Clause 37 - Section 36: procedural requirements

Subsidy Control Bill – in a Public Bill Committee at 2:30 pm on 2nd November 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London) 2:45 pm, 2nd November 2021

Clause 36 establishes the minimum financial assistance—or MFA—exemption and the value threshold for awarding subsidies under the exemption. That exemption allows subsidies to be given without having to comply with the subsidy control requirements, and clause 37 sets out the procedural requirements to use that exemption.

Before awarding an MFA subsidy, a public authority has to provide the intended beneficiary with an MFA notification. That must set out that the subsidy is proposed to be awarded as MFA, the value of the prospective subsidy and it must request confirmation that the enterprise will not exceed the MFA threshold. The public authority can only award the subsidy when it has received this confirmation. When awarding an MFA subsidy, the public authority must give the intended beneficiary an MFA confirmation, which is a written statement confirming that the subsidy has been awarded through the MFA exemption, the gross value amount of the subsidy and the date on which the subsidy was awarded. The beneficiary must keep a record of this information for three years, beginning on the date on which the subsidy was awarded.

Photo of Stephen Kinnock Stephen Kinnock Shadow Minister (Foreign and Commonwealth Affairs)

Clause 37 refers to the enterprise needing to keep a written record. How will the public authority know that the enterprise is keeping that written record?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

That would be for challenge, should the overall subsidy be challenged in a court through judicial review. The public authority should exercise its statutory obligations.

Photo of Stephen Kinnock Stephen Kinnock Shadow Minister (Foreign and Commonwealth Affairs)

Just to clarify, we are taking it from the enterprise based on trust?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

It works both ways. If I were an enterprise receiving a subsidy, such as minimum financial assistance, I would want to make sure that I was doing my own due diligence, and public authorities do. Any businessman would know that there are legal implications and legal requirements of running a business. It should be the case that it works both ways.

There are interlocking elements within the framework that ensure that both public authorities and enterprises are doing their own due diligence. The procedural requirements will make sure that enterprises receive subsidies only through the MFA exemption when they are genuinely entitled to do so, while still minimising the administrative burden associated with awarding a subsidy. I commend the clause to the Committee.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy)

I have a few questions about the clause. It would be helpful if the Minister could lay out what he expects the timeline to be for these requirements. The minimal financial assistance notification has to be given in advance of the subsidy being awarded. It is an intention letter that says the body intends to give the subsidy. Presumably that has to happen at any point in advance of the actual cash changing hands or the tax measure taking place.

My second question is about the minimal financial assistance confirmation, which is the written statement confirming that the subsidy has been given, the date it has been given and the gross value of the assistance. The Minister made clear earlier in the debate that it could be up to a year, or even longer, before an enterprise actually knows what the gross value of that assistance is if it is a tax measure. Are the bodies expected to give the confirmation as soon as they give the subsidy, or are they expected to give the confirmation as soon as they know the exact amount, particularly for tax measures? The provision does not seem to add up with the details we were given on the subsidy control database.

The other questions I have are about what “written” means. If a public authority emails these details to an organisation, does that count as written? Clause 37 says that

“the enterprise must keep a written record”.

Does it have to keep these details on a piece of paper in a filing cabinet, or can it be kept in an electronic form? What if the enterprise does not have much in the way of offices? What if it operates largely online? We have seen many enterprises move towards online working. Is an electronic version acceptable? Would the enterprise be fulfilling its duties by keeping an electronic record, or do we need that bit of paper, hanging about somewhere in someone’s house or office or wherever?

If the Minister cannot give exact answers to my specific questions, it would be handy if he could supply the answers at a later date—

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy)

In writing would be absolutely fine—if that is by email, I am happy to receive it electronically. It would be helpful if the Minister could write to us to confirm what “written” means. For people to be able to meet their obligations, he will probably have to make some sort of statement about what the Government intend, either today or at a later stage.

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

It is a pleasure to speak to clause stand part. The Minister could have saved himself a whole debate had he supported our arguments on clause 36, because this clause sets out the procedural requirements attached to subsidies given under the clause 36 exemption.

The clause outlines how public authorities must provide the intended recipient with a notification, stating that they cannot award a subsidy until they have received confirmation from the intended recipient in a number of areas, including that the relevant threshold will not be breached. There are a whole set of debates to be had about what is considered a subsidy and what is not—we have had that on other aspects of the Bill—and about the lack of full clarity on the interface with the freeports policy or on taxation and subsidies. Clear guidance will be needed for interpretation by the enterprise of what it needs to consider when answering the question under subsection (2)(c). I hope that the Minister will set out in his remarks how he intends that to happen, to give surety to the enterprise and to the public authority.

As I said, Labour does not support clause 36. In my view, we have not heard a convincing case for such exemptions, which seem to be beyond what is needed. Our starting principle must be and must remain transparency. Confidence in this regime is all about transparency, to ensure that there is no cronyism or potential fraud. Once we have set up an agile, simple and robust system, which it is surely not beyond our wit to do, it should be straightforward to provide that information.

The Minister said earlier that the MFA notification would not need to be published. Will he clarify whether that is still the intention if an MFA notification goes to an enterprise? Local authorities and public authorities can simply publish on their websites, for example, when they have given some form of notification. That is a common thing to do, and publishing on a website what has been given to an enterprise does not in my view involve any issue of commercial confidentiality or of not being in the public interest; it would simply be transparent.

If we do not win the argument about changing the detail of the regime, there might be a middle way: at least the notifications ought to be published. Will the Minister tell us whether that has been given consideration and, if so, what the conclusion was and why? If it has not been given consideration, perhaps he will take it away and we can look at it as part of ongoing discussions with local authorities and other public authorities on other areas in the Bill, particularly clauses 32, 33 and 34.

Given that clause 36 remains part of the Bill, however, we recognise that the regulations listed under clause 37 will be necessary to bring some procedure to minimal financial assistance. We will therefore not vote against clause stand part.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I will cover some of the questions that have been asked. It is fine for written records to be electronic, and we expect to provide guidance on that. Those letters should be sent as soon as possible, based on the value calculation at that point. Small subsidies will be far less complex than some sort of mega tax break or anything like that, which will have a far more uncertain value. As we were discussing this morning, the subsidy will typically crystalise at the time of the tax declaration, because that will be when the value is better known, but essentially it is for public authorities to let people know as soon as possible. I will write to the hon. Member for Aberdeen North to expand on the tax situation and the tax breaks, using electronic means if she is amenable to that, rather than non-verbal communication such as interpretive dance or anything else we talked about earlier. I will get an email to her to clarify the situation.

The hon. Member for Feltham and Heston talked about having a robust situation. The reason why having the ability to grant these smaller exemptions is really key became apparent during the covid pandemic. Although there was a scheme, there were still exemptions that we had to work on really quickly, and I had so many businesses from the hospitality and retail sectors coming to me because they were incredibly hard pressed. We were having to delay what seemed like some of the easiest awards that the Government could make throughout the pandemic because of the bureaucracy of the state aid framework that we had at the time. This is why we are trying to get that proportionate approach, balanced between having something that is agile—that can work with whatever circumstances we face and minimise administrative burdens—and having a robust and appropriate situation that people can look at and address through review by the Competition Appeal Tribunal, should they so wish.

Turning to the issue of publication, if local authorities want to publish these letters, that is up to them. What we are saying is that they should be sending them to the enterprises—the recipients and the beneficiaries—in the first place.

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

The question I was asking was whether consideration had been given to whether public authorities should publish those letters. Some may and some may not, but there is not necessarily a downside to publishing letters that are already being sent. Has active consideration been given to that question? Has advice been received? Has any consultation been done, and what was the outcome of it, or is this an area that has not yet been considered?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

It is something that we will continue engaging with local authorities and public authorities on. For local authorities, there are already other spending databases, so subsidies over £500 will already appear on those databases. Again, we will work through that kind of engagement as we come on to the guidance.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy)

The Minister said that the letters are allowed to be sent by electronic means. Can I clarify that the written records kept by enterprises are also allowed to be electronic?

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I believe that is the legal definition of what “written” means and therefore how those records are kept, but if it is not, I will clarify that later.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.