Examination of Witness

Subsidy Control Bill – in a Public Bill Committee at 3:40 pm on 26th October 2021.

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Rachel Merelie gave evidence.

Photo of Caroline Nokes Caroline Nokes Chair, Women and Equalities Committee, Chair, Women and Equalities Committee 3:59 pm, 26th October 2021

Q We now hear from Rachel Merelie, senior director for the Office for the Internal Market at the Competition and Markets Authority, who is appearing virtually. We have until half-past four for this session. Could the witness please introduce herself and give a few short opening remarks?

Rachel Merelie:

Thank you for the opportunity to appear in front of this panel. As you say, I am the senior director for the Office for the Internal Market at the Competition and Markets Authority, but perhaps more relevant for you today is that I am the senior responsible officer for the project to set up the subsidy advice unit, should the Bill make its way through Parliament in its current form.

I want to make a couple of opening remarks. Obviously, we will operate within the framework set by the Government and by Parliament. The role that we have been given is an advisory one. I know that Members understand that, but it is really important and relevant to us. We have two particular roles to fulfil. One relates to the review function. We will have a very targeted review of the most complex and potentially distortive subsidies that we are asked to look at. The second is a more general and wider monitoring function. We will look at the way in which the regime is operating on a five-yearly basis, so that will enable us to look more generally at the subsidy control regime.

My second point is that in order to fulfil our functions we need to ensure that we have access to the appropriate information. We will have information-gathering powers in relation to the wider monitoring function, and we believe that with appropriate definition of the information to be supplied by the public authorities we should have the appropriate information to undertake our review functions. Should our role change, we would want to ensure that we had the appropriate powers.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Thank you for giving evidence today. May I ask a couple of questions on the CMA’s current powers, and whether there is arguably a case for some extension of them? In relation to the CMA not having the power to instigate a report or investigation by its own initiative, would there be circumstances in which you could see it as beneficial for the CMA to proactively undertake an investigation? For example, something may not be explicitly described as a subsidy by a public authority but seems to have the same effect and is therefore potentially in question. Secondly, what is your assessment of the additional resource and capacity that the CMA will need to fulfil its obligations under the new regime, and do you have any concerns on that?

Rachel Merelie:

As you know, that wider role is not what is currently envisaged. Under the current proposals, we can look only at the subsidies of interest and subsidies of particular interest that are referred to us, although as I mentioned in my opening remarks we have a wider monitoring role, which will allow us to take a broader view on the regime as a whole. We can, of course, also look at subsidies that are called in by the Secretary of State, so that might to some extent help to address the question of subsidies that we might want to look at, as you referred to.

Were we take on a broader role, looking at things under our own initiative, as you were discussing, we would have to really understand the implications of that in terms of resources, as you mentioned, and the powers that we have. Ultimately, of course, it is not really for us to decide. It will be for Government and Parliament to decide whether that is a role that you want to give us. I think that was your first point. Could you remind me what the second point was?

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

It was about whether there is sufficient resourcing.

Rachel Merelie:

Yes, of course. We have been given money in the 2021-22 settlement to take on a number of new functions. Previous witnesses referred to the fact that the CMA has three new functions that we are currently setting up. We have the Office for the Internal Market, the Digital Markets Unit, and potentially the subsidy advice unit. We were given a sum of money in the 2021-22 settlement to start to staff up and resource all three of those functions. We now have a bid in for the spending review for the next three years, and we should hear more about that formally tomorrow.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q To follow up, in relation to the internal market and the digital services market, is their membership drawn in the same way, solely from within the CMA? Do you have the option of involving external experts to fill any gaps? I have a slightly different question: when you talk about the access to information that you might need, are there sufficient mechanisms to ensure the accuracy of information posted on the database? Do you have views about what information needs to be on the database? Should there be an auditing process, whether random or otherwise, to ensure the accuracy of the information that is being put there?

Rachel Merelie:

Perhaps I will start with the second question. The database is being set up by the Department for Business, Energy and Industrial Strategy and it is not something that the CMA or the subsidy advice unit will be operating—at least at the moment there is no intention for that to be the case. Our focus will be on those very specific, more complex subsidies—the subsidies of interest and of particular interest—rather than the wider set of subsidies that are contained on the database, although you are right that we will want to look more broadly when we undertake our monitoring role. Because we have the information gathering powers we have been given for that, I think we will be able to gather relevant information when we need to, to get a wider understanding of the subsidies that have been awarded.

Your first question was around governance and the way in which the Office for the Internal Market and the subsidy advice unit had been set up. You are right that they are slightly different, in the sense that the Office for the Internal Market has a chair and a panel that are in the process of being appointed by BEIS. There is an opportunity for the devolved Administrations to offer their views on the appointments of the chair and the panel members. That is entirely appropriate; we are talking about a function that is inherently involved in understanding the trade and relationships between the four nations.

For the subsidy advice unit, what is currently envisaged is a sub-committee of the board, so we would have the opportunity to draw on board members, non-execs, panel members and others, as well as the staff from around the four nations. It is important to emphasise that the CMA does have staff in all four nations, and a growing presence across the UK. We think that is incredibly important to be able to run the subsidy advice unit properly.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q May I come back on two brief points? There is not a requirement to have representation from all four nations, as far as I understand. That seems to be slightly at odds with the UKIM set-up, which has been a cause of concern for what needs to have a four-nations approach and buy-in. Would it be a concern to you if there was that requirement in the Bill? Secondly, the question I do not think I heard an answer to was, where should there be a function for either audit or checking of the accuracy of information put on the subsidy database? Would that need to be within BEIS rather than the CMA?

Rachel Merelie:

Perhaps, again, I will pick up on the second one first. Yes, at the moment, given that the database sits within BEIS, it would be most appropriate for that sort of checking function to be part of its remit. Obviously, if it were decided for that database to sit with the CMA, we would need to have the requisite resources and powers associated with it.

On representation from all four nations, as you say, there is currently no formal requirement in the Bill. The CMA, as I said, is a pan-UK body. It does have good relationships across all four nations, and is very used to working with them. We are not the policy makers here—that is important to underline—we take on board and do our best to implement the policy set by the Government and by Parliament.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

Q If you have a monitoring requirement, you would think the obvious place for you to go to look at would be the database, yet we heard evidence earlier that fewer than half the entries on that database even have a figure for how much subsidy has been allocated. Is that not a concern to you, because how else will you gather the information other than looking at the database?

Rachel Merelie:

That is a very good question. I think we will need to understand how that database is operating, and I am sure you are right; that will be one of the ways in which we will gather information. We may also be going directly to public authorities to ask them questions. I guess we would also be doing some market analysis, some desktop analysis, and so on, of how the subsidy regime is operating more widely. I think there will be a number of different ways in which we gather information, but you are absolutely right—the database will be an important part of that.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q You mentioned the monitoring role, and I think you have just given a bit of further information there. I wonder, when you identify things that are not going right, what will you do with that information? If you could answer that, I will then come back to some other questions.

Rachel Merelie:

Sorry—I did not quite understand. Did you ask what we will do with information that we get when our monitoring role identifies things that we are doing right?

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

If things are not working, or you identify a problem, what will you do with the information?

Rachel Merelie:

Well, in our monitoring role, we will be producing a report on a five-yearly basis, which will be published. That will give information about our understanding of how the regime is working. It will then be for Government to decide whether they want to make any adjustment—for example, to the definitions of the subsidies of interest or particular intertest, or to the streamlined groups, or any other mechanism—based on both what we identify in our monitoring report and, of course, other information that they may also choose to look at.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Five years seems like a bit of a long time to wait if there are specific examples of inappropriate applications of subsidies. I wonder if there might be a way for the information you are gathering to find its way into an investigation or a challenge.

Rachel Merelie:

There are also the enforcement mechanisms that will be in place for subsidies to be challenged in the tribunal. That will be a more immediate way of looking at the impact of individual subsidies. If we are asked by the Secretary of State to provide insights sooner than that, we can do that too, so I think the opportunity to offer advice more quickly than that is there. Again, we are the disposal of BEIS, if you like, on that.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Sorry to continue with this, but it feels as though, if you identify something that is wrong on an individual subsidy level, that will only really get anywhere if somebody asks you about it, so they will have to identify it separately to you. It seems that your process is lacking a proactive part, unless I am really missing something.

Rachel Merelie:

There are two parts to our process. First, there is the review mechanism on the individual subsidies, on these particular subsidies of interest and particular interest. On that one, we will be assessing the assessments carried out by the public authority against the subsidy principles and, where relevant, against the environmental and energy principles. On those ones, there is a rapid, 30-day process that we have to operate. We have to publish a report within that timescale on the specific subsidy of concern. That is the sort of short-term mechanism—

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q That is if you have been asked to investigate, isn’t it?

Rachel Merelie:

Absolutely right.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q I was asking about if you identify something when you are carrying out your monitoring role. There seems to be a gap there in you referring information. That is the concern I am raising.

Rachel Merelie:

I do understand that concern. I think what you are saying is that at the moment we do not have any powers to look at specific subsidies under our own initiative where there might be an issue, other than through that broader monitoring role.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Thanks for clearing that up; I do appreciate it. Coming to your points about the budget and the settlement, you have talked about the 2021-22 settlement, and there is a fund available for the three new functions. How much has been allocated for the subsidy advice unit?

Rachel Merelie:

The figure that I think we have publicly is that there is around £20 million for the three new functions in ’21-22. Obviously the majority of that is not for the subsidy advice unit, because we are only just setting that up now. I think it will be more relevant to look at the numbers that we get through the spending review, which will be agreed tomorrow.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Okay, so you cannot really say how much at this stage. You mentioned bringing in board members and other members of staff from around the four nations to fulfil your responsibilities; the reason for asking the question, really, is just to understand what your expectations are of the level of work as compared with your capacity to meet it. An earlier witness said that there is a concern that it could really slow things down if the workload was too high. I appreciate that it is difficult to say because you are not yet in operation, but what is your sense of how flexibly you will be able to address that concern?

Rachel Merelie:

It is a very good question. As you say, it is difficult to get a reliable estimate of the workload. The BEIS impact assessment has so far estimated that if the current definitions of subsidies of interest or particular interest were applied to the last few years’ worth of data, we would be looking at, I think, between five and 20 in each of those categories. However, it is quite difficult to know the extent to which subsidy giving will change under the new, more flexible, faster and more agile regime that is being put in place, so that is one question.

Also, there may be a tendency for public authorities to choose to send subsidies of interest to us, even though those are not mandated. In the early days they might be cautious about awarding subsidies without going through the advisory process with us. There are therefore quite a few uncertainties about our likely workload, but we have modelled our requirements based on the upper end of each of those—so assuming that we might get around 40 references a year. With the recruitment plans that we are putting in place, we think that we will be able to service those, alongside performing our longer-term monitoring role.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Two final thoughts. How long do you think an investigation is likely to take? And, on your point about local authorities, have there been representations as part of the consultation from local authorities to say that they are more likely, or for that matter less likely, to make referrals?

Rachel Merelie:

On the second one, it was BEIS carrying out the consultation. We have not actually been in the frontline of engagement with stakeholders yet, partly because we are at this quite early stage of the Bill’s passage through Parliament. We will obviously be engaging with public authorities much more actively post Royal Assent, and perhaps in the run-up to Royal Assent as well. We do not yet have that information; BEIS may be able to answer that question.

On the question about how long an investigation would take, we have a very tight deadline for the reviews that we are undertaking of subsidies of particular interest. We are being asked to do those in 30 days, so there will be a bit of a run-in period—a pre-notification, to make sure that we have all the relevant information. Once we have published, I think there is a five-day cooling-off period and then the ability for the public authorities to implement their subsidies. They are quite tight timescales. You could imagine a team having a maximum of a couple of months on a particular review, then moving on to another one.

Photo of Simon Baynes Simon Baynes Conservative, Clwyd South

Q Just a quick question. We have talked rather a lot in this session about the four nations, but the terms of the Bill are such that the devolved Administrations take their place alongside local authorities, public bodies and central Government in being involved in delivering the subsidies to businesses. Therefore, do you agree that they are of equal importance in this endeavour and that, in a sense, the whole point of the Bill is that it spreads the responsibility across the UK and across different levels of government?

Rachel Merelie:

Thank you for the question. It is really important that all granting authorities are treated fairly and equitably, regardless of whether they are in the devolved nations or in England. Yes, certainly the spreading of the load across the different granting authorities, and the ability for the subsidy advice unit to engage with each of those on an equal footing, is very important.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

Q On the minimal financial assistance, how are you going to monitor that? It is up to the company to record the assistance it receives. A company could receive assistance from numerous local authorities if it has premises in different parts of the country—for example, through the business rate grants that we saw last year. Those items will not be recorded anywhere. How would you monitor that?

Rachel Merelie:

We will be taking the submission from the public authority, and it will be assessing its subsidy against the seven principles that are set out. It will then be for us to look at whether it is providing the evidence that we need to take a view on the strength of its assessment against those principles. That is what we will be relying on in order to do our assessment. Where necessary, we will be able to ask questions of third parties, but in the time available, we will be largely reliant on the public authority giving us the information we need.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

Q I realise that your primary focus is going to be very large schemes—not hundreds of thousands of pounds, but millions of pounds. Nevertheless, somebody has to monitor the smaller stuff as well to make sure that people are not abusing the system. I do not see how anybody can monitor that. To monitor that, you would have to monitor every local authority in the country and stitch all their contributions together against a certain entity.

Rachel Merelie:

In the way the Bill is currently set up, that wider monitoring on a day-to-day basis is not something that we will be involved in.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q I want to come back on a couple of points. This is in relation to helping make sure that there is a regime that commands confidence and provides the information to public authorities, which are engaging with some of this activity for the first time. To what extent do you think more needs to be done to engage with public bodies and prepare them to be able to grant subsidies effectively and efficiently to enterprises under the regime? It is likely that a lot of that burden could end up with public bodies approaching the subsidy advice unit. Are you factoring that in to how you see the unit working, or do you think that some of that needs to be done elsewhere?

Rachel Merelie:

That is a very good question. I am sure that you are right—there will be quite a process to educate and support the public authorities as they embrace the new regime. I think that a lot of this will come from central Government and the guidance that they will publish. The subsidy advice unit, I suspect, will need to flesh out that guidance with respect to the very large subsidies and the information that we will need to carry out our assessment. We are keen to work with public authorities to make sure that they understand what will be required. Yes, we are aware of the need to do that guidance, which is one reason why, I suspect, it will take a little time between Royal Assent and the commencement of the Act, as there will be a need to get that guidance and detail out there and give confidence to those who want to operate under the regime to do so.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Would you see that being done in a slightly more structured way through the guidance? Otherwise, the likelihood is that you will have a lot of approaches and potentially more voluntary referrals than you might expect, because the earlier information, advice and guidance is not helping to address some of the questions. Public bodies will engage with this—local authorities in particular give rise to concern—and will be doing this for the first time.

Rachel Merelie:

I think the guidance will be incredibly important. Doubtless, there will need to be a series of roundtables and communication with public bodies to ensure that there is as good an understanding as there can be. The other point to emphasise is that this is going to be a bit of a learning experience for everyone in the first days of the operation of the new regime. We cannot expect it all to work entirely smoothly from day one, although we will do our very best to make that happen. There will be a need as time goes on to adjust, to iterate and to develop our processes.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q On fast-cycle learning and the effectiveness of the scheme, do you think that there are merits in the five-year report being produced to a shorter timetable, with greater frequency—for example, three years? You may have a view on that—I am just raising it as an issue. Five years seems a long time, particularly with a new regime, in which to look at how well it is working.

Rachel Merelie:

Yes, I can see that as a question. At the moment, the Bill allows for the Secretary of State to ask for advice more frequently or when required. There may be an argument that says that we will provide some advice on a shorter timescale than five years, with the set point being the five-year report. Again, that is a question that we are entirely open to discussing further.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q I am conscious that we have only two minutes so, while I can, I will ask whether you have concerns about your ability to scrutinise subsidy schemes if subsidies under those schemes are less likely potentially to be on the database. Do you have concerns about the transparency of subsidy schemes from the perspective of any single role?

Rachel Merelie:

I think that this is an area where quite a lot more work needs to be done to understand the relationship between the subsidy schemes, the individual subsidies and the information that we will have to analyse. I do not have concerns at the moment, but that is partly because this is a pretty early stage in articulating how that will work.

Photo of Caroline Nokes Caroline Nokes Chair, Women and Equalities Committee, Chair, Women and Equalities Committee

Thank you, Ms Merelie, for your evidence this afternoon. That was beautifully timed, and we will now move on to the final panel.