91: Post-brexit – subsidy bill at second reading and committee
The Subsidy Control Bill was presented to parliament on 30 June 2021.
We reviewed the main provisions of the introduced Bill here, but, in summary, the Bill creates a new legal framework under which public authorities may provide subsidies to businesses, replacing the old EU State Aid regime, which no longer applies, post-brexit.
This post covers the Bill’s Second Reading debate and the evidence submitted at committee stage.
The Bill had its Second Reading in the Commons on 22 September. The Secretary of State for Business Energy and Industrial Strategy (Kwasi Kwarteng) described the Bill as:
‘a new, bespoke system of subsidy control for the UK that delivers on our national priorities … that promotes autonomy, transparency and accountability [and] will empower hundreds of local authorities, as well as the devolved Administrations and other public authorities, to take control, allowing them to design subsidies to meet local needs while also meeting national policy objectives.’
Labour, speaking for the Official Opposition, recognised that the Bill was necessary to comply with the UK government’s international obligations (specifically WTO trade rules), now the EU’s State Aid regime had fallen away, and so it would not vote against the Bill at Second Reading. But it highlighted a number of points of concern, which were echoed by other MPs.
First, as with other recent government Bills, too many important aspects were left to secondary legislation. There were ‘huge gaps in the Bill’ and ‘crucial aspects … yet to be defined’ which would ‘deny Parliament a proper chance to scrutinise how the new system will work’.
- the Bill failed to provide any clear indication as to how and where government subsidies should be spent and at what scale. Labour sought a strong UK-wide industrial strategy, including supporting national priorities such as net zero;
- public bodies needed clearer guidance on how to interpret the subsidy control principles; and
- it was unclear how the Bill would support the UK’s most deprived regions, given the lack of replacement for the EU regional aid/assisted areas regime.
MPs raised concerns that the Bill didn’t define certain key terms, eg subsidies ‘of interest’ and ‘of particular interest’ – categories that would determine which subsidies are voluntarily or mandatory referred to the CMA for review – to be defined in secondary legislation. Similarly, MPs were concerned that, if the ‘national security’ exemption were construed too widely, any defence company, police or fire authority, etc would be exempt.
Second, MPs were concerned about the balance to be struck between effective oversight (to protect the use of public funds), certainty and efficiency for business, and the administrative burden on awarding authorities. Again, MPs were concerned that the Bill did not provide enough certainty as to the definition of ‘interested parties’ able to challenge a subsidy (clause 70), which seemed to exclude local authorities and the devolved administrations.
Third, there were concerns about the limited powers of the CMA’s new Subsidy Advice Unit, lacking any power to instigate an investigation on its own initiative or to take enforcement action.
Fourth, Welsh, Scottish and Northern Irish MPs joined Labour in expressing concern about the devolved administrations’ involvement in the development of the new regime, particularly in the role of the CMA and appointments to the new Subsidy Advice Unit. Those MPs were also concerned that the UK Secretary of State was to be given power to ‘call in’ investment/subsidy decisions taken by public bodies in the devolved nations. That, they felt, was a clear step into devolved competencies. (Reflecting that, the Legislative Consent Memoranda of the Scottish Government and Wales Government each conclude that those administrations cannot recommend consent as the Bill currently stands. Northern Ireland’s hasn’t been published yet.)
Naturally, individual MPs expressed concerns about potential impacts within their own constituencies, eg withdrawal of support for the steel industry, hopes of improved assistance for deprived wards.
When Bill was put to a vote, it passed by 287 votes to 50 – Labour abstained, but the LibDems and Welsh, Scottish and Northern Irish parties (including the DUP) voted against.
The Bill is now in committee for detailed scrutiny by MPs, who may also take account of any evidence submitted to them. Four bodies have submitted evidence to date:
Rolls Royce sought clarity on the meaning of, and distinction between, ‘subsidies of interest’ and ‘subsidies of particular interest’. Clear guidance was needed to avoid inadvertently losing the benefits obtained through the greater flexibility afforded through the UK’s commitments in the EU/UK Trade & Cooperation Agreement, as against the previous EU State aid regime. Rolls Royce particularly submitted that routine R&D assistance (through eg the Aerospace Technology Institute) would not be of ‘particular interest’ and so require up-front rigorous scrutiny by the CMA, with the cost and delay that might involve.
Rolls Royce also sought clarity on the meaning to be given to certain terms in the Bill:
- Clause 24(1)(c) defines an ‘ailing or insolvent enterprise’ as including those where ‘the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities’. If interpreted on a ‘snap-shot basis’, this test would preclude subsidies to companies with long-term business models and high R&D costs, and start-ups which take on significant debts to fund rapid growth. Rolls Royce hoped that the interpretation given to similar wording is s.123(2) of the Insolvency Act 1986 by the Supreme Court in Eurosail, adopting a more long-term view, would apply;
- Clause 45, ‘national security’: Rolls Royce welcomed the exemption for the purpose of safeguarding national security, and assumed it would not be defined, to give greater flexibility under UK law.
The Centre for Public Data submitted that, although the government has committed to creating a transparent and evidence-driven subsidy regime, the current Bill reduces transparency compared with the previous regime, such that around half of all subsidies awarded will not appear on the UK’s new central subsidy transparency database, making it harder for businesses to challenge unlawful subsidies, harder for analysts and Parliamentarians to monitor and scrutinise spending, and harder for analysts to improve future subsidy design. It recommended amendments to require the publication of all subsidies of any size on the new transparency database. This, it claims, would not create significant new admin costs for authorities, and would, in fact, reduce burdens on businesses, by reducing their record-keeping duties.
- implementation of a ‘Streamlined Subsidy Scheme’ to support businesses in, and relocating to, disadvantaged areas, the better to support ‘Levelling Up’;
- improving the information contained on the national transparency database so as to achieve higher standards of transparency; and
- improving accountability by increasing the time limit for challenges from one month to ‘as soon as possible but not later than three months’ (in line with judicial review claims), allowing challenges to individual awards made under schemes (not just the scheme itself), and empowering the CMA to initiate its own investigations.
Anthony Collins suggested that s.2(1)(d)(i) of the Bill – which applies the subsidy regime to the UK internal market – should be removed from the Bill, or amended, due to the increased administrative burden on the public sector that extending the regime to regulate measures within the UK would have. It would be sufficient to discharge the UK’s international obligations if it applied only to measures impacting on trade.
The committee is expected to report to the House by Thursday 18 November 2021, including with proposed amendments to the Bill.