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Home / News and Insights / Blogs / Brexit / 97: Subsidy control bill: back from the lords

The Subsidy Control Bill returned to the Commons last week for consideration of amendments made by the government in the Lords.

The Parliamentary Under Secretary of State for Business, Energy and Industrial Strategy, Paul Scully, described these amendments as a ‘substantial package of amendments to strengthen the new domestic subsidy control regime and make it more transparent and accountable’.

Greater transparency

The government made a number of amendments to provide ‘greater transparency of subsidies awarded’:

  • the threshold for publishing subsidies (on the transparency database) awarded under a published scheme had been reduced from £500,000 to £100,000. There remained no reporting threshold for stand-alone subsidies (ie those not awarded under a published scheme) – all of which were to be published;
  • the upload deadlines for non-tax subsidy awards had been halved from six to three months, so that subsidies would be visible on the database sooner;
  • new obligations had been introduced to upload certain permitted modifications of a subsidy or scheme to the database, with the same upload deadlines as for the original subsidy, to ensure ‘that the database continues to provide up-to-date information about subsidies or schemes that are modified after they have been granted’;
  • Secretary of State now had a duty to review the transparency database (at such intervals as they considered appropriate), thereby ensuring additional quality control;
  • Secretary of State can provide statutory guidance to public authorities on responding to request for information about subsidy decisions by a party considering applying to the Competition Appeal Tribunal for judicial review; and
  • the CMA and Subsidy Advice Unit would now report on the regime after an initial three years (not five) and again three years later, after which reporting would revert to a five-year cycle (subject to Secretary of State direction).

Levelling up

To support Levelling Up, the government had amended the Bill:

  • so subsidies could be lawfully awarded to address local or regional disadvantages;
  • to provide an exemption from the prohibition on subsidies which caused relocation of economic activity, where those subsidies had the effect of reducing social or economic disadvantage; and
    provided the other principles and requirements in the Bill were complied with.

Delegated powers

The government had also amended the Bill to respond to concerns expressed by the Delegated Powers and Regulatory Reform Committee:

  • Either House of Parliament would now have power (under clause 10) to annul ‘streamlined subsidy schemes’ after they have been made, by applying the negative procedure;
  • the Secretary of State’s power to designate ‘marketable risk countries’ was replaced with a power to make regulations (via Parliament) for the same purpose, and similar power to change definitions in secondary legislation was removed; and
  • the exercise of the power to make ‘financial stability directions’ (clause 47) was to be more transparent: such directions were to be published in due course and HMT had committed to notify, confidentially, the Chairs of the Public Accounts Committee and Treasury Committee about their use.

Opposition response

The Opposition parties support the Bill in principle as necessary to meet the UK’s international obligations, protect the UK’s internal market and ensure public funds can be made available to business, subject to sufficient transparency and accountability, and there was a positive response to the amendments as increasing scrutiny and oversight.

But both Labour and the SNP indicated in the debate that the government’s Lords amendments did not go far enough. Labour highlighted the following shortcomings:

  • no requirement to consider ‘net zero’ targets when awarding subsidies, despite cross-party and cross-Bench support in the Lords for such a measure. Merely taking into account energy and the environment was too narrow a view of climate impact;
  • insufficient powers for the devolved Administrations;
  • the lower £100,000 threshold for publishing subsidies on the database could be changed by the Government – for reasons that remained unclear;
  • concerning discrepancy between three-month deadline for uploading tax schemes to the database as against one-year deadline for tax subsidies;
  • the transparency database needed an auditor, as the information on it was crucial to alerting and informing interested parties who may challenge it;
  • obvious omissions in details required on database, eg name of the granting authority;
  • the Bill should give the CMA power to investigate unpublished subsidies/schemes, i.e. where a public authority wrongly concludes that it was not granting a subsidy;
  • publication of the details of ‘streamlined subsidy schemes’ (intended to allow authorities to avoid unnecessary bureaucratic workloads) was urgently required; and
  • clarification was needed on whether/how individual subsidies awarded under a scheme could be challenged (clause 70(2)) once the deadline for challenging the scheme itself had passed.

The SNP highlighted that a significant amount consultation was still to happen in advance of the Bill’s provisions coming into force, rather than it being enacted. It also submitted that the devolved administrations should be able to challenge subsidies as of right, without having to demonstrate that had been individually affected. Finally, the SNP argued that agriculture subsidies should be excluded from the Bill (as proposed by the Scottish and Welsh governments and the National Farmers Union), as they were under the Trade and Cooperation Agreement and in the EU under the state aid regime.

Clawback for unlawful behaviour

There most substantive debate concerned whether the Bill should include a power to exclude companies from receipt of subsidies if they broke the law (prompted by the recent P&O Ferries scandal). MPs across the House argued that the Bill should include a measure to clawback subsides in such circumstances, or to make subsidy awards subject to compliance.

But the government argued that the purpose of a subsidy was to achieve specific change in behaviour to facilitate a specific policy objective, not to give the government ongoing leverage over how a company conducts its affairs. It was for other areas of law to set out the limits of what is acceptable corporate behaviour. Moreover, the subsidy regime was intended to be ‘a loose, permissive framework, not something more onerous which adds layer upon layer to recreate the EU state aid system.

All the government’s Lords amendments were agreed to, so the Bill now awaits Royal Assent.

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