Clause 70 - Review of subsidy decisions

Subsidy Control Bill – in a Public Bill Committee at 11:00 am on 16th November 2021.

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Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy) 11:00 am, 16th November 2021

I beg to move amendment 72, in clause 70, page 39, line 30, leave out subsection (2).

This amendment would allow an application to be made to review a subsidy decision related to a subsidy given under a scheme.

The amendment would enable interested parties to apply to the Competition Appeal Tribunal for a review of the decision to give a subsidy or make a subsidy scheme. An interested party is defined in subsection (7) as

“a person whose interests may be affected by the giving of the subsidy or the making of the…scheme” or the Secretary of State. Subsection (2) states that:

“Where an application for a review of a subsidy decision relates to a subsidy given under a subsidy scheme, the application must be made for a review of the decision to make the subsidy scheme”, meaning that an application cannot be made in respect of a decision to give a subsidy under a scheme. The Bill is explicit on that matter.

The evidence from the law firm DWF is quite scathing about that aspect of clause 70:

“We also believe preventing challenges to awards made under a scheme runs contrary to the logic of the system, which seems to be to allow those affected to test the lawfulness of awards at the point they are affected.”

I would be grateful if the Minister could respond on that. Is it right that although an interested party may have suffered as a result of the awarding of a subsidy, if it is made under a scheme, they have no basis to bring a challenge? If that is right, can it be right?

Labour’s amendment reflects both our concern and a suggestion to remediate that deficiency, which is to leave out subsection (2). The result would be that an application to review a subsidy decision could also be made for a decision to award a subsidy made under a scheme. That seems to be one way to address the issue. I would be grateful for the Minister’s response, first, on the issue and, secondly, whether he thinks there is a better way to address it in legislation.

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

Clause 70 sets out the terms under which an application for review of a subsidy decision may be made to the Competition Appeal Tribunal. The tribunal may review, on application by an interested party, a decision made by a public authority to give a subsidy or make a subsidy scheme.

As drafted, an interested party may not apply to the tribunal for a review of the decision to grant a subsidy under the terms of a scheme. An application may instead be made to review the making of the scheme itself. Before a scheme is made, the proposed terms must be assessed against the subsidy control principles; a scheme must not be made unless subsidies granted under it are consistent with those principles. Consequently, subsidies that comply with the terms of a scheme will comply with the principles and do not need a separate assessment.

Subsidy schemes have long been recognised as a convenient way to grant multiple subsidies—not least because of the administrative simplicity of making a single, scheme-wide assessment against the principles. It would significantly undercut the benefits of administrative efficiency of schemes if subsidies granted in line with the terms of a subsidy scheme were eligible for review by the tribunal.

I am not sure what harm the amendment is trying to remedy. Is it the risk that impermissible subsidies may be granted under a scheme? In such cases, either the scheme is non-compliant and can be challenged within the normal limitation periods, or the subsidy does not comply with the terms of the scheme it is granted under, in which case the non-compliant subsidy would be deemed a new individual subsidy, and could be challenged as such. I therefore request that the hon. Lady withdraw the amendment.

Photo of Michael Tomlinson Michael Tomlinson The Lord Commissioner of HM Treasury

The Minister is not giving way. The hon. Lady is making a speech.

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

I thank the hon. Gentleman for that. Will the Minister clarify that last point, as to how a subsidy under a scheme could be regarded—if I understood him correctly—as a new subsidy, and treated as a new subsidy for the purposes of a challenge?

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

The scheme can essentially be challenged under the Competition Appeal Tribunal against the principles. If a subsidy granted under a scheme is consistent with those principles, it is part of the scheme, and it is the scheme that would need to be challenged. If a subsidy granted under a scheme is not consistent with the principles, it is therefore not consistent with the scheme, and it would sit outside that. It could therefore be challenged.

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

I must say that I find that a little confusing. I am not fully clear on how a challenge can be brought to a subsidy under a scheme to even determine—what the Minister said in relation to it. Perhaps I am missing the point here, but it currently seems to be very explicit: it ends up being about the scheme rather than an individual subsidy under the scheme. Nine out of 10 subsidies under a scheme may have no challenges against them, with only one being challenged.

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

The scheme itself must already be consistent with those principles, so if any particular subsidy is given within the scheme, and it is not consistent with the principles, then it clearly cannot sit within that scheme itself, because it is inconsistent with the scheme that it is purported to be part of. Therefore, that will then be set aside and will be approachable for the CAT.

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

Who would make that decision? It does not seem to be in line with the wording of the legislation.

Photo of Virendra Sharma Virendra Sharma Labour, Ealing, Southall

Is it related or on something else?

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

It is related, but I was not sure who was speaking.

Photo of Virendra Sharma Virendra Sharma Labour, Ealing, Southall

The Opposition spokesperson was asking for some clarifications from the Minister.

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

If there is a subsidy that is given under a subsidy scheme, who decides that that subsidy was not eligible to be part of the subsidy scheme and is therefore applicable to challenge outside the scheme? I think that is part of the point that the Opposition spokesperson was getting at. There does not seem to be a mechanism for saying “That subsidy doesn’t fit within this scheme, and is therefore challengeable in its own right, rather than as part of the scheme”.

A subsidy is, by definition, one given under the scheme until somebody analyses that and decides that it is not applicable to be given under the scheme, but there does not seem to be a process for that subsidy to be categorised as something that should not have been given under the scheme. How does the challenge procedure work here?

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

Essentially, if the public authority has wrongly given the subsidy as part of a scheme, it will be for the CAT to decide.

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

I thank the Minister for his answer; I want to ensure that we correctly understand what he is trying to say. On the basis of what I think he is saying—that there may be a mechanism for challenging subsidies under a subsidy scheme—I will not press the amendment to a vote today, but I would like the Minister to explain, in writing, how he would see that scenario working, and where the power to bring a challenge sits.

I am still not clear where a determination—that a subsidy is to be treated as a subsidy, rather than a subsidy under a scheme—would come from. That does not feel clear, so let us get that clarified. If we could have that in writing, that would be extremely helpful. 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 70, in clause 70, page 40, line 9, leave out

“whose interests may be affected by” and insert

“who has sufficient interest in”

This amendment would alter the definition of interested party to make it consistent with clause 31(3) of the Senior Courts Act 1981.

The purpose of clause 70 is to enable interested parties to challenge subsidies before the CAT. It defines an interested party as

“a person whose interests may be affected by the giving of the subsidy or the making of the subsidy scheme” or “the Secretary of State”. We are concerned that the definition is too narrow and is deficient in two respects. The definition of interested parties—the test that establishes standing for the purposes of judicial review—applies a test at subsection (7)(a), which seems narrower than under the Senior Courts Act 1981. The test under subsection (7)(a) is

“a person whose interests may be affected”.

By contrast, the test under section 31(3) of the 1981 Act is a person who

“has a sufficient interest in”.

While it may not seem so different on one level, it could have important consequences.

George Peretz and others have suggested that the definition of interested parties under the Bill narrows the standard public law right and could be interpreted as limiting those who could bring a challenge to parties whose commercial or financial interests have been affected. What would that mean for the ability of those acting in the public interest and not in a private interest to challenge a subsidy?

Let us use an example: the Good Law Project has serious concerns about the awarding of a tax relief to a particular business and does not believe the subsidy is consistent with the subsidy control principles. It is not inconceivable that the business could be owned by a friend or relative of a Minister who is awarding the tax relief or being involved in some other way. In light of the current climate around sleaze, perhaps it would not be surprising at all. Can the Minister clarify what standing an independent challenger, such as the Good Law Project, would have under subsection (7)(a) to bring a challenge to such a tax relief, and if not why not?

Labour proposes amendment 70 to make the definition of interested party consistent with section 31(3) of the Senior Courts Act 1981. It should not only be those whose financial interests are or may be affected and the Secretary of State who can challenge subsidies.

As Professor Rickard, professor of political science at the London School of Economics, explained in October:

“Thinking about who has a particular interest in challenging those subsidies, there may be good reasons to expand the potential set of challengers to ensure that it includes not just competitors but maybe also employees, trade unions, taxpayers or interest groups. That would give us more eyes on the subsidies to ensure that they are complying with the principles, ensuring value for money and achieving the economic outcomes that they set out to achieve.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 23, Q25.]

Does the Minister recognise that the subsidy’s impact can extend beyond those who are more narrowly defined as interested parties? The amendment could bring the test for standing in line with judicial review. It would be helpful if the Minister could clarify whether there was an intention to subtly deviate from the definition in the Senior Courts Act. We hope the Government recognise that it could be a way of improving how the Bill operates as well.

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

I will go into a bit more detail in a second, but an interested party is any person whose interests may be affected by the decision in question. We are setting out a new UK-specific subsidy regime with unique rules. In that context, we have set out an intentionally broad definition of what constitutes an interested party. That said, the Competition Appeal Tribunal can exercise its discretion. We want to ensure that in each case the right people are determined to be interested parties. By exercising that discretion, the Competition Appeal Tribunal can build up a jurisprudence that is specific to and optimally used for the subsidy control context. The Competition Appeal Tribunal is an expert body in competition matters and has the right knowledge to make appropriate decisions on these questions of standing.

As we have heard, the amendment would require the CAT to adopt the test in the Senior Courts Act 1981, which states that a person seeking review of the subsidy decision must have “sufficient interest”. I understand that the hon. Member for Feltham and Heston intends that the amendment would broaden the scope of who can bring a challenge, but given the breadth of the existing test in the Bill, I do not think that she could be confident that her amendment would have the desired effect. In any event, it would bring along a body of case law that may be unrelated to the new subsidy control regime and could prevent the CAT from exercising its full discretion in each case. As I have said, it is a new system, with standalone enforcement through the CAT. It is therefore appropriate that the tribunal can decide for itself who can seek reviews of subsidy decisions.

The clause does not exclude any party whose interests may genuinely be affected by a subsidy. As such, I cannot see the advantage in changing the test for who can challenge a subsidy, as proposed in the amendment. The hon. Member for Feltham and Heston talked specifically about someone without a financial interest. As I say, that is why the definition of “interested party” is broad. It covers any person whose interests may be affected by a subsidy, and it will be up to the CAT to determine. We are giving the expert body the appropriate discretion to get the answers right in each and every case, and I therefore ask the hon. Lady to withdraw the amendment.

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

This is an interesting and important discussion about who is included in the definition of “interested party”. I would like to reflect on the Minister’s comments and perhaps test them with expert advice and a detailed review of the definitions and explanatory notes for the Bill. On that basis, I will not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned.—(Michael Tomlinson.)

Adjourned till this day at Two o’clock.