Bill Esterson
MP for Sefton Central · Labour · United Kingdom
“As the Prime Minister said on Tuesday, our energy supply and our energy security are not a question of having either oil and gas, or renewables; they are about both. It is a great pity that proper process was not followed in 2022 or 2023. [ Interruption.”
“I warmly welcome my right hon. Friend’s commitment to continuing Britain’s global leadership on climate action, including by going to COP31. I also welcome his focus on breathing space for people and businesses, but, as he said, it will take a lot more than that to deliver the growth and reindustrialisation that he is so committed to.”
“Last week the Committee heard from Claire Dykta, the director of strategy and policy at NESO, who told us: “Operational decisions are taken by authorised, trained personnel only.” Her comments were confirmed by Alastair Martin, the chief strategy officer at Flexitricity, who, in the same session, said: “I do not think the idea that the he…”
“As the Minister has just said, new nuclear is essential for energy security. It is also essential as an alternative career for workers in oil and gas.”
“Paul and Susan Robinson each worked for the Health and Safety Executive for more than 40 years. They have not been able to plan for their retirement since finishing work last year; they have been living off their savings and the small loan that they have had. They are typical of the dozens of constituents who have contacted me.”
“Hudson primary school in my constituency does a brilliant job. It is a family hub, it specialises in support for children with SEND and autism, and it has a nursery, but its building, which is 80 years old, suffers from a high water table that brings damp, mould and structural problems for the building—as does occasional flooding.”
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“It has that concern about start-ups, and quoted some case law from the Supreme Court saying that courts should be careful not to leap to conclusions when asked to apply the test about insolvency, and that allowance should be made for debts when the maturity date is some time in the distance. Is the difference between liabilities that are due in the short term and long-term liabilities and debts picked up in the primary legislation? How is the Minister planning to ensure that a distinction is made between short-term and long-term liabilities? Interestingly, Rolls-Royce made the point about national security, going back to our earlier debate. In addition to mentioning what we raised before, it asked about dual use.”
“As I am sure many Members will know, that can be months, if not years. Can the Minister explain what consideration has been given to these broader definitions where they relate to start-ups that are capital-intensive for significant periods before profits are made? What are the Government going to do with the regime to ensure that start-ups are not harmed by the legislation? I am sure that the Minister agrees that it is sensible to support our innovators and to allow them to take the time to become profitable. It will be interesting to see how he intends to do it. We need to be competitive internationally, which is crucial for an export-led recovery. The same point applies to scale-ups, a point Rolls-Royce made in its written evidence.”
“We recognise the importance of clauses 21 to 27. We have some questions about the definitions of “ailing” and “insolvent”. The definitions of those terms in the Bill are arguably more demanding than those under EU state aid rules, which require an enterprise to be almost certain to go out of business in the short or medium term, and to be unable to pay its debts as they fall due; also, the value of its assets must be less than the amount of its liabilities. Why have the Government chosen broader definitions for ailing and insolvent enterprises than those in the regime that is being replaced? Alexander Rose from DWF raised concerns that these broader definitions risk harming tech and research-and-development heavy start-ups because they require significant expenditure before they start making profits.”
“Before the Minister moves on, I want to tie down the difference between short-term and long-term liabilities. From my dim and distant accountancy past, there seems to me to be quite a good definition for this from insolvency legislation—from memory. We may have other accountants with us who can confirm or deny that. Does the hon. Gentleman know that that is the kind of distinction that the Secretary of State is likely to make in regulation?”
“We recognise that subsidies to an air carrier for the operation of a route should be prohibited unless certain conditions are met, and those conditions are listed. I cannot help noting the irony of the reduction in taxes on travel for short-haul flights, and the fact that one can get a ticket from London to Glasgow for COP26 for £45 on the railway and it is about £145 to fly. That is possibly going slightly beyond the scope, other than to say that again this is not consistent with what the Minister said earlier about the intention of travel, so to speak, on moving towards net zero.”
“I think I understood my hon. Friend’s excellent intervention. She was correcting me: actually, one can get a ticket for £25 from London to Glasgow, not £45.”
“Yes, there is the irony that the Government are requiring delegates to COP26 to show their method of travel to the conference. I hope that we will see subsidies supporting rail travel. In my constituency, I have been long campaigning for a rail link from the port of Liverpool rather than a new road, and in the run-up to COP26 that would make sense, rather than concentrating on air travel. There is a serious point that we need to use the subsidies to support rail and low-carbon transport, and reduce the reliance on, and support that the Budget gave for, air travel. Question put and agreed to. Clause 28 accordingly ordered to stand part of the Bill. Clause 29 Services of public economic interest Question proposed, That the clause stand part of the Bill.”
“In a sense, it is no good putting a line around a residential area and saying, “That is eligible for business support”, because there are not businesses in most residential areas; it is the big areas of trading estates and so on that need to be targeted. Obviously, within a fixed population envelope, not everywhere that perhaps deserved coverage was able to get coverage. If we are drawing a map here in the United Kingdom under our own rules, we can increase the population coverage of that assisted area map to better reflect the true extent of economic disadvantage in the United Kingdom. Under the old EU rules, only about a quarter of the entire UK population was on the map. That really does not accurately reflect the extent of areas that need levelling up in the United Kingdom.”
“Last time, the way that the system worked was that certain areas under EU rules automatically qualified for assistance, such as west Wales and the valleys, the highlands and islands, and Cornwall. There was also a particular deal over Northern Ireland, which meant that the whole of Northern Ireland automatically qualified. The rest of the map beyond those limited areas was drawn within the UK, but it was drawn within an overall population envelope, in terms of population coverage, that was set by Brussels, so it was a question of, “We have so much coverage to allocate. Where do we allocate it?”. The Government went through a very difficult procedure to try to target the areas that were most in need, as well as places within or close to those areas where there were genuine opportunities to promote jobs and support businesses.”
“Q Good morning, Dr Pazos-Vidal and Professor Fothergill. You have talked a lot about the assisted area map, Professor, and I certainly take your points about its history and benefits, not least as an MP from Merseyside, which has benefited enormously from state aid over many years. However, there are some criticisms of the way that assisted area maps interact with area boundaries. For example, there are cases where an area that needs investment and support is inside the assisted area, yet the businesses that could deliver that support are outside. Could you say a bit about what the counter-argument is, and what the answer to those sorts of boundary issues might be? I suspect that may be part of our deliberations. Professor Fothergill: I think that we can draw a map better this time if it is simply drawn here in the UK.”
“Potential challengers can ask the granting authority for information, and the Bill provides a duty on the granting authorities to provide that information. However, it is difficult to know, particularly within this short timeframe, how I will learn of this subsidy. How will I learn that there is a subsidy that is disadvantaging me and that I think is not complying with the principles? How can I learn that in this very short timeframe? Those are some concrete examples of changes that could be made to increase the ability of interested parties, competitors, businesses and others to scrutinise the subsidies that are being provided.”
“It says that the relevant date you can challenge from is the date on which the subsidy has been published to the database or “the date on which the interested party first knew or ought to have known” about the subsidy decision in question. That is difficult. What is the date that a potential challenger ought to have known about the subsidy? That is one particular phrase that jumped out at me, and I am curious to think more about it. We should think about extending the time that you can challenge and defining more clearly and broadly who potential challengers may be, but also about how we will learn about a subsidy if it has not been notified and if we do not have publicly available information about it.”
“Q You have both outlined your concerns about the system in relatively general terms. Do you have specific advice on what you would do differently on some of the challenges? Professor, could you speak about the challenges in self-certification and marking your own exams, which you have referred to? Mr Pope, perhaps you could address some of the timeframe points that you started to touch on? Professor Rickard: That is an excellent question. Some of the things that could help would be lengthening the time available to challenge—extending it beyond a month would be helpful—and clarifying, and potentially expanding, the definition of interested parties who could potentially challenge a subsidy if they are concerned. Clause 71(3) has this really interesting phrase.”
“Q Before I ask Mr Pope to answer the same question, how would you make that information more widely available and easier to find? Professor Rickard: The database set up by the Department for Business, Energy and Industrial Strategy is excellent, but I would make sure that more subsidies were notified into that database and that it fully encompasses all the information—not linking to other pages, but putting all relevant information into that database. I would also require granting authorities to put that information into the database in a timely fashion—quicker than six months—and make sure that more subsidies have to be notified, not allowing those exemptions for subsidies under £350,000 or £500,000 within a scheme.”
“The six-month challenge deadline is clearly something that has been brought in from the TCA, and that is the maximum we are allowed. I am afraid that I do not have a very strong view on the right amount. I have not spent enough time actually writing the reports. The public authorities have to be very strong on that.”
“In special cases, where the Secretary of State is concerned about a subsidy, it can issue a post-award referral, and after a subsidy has been awarded, the CMA can issue a report. I think that the CMA should have the ability to do that investigation off its own bat. That would not mean giving it a standing a court, or anything like that, but that it could keep an eye on potentially problematic subsidies. If the CMA reports on a subsidy and raises a concern—there would not be ratings—it is much more likely that interested parties would be aware of that. I would possibly go even further and allow the CMA to have standing in court, but I understand that that is quite a departure from the system and it probably will not be a goer. However, at the very least, the CMA could have the proactive ability to investigate and issue reports ex-post.”
“Q Thanks very much. I will ask you the follow-up question as well, Mr Pope: if not six months, how quickly should that information be there? Thomas Pope: I will answer the first question first. I agree with many of the suggestions outlined by Professor Rickard. My real concern is that, as that 28-day period is so short, there is a risk that a subsidy or scheme that is concerning is missed by potential interested parties. The issue could be that they do not qualify as interested parties, so you could expand that, or that the time is too short. I would propose one solution. At the moment, the CMA has a reactive role in the system—deliberately so. It issues reports on subsidies of interest and particular interest before they have been offered, if those public bodies offer the subsidies to the CMA for review.”
“One would hope that the number of cases coming to tribunal is minimised, but at least it provides timely, transparent and understandable rulings that assist parties in future in how they assess their ability to give subsidy. Those are my answers to that question.”
“To address your first point, the factors that will ultimately make this most predictable include, first, guidance on the principles under which subsidies will be granted. It is a tricky balance between providing guidance that is too prescriptive, which becomes difficult to penetrate and understand, and, on the other hand, principles and advice that are too sparse and which try to be nimble but leave too much uncertainty on the table in specific instances. It is about finding the balance. Secondly, it is about the subsidy advice unit operating effectively and being really useful, informative and timely in being able to assist the various parties and point them in the right direction. The third part of the process is the tribunal.”
“Q Good afternoon, Dr Barker. I would like to go over a few things that you said and put them back to you to see if you have answers to the questions that you put to us. You began by talking about ideally having a system that is easy to navigate with enough certainty that businesses and awarding bodies are not going to be challenged. First, what is your top priority in the legislation that you would like to see strengthened or changed? Secondly—this comes back to a point that you made a couple of times about international comparisons; you talked about what our competitors are doing—what is the top thing that you would like to learn from which is going on internationally? On your point about the subsidy advice unit, is your big concern about lack of capacity in the Competition and Markets Authority? Dr Barker: Yes.”
“On your second question, yes, we do need to learn the lessons of other major countries that seem to be doing a better job than the UK in terms of building technology companies and science-intensive-type enterprises. What is it that they are doing that we are not? I do not think they have achieved their success entirely by business acting alone and Governments simply stepping out of the way. A lot of the industries of the future are those that require very close collaboration between business and Government. Certainly, the green industrial revolution that we are all seeking to work towards in order to achieve net zero is also something that will require a lot of partnership between business and Government, so for me, an effective subsidy system can be part of that.”
“Q Sorry to interrupt—I am trying to tease out the issues. That is interesting. I think that you are suggesting that this is going to evolve through practice—that is what you are looking for. Is that a fair characterisation? Dr Barker: I think that that is reasonable. It will need to evolve. As it evolves, hopefully confidence in the system will grow, along with predictability based on past rulings and decisions. That is the key thing that we are trying to get to—a degree of predictability so that everyone concerned knows how it is going to work and whether or not it is going to work without having to resort to a more legal framework.”
“Q Do you have a specific example from another country that brings this to life for us? Dr Barker: Certainly in the United States, which on the face of it is a free market-oriented economy, there is still a significant degree of public subsidy going into sectors such as artificial intelligence and quantum computing, for example. The EU is subsidising to a high degree the development of semiconductor manufacturing capability, and of course Asian countries also provide many examples.”
“Q Thanks. On the point about the SAU and CMA capacity, I think you were saying that your concern there is that you want confidence that there are enough staff to answer the inquiries in a timely fashion, otherwise the whole thing grinds to a halt. Dr Barker: That is right. The CMA is increasingly playing a central role in many aspects of our economic life, and we are asking it to do more and more, not least in the digital space. It would be incredibly beneficial to this new regime if the CMA and its advice unit had the capacity to really assist the process.”
“There is more chance that you will end up in the Court of Appeal on a point than there would be once the regime has bedded in. All of those will be quite off-putting to a lot of private enforcement. Ultimately, that is the keystone on which the whole enforcement mechanism depends, because if nobody brings challenges to this, public authorities will often get away with pretty sloppy reasoning and genuflection to the principles rather than serious engagement with them. I think that is a concern.”
“Quite a lot of commercial operators are hoping for the same subsidy themselves, so they will keep quiet, or they get the same subsidy themselves and will therefore be quiet, whereas actually there is a real public interest problem. You will get situations with quite small companies who are concerned about subsidies being given to a much bigger competitor. They will understandably be reluctant to annoy both the granting authority, probably, and the bigger competitor. There are also the inevitable costs and risks of litigation. In a new regime, those costs and risks are greater, because various points have to be sorted out and decided in the first few cases until you get some case law on it. So inevitably the risks and costs are greater.”
“One can sort of work out how they are likely to be dealt with but it would be better if that situation was more expressly catered for and dealt with. There is an enforcement problem in that, ultimately, unless the Secretary of State decides to refer things to the Competition and Markets Authority—of course, there will be cases where things have to go to the CMA—the mechanism does very much rely on private enforcement by, at the moment, interested parties, who are going to be commercial operators and probably not public interest ones or local authorities. You cannot always rely on commercial operators to enforce things like this. There are all sorts of reasons why they may not.”
“Q Good afternoon, Mr Peretz. You have been giving a lot of the very detailed challenges and saying how some of the problems might come out and be addressed. Can I ask you to look at the Bill as presented and give an overview of what you think the Committee’s top priorities to address in the Bill might be? George Peretz: We have touched on a couple of the main issues. The devolution issue that we have discussed is quite important. There is an issue with enforcement, particularly in relation to measures that are not regarded by the public authority as being subsidies, but are just a grey area—and that view could simply be wrong—and how those are dealt with. The Bill does not really address on its face how those will be dealt with.”
“There is the clearest possible case for extending as soon as possible the period in which someone can appeal—but not to more than three months, which is the standard time limit for judicial review. I think that is relatively clear. On the six months, I have yet to hear a really persuasive case for why you need that long to publish the fact that you have made a award. Why do you need six months to get yourself together to publish that something has been done? I would think that that could possibly be as much as halved.”
“Q I want to ask Mr Rose and Mr Branton about this. You have both talked about building the framework and the additional details have to come later. Are there any elements of the additional details that you think should be in primary legislation? I think that Mr Warren has ruled that out, but he may want to comment on that. Looking at the other things you have said, rather than saying in general terms that the reporting period should be less than six months, do you have a particular figure in mind? Similarly, do you have a figure in mind to replace the one-month opportunity to appeal? Jonathan Branton: I will take those questions in reverse order.”
“You could almost end up in a cat-and-mouse game whereby subsidies are issued quickly, so that no one can be called in. That does not seem like a good idea. Likewise, however, it does not seem particularly sensible to limit the ability to call in the subsidy to the largest awarder of subsidies in the country. Therefore, it would seem that we need some kind of alternative—”
“Alexander Rose: I completely agree with what Jonathan has said. On the elements where it would be useful for there to be greater clarification, presumably in primary legislation, I think there is a gap in terms of the interested party. It would be useful for public bodies to be able to challenge. If, for example, employment in their area is going to be significantly affected by an unlawful subsidy, it feels right that they should have the ability to challenge in that scenario. It would be good to address that. Another element is the issue in clause 55 whereby only the Secretary of State can call in these subsidies. At the moment, that seems to be rather strangely limited to prospective subsidies, which does not seem particularly sensible.”
“If anything has been lost in the new regime, it is that those easy interventions now seem more difficult and require more thought and more risk, in the sense that nobody is quite sure if they have ever hit the mark or not. You could go into some quick and easy streamlined subsidy schemes. I am thinking of areas like arts and culture. Regional aid and levelling up is possibly more complicated and will require a bit more thought, but something like arts and culture is easy and obvious. Research and development is easy and obvious—I think everybody agrees that that is a priority. Employment, training and skills are also the sorts of areas in which you might do it. I do not see why we would need to wait around and overthink those. The key with a streamlined subsidy scheme is to make it quick, easy and simple.”
“Two lots of three months, then. Jonathan Branton: Yes—without compromising anything, it seems to me. In terms of other bits of the Bill that ought to be in primary legislation, that gives rise to the question: what would the streamlined subsidy schemes be? There is certainly a case for making a number of different ones. The obvious thing is to go down the path of the old block exemption—the general block exemption regulation, or GBER—which made non-controversial interventions easy. That was the good thing about that regime: you knew that if you were well within those limits, you could just get on and do it and you were not blocked from anything.”
“Q You mentioned the monitoring role, and I think you have just given a bit of further information there. I wonder, when you identify things that are not going right, what will you do with that information? If you could answer that, I will then come back to some other questions. Rachel Merelie: Sorry—I did not quite understand. Did you ask what we will do with information that we get when our monitoring role identifies things that we are doing right?”
“If things are not working, or you identify a problem, what will you do with the information? Rachel Merelie: Well, in our monitoring role, we will be producing a report on a five-yearly basis, which will be published. That will give information about our understanding of how the regime is working. It will then be for Government to decide whether they want to make any adjustment—for example, to the definitions of the subsidies of interest or particular intertest, or to the streamlined groups, or any other mechanism—based on both what we identify in our monitoring report and, of course, other information that they may also choose to look at.”
“Q Five years seems like a bit of a long time to wait if there are specific examples of inappropriate applications of subsidies. I wonder if there might be a way for the information you are gathering to find its way into an investigation or a challenge. Rachel Merelie: There are also the enforcement mechanisms that will be in place for subsidies to be challenged in the tribunal. That will be a more immediate way of looking at the impact of individual subsidies. If we are asked by the Secretary of State to provide insights sooner than that, we can do that too, so I think the opportunity to offer advice more quickly than that is there. Again, we are the disposal of BEIS, if you like, on that.”
“We have to publish a report within that timescale on the specific subsidy of concern. That is the sort of short-term mechanism—”
“Q Sorry to continue with this, but it feels as though, if you identify something that is wrong on an individual subsidy level, that will only really get anywhere if somebody asks you about it, so they will have to identify it separately to you. It seems that your process is lacking a proactive part, unless I am really missing something. Rachel Merelie: There are two parts to our process. First, there is the review mechanism on the individual subsidies, on these particular subsidies of interest and particular interest. On that one, we will be assessing the assessments carried out by the public authority against the subsidy principles and, where relevant, against the environmental and energy principles. On those ones, there is a rapid, 30-day process that we have to operate.”
“Q I was asking about if you identify something when you are carrying out your monitoring role. There seems to be a gap there in you referring information. That is the concern I am raising. Rachel Merelie: I do understand that concern. I think what you are saying is that at the moment we do not have any powers to look at specific subsidies under our own initiative where there might be an issue, other than through that broader monitoring role.”
“Q Thanks for clearing that up; I do appreciate it. Coming to your points about the budget and the settlement, you have talked about the 2021-22 settlement, and there is a fund available for the three new functions. How much has been allocated for the subsidy advice unit? Rachel Merelie: The figure that I think we have publicly is that there is around £20 million for the three new functions in ’21-22. Obviously the majority of that is not for the subsidy advice unit, because we are only just setting that up now. I think it will be more relevant to look at the numbers that we get through the spending review, which will be agreed tomorrow.”
“There are therefore quite a few uncertainties about our likely workload, but we have modelled our requirements based on the upper end of each of those—so assuming that we might get around 40 references a year. With the recruitment plans that we are putting in place, we think that we will be able to service those, alongside performing our longer-term monitoring role.”
“The BEIS impact assessment has so far estimated that if the current definitions of subsidies of interest or particular interest were applied to the last few years’ worth of data, we would be looking at, I think, between five and 20 in each of those categories. However, it is quite difficult to know the extent to which subsidy giving will change under the new, more flexible, faster and more agile regime that is being put in place, so that is one question. Also, there may be a tendency for public authorities to choose to send subsidies of interest to us, even though those are not mandated. In the early days they might be cautious about awarding subsidies without going through the advisory process with us.”
“Q Okay, so you cannot really say how much at this stage. You mentioned bringing in board members and other members of staff from around the four nations to fulfil your responsibilities; the reason for asking the question, really, is just to understand what your expectations are of the level of work as compared with your capacity to meet it. An earlier witness said that there is a concern that it could really slow things down if the workload was too high. I appreciate that it is difficult to say because you are not yet in operation, but what is your sense of how flexibly you will be able to address that concern? Rachel Merelie: It is a very good question. As you say, it is difficult to get a reliable estimate of the workload.”
“On the question about how long an investigation would take, we have a very tight deadline for the reviews that we are undertaking of subsidies of particular interest. We are being asked to do those in 30 days, so there will be a bit of a run-in period—a pre-notification, to make sure that we have all the relevant information. Once we have published, I think there is a five-day cooling-off period and then the ability for the public authorities to implement their subsidies. They are quite tight timescales. You could imagine a team having a maximum of a couple of months on a particular review, then moving on to another one.”
“Q Two final thoughts. How long do you think an investigation is likely to take? And, on your point about local authorities, have there been representations as part of the consultation from local authorities to say that they are more likely, or for that matter less likely, to make referrals? Rachel Merelie: On the second one, it was BEIS carrying out the consultation. We have not actually been in the frontline of engagement with stakeholders yet, partly because we are at this quite early stage of the Bill’s passage through Parliament. We will obviously be engaging with public authorities much more actively post Royal Assent, and perhaps in the run-up to Royal Assent as well. We do not yet have that information; BEIS may be able to answer that question.”
“I add my welcome to the Secretary of State. She was asked in the previous question about a leaked document, which suggests that economic growth is a higher priority for this Government in trade negotiations than climate protection. I know that must be embarrassing for her, given that the Government are supposed to be showing leadership in addressing the climate crisis ahead of COP26, but she can confirm the Government’s priority once and for all by making a definitive statement now about whether the Government and her Department will rule out trade deals with countries such as Brazil and Malaysia so long as they continue to destroy their rainforests. Will she make that commitment today?”
“The Minister said a few minutes ago that the level of protection from vaccination is still very high in this country. My hon. Friend the Member for Sheffield South East (Mr Betts) pointed out that we have similar vaccination levels to those of France and Italy, but she did not answer him on what the difference was on infection rates. Does she believe that the reason they have so much lower levels of infection, hospitalisation and death in France and Italy than in this country is the range of measures that he outlined, or does she believe there is some other reason for that? If not, will she say why the Government have not introduced similar measures, including mask wearing, ventilation in buildings and the kind of green passes my hon. Friend mentioned?”
“Across the continent of Europe, mask wearing, ventilation in buildings and the use of green passes for events are commonplace. They also have much lower infection rates, hospitalisations and deaths, so while the Secretary of State addresses the backlog in the roll-out of vaccinations for children and of boosters, will he consider implementing the very good practice that can be seen in other countries?”
“We have business looking at us and saying that we were the party that came out of the conference season—and this is the word of the Federation of Small Businesses, not mine—with a “pro-business” agenda and proposals that would help the economy, not the Conservatives. I want to see from the Chancellor next week some concrete details about the package the Minister talked about very nicely in his speech, otherwise it is our approach to which the business community is increasingly going to look. It is our approach that people will be voting on in the next general election, and unless this Government act, we will when we come in.”