Clause 52 - Mandatory referral to CMA

Subsidy Control Bill – in a Public Bill Committee at 11:30 am on 4th November 2021.

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Photo of Kirsty Blackman Kirsty Blackman Scottish National Party, Aberdeen North 11:30 am, 4th November 2021

I beg to move amendment 28, in clause 52, page 28, line 10, at end insert—

“(c) where the granting authority for a subsidy scheme is the Government department responsible for the operation of the subsidy control regime, or

(d) where the granting authority for a subsidy is the Government department responsible for the operation of the subsidy control regime and the subsidy value is over £2 million.”

This amendment makes provision for situations for mandatory referrals in cases where the department responsible for the operation of the subsidy control regime is a granter of subsidies or subsidy schemes.

Thank you for chairing the Committee today, Chair; we very much appreciate it. I am pleased that the hon. Member for Mid Dorset and North Poole is delighted to see me here. He made very clear this morning that he was worried that the debate might be truncated without my presence. I am here to oblige by standing up and making my first speech of the day.

The amendment is about mandatory referrals to the Competition and Markets Authority. Clause 52 specifically focuses on those mandatory referrals and the criteria under which a subsidy would mandatorily be referred and therefore given an additional level of scrutiny. The mandatory referral considerations in subsection (1) of the clause say that a public authority must request a report from the CMA if it is giving a subsidy or a subsidy scheme “of particular interest” or if it is

“directed to do so by the Secretary of State”.

It goes on to say in subsection (3) that the Secretary of State may

“specify further information that must be included in a request”, and

“make provision as to the form of a request.”

That is all well and good, but it seems to me that every single criterion for mandatory referral to the CMA relies on the decisions being made by the Secretary of State. The Secretary of State will decide what is a subsidy or subsidy scheme of particular interest and what class it falls into. That is a decision that will be made, but those details are not in the Bill.

If a subsidy is only mandatorily referred if it is of particular interest, which is defined by the Secretary of State, or if the Secretary of State chooses to refer it, there is a gap in terms of a conflict of interest, where the subsidy may be given by the Secretary of State’s Department and, given the limited criteria we have for interested parties, for example, which have not yet been expanded on—we will discuss them later on in the Bill—it would make sense for large grants made by the Secretary of State’s Department to mandatorily be referred to the CMA for a report. That would not cause a huge amount of additional work for the CMA, but it will provide an additional check and balance to the system. We do not want the Government marking their own homework on that; we would rather there was an additional level of scrutiny here.

Amendment 28 says that

“where the granting authority for a subsidy scheme is the Government department responsible for the operation of the subsidy control regime, or”— that should be “and”, not “or”—

“where the granting authority for a subsidy is the Government department responsible for the operation of the subsidy control regime and the subsidy value is over £2 million.”

Once again, I do not feel I am being unreasonable. I am not asking for a mandatory referral every time. Sorry—I just reread the amendment, and it is right, it should be “or”. It is about a subsidy scheme that is made by the Secretary of State’s Department, so scrutinising all the subsidy schemes made by the Secretary of State’s Department, or the scrutiny of an individual subsidy where that is more than £2 million. I apologise to the Clerks for doubting them; this is how I intended the amendment to be.

This is not an unreasonable ask, but it is an extra check and balance, ensuring that the Government are appropriately scrutinised and that there is a look at all those subsidies. It is just an additional look; it will not delay the granting of the subsidy or mean that it will take longer. The subsidy will still be able to be granted fairly quickly and subsidy schemes will be able to be set up fairly quickly. However, it means that the CMA will look at those with an inherent conflict of interest because the Secretary of State’s Department is granting or setting up the subsidy scheme.

Later in the clause is a provision for the Secretary of State to make changes by regulations, but that specifically relates to the form of the request and the further information that may be included in the request. It does not relate to further criteria as to which public authorities must request a report from the CMA. If there were such a provision, I would push for the Secretary of State to make regulations and ensure that the criteria were widened. As that has not been included in the clause, I feel that I have to move the amendment.

If the Minister could give me some level of comfort, that would be very helpful. I think that that check and balance needs to be there to get rid of the inherent conflict of interest.

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

It is a pleasure to serve under your chairship, Ms Nokes. I thank the hon. Member for Aberdeen North for her remarks. She raises a number of important and pertinent issues around scrutiny, in particular about subsidies introduced by the Secretary of State.

The clause deals with the mandatory pre-award referrals to the CMA. It outlines that:

“A public authority must request a report from the CMA…before giving a subsidy, or making a subsidy scheme, of particular interest, or…where directed to do so by the Secretary of State”.

We have highlighted our concerns about the definitions of subsidies “of particular interest”. It is a glaring gap in our debates on the detail of the legislation. We think that the definition should be included in primary legislation, and I hope the Minister has listened to our concerns. I am sure that the issue will come back at future stages and, at the very least, our expectation will be that the definition is published very soon after the Bill receives Royal Assent. Things that we could be dealing with now should not end up delaying the ability to make decisions and implement the regime.

Although we are concerned about the definition, we support the overall importance of the measures outlined in the clause and the function of mandatory referral to the CMA, in the interests of checking compliance with the principles, bringing assurance on value for money and confirming that there will be no distortion or harm to the economy.

On amendment 28, the hon. Member for Aberdeen North makes an important continuing reference to the Government marking their own homework. Although we recognise the intention and some of the arguments behind the amendment, we do not think that producing a report on a subsidy every time one is given by the Department for Business, Energy and Industrial Strategy—as a sort of blunt tool—would necessarily be the most effective use of the CMA’s time.

Rather, we have argued very strongly for all subsidies, regardless of whether they are below a particular amount or given to a certain recipient, to be posted on the database to ensure sufficient transparency. We will also seek to ensure that there are greater rights on call-in powers or that the CMA can investigate itself, if it deems that there a reason to do so. We think that any assurances, which are, in part, the intention behind the amendment, could be better delivered through the Bill in other ways. On that basis, we will abstain on amendment 28. We support clause 52 standing part of the Bill.

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

As always, it is a pleasure to serve under your chairmanship, Ms Nokes. Before I begin, I would like to make a general point about today’s debate and address a question raised during our discussions on Tuesday. Throughout the discussion of clauses in part 4 of the Bill, Members will hear me refer to the subsidy advice unit, which will be a new sub unit of the Competition and Markets Authority established by this Bill. Technically speaking, the provisions in part 4 confer various responsibilities on the CMA, and it is for the CMA to decide which of its responsibilities it will delegate to the SAU. The mechanics of that process will be discussed later when the Committee considers clause 67. While the decision on how to organise its work rests with the CMA, in practice it is likely that most if not all of the responsibilities under part 4 will be delegated to the SAU. Therefore, for consistency and ease, I will be referring to the SAU throughout these debates.

Clause 52 sets out that two categories of subsidy and scheme will be subject to referral to the CMA. The first is subsidies and schemes of particular interest, which we discussed in the context of clause 11 on Thursday 28 October, and the second is the subsidies and schemes that are referred by the Secretary of State under the provisions that we will shortly discuss under clause 55. Amendment 28, as we have heard, would add to that list of subsidies subject to mandatory referrals, requiring the Department responsible for the subsidy control regime to refer individual subsidies above £2 million and all subsidy schemes to the SAU. In practice, the BESI, my Department, is the Department with responsibility for subsidy control. I can reassure hon. Members that BEIS takes its subsidy control commitments very seriously. BEIS subsidies, like those of all other public authorities in the UK, will be subject to the “subsidies of particular interest” regime. There is no special treatment in this regime for my Department: indeed, BEIS can already ask advice of the CMA where necessary, using the powers in the Enterprise Act 2002.

The Bill establishes the two categories that we have talked about: subsidies and subsidy schemes of interest, which can be voluntarily referred to the SAU, and subsidies and schemes of particular interest, which must be referred to the SAU. The Government will set out in regulations definitions for both of those categories, and those regulations will be subject to the affirmative procedure, so there will be opportunity for parliamentary scrutiny of them. Those definitions will capture subsidies that are more likely to give rise to trade disputes, as well as subsidies that are more likely to distort UK competition and investment. BEIS subsidies and subsidy schemes will be subject to the same requirements and procedures as all other subsidies. I assure hon. Members that my Department really will not get any special treatment on this issue.

However, routinely requiring BEIS to be referred to the SAU when it offers subsidies and subsidy schemes would be a disproportionate approach to managing the risk of those highly distortive subsidies. It is important for the SAU to focus its attention and casework on genuinely distortive subsidies, not to focus unduly on subsidies and schemes made by BEIS in particular. The Government fully agree that subsidies and schemes of particular interest merit a proportionately higher level of scrutiny than other less distortive subsidies and subsidy schemes, but those subsidies are, in principle, better captured through a robust and well-evidenced set of thresholds and criteria. Those criteria will be set out in regulations defining the subsidies and schemes of particular interest, rather than placing a discrete requirement on a single public authority on the face of the Bill.

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

Specifically regarding the process, and what might happen in terms of subsidies of interest and subsidies of particular interest, does the Minister agree that this is going to be a movable feast? The regulations will be subject to the affirmative procedure, but things may change, and therefore there will need to be a change to the interests and particular interests. I am just asking the Minister to give me comfort that if the Government agree there is a particular issue with something, and it needs to be added to the group of “interest” or of “particular interest”, it will be added.

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

Yes, I can give the hon. Lady that assurance. Those schemes will be set out rigidly and subject to the affirmative procedure, so we can have parliamentary scrutiny, but none the less—as she rightly says—we need to retain flexibility, which is exactly why those definitions are in regulations in the first place, rather than on the face of the Bill. Of course, we look to provide as much parliamentary scrutiny of those regulations as possible. I ask the hon. Lady to withdraw her amendment.

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

I will not press this amendment to a vote at this stage, but I might bring it back at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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)

The clause requires that public authorities refer certain subsidies and subsidy schemes to the subsidy advice unit before they are given or made. Two types of subsidies or schemes must be referred: those defined as being of particular interest in clause 11 and those that are called in by the Secretary of State under clause 55.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy) 11:45 am, 4th November 2021

We support clause 52. I am not concerned about the detail of the clause, but how it will be effective as part of the regime. This comes back to why the rules around what can be referred under the definition of a subsidy of particular interest and who has what call-in powers will be a fundamental question to come back to. It would be a shame to have a good clause and not use it to best effect to support the best outcomes of the regime.

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

I agree with the hon. Lady. My concern, which I mentioned briefly when talking about the amendment, is that subsection (1) is not flexible enough. It mentions particular interests and

“where directed to do so by the Secretary of State”, but I would prefer to see an additional category that says, “other reasons”, with regulation to follow if that is what the Minister suggests. There are probably more reasons why things could be referred mandatorily to the CMA without having to go through the affirmative process of changing the particular interest subsidy section in clause 11. There could have been a little more flexibility in that clause, and it would be useful if the Minister agreed to think about that.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.