid. The regulation of state aid is an important pillar of competitive markets, but there is currently no domestic equivalent to the EU regime, unlike for competition. The committee will therefore have to accept my apologies that the Government were unable to clarify their position before the time of the government response to the committee’s report. Since my honourable friend Margot James gave evidence before the committee, which I think was late last year, the Government have developed their policy further on how state aid will be managed after we leave the EU. I want to take the opportunity to provide as much certainty as possible on this point, as requested by the noble Lord, Lord German, and others.

For the duration of the implementation period after we leave the EU, the UK will continue to apply the EU state aid rules, and the European Commission will be responsible, as now, for approving and monitoring aid. This will give businesses and public authorities that grant state aid certainty and continuity immediately following our exit from the EU. Longer-term decisions on the UK state aid regime are subject to further discussion with the EU as part of our negotiations on our future economic partnership, so I shall not comment on that.

It is right that a responsible Government work for all scenarios. This is without prejudice to future negotiations. The Government’s view is that the UK should be prepared to establish a full, UK-wide subsidy control framework at the point at which this is required. In line with this objective, the EU state aid rules will be transposed under the withdrawal Bill, as is the case for EU rules more broadly under the Bill. The transposition of the existing rules will apply to all sectors, including agriculture, fisheries and transport, and will replicate any existing exemptions from state aid rules.

To ensure the regime is operable, the Government have concluded that, at the point at which an independent UK state aid authority is required, the CMA would be best placed to take on this role. That reflects its experience and understanding of markets as the UK’s competition regulator, the independence of its decision-making from government and its excellent international reputation.

The EU has indicated the importance of state aid in its negotiating guidelines. We know that it is an area in which it would like to find common ground. As my right honourable friend said in her Mansion House speech,

“If we want good access to each other’s markets, it has to be on fair terms”.

Competition and state aid are areas in which we may accept binding commitments to remain in step with the EU.

My noble friend Lady Noakes raised a number of points about the CMA’s independence and about the appointment process in relation to the new activities that the CMA is taking on. One of the reasons that we selected it for this job was because of the very independence that it already has, as it is independent of the Government in its decision-making. My noble friend also raised a good point about appointments. The Government are considering those matters, specifically in relation to that new state aid function. I stress, however, that the strategic note to the CMA that my noble friend commented on is not binding but just sets out our priorities.

My noble friend Lord Wei said that he was looking for a new body. I think the CMA is a relatively new body as it is. We are asking it to take on new roles and I think that, from my noble friend’s point of view, it might be better to let it bed down in what it is doing, and doing very effectively, and leave such other matters as considering its future for another day. I believe I have touched upon the resources available to the CMA and that it is generally agreed that it has sufficient funds to do the job. We hope that, in taking on its new job, it will be able to continue to achieve what it has.

On the question of state aid, as I did on competition, I stress that we will continue our negotiations with the devolved Administrations to make sure that the new framework with the CMA works for the whole of the UK. We are committed, as always, to securing the best outcomes for businesses and consumers from EU exit.

We are grateful to the noble Lord, Lord Whitty, and his committee for its report, which has helped test the rigour of our thinking, dare I say, and identified areas for further consideration. If there are other points that I have not addressed in detail, I will, as always, write to noble Lords. I am grateful to the noble Lord—I hope his throat is up to it when he comes to respond—for bringing this to the House and allowing the Government to respond to it.

Photo of Lord Whitty Lord Whitty Chair, EU Internal Market Sub-Committee 2:02 pm, 24th May 2018

My Lords, I thank the Minister for those remarks. We definitely look forward to the competition review which is promised. I will keep my remarks reasonably short, if only to protect my throat.

I think there has been a reasonable degree of agreement around the Chamber, as there was on the committee, which I shall try to summarise. The principles of the European approach to competition and state aid will continue, with some degree of co-operation and alignment—quite what, we know not yet, but no doubt the negotiations will make that clear. We also have the opportunity to refine that and make it more relevant, and perhaps to look at related issues, such as public procurement, in the new era.

I take the point that the independence of the CMA, particularly given its enhanced role, is very important. Clearly, and particularly in relation to state aid, getting some degree of consensus and structure with the devolved Administrations and local government is vital. I think the issue of how broad the public interest criteria are will not go away, as my noble friend Lady Donaghy said, and there will be arguments from various sides as we go on, but it will be within UK control to decide, politically, how we manage that.

A number of principles were established by the report and have been largely underlined by this debate. I will treasure the new accolade that has been given to me by this House and will point to that accolade in Hansard to my grandchildren, I have no doubt. I repeat my thanks to all members of the committee.

The noble Baroness, Lady Noakes, raised an important point at the beginning, and I imagine the House will have to return to it. My own view is that, at the moment, the structure of the committees is coping with moving from focusing on scrutiny to the outcome on Brexit—keeping an eye on the outcome of those negotiations and holding Ministers to account. It may be that the structure is a bit clunky, but that is an important role. For when we get to the end of those negotiations and we are in the brave new world post Brexit, the House has already set in train a means of looking at the committee structure—which is above my pay grade, let alone the Minister’s—and I hope that the noble Lord, Lord McFall, will present us with some proposals on that front in the coming months.

Meanwhile, in relation to competition, state aid and mergers, we will expect some new kinds of cases and new markets which we will have to address as the UK, but the continuity is as important as the new freedoms. With that, I thank the House and I beg to move.

Motion agreed.