Subsidy Control Bill

Report

Clause 2: “Subsidy”

Amendment 1

1: Clause 2, page 2, line 26, after “grants” insert “, investment in equity securities” Member’s explanatory statement This amendment would specifically include investment in equity securities on the face of the Bill, as well as it being an example in the Illustrative Regulations and Guidance.

My Lords, when I spoke to a similar amendment that I tabled in Committee, I was encouraged by the support of the noble Lords, Lord Lamont and Lord Fox, my noble friend Lord McNicol and other noble Lords, so I felt it was worth trying one more time to persuade the Minister to make this small but, I believe, important change.

I have changed the wording of my amendment slightly in response to the concern expressed by the noble and learned Lord, Lord Thomas of Cwmgiedd, that the use of the simple word “equity” as a form of investment risked being confused with the use of “equity” in the social justice sense on which he is so focused. Although participants in financial markets have become used to thinking about equity in both senses, I was happy to change my amendment to include “investment in equity securities” as an example of when a subsidy can be given to avoid any possible misunderstanding.

I acknowledged in Committee that Clause 2(2) did not purport to be comprehensive and that the related guidance includes equity investment as a possible means of subsidy, but I continue to believe it is highly desirable that it is included as an example in the Bill. When responding to my amendment in Committee, the Minister, the noble Baroness, Lady Bloomfield, said that

“attempting an exhaustive list could be counterproductive, implying that measures not listed would not be considered subsidies.”—[Official Report, 31/1/22; col. GC 130.]

I am tempted to say “The prosecution rests, m’Lady.” The Government have chosen to include some examples in Clause 2(2), and although they are not intended to be exhaustive, the inclusion of six means by which financial assistance can be given, without any reference to investment in equity securities, risks exactly what the Minister said she was concerned about; that is, implying that a measure not listed would not be considered capable of being a subsidy. My amendment would not make the list exhaustive and, if it did, surely that would make a compelling case that the exclusion of equity investment was all the more unacceptable.

My Lords, I will speak to Amendment 9 and I am grateful for the support of the noble Lords, Lord Ravensdale and Lord Wigley, and the noble and learned Lord, Lord Hope of Craighead. I should first say how grateful I am to the Minister and to others for the amendments they have made to Schedule 1 to bring in the words “local or regional disadvantage”, to give some concrete context to the words “equity rationale”. This is an important and considerable advance. I am also grateful for the change to Clause 18, which again takes out any argument that if you are trying to attract a business to an area of disadvantage you can be penalised by that call.

However, despite that praise, there is a problem—I see the Minister smile—and it is this: what is lacking are the standards to ensure that there is some proper objective basis for the Secretary of State, the CMA and others to assess whether the use of the subsidy for this purpose is one that is properly justifiable, proportionate to the policy objectives and complies therefore with the subsidy control principles.

The proposal does not, as the Minister may think, seek to constrain local authorities from being imaginative, from being ingenious or from thinking what is the best standard or what is the best way to spend money for their local area. It does not seek to do any of that. What it seeks to do is to set standards to ensure that there is an objective basis for judging whether these bright ideas—this local freedom, which I welcome—are actually objectively justifiable. In short, the amendment seeks first to provide for efficiency and to ensure that scarce government money is spent wisely on thought-through and justifiable schemes that are proportionate to the policy objectives.

It also has another purpose: to ensure that all parts of our kingdom which are not economically disadvantaged cannot use this rationale to grant a subsidy. Levelling up is essential and subsidies can achieve that objective. As I said in Committee—but need not repeat in the time we have available for this important Bill—there has been a lot of controversy about the way in which the shared prosperity or levelling-up fund was used. That was very damaging. It is not appropriate for us to enter into that controversy tonight, but you have to have clear and objective standards. Some say that there were standards for the way in which those funds were distributed. If so, they were not clear and they plainly did not achieve a view among most people that the funds had been well spent. That controversy shows a number of things. First, there will be close examination of the way in which the subsidies are given and whether they are being properly directed to the right areas of our kingdom and not to the wrong areas. Secondly, you will never persuade the disadvantaged that something is being done for them unless it can be objectively shown that the use of funds across the kingdom is directed to helping those who need it most. The only way to do this is to set out clear criteria, and a failure to do so will be damaging to the unity of our kingdom.

My Lords, I am delighted to follow the noble and learned Lord, Lord Thomas, to whose amendment I have added my name. We discussed these matters in Committee at some length. I am also delighted to see the Government’s Amendment 2, which is a step in the right direction. However, we need to address the purpose of having subsidies and how the achievement of that purpose or failure to achieve such objectives is measured, and we need some quantified basis on which to monitor and fine-tune policy.

We in Wales, unfortunately, have had far too long an experience of so many parts of our country having to depend on assistance to try and overcome economic difficulties. From the rundown of coal and steel in the 1950s and 1960s through to now, that has happened. There has been investment from the public purse to areas such as the north-west of Wales, including Anglesey, and the Gwent valleys, where the income per head is a 10th of the level of Kensington in west London; clearly, policy has failed. Objective criteria were laid down by the European Union with regard to the Objective 1 funding and the subsequent programmes we have had since 1999. They were based on areas below 75% of GVA per head being eligible for assistance. Millions of pounds have gone into programmes of that sort, but they have not necessarily solved the problem. We are looking for a mechanism that enables the economies of these areas to become self-regenerative, not to depend on handouts for ever and a day. That must be the objective. Therefore, there need to be clear criteria.

It is a good step that the Government recognise the need for there to be a regional and social dimension to this, but there needs to be a means of monitoring and fine-tuning and ensuring the growth of the economy from within. Rather than just compensation for not having that economic growth, the ability must be created among people and businesses to generate growth and economic well-being for the future. If we get it right in this Bill, it could be a very important step forward. If we fail, it will be a missed opportunity.

My Lords, starting with the government amendment to Clause 18, I must thank the Minister for listening to my concerns in Committee and for responding by putting forward this amendment, which addresses my concerns with the impact of Clause 18 on the levelling-up agenda and meets the intent of my original stand part amendment. I must also thank the officials for the work they put into drafting and finding an acceptable way forward and for engaging with me throughout the process. I thank the noble Baroness, Lady Blake, the noble Lord, Lord McNicol, and the noble and learned Lord, Lord Thomas, for all their support throughout.

The Government have proposed a comprehensive amendment in Amendment 14, which will ensure that subsidies that target regional disadvantage are exempted from the prohibition on relocation of economic activities. It will address concerns from stakeholders I worked with in the Midlands Engine, home to many of the most deprived regions in the UK, that this would be a constraint on supporting disadvantaged areas; and it will address concerns from local authorities and other disadvantaged regions. I believe it will prove an important part of the Government’s toolkit in levelling up, through allowing productive relocation activities that reduce economic disadvantages within the UK as a whole.

I also welcome the clarification, provided through Amendment 2, to the equity rationale in Schedule 1 to the Bill, that it covers subsidies aimed at regional economic disadvantage. This whole package of amendments goes a long way to address concerns expressed by noble Lords in Committee. However, there is always more that can be done.

I very much support Amendment 9 in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd, to which I have added my name. It addresses an issue in that the way the common principles are drafted can be viewed through a local context; there is nothing in the Bill to define what a disadvantaged area is, as opposed to an advantaged area. If national direction is absent, there is no means via subsidy control to steer intervention to those areas that need it most. The amendment seeks to set objective criteria to define a deprived area, which would resolve this difficulty. It would also give legal certainty for business on which areas would count as deprived, and hence work to drive investment into those areas.

My Lords, before speaking to this group, I must say that our colleagues, my noble friends Lady Randerson and Lord German have been struck down with Covid, so, although there are amendments in their names, we will struggle on without them. Happily, my noble friend Lord Bruce has been restored from his bout, so at least we are not completely bereft.

I would characterise the purpose of this group of amendments largely as trying to avoid levelling down. I would put it down as damage limitation, and I think many of these amendments go some way towards that process. On Amendment 1, in the name of the noble Viscount, Lord Chandos, having dealt with the dual meaning of the word “equity”, I agree with him that this is a really important principle that ought to be enshrined in the Bill. It is not too late, and I hope the Minister can once again reflect on the wise advice of the noble Viscount and bring something back when we get to Third Reading.

Government Amendments 2 and 14 in the name of the Minister and countersigned by the noble Baroness, Lady Blake, and the noble Lord, Lord Ravensdale, really are a step forward. An amount of delight has been expressed from various Benches and I have a modicum of delight myself that some movement has been made. I would characterise this as important movement by the Government on a number of fronts throughout the Bill. However, Amendment 9, as eloquently proposed by the noble and learned Lord, Lord Thomas, is ideally where we would be. If there had been room, I would have signed it too, but others got there first.

The central failing of the Bill, as set out, is the absence of a definition of social and economic deprivation. Without that, there is no guide for how the Bill will work. The Minister repeatedly parades the virtue of this Bill as being that it is permissive. I am sure that phrase will come up, if not in this context in others. We would counter that that is also its weakness because it is not well defined within that permissive world. As it was set out, areas that need subsidies the most need to be targeted. Yet, in the way this Bill is structured, the authorities that have the money will be best able to deliver subsidies.

Those authorities with a low council tax base, which almost always have high levels of social need at the same time, are the ones that will not have the wherewithal in the context of how the Bill will work to deliver the subsidies needed. As the noble and learned Lord, Lord Thomas, said, there is a real danger that the rich get richer in a regional sense, which is why I framed this as damage limitation. The noble and learned Lord sets out a rational definition for the role of subsidies in promoting equity across the United Kingdom. This was backed up by a very good speech from the noble Lord, Lord Ravensdale, and the noble Lord, Lord Wigley. This sets out the reasons the Minister should think again, look at this advice and find a way—either in the law or through other routes suggested—to fix a central flaw in this Bill.

My Lords, I declare an interest as a vice-president of the LGA. I also express—I like the term—a personal “modicum of delight” at having been released from the Covid nightmare and enforced isolation which has unfortunately hit too many of us in this group.

I sincerely recognise the movement from the Government in the amendments tabled. I thank the Minister for taking our comments on board. We have all expressed our reservations and commented from wide experience and knowledge from the front line of how significant these subsidies are—particularly, as has been said, in the context of driving investment, regeneration and putting some substance behind the rhetoric around levelling up. We have given examples of discrepancies in investment and funding, and the real disadvantage that that has caused too many communities across the United Kingdom.

I express my gratitude for the quality of the discussion on the amendments in this group, particularly for several conversations my noble friend Lord McNicol and I have had with the noble Lord, Lord Ravensdale, about what it is like being part of a body with the responsibility for delivering on the ground. The issue here is bridging that gap between the words in the Bill and the reality of how you make this happen on the ground.

My noble friend Lord Chandos has, as ever, expressed his views eloquently. I cannot add to what he has said, other than to thank him for his reasonable and measured approach, which highlights the significance of his comments around the investment in equity securities and how we must ensure that the discrepancies between the contents and the supporting documentation are resolved. We hope that the Minister can offer helpful clarifications on this subject.

Like other noble Lords, we on these Benches are very pleased that the Government have been persuaded of the case for strengthening the Bill’s focus on local and regional economic disadvantage. These points have been raised consistently both in another place and in your Lordships’ House. Without wishing to sound churlish, we feel it is a case of “better late than never”. It seems obvious to use whatever instruments are to hand to bring advantage to all parts of the country.

I start by welcoming the noble Baroness back to her rightful place on the Front Bench, fully recovered. In fact, I say that with more than a modicum of delight—to use my favourite phrase of the week so far. For the noble Lord, Lord Fox, that is the equivalent of being damned with faint praise. So as not to be sexist about this, it is good to see the noble Lord, Lord McNicol, back as well.

The interaction of the subsidy control regime with the Government’s levelling-up agenda has rightly occupied many noble Lords during their consideration of the Bill, both in Committee and on Report. I hope that so far I have been able to provide sufficient reassurance that public authorities are no less able to give subsidies to address regional disadvantage under the Bill than they were under the previous EU state aid regime. Indeed, moving away from the EU’s default prohibition on subsidies and the resulting exemption for certain categories of subsidy in specified areas will allow public authorities greater ability to design measures that address not only regional disadvantage but the stark differences in social and economic opportunity that exist at a much more granular local level.

It is important that public authorities understand the way that they are empowered by this regime to give levelling-up subsidies, so I recognise the value of noble Lords’ suggestions that this would benefit from being made clear in the subsidy control principles. Amendment 2 to Schedule 1 therefore makes it clear that addressing local or regional disadvantage is considered to be an equity rationale for the purpose of assessing compliance with principle A. That was urged on me by many noble Lords in Committee and I am delighted to be able to put that forward—with more than a modicum of delight —on behalf of the Government. This puts it beyond any doubt or confusion that a subsidy to address local or regional disadvantage can be given, provided, of course, that the other principles and requirements of the regime are met.