Clause 48 - Legacy and withdrawal agreement subsidies

Subsidy Control Bill – in a Public Bill Committee at 3:45 pm on 2nd November 2021.

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Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London) 3:45 pm, 2nd November 2021

I beg to move amendment 1, in clause 48, page 26, line 42, at end insert—

“(1A) In subsection (1), the reference to the subsidy control requirements, so far as it relates to subsection (1)(a), does not include the requirements as to transparency in Chapter 3 of Part 2, except in relation to—

(a) subsidies given that are subject to the provisions of Part IV or Annex 2 of the Agreement on Agriculture;

(b) subsidies given in relation to trade in fish and fish products;

(c) subsidies given in relation to the audiovisual sector.”

This amendment provides that the transparency requirements in Chapter 3 of Part 2 apply to subsidies under legacy schemes, subject to exemptions relating to agriculture, fish and the audiovisual sector.

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

Amendment 1 clarifies that the transparency requirements in chapter 3 of part 2 of the Bill will apply to subsidy awards that are given after the Bill comes into force, but that are provided under legacy schemes. The transparency requirements for this class of subsidy are consistent with those for other in-scheme subsidy awards—that is, there is an obligation on public authorities to upload the details of awards given under published schemes that are of more than £500,000 in value.

The amendment provides legal certainty around the transparency obligations on public authorities, which are set out in the guidance on the UK’s international subsidy control commitments. It will impose no transparency requirements on subsidies given under legacy schemes to those sectors that are excluded from the relevant chapter of the trade and co-operation agreement. Those fall under three categories: agricultural subsidies in the scope of the World Trade Organisation agreement on agriculture, subsidies in relation to the trade of fish and fish products, and subsidies to the audio-visual sector.

Amendment 2 sets out a full definition for the agreement on agriculture, which is referred to in amendment 1. That ensures a clear exemption for subsidies subject to the relevant provision in the agreement on agriculture, which is consistent with the UK’s obligations under the trade and co-operation agreement.

Amendment 1 agreed to.

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

I beg to move amendment 47, in clause 48, page 27, line 6, at end insert—

“(2A) On the date on which the Act is passed, the Secretary of State must make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

This amendment would require the Secretary of State to make a statement to the House of Commons regarding the applicability of Article 10 of the NI Protocol on the date on which the Act is passed.

The amendment would require the Secretary of State to make a statement to the House of Commons on the applicability of article 10 of the Northern Ireland protocol on the date on which the Act is passed. Clause 48 provides that the requirements of the subsidy control regime do not apply to subsidy schemes that are subject to the Northern Ireland protocol. The Minister will suggest, I imagine, that this gives comfort to public authorities and avoids the double jeopardy of both regimes applying to a subsidy scheme—I take that from what he and the Secretary of State said on Second Reading.

If the Minister were to say that, he would be assuming that there is clarity on which subsidies and schemes are subject to the protocol. On this vital question that public authorities will need to interpret, there is no agreement between the UK Government and the European Commission. There is significant uncertainty about the extent of the reach back—that is, where EU state aid rules will continue to apply across the UK. Where a subsidy is applied in Wales, Scotland or England has consequences in Northern Ireland. George Peretz told us in last Tuesday’s evidence session,

“if I am advising a client such as a local authority or a subsidy recipient, my immediate problem is that I have to look at two sets of guidance—one issued by the European Commission and one by the Department for Business, Energy and Industrial Strategy—that in some important respects tell me very different things.”—[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 46, Q64.]

His final assessment was:

“It is all a bit of a mess.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 48, Q67.]

We should all note that the European Union published proposals to address problems with the Northern Ireland protocol a fortnight ago. That is a step in the right direction, although the proposals it put forward do not address the state aid subsidy issue. In contrast, on Second Reading on 22 September, the Secretary of State suggested

“we have proposed the change to the Northern Ireland protocol to bring all subsidies within scope of the domestic regime.”—[Official Report, 22 September 2021; Vol. 701, c. 338.]

Here we are six weeks later, and we are no clearer about the status of the negotiations with the EU. I hope the Minister will set my mind at ease and tell us what the UK proposals are to solve the problem that George Peretz set out so well in evidence last week.

Let us remind ourselves: the Government negotiated the Northern Ireland protocol and signed it, so they now have a duty to make the protocol work, just as they have a duty to make Brexit work. It is no good threatening to rip up an agreement that the Prime Minister himself signed just two years ago, and certainly not without something to put in its place. Perhaps the Minister can confirm when he last discussed these issues with his European counterparts, and the timeline on which he expects there to be clarity on article 10 of the protocol and its impact on the Bill.

The purpose of the amendment is to require the Secretary of State to provide a statement on

“the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom.”

Public authorities and recipients need and deserve certainty on this issue.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

The hon. Member for Sefton Central used the quote I was going to use from the Secretary of State, who was really pretty clear that the new subsidy control regime that we are discussing is the one that will apply across the United Kingdom. That was the point the Secretary of State was making—that this is the only subsidy control regime that will apply across the United Kingdom. That seems pretty factually incorrect, not least for Northern Ireland but, as the Opposition Front Bench spokesperson pointed out, for other parts of the UK where that trade will end up going to the EU.

The very least the Government could do is to ensure that a formal statement is made, because if we are relying on what Government Ministers have said in the course of either debates in the House or statements, we do not know the answer. We have been told a number of different conflicting things. I get that this is a movable feast and that there is no final decision on exactly how it will work. That is why the amendment is so reasonable. It specifically says that the applicability statement will need to be made on

“the date on which the Act is passed”.

Presumably, by the date on which the Act is passed we will have some idea of which regimes will apply in Northern Ireland. We have spoken very little about Northern Ireland specifically during the course of this Committee but, when the Minister talks about giving certainty to enterprises and public authorities, it seems to me that Northern Ireland is in a unique position where there is no certainty at all. People literally do not know which regime will apply.

It is all well and good to say, “We will consult with people and ensure that they see the guidelines in advance of having to put them in the subsidy control database,” but the fundamental issue of which regime they are complying with has not yet been answered in a way that would stand up to any kind of scrutiny. The amendment is completely reasonable and, if the Minister does not want to accept it, he should be clear with us and with the organisations concerned, particularly in Northern Ireland, about how he and the Secretary of State will explain to them which regime they will be operating under.

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

As we have heard, amendment 47 to clause 48 would require the Secretary of State to

“make a statement to the House of Commons regarding the applicability of Article 10 of the Northern Ireland Protocol to subsidies given and schemes made by public authorities in each part of the United Kingdom”, on

“the date on which the Act is passed.”

Clause 48 excludes subsidies in the scope of article 10 of the Northern Ireland protocol from the domestic subsidy control regime, which, as the hon. Member for Sefton Central says, is to avoid double regulation of subsidies. Subsidies that are subject to the protocol and comply with the EU state aid laws will be exempt from the requirements of the new domestic regime.

I should remind hon. Members that the Secretary of State is already required, as a statutory duty, to publish guidance on the practical application of article 10 of the Northern Ireland protocol under section 48 of the United Kingdom Internal Market Act 2020. BEIS published that guidance on 31 December 2020. That is intended to help public authorities reach a view on whether article 10 applies to subsidies granted in Northern Ireland and the rest of the UK, to which they must have regard.

The guidance is based on the EU Commission’s unilateral declaration of 18 December 2020, which made it clear that article 10 would apply in Great Britain if there was a genuine and direct link back to a company in Northern Ireland. That is most likely the case of a subsidised company in Great Britain with a subsidiary in Northern Ireland. The Command Paper on the Northern Ireland protocol published on 21 July 2021 set out the Government’s position that comprehensive and robust commitments are in place on subsidy control in the trade and co-operation agreement, and that those are being further strengthened through the UK’s Subsidy Control Bill, making the existing provisions in article 10 redundant in their current form.

The Government are in intensive discussions with the EU with the aim of delivering significant changes to the Northern Ireland protocol, including article 10. Although it would be inappropriate to comment on the talks at this time, it is worth pointing out that the status and applicability of article 10 at the time the Bill is passed will depend heavily on them. The guidance on article 10 will keep pace with the outcome of the talks.

Photo of Stephen Kinnock Stephen Kinnock Shadow Minister (Foreign and Commonwealth Affairs) 4:00 pm, 2nd November 2021

Will the Minister confirm that this legislation cannot be passed by this House until there is clarity on article 10 of the Northern Ireland protocol? There seems to be a big gap in understanding on the definition of an at-risk good. Any company headquartered in Great Britain, when deciding whether it might be at risk as regards a good going into the European Union, will be unclear on that point. Until the EU and the UK Government have come to that clarity, this legislation is unworkable.

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

I disagree. This framework, which is a bare-bones framework, as I have said, has to work with whatever is in the Northern Ireland protocol, whatever is negotiated. That is why, for the reasons I have said, I talked about the reach-back provisions, which are never perfect. We know that the Northern Ireland protocol is not perfect, but it is a negotiated view. That is why, in those intensive discussions, we are looking at delivering significant changes and trying to improve an imperfect situation.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

If an enterprise in Northern Ireland is given a subsidy, and that enterprise has competition in or trades with both Scotland and Ireland, which regime does it need to comply with if it gets that subsidy? Does it need to comply with the state aid or subsidy control regime, or both?

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

It would first depend on what it trades in, and then on what its service is, because those are dealt with in different ways. It would then depend on the framework of the company and what structure it has in GB and Northern Ireland, because it must have genuine reach-back to Northern Ireland to be able to apply to that.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

I appreciate the Minister being so indulgent in giving way. Are there any circumstances in which an organisation—an enterprise that is given a subsidy or a public authority giving out a subsidy—will have to comply with both the subsidy control and state aid regimes?

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

The regime has been specifically worked through so that there is no double jeopardy, as the hon. Member for Sefton Central described at the beginning. They have to deal with one or the other. Clearly, as I said, the one they would deal with depends on the framework of the company, the ownership of the company, and whether it deals in electricity or services, because different rules clearly apply. None the less, as the negotiated provision is constituted, they would only have to apply to apply to one or the other. If it is state aid, they do not then need to worry about domestic subsidy control, and vice versa. The Command Paper clearly stated that we believe that we can bring it under domestic subsidy control, although that is not being negotiated yet, so that is clearly not the situation at this moment in time.

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

I am grateful for the Minister’s indulgence. On a point of clarity, clause 48(2) states:

“The subsidy control requirements do not apply to…a subsidy given, or a subsidy scheme made, in accordance with Article 10 of the Northern Ireland Protocol”.

My interpretation of that is that the only show in town is article 10 of the Northern Ireland protocol—that that trumps the subsidy control regime. Is that not the case? I thought he said in his introductory remarks that the default position in all this is the state aid regime under the Northern Ireland protocol.

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

As I say, if something comes within state aid, whether it is goods or logistics, it may be the case, but neither one nor the other trumps it. There is no double regulation. Either it comes under state aid or it comes under domestic law—[Interruption.] That is what is there within the protocol, and there are certain things that just do not appear under the protocol.

Clearly, we will continue to keep the House informed of progress made relating to the Northern Ireland protocol. I do not want to go down the rabbit hole of coming out with individual examples that may then be redundant as the talks continue at pace. We want to make sure we continue to keep the House informed and, as such, I consider that section 48 of the United Kingdom Internal Market Act 2020 already makes provision for a statement of the application of article 10 of the Northern Ireland protocol by way of statutory guidance—[Interruption.] The Government have already given the guidance and I do not see any need to place an additional requirement on the Secretary of State to make a statement to the House of Commons regarding the applicability of article 10 of the Northern Ireland protocol. I request the hon. Gentleman withdraws the amendment.

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

Before I call the shadow Minister, I remind hon. Members that your phones should be on silent, please.

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

I think the pings you just heard were all the different legal opinions on the application of the subsidy control regime on EU state aid, Ms Nokes. The Minister found a number of different ways of phrasing the same problem: it all depends, it is one or the other, or he cannot give individual examples. I am afraid that is what it all boils down to.

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

My hon. Friend the Member for Aberavon uses the word shambles. It is hard to disagree given the Minister’s answer. Until that is addressed, it undermines the operation of the regime, which risks legal challenge.

On the point about individual examples, businesses face the potential of legal challenge if they do not get this right. They are not going to know which regime. We were starting to get an answer there, in that if the subsidy is under the terms of the Northern Ireland protocol, it is state aid. However, even there the Minister could not be entirely clear. It goes back to my initial question: what proposals are the Government putting forward to address this? What is in the Secretary of State’s words on Second Reading, where he was extremely confident that the matter would be addressed, as the hon. Member for Aberdeen North and I both said in our opening remarks? What do the Government think is going to work? What is it from their discussions with their EU counterparts that suggests a way forward? We still have not had that from the Minister and that underlines exactly why the amendment is so important in giving the Government until the day on which the Bill passes into law to address exactly how the operation will apply.

To go back to the words of George Peretz, there are two sets of guidance and two sets of legal opinion. He, as a lawyer, could advise on the same situation, with the awarding body on the one hand and the business on the other, on which regime might apply. Until that is addressed, we have a real problem with the legislation and the existence of the two different subsidy regimes will cause a real problem for the effective use of subsidies to support businesses in the regions and nations of our country.

Question put, That the amendment be made.

Division number 14 Subsidy Control Bill — Clause 48 - Legacy and withdrawal agreement subsidies

Aye: 5 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

The Committee divided: Ayes 5, Noes 9.

Question accordingly negatived.

Amendment made: 2, in clause 48, page 27, line 9, at end insert—

“(4) In this section ‘the Agreement on Agriculture’ means the Agreement on Agriculture, contained in Annex 1A to the Marrakesh Agreement Establishing the World Trade Organization, done at Marrakesh on 15 April 1994 (read with any adjustments necessary for context).”—

This amendment is consequential on Amendment 1 and provides a definition of the Agreement on Agriculture.

Question proposed, That the clause, as amended, 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)

The clause provides an exemption from the subsidy control requirement for legacy subsidies and subsidy schemes—those granted or established in accordance with the subsidy control rules enforced before the Bill comes into force—and for subsidies and subsidy schemes given in accordance with the EU withdrawal agreement. That objective is to prevent double regulation. Public authorities awarding subsidies under such legacy schemes will have to comply only with the terms and conditions of the legacy scheme, as well as with the relevant guidance on their transparency obligations.

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

We have heard spectacularly from the Minister the failure of the Government to explain how the regime will operate or to come forward with answers to questions asked during the debate on our amendments. There is little to add to what has been said already.

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

Briefly, for the record, I am deeply uncomfortable with this part of the legislation. It leaves businesses across the length and breadth of the country in a total state of confusion about which parts of the provisions apply to them and which are under article 10 of the Northern Ireland protocol. I genuinely think it would be a dereliction of duty by the Committee to allow the clause as drafted to stand part of the Bill. Whether we press it to a vote does not matter—we lose the votes all anyway—but I want to put it on the record that that would be a dereliction of duty.

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

I reassure my hon. Friend that we will indeed be pressing clause stand part to a vote. He is right: businesses need certainty. We are coming out of a once-in-100-year global pandemic, and they need all the support that they can get. This regime should give that support, but it cannot do so if there is that massive uncertainty at the heart of it, whether this regime or a different one should apply. The Government have not addressed that and they need to get on and address it—

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

Order. If Members wish to intervene on the shadow Minister, they may do so, but we will not have chuntering.

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

We gave the Government every opportunity with our amendment, but they chose to vote it down. They have left us with what my hon. Friend the Member for Aberavon called a dereliction of duty, which is a good way of putting it. The clause does not do justice to businesses, awarding bodies, communities or our constituents. Those are good reasons why we should vote it down.

Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North

I have not had a chance to think about exactly how not having the clause as part of the Bill would affect the Bill as a whole. I share the concerns, that there are major issues with the clause, but at this point I will abstain on any vote.

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

I understand the hon. Lady’s concerns, but there is such a big problem with what is set out, it is right for us to register our objection by voting against the clause.

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

All I can say is that we were asked to go through a whole load of examples, which would not be helpful in giving that certainty. What will be helpful is the negotiations that are continuing at the moment. As it happens, the subsidy control framework before us works within either system: the one that we wish to negotiate, the result that we wish to have, or the situation we have at the moment. Subsidies that fall within the scope of the Northern Ireland protocol of the withdrawal agreement and which affect Northern Ireland-EU trade, such as on goods and wholesale electricity markets, will need to comply with EU state aid rules, including on services, otherwise they come under the domestic subsidy control regime. That is about as clear as we can be, but negotiations are happening at the moment.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade) 4:15 pm, 2nd November 2021

The Minister had the opportunity to accept our amendment, which would have addressed the concern that he has just set out about needing negotiations, because it would have given him time for them. It is regrettable that he did not accept our amendment, but he is now in the position of having to come forward with the answers, and as the responsible Minister, it is up to him to do so.

Question put, That the clause, as amended, stand part of the Bill.

Division number 15 Subsidy Control Bill — Clause 48 - Legacy and withdrawal agreement subsidies

Aye: 9 MPs

No: 4 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

The Committee divided: Ayes 9, Noes 4.

Question accordingly agreed to.

Clause 48, as amended, ordered to stand part of the Bill.