Clause 54 - Cooling off period following mandatory referral

Subsidy Control Bill – in a Public Bill Committee at 11:45 am on 4th 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) 11:45 am, 4th November 2021

I beg to move amendment 3, in clause 54, page 30, line 8, leave out “on or”.

This amendment ensures that a public authority may give a subsidy after the reporting period expires, but not on the final day of that period.

The amendment consists of a very minor change that is nevertheless necessary to ensure the public functioning of the mandatory referral process. Clause 54 requires that the public authority waits for a cooling-off period to elapse following the subsidy advice unit’s report on a mandatory referral before giving a subsidy or making a subsidy scheme. That is intended to ensure that public authorities have a minimum window for considering the contents of such a report before giving the subsidy or making a scheme. Subsection (3) applies where the subsidy advice unit has not produced a report before the statutory reporting period of 30 working days. The reporting period is usually 30 working days. Here there is no need for a cooling-off period since there is no report for the public authority to consider. Instead, the public authority should be able to give the subsidy or make the scheme any time after the reporting period has expired.

As currently drafted, subsection (3) allows the public authority to make the subsidy on the last day of the SAU’s 30 working-day reporting period, before it has technically expired. That gives rise to the theoretical possibility of a public authority being able to give a subsidy or make a scheme on the last day of the reporting period, when there is still a short time left for the SAU to publish its report—that is not the intention. This amendment clarifies that the full reporting period must have expired before the public authority can give a subsidy or make a scheme without having to wait for a cooling-off period to elapse.

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

We support Government amendment 3, which provides clarity as to exactly when the cooling-off period ends. I will reserve my other comments on the clause for the next stages.

Amendment 3 agreed to.

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

I beg to move amendment 48, in clause 54, page 30, line 10, leave out “Secretary of State” and insert “CMA”.

This amendment provides that the power to extend the cooling off period should sit with the CMA rather than the Secretary of State.

The Labour party accepts the necessity of the cooling-off period to ensure that appropriate consideration is also given to the CMA’s report. However, we do have some concerns about subsection (4) of the clause. We believe that the power to extend the cooling-off period should lie not with the Secretary of State but with the CMA. Given that the extension of the cooling-off period could have a significant effect on the granting of the subsidy and the effectiveness of its intended purpose, we should not risk it being seen as a politically charged, or political, decision. As such, we believe that it would be better for the CMA, an independent organisation whose judgment is trusted, to make that decision. Amendment 48 would make that change.

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

As we have heard, clause 54 provides for a cooling-off period of five working days that have to expire before the authority can give a subsidy or make a subsidy scheme that has been subject to the mandatory referral process. The clause further provides that the Secretary of State may direct an extension to that cooling-off period if they judge that the report published by the SAU at the end of the mandatory referral process shows serious deficiencies with the public authority’s assessment against the subsidy control principles. Amendment 48 would remove that power from the Secretary of State and give the SAU the power to direct an extension to the cooling-off period. However, that would be at odds with the advisory role of the SAU, as laid out elsewhere in the Bill. We will discuss that in a more holistic way in the context of other amendments, particularly amendment 58 and new clause 3.

For now, I emphasise the Government’s view that the SAU is not a regulator or a gatekeeper, but rather acts as that impartial adviser for the most potentially harmful subsidies and schemes. Its reports are non-binding, and it will provide an important way of scrutinising the underlying assumptions in the design of subsidies and schemes, as well as identifying potential weaknesses. Granting a power to the SAU to extend the cooling-off period after it has published its report risks muddying the water between the role of adviser and enforcer.

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

If there is a concern, does the Minister envisage the CMA being able to recommend extending the cooling-off period?

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

Part of the CMA’s regular reporting on how the system works will look at the scheme holistically, and it may wish to look at that period as well. Ultimately, it is the Secretary of State who is responsible for the subsidy control system and its consequent effects on competition and investment across the UK. Although the SAU will be created to help facilitate the effective operation of the regime, it does not have the same overarching responsibilities as the Secretary of State, so it is right that the Government bear the responsibility for intervening in the subsidy control regime where necessary. In drawing the SAU into the space for that decision making and matters of public spending, even in a limited way, the amendment would risk the CMA’s hard-earned reputation for independence and political neutrality.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (Economy) 12:00 pm, 4th November 2021

I have spent years looking at education reports and care inspectorate reports. There are criteria for giving marks and a particular language is used—something is good, poor or dreadful. Is the Minister expecting that “serious deficiencies” will be used by the CMA in the report? Will it say, “We consider there to be serious deficiencies”, which the Secretary of State would consider to be a red flag, resulting in the potential extension of the cooling-off period? Does the Minister think the CMA will do that explicitly, or will the Secretary of State have to read between the lines and try to work out how bad things are? We do not know how the reports will be structured, so it would be helpful if the Minister could make clear whether the Secretary of State is going to understand the meaning of the reports and whether the SAU would seek an extension to the cooling-off period because it believed there were serious deficiencies.

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

There is not going to be a rating, because the SAU is not a regulator or enforcer, but it is responsible for making sure that the situation is made as clear as possible so that people, not least the Secretary of State, can understand it. That is why we have left this matter to the CMA—its staff are experts and have great experience of doing exactly that.

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

This has been a very helpful debate. The Minister is right: we will discuss some contextual powers in the debates on later clauses and new clause 3. Clarifying the roles, expectations and powers for the CMA, the Secretary of State and other bodies, such as devolved Administrations, is an important point to come back to, but I will not press the amendment at this stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment 50, in clause 54, page 30, line 18, at end insert—

“(5A) The Secretary of State must by regulations define ‘serious deficiencies’ for the purposes of this section.”

This amendment requires the Secretary of State to define “serious deficiencies” for the purposes of directing that the cooling off period is extended.

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

With this it will be convenient to discuss amendment 51, in clause 54, page 30, line 26, after “subsection” insert “(5A),”.

This amendment is linked to Amendment 50.

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

It is a pleasure to move amendment 50 and, with that, to speak to amendment 51, to which it is related.

Clause 54(4) states that the Secretary of State can extend the cooling-off period if he or she considers that the CMA’s report has identified “serious deficiencies”. The hon. Member for Aberdeen North has referred to that point. Yet again, the Bill is lacking a key detail—namely, what would constitute a serious deficiency. We have had a brief discussion on this point. Clarity is necessary for public authorities, the CMA and interested parties, in order to have confidence in the new regime and the timing of subsidies.

The amendment would require the Secretary of State to define serious deficiencies for the purposes of directing that the cooling-off period is extended. It would be helpful to the Committee if the Minister could confirm how and where we will reach a definition of serious deficiencies and when we are likely to get that definition. My comments apply to both amendments 50 and 51.

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

The meaning of the term “serious deficiencies” is intended to mirror the common understanding of those words, so we do not believe the requirement to define it further is necessary. Defining it further, either in the Bill or through regulations, risks leading to a situation where the Secretary of State judges that there is a serious problem with a public authority’s assessment, but is prevented from taking action because the specific problem is not exactly set out in those regulations.

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

I am slightly surprised, because serious deficiencies is being used as a trigger for the Secretary of State to be able to use a power. I would be very surprised if there was a common understanding that was so common that even the members of this Committee, if they were to secretly write it down on a piece of paper and compare notes, would have exactly the same definition of serious deficiencies. I am not sure that suggesting there is a common understanding, as if that is fact, is the right way to address this particular point. We need this defined, and we need to know when and where it will be defined.

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

One of the problems is that, if we define it in the way I think the hon. Lady is after, we then lose some of the flexibility. I was just about to say that the exact situation will vary on a case-by-case basis. A serious deficiency could arise, for example, if the subsidy advice unit identified that the proposed subsidy or scheme might have significant negative effects on UK competition and investment but the public authority had not considered any of the options for mitigating those effects. Another example might be if the SAU identified significant technical flaws in or omissions from the public authority’s assessments of compliance with the requirements of chapters 1 and 2 of part 2, such as the analysis of how the subsidy incentivised a change in the beneficiary’s behaviour or the impact on international trade.

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

Does the Minister agree that it is likely that the SAU will have internal working definitions of what is “acceptable” or “deficient”, and that it is likely to say that to the Secretary of State in giving its recommendations and possibly asking for any extensions?

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

Absolutely—that is exactly what I was going to come on to. The hon. Lady has obviously seen the next paragraph I was going to read. The Secretary of State would not be taking that view on his own. It would not be an arbitrary judgment; it would be acting on the basis of a published report by the SAU, which is obviously independent.

As the hon. Member for Feltham and Heston said on Second Reading and has reiterated this week,

“the new system will work only if it provides transparency, oversight and scrutiny”.—[Official Report, 22 September 2021; Vol. 701, c. 341.]

This amendment only serves to undermine those aims slightly—unintentionally, I am sure—by limiting the circumstances in which the Secretary of State can act to extend the cooling-off period and ensure that a public authority has more time to consider the SAU’s comments. I therefore request that she withdraw her amendment.

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

I thank the Minister for his comments. I will not press the amendment to a vote, but I want to repeat this point. In light of what the Minister has said, some of the examples or scenarios that he has started to outline suggest that there is more that can be done to scope out, set out some expectations or perhaps put something in guidance so that there starts to be a sense of scope around what sorts of scenarios could result in a consideration of serious deficiencies.

I say that not because I am trying to create an issue that is not there, but because where we have something in legislation that is a basis on which a power is to be exercised, it is incumbent on the Government to ensure that there is greater clarity about what the expectations might be. That might not be a complete list, defined A to H, but it may be a broad set of guidance, for use both by the subsidy advice unit in making assessments, and by the Secretary of State in making a clearer and more transparent decision that could also be open to scrutiny. I hope the Minister will confirm to the Committee that he would be prepared at least to look at some of those areas he has outlined—perhaps there will be more and we might need to come back to this in the regulations—to provide clarity on what could be quite an important use of the power. We would hate for the use of the power to be challenged on the basis of people not agreeing that something was a serious deficiency. We do not want the process to be subject to unnecessary delays that could be dealt with by planning ahead for different interpretations. There is perhaps not the common understanding that the Minister thinks of “serious deficiencies”.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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)

Clause 54 establishes the cooling-off period that must elapse before a public authority may give a subsidy or make a subsidy scheme that has been referred to and reported on by the subsidy advice unit, following a mandatory referral.

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

We have no further comments other than the issues we have raised already. We support clause stand part.

Question put and agreed to.

Clause 54, as amended, accordingly ordered to stand part of the Bill.