Amendment 169A

United Kingdom Internal Market Bill - Committee (5th Day) – in the House of Lords at 11:11 pm on 9th November 2020.

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Baroness Rawlings:

Moved by Baroness Rawlings

169A: Clause 50, page 41, line 40, at end insert “, and research and development grants.”

Photo of Baroness Rawlings Baroness Rawlings Conservative

My Lords, I too pay tribute to Lord Sacks—a huge loss.

In moving Amendment 169A, I will also speak to Amendments 169B and 169C in my name. Should the UK Parliament have exclusive ability to legislate for a subsidy control regime once the United Kingdom ceases to follow EU state aid rules, without including the possibilities of hidden subsidies, for example through research and development? In these circumstances, I am not arguing at this late hour about whether the Prime Minister will achieve a deal, as the case may be, or whether we will have to abide by WTO rules. Either way, I ask your Lordships that research and development subsidies, hidden or not, be included in the Bill to provide much needed safeguards.

I made my maiden speech in the European Parliament on this subject in 1989, stressing the danger of allowing covert research and development subsidies to creep into state aid legislation before 1992, so that it did not come to stand for

“not the birth but the death of free competition.”

This was the possible abuse of state aid and member states feather-bedding their own industries.

Leon Brittan was our United Kingdom commissioner in charge at the time. He did a magnificent job. We worked together for the United Kingdom on the distortion of French and Italian bids hiding behind state aid to our disadvantage. We abided by the rules but we lost. Cossor Electronics, a UK company in Harlow, was bidding for the air traffic control contract for the Hong Kong airport. We suspected that their bids went through research and development projects; make of it as you will, it was wrong. At this instance, we felt the hideous effects of distorted competition when the EU integration process had hardly begun. That is why I ask your Lordships to support these amendments: to have research and development incorporated into this Bill now, regardless of our EU position, to safeguard unfair state aid in any future international contracts. I beg to move.

Photo of Lord Thomas of Cwmgiedd Lord Thomas of Cwmgiedd Chair, Consolidation, &c., Bills (Joint Committee), Chair, Consolidation, &c., Bills (Joint Committee) 11:15 pm, 9th November 2020

I speak to oppose the inclusion of Clause 50 in the Bill. It is important to distinguish between what I spoke about on the last occasion the Bill was before the House: under Clause 48, what regime is to govern EU structural funds in future. This clause deals with state aid.

Both clauses have one thing in common: they seek to alter the devolution schemes as they stand, for economic development powers are devolved. For example, in respect of Scotland, paragraph 4(1) of Part 3 of Schedule 5 to the Scotland Act makes that clear. The position at present, therefore, is that it is for Scottish Ministers, Welsh Ministers and Ministers in Northern Ireland to determine what financial assistance is provided, in the same way as they determine how the structural funds are dealt with.

State aid is of obvious, considerable importance. It can help to address market failures and provide incentives for research and development, of which the noble Baroness, whom it is a privilege to follow, has spoken. They also deal with areas where the Government want to deal with strategic objectives, such as promoting the use of green technologies or promoting more sustainable agriculture.

Of course, state aid can be harmful if it is not directed in the same way; that is why there must be some form of regime in respect of state aid. The present position on state aid is, as we remain part of the European Union regime, that the devolved Governments make the decisions within the EU regime. In consequence—and it has been during the whole period of devolution—state aid is not a reserved matter. It is devolved.

The British Government’s stated position had been to retain the EU regime and put in place an independent body to police it in place of the Commission, as has happened in respect of other parts of the regime that still governs us but will not do so for much longer. That obviously would not have required any change to the devolution scheme. However, the present Government have decided to change this. They intend to use their Henry VIII powers to do so by statutory instrument. However, they have not consulted on what they want to put in its place, and seek agreement and the views of industry and others, in particular the devolved Governments. As in the other parts of this Bill, the UK Government want to do so without reference to working with the devolved Governments within the devolution schemes. However, in this case, they have hit the snag to which I have referred: they lack the power to do so. State aid and schemes are not reserved.

Clause 50, therefore, seeks to make state aid a reserved matter by what I regret to call a “device” of extending the competition reservation so that it can be used, in effect, to direct policy on state aid. This is not the way to proceed. A regime for state aid subsidies is needed unless, within the current negotiations, we agree to some arrangement that mirrors those of the EU. As is clear from the recently published IfG paper, Beyond State Aid, there are many reasons why a state aid regime is essential, but we need a properly thought-through regime before we legislate, including thinking through the role of the regulator. Such proposals should have been set out before we considered such a clause as this. They should have been consulted on and agreed with all the relevant interests—businesses, universities and others.

Furthermore, the regime to be put in place would have to command the confidence of the devolved Governments, who are responsible, under the devolution schemes, for economic development. Bodies within England also have economic development responsibility. After all that consultation, it should have been determined how this would best be implemented. One way of proceeding would be a common framework with an independent regulator such as the CMA, but a decision would have to be made on the kind of regulator wanted. Would it be the kind of light-touch regulator that some have suggested, with an advisory role, or one with policing powers? If it was a light-touch regulator, to whom would it report—to the UK Government only or to the devolved Governments as well?

Tackling all of this without a policy and through the back door is wrong, as I see it. That course of action also has long-term implications. Proceeding in this way will set policy on the legal basis that it is designed to avoid anti-competitive practices. It will not be based on a forward and positive way of setting out a policy based on looking for economic development.

Therefore, in opposing the inclusion of this clause in the Bill, in short, it is wrong to change the devolution arrangements in this way and without any consultation about the future regime, let alone agreement on it having been reached. I have no doubt that we need a competition regime and that it will need some kind of advisory or other independent policing body. However, we should do this in the proper way and not rush to do it by putting a clause such as this in the Bill. It should not stand part of the Bill.

Photo of Lord Alderdice Lord Alderdice Deputy Chairman of Committees

The noble Lord, Lord Purvis of Tweed, has withdrawn, so I call the noble Baroness, Lady Finlay of Llandaff.

Photo of Baroness Finlay of Llandaff Baroness Finlay of Llandaff Deputy Chairman of Committees, Deputy Speaker (Lords)

My Lords, like other noble Lords, I pay my respects to the memory of Lord Sacks. His loss is immeasurable, and I am sure he would have contributed enormously this evening.

I have put my name to the proposal of my noble and learned friend Lord Thomas of Cwmgiedd that Clause 50 should not stand part of the Bill for a number of reasons. First, the clause is in direct contradiction to Ministers’ assertions that the Bill does nothing to remove powers from the Senedd. If that is the case, why is a new reservation necessary?

Secondly, and related to this, is the conundrum that the Government insist that state aid is already reserved. This position has long been strongly contested by the devolved Governments, who have always operated the state aid system, as the UK Government do in England. If there is doubt about the current legal disposition, would it not be better to ask the courts to interpret the meaning of the current reservation and whether it does or does not include state aid?

Thirdly, although I am no expert, I understand that the Government have been resisting pressure from the European Union during the still-ongoing negotiations to keep in place a state aid framework broadly similar to the one we have inherited through our membership of the EU. Indeed, the statutory instrument to revoke all state aid law is before this House. Why are a Government that seem so reluctant to commit to a rules-based system also so eager to take to themselves absolute power on this vital area of economic development policy?

The devolved Governments in Cardiff and Edinburgh are both in favour of retaining this framework in retained EU law. It is a clear system that provides a bulwark against the arbitrary use of public subsidies to support businesses in favour with the Government or to attract investment, something that is a real risk. Having the protection that this current situation affords for the Governments of the smaller nations of these islands is important because, at the end of the day, the UK Government in their “Government of England” mode can always trump any financial incentives that the devolved Administrations could offer in some kind of dog-eat-dog contest. This clause simply feeds the suspicion that, rather than maintaining a level playing field across the UK, this element of the Bill is about giving the Government the maximum freedom to do what they like with the system and channel investment to marginal Conservative seats.

Fourthly, it is probable that, despite their effort, the Government do indeed sign up to an agreement with the EU that requires the enhancement of a new system of state aid. I hope that the term “subsidy control” evaporates in the way the “implementation period” seems to. If that is the case, then the devolved institutions will have to conform to those new rules because they flow from an international treaty obligation, so this new reservation will be unnecessary.

Finally, I turn to what this clause, like so much else about this Bill, says about the Government’s approach to devolution. Quite simply, it would seem that they do not like it, would prefer it not to exist and want simply to pay lip-service to it. This is a Government that do not seem to tolerate any source of law and public policy that they cannot control and, having removed the rival source of authority of the EU, seem to be gunning for other bodies that have the power to make primary legislation. This is not just distasteful; it is profoundly dangerous for those of us who care deeply about the union. I appeal to the Government to rethink their approach urgently because, otherwise, they will see the country gradually disintegrate in front of their eyes.

Photo of Viscount Trenchard Viscount Trenchard Conservative

My Lords, when I read the three amendments of my noble friend Lady Rawlings, I was not sure exactly what had driven her to propose them. Of course, I am aware that my noble friend is a distinguished former chairman of King's College London and, therefore, well aware of the importance of research and development grants. I recognise the importance of regulating the provision by public authorities of subsidies that may be distorting or harmful.

I had thought that Clause 49 makes it clear that financial assistance for economic development may be provided in a number of forms, including grants. However, I sympathise with my noble friend’s view, which she clearly explained in her impressive speech, that R&D grants should be incorporated to safeguard against unfair state aid masquerading as legitimate subsidies. I would like to hear the opinion of my noble friend the Minister on this question.

Regarding the proposal of the noble and learned Lord, Lord Thomas of Cwmgiedd, that Clause 50 should not stand part of the Bill, although I have the greatest respect for his opinions and was impressed by his characteristically clear explanation of his reasons, I believe it is still necessary for this clause to protect against the undesirable possibility that the devolved authorities might otherwise adopt significantly different regulations on this. I look forward to hearing what my noble friend the Minister has to say about this amendment and the need for a single nationwide state aid regime.

Photo of Lord Alderdice Lord Alderdice Deputy Chairman of Committees

The noble Baronesses, Lady Bowles of Berkhamsted and Lady Neville-Rolfe, have withdrawn, so I call the noble Lord, Lord Fox.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy) 11:30 pm, 9th November 2020

My Lords, I express my sympathy and support for the amendments set out by the noble Baroness, Lady Rawlings. She makes a good point, and she has my support as a science graduate.

I oppose Clause 50 standing part of the Bill. It carries my name, alongside those of the noble and learned Lord, Lord Thomas, the noble Lord, Lord Stevenson, and the noble Baroness, Lady Finlay. The speeches given by the noble and learned Lord, Lord Thomas, and the noble Baroness, Lady Finlay, set out the issue. I have long wondered what the key drivers of this Bill are. We have had a debate around one of the areas, but the shared prosperity fund, which we have talked about before, and economic state aid, are key elements of the Bill, perhaps hidden in plain sight. We are now nearing the end of Committee, but we will return to this quite fundamentally on Report.

The noble Baroness, Lady Finlay, asked why the Government would reserve these powers, and then answered her own question: these are powers that the Government want for themselves. These are powers which they want to take away from the devolved Administrations; clearly, they would not be in the Bill otherwise. The Minister can shake his head, but if that is not the case, I am happy to hear why the Bill is written in this way.

The noble and learned Lord, Lord Thomas, asked a lot of very important questions on this point. I will ask a few more, and, given the lateness of the hour and the number of questions, will excuse the Minister if he writes rather than answering them tonight. However, we would like the answers in good time for Report, so that we can react to them. Around the frameworks, which the noble and learned Lord, Lord Thomas, raised, is state aid still an outstanding issue where no agreement has been reached, as it was in the last update? If it is still outstanding with no agreement, what are the stumbling blocks? What is stopping agreement and, overall, is this intended to become a legislative framework, or will this Bill and the proposed regulations simply impose a system, rather than continue with the frameworks process?

The frameworks agreement says that they will replicate existing flexibilities. Will this still be the case, or have the Government walked away from this commitment? Will the devolved Administrations still administer economic state aid? It was clear from what the noble and learned Lord, Lord Thomas, said, that he believes that they will not. Can the Minister clear up how that will be shared out, because the devolved Administrations have developed the in-depth knowledge of their areas to be able to do this properly. It would be very damaging to lose that expertise when the United Kingdom needs, more than anything, to invest effectively in growth. Finally, will de minimis levels without notification continue? One reading of the Bill is that even de minimis levels could breach the market access principles. Can the Minister confirm that?

There are too many uncertainties in this. That is why noble Lords have talked about not allowing Clause 50 to stand part of the Bill. On Report, we will have to look very closely at how this is done. It will help tremendously on Report if the Government and the Minister, today or in a written response, give a very clear picture of how they see the different cogs in this system working, how they will work together and how there will be a form of democratic and devolved Administration oversight for what is happening. If there is not, this will, I am afraid, be another bone of contention .

Photo of Lord Alderdice Lord Alderdice Deputy Chairman of Committees

The noble Baroness, Lady Bennett of Manor Castle, has also withdrawn, so I call Lord Stevenson of Balmacara.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords), Shadow Spokesperson (Digital, Culture, Media and Sport), Shadow Spokesperson (Business, Energy and Industrial Strategy and International Trade)

My Lords, I thank the noble Baroness, Lady Rawlings, for introducing her amendment. She made her case extremely well: R&D is important, and the Government could easily, with advantage, accept all three of the amendments as they stand. However, her introductory speech raised all the issues that have subsequently been picked up by other speakers, because we are facing what appears to be another black hole in this Bill. The noble and learned Lord, Lord Thomas, the noble Baroness, Lady Finlay, the noble Lord, Lord Fox and I have signed up to an amendment more in frustration than any genuine feeling that the existing clause is wrong, although the noble and learned Lord, Lord Thomas, does make a very good case for how the procedures adopted there are not the ones that should be seen in the final version of this Bill.

The question really seems to be about what our state aid regime is going to be. Is it going to be central or devolved in terms of both its process and delivery? Is there going to be a central body that will be charged with making sure that all those participants who benefit from state aid do so on a fair and open basis, and are they going to be able to review and make recommendations for how it is taken forward?

It seems to me this is another area where common frameworks have an opportunity to provide the solution to a problem the Government are facing. I hope that whichever way we go on this, time will be taken to make sure we get it right, do it properly and come forward with something that will justify the effort that has been placed in it, because it will be worth it.

Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

My Lords, I thank noble Lords who have taken part in this debate. I recognise that the hour is late, so I will attempt to be as brief as possible. I begin by setting out why Clause 50 should stand part of the Bill, before moving on to discuss Amendments 169A, 169B and 169C.

Clause 50 reserves for the UK Parliament the exclusive ability to legislate for a UK subsidy control regime in future. The Government have always been clear in their view that the regulation of state aid, which is the EU approach to subsidy control, is a reserved matter. Let me say in reply to the noble Lord, Lord Fox, that the devolved Administrations have never previously been able to set their own subsidy control reviews, as this was covered by the EU state aid framework. Now we have left the EU, we have an opportunity to design our own subsidy control regime that works for the UK economy.

It is important, in our view, that there continues to be a uniform position across the United Kingdom. Reserving will ensure we take a coherent and consistent approach to the way public authorities within the UK subsidise businesses, supporting the smooth functioning of the UK’s internal market. A unified approach will reduce uncertainty for UK businesses and prevent additional costs in supply chains and to consumers.

Also in reply to the noble Lord, Lord Fox, I say this reservation does not impact the devolved Administrations’ existing spending powers. The devolved Administrations will continue to make decisions about devolved spending on subsidies—how much, to whom and for what—within any future UK-wide subsidy control regime.

The Government announced in September that the UK will follow World Trade Organization rules for subsidy control from 1 January. These are internationally recognised common standards for subsidies. Before the end of the year, the Government will publish guidance for UK public authorities to explain these rules and any related commitments the Government have agreed in fair trade agreements. We will also publish a consultation in the coming months on whether we should go further than those existing commitments, including whether or not legislation is necessary, because we want a modern system for supporting British business in a way that fulfils our interests. We do not want a return to the 1970s approach of Government trying to run the economy or bailing out unsustainable companies. We will take the necessary time to listen closely to all those with an interest in this subject.

UK government officials have been meeting, and will continue to meet, their devolved Administration counterparts on a regular basis. We are keen to ensure that the devolved Administrations are involved in the upcoming consultation process. I hope that noble Lords will agree that this approach is the best, and indeed the only, way to ensure that the whole of the UK can benefit from having a consistent and coherent system of subsidy control, which is necessary to support the smooth running of the UK internal market. I therefore commend that Clause 50 stands part of the Bill. I hope that I have answered at least some of the questions from the noble Lord, Lord Fox. If not, I will write to him to confirm the other points.

I turn to Amendments 169A, 169B and 169C, in the name of my noble friend Lady Rawlings. They seek to amend the definition of a subsidy for the purpose of their reservation. They would add to this definition that a subsidy will also include “research and development grants”. The interpretation provisions contained in Clause 50 set out what is classed as a subsidy for the purpose of this reservation. We define a subsidy as including assistance provided to a person, directly or indirectly, financially or otherwise. The definition includes examples of this assistance as income or price support, grants, loans and guarantees.

For the purpose of the reservation of subsidy control, the definition of a subsidy is deliberately broad to ensure that we have sufficient scope to design a future domestic regime that meets the needs of the United Kingdom. To ensure that we cover a broad range of financial interventions, the definition is not currently limited by reference to any specific policy purpose or sector. Subsidies may be given for a variety of purposes, and it would be anomalous to single out just one of them here. The current wording in the clause already encompasses assistance provided to a person directly or indirectly by way of grants and is therefore sufficient to cover research and development grants as my noble friend intends. Therefore, the Government do not think that the amendments are legally necessary. I hope that, in the light of that information, my noble friend will be able to withdraw her amendment.

Photo of Lord Alderdice Lord Alderdice Deputy Chairman of Committees

I have received a request to speak after the Minister from the noble Lord, Lord Fox.

Photo of Lord Fox Lord Fox Liberal Democrat Lords Spokesperson (Business, Energy and Industrial Strategy)

With every answer, there come more questions, I am afraid. The Minister sought to explain that the devolved authorities will still be able to spend the money—I think those were the words that he used—but I am interested to know to which money he is referring. How in future will they get their hands on the money? Will there be a competitive bidding process? Is it part of the formula? Is that the money that he is talking about? Perhaps he could outline what he means by “the money”, because it is not entirely clear to me. He is looking at me as though I am being slightly stupid and I shall be very happy to be educated by him in writing rather than verbally.

Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

I certainly did not intend to imply that at all and I apologise if the noble Lord got that impression. I was talking about the existing block grants that the devolved Administrations have. It is their existing spending power—the money that they spend at the moment. They will continue to make decisions about their devolved spending on subsidies, as they do at the moment—how much, to whom and for what—within any future UK-wide subsidy control regime if, following consultation, the Government and Parliament decide that we want to legislate in this space. I hope that I have resolved the noble Lord’s question; if not, I will certainly write to him.

Photo of Baroness Rawlings Baroness Rawlings Conservative

My Lords, I thank the Minister for his courteous and careful reply, and I thank all noble Lords who have spoken to these amendments, for and against. I am sorry that at this late hour several of your Lordships have, understandably, withdrawn.

I am most grateful to the noble and learned Lord, Lord Thomas. I take his point on the devolved matters and thank him for his very interesting contribution. I thank the noble Baroness, Lady Finlay, for her probing remarks, as always, and my noble friend Lord Trenchard, who fully understood what I am trying to do. I am most grateful to him for his kind words. I thank the noble Lord, Lord Fox, for his support. The noble Lord, Lord Stevenson, always makes good points and always asks even better questions.

My noble friend the Minister said that state aid was a reserved matter but we can design our own. I was not quite clear about that. I was even less clear on his explanation of why R&D should not be included; I feel that it is too important not to be included.

To conclude, these modest amendments are hardly revolutionary and are purely intended to help the Government in any future contracts so that we are less likely to lose out; it is a shame that the Government are not able to accept them. I hope that there may be some other way. I may return to the subject of research and development on Report. Having said that, for the time being, I beg leave to withdraw my amendment.

Amendment 169A withdrawn.

Amendments 169B and 169C not moved.

Clause 50 agreed.

Clauses 51 and 52 agreed.

Amendments 170 to 174 not moved.

Clause 53: Regulations: general

Amendment 175 not moved.

Clause 53 agreed.

Clause 54: Regulations: references to parliamentary procedures

Amendment 176 not moved.

Clause 54 agreed.

Clause 55 agreed.

Clause 56: Extent, commencement and short title

Amendments 177 to 180 not moved.

Clause 56 agreed.

House resumed.

Bill reported with amendments.

House adjourned at 11.47 pm.