Seema Malhotra
MP for Feltham and Heston · Labour (Co-op) · United Kingdom
“Public sector productivity is improving, with the latest Office for National Statistics figures showing output continuing to grow faster than inputs, and Departments being challenged to improve efficiency and modernise outdated processes.”
“I was proud to support the Feltham Convening Partnership’s young leaders summer programme last month. What struck me was their ambition for themselves and their community, as well as their call for more work experience opportunities.”
“We will be working to commence the socioeconomic duty on public bodies in section 1 of the Equality Act to require public authorities to put addressing socioeconomic disadvantage at the heart of their strategic decision making. There will be more on that to follow. Let me again thank my hon.”
“For generations, the message to those who want to enter public life or elite professions has been that if they want to get on, they must sound like everybody else. When Margaret Thatcher became leader of her party in the 1970s, she famously underwent intensive elocution lessons with a tutor from the National Theatre.”
“Whether a young person chooses a degree or a trade, their journey must be determined by merit and their potential—never by whether they have to change their voice or pretend to be someone else to fit in.”
“Interestingly, studies also regularly show that regional accents such as Welsh or Yorkshire are rated by the public as trustworthy, warm and honest. Yet when those same studies measure perceived intelligence or employability, standard southern English and received pronunciation invariably top the metrics.”
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“It is also worth looking at clause 60, on proposed award referrals, because quite often these cases will arise after the measure has come into effect, so it will be a post-award referral. Clause 60 and clause 55, on call-in directions, both talk about the power of the Secretary of State to request a report in relation to a proposed subsidy or subsidy scheme. It is not entirely clear what happens in a case where the Secretary of State thinks there might be a subsidy scheme but is not actually sure. It is possible that he could make a reference in that situation.”
“Q That raises quite a serious issue about possible gaps in the regime. Under clause 55, there is the opportunity for the Secretary of State to call in a proposed subsidy or subsidy scheme. Do you think that is sufficient under the scenario that you have outlined, whereby there may be an example of tax treatment that has the same effect as a subsidy but is not on the transparency database? In such a scenario, do you interpret the wording of clause 55 to be enough for the Secretary of State to call that in, or do you think the wording needs to be tightened to allow it to be clearer? For example, it might be something that appears to be a subsidy and would therefore go to the CMA, rather than what might happen under clause 71, which would be for it to go to the tribunal. George Peretz: There is a lot in that, yes.”
“If it is intended that all subsidy control appeals go to the CAT, I am not sure that is really achieved.”
“I say “right to go to the CAT” because there is a subsidiary question, which is if the definition of interested parties is confined to and is rather narrower than the caste of people who would normally have the ability to challenge public law decisions such as this in the judicial review courts, as I think it may be, there would be an argument open to someone who was not an interested party—a public interest group—to go to the High Court and say they have a right to challenge this decision as a matter of ordinary public law. They would say that because they do not have standing under the Subsidy Control Bill to go to the CAT, they have no alternative remedy. It seems to me to be quite likely that the courts would accept that argument. I am not entirely certain that that is what is intended.”
“The Secretary of State is automatically defined as an interested party, so it is not a problem for him, but it would be a problem for any other Government authority in the United Kingdom that has concerns. There is then also an issue about whether the wider bodies concerned with public interest litigation would be able to claim an interest; it looks as if the intention is to exclude those from having the right to go to the CAT.”
“I think any court, in construing that, will look at paragraph 6 of article 369 of the trade and co-operation agreement, which seems to be where this comes from. That refers to both parties being obliged to make sure that interested parties have a right to challenge. It then defines interested parties as including competitors, trade associations and a couple of other things. However, they are all people with very direct commercial interests in subsidies, most obviously competitors who feel that the subsidies will make life difficult for them when they compete. When one goes back to article 369, the argument that we have put is that it does not cover bodies such as concerned next-door local authorities and the Scottish and Welsh Ministers.”
“In a situation where an English local authority, the Secretary of State or another UK Government body acting as an English Department does something that is designed to benefit England but causes serious concern in Scotland or Wales, why should the Welsh or Scottish Ministers not be able to do the same thing if the concern is with competition or investment within the United Kingdom? I find it slightly hard to see what the argument against that is. A second, slightly different point is about the definition of “interested party”, which is in clause 70(7). This says that “interests may be affected by the giving of the subsidy”. “Interest” is a wide phrase—what does it cover? Is it just financial or commercial interests?”
“One is the position of the devolved Governments, particularly in relation to clauses 55 and 60, vis-à-vis the position of the United Kingdom Government. The whole point of clauses 55 and 60—you can see it in the text—is that a reference is made to the CMA in situations where the measure creates a risk of negative effects on competition or investment within the United Kingdom. Plainly, the power is intended to catch a situation whereby the Secretary of State considers that a measure undertaken by the Scottish Government or Welsh Government creates highly distortive effects in England. One can see the possibility of that, but if that is the intention, it is hard to see why sauce for the goose is not sauce for the gander.”
“Q May I ask a final question on that? I think that has highlighted what seems to be the asymmetry between the powers of the Secretary of State and of the devolved Administrations in being able to call in and challenge subsidies. Do you think it is important to look at amending this area of the Bill? I am thinking about the need to have an integrated and lasting four-nation settlement. What do you think the consequences of not doing that will be? Secondly, public interest bodies that you might normally expect to be able to look at and challenge decisions are currently not defined as interested parties. How important do you think it is to revisit the definition of interested parties? George Peretz: There are two points there.”
“Given how long the new regime has been in force, which is the best part of 10 months, and given the number of public authorities that are out there making interventions on this, that and the other form, it is clear that not everything that has been awarded in that 10 months is in that register—not by a long shot. Something is going awry in terms of the implementation of that particular transparency register.”
“What has happened in practice, however, is that a national transparency register has been established, but when you look at that register and at the relevant rules around it, you do not see that it is functioning well. A lot of the entries there at the moment look somewhat incomplete, and you will notice that lots of the entries have a zero for the amount of money that is committed, all of which leads to an inability for the market to be able to see what is actually going on. If you cannot see what is going on, you do not know what to challenge, or even if to challenge. The other point about the transparency register is its brevity, frankly.”
“That system can only come out when there is public knowledge of what is going on. Such public knowledge is also generally seen to enhance decision making on account of the scrutiny that it necessarily brings to the process as a result. Primarily, the main point of the transparency is to enable people to come forward and say, “Okay, this particular subsidy has created a negative effect,” and make sure that that is scrutinised by a suitably empowered authority, in this case the national courts. Transparency is super important to that process. What has happened already is that there are commitments to transparency via the TCA—those are minimum commitments that the UK has made—and they must be respected because they are international commitments.”
“There is an enormous opportunity to do that better, but also a risk of compromising some of the freedoms and flexibilities that have been achieved by the TCA in the first place. It is important to put that in context. In terms of transparency, that is one of the bedrocks of an effective regime if you look at it from the perspective of maintenance of competition and the ability of third parties to come forward and to be able to challenge that subsidies have been carried through in a clear and effective way, through sound decision-making and appropriate thought as per the commitments within the TCA to respect the common principles that have been set out. For the level playing field to be preserved, if you like, it is vital that there is a remedy, an enforcement system.”
“The TCA has already diverged massively from the EU state aid regime and created a whole lot of flexibility and ability to do things at speed, which is supposedly what the UK is particularly interested to secure. In terms of the opportunity presented by the Bill, there is an opportunity to improve upon that framework to make it better fit for purpose to monitor and secure a subsidy-controlled platform in the UK in a way that preserves competition, but also enhances the ability of Government and various different public authorities up and down the land—I do not just mean central Government, but regional government and local government—to influence policy and to make active interventions in order to achieve positive outcomes.”
“The data bear that out; we tended to use about a third of the amount of state aid that Germany has and about half the amount that France has used. The proof of the pudding will be more in the answer to whether there is a different approach or a different cultural approach within the UK to wanting to use state aid. Jonathan Branton: Shall I pick up? First, to talk about the opportunity, it is really important to set the context of the Bill in the fact that we already have a new regime away from the EU regime. The opportunity of the Bill is to take forward the regime that has come out of the trade and co-operation agreement, which is already in force and in use. The fundamental point is how the Bill takes that and improves upon it to help to pursue the UK’s interests in a safe and secure way.”
“It was either blocked by the EU Commission or it said, “You need to go back and change this regulation.” You have actually got examples where state aid had been stuck in consideration or investigation for two years before eventually being given up on by member states. The process where you can actually approve schemes should be a significant benefit. The final thing I would say before handing over to others on the panel is that that is all theoretical and I am sure questions will be posed at a later point. I think probably the biggest barrier to the use of state aid in the UK has not necessarily been the EU rules, although they have proven tricky at times. It has perhaps been a culture in the UK that says that state aid is not necessarily what we want and perhaps a last resort.”
“etc.” Now the UK may choose to follow that, and it may not simplify the rules, but at least theoretically it can say, “I don’t have to follow any of your rules. I have a complete clean slate to redesign the process,” and award the compensation or the exemption in a targeted fashion that is most beneficial to the UK sector. Without giving too many other examples, although I have a long list if people want to hear them at a later date, the main benefit is that the framework is transparent. The second element is the process for providing approvals if a local authority or national Government want to introduce a scheme. From our perspective, it is a lot more light touch and a lot more straightforward. There are a number of examples that we can give where the UK introduced or tried to introduce a system to benefit the steel industry.”
“Some of the regimes that we are recipients of—the most beneficial for the UK steel sector—are around some of the subsidies and exemptions we receive on the costs of renewables and carbon taxes in relation to electricity prices. That is a really big issue for the steel sector. The UK steel sector pays between 80% and 100% more for its electricity than its counterparts in the EU. Those exemptions have reduced our electricity prices. There is a still a big gap, but they are really important to improving competitiveness in the UK. The system in the EU has a very complicated, convoluted way of saying, “You can do this. If you introduce this scheme, you have to follow this rule. You can’t do this. This is the percentage that you are allowed to reward, etc. etc.”
“As we see it, the opportunity for the Bill, briefly, is that it creates a more flexible and light-touch regime, which I am sure many of your witnesses have already spoken about. The EU system, certainly the way we view it, effectively says, “State aid or subsidy is banned, except for a list of things that you’re allowed to do.” The new UK regime seems to take the opposite approach and says, “Basically everything is allowed apart from a select list of things that we ban.” At least ostensibly or theoretically, the Bill, as we see it, sets out a regime that will give us considerably more flexibility and room for manoeuvre in what we are able to do.”
“Q Thank you to our witnesses for coming in today. We are very appreciative of your time. I will ask two questions to cover the areas that you have commented on. First, I am interested to know your view on the question of transparency in the Bill around decisions that are made on how challenges might be brought if there are concerns about subsidies and their impact. Secondly, more positively, what might the opportunities be for the Bill and its regime? What would success look like in terms of how it positively affects the areas that we, on both sides of the House, are interested in, such as levelling up and the transition to net zero? Will the scheme actively support delivering them? Richard Warren: I would probably be best placed to start with the opportunity side of things, rather than transparency.”
“To put some numbers on what Jonathan said, first and foremost there are only 501 entries. There are a lot of subsidies, so there is no way that only 501 subsidies have been awarded since 11 pm, 31 December 2020. Secondly, of those 501, some 257 are recorded as having a zero or nil value. In order to bring a digital review—”
“In terms of searching for amounts and dates on which things have been recorded, all that is not regulated. What we really need—I will hand over to Alex in a second as I know he has strong views on this—is something that sets out in very clear detail exactly what needs to come in on every entry. Then, in practice, when you actually come to making those entries, it must require you to put in the correct answers to those questions in order for the entry to go live on the website. If that does not happen, you should get pushed back. That is clearly not working well enough. Alexander Rose: As Jonathan says, essentially, the key piece of information on that website is the date the entry is made, and the reason that is so important is that the challenger has as little as a month to challenge once that information is placed on the website.”
“Q Specifically on what is in there—I am conscious of the time—are there recommendations you would make, based on that experience, around what may need to be tightened up within the Bill? That would be quite helpful, because there are questions about the de minimis threshold, about whether an entry should take six months, and about how long things should be open to challenge. Jonathan Branton: On the challenge point, I think one month is too short, because that requires people to be extremely alert about checking things. The database is not readily searchable. It does not send prompts when particular information is put on at a sectoral level. If you were keeping an eye on it, you would have to be checking it every other day to see that something was coming forward about which you were concerned.”
“Chair, would it be convenient if I answered that question by contextualising it in the overall structure of the Bill and said a few words about how devolution appears in the Bill not on the surface, but underneath it, and requires to be brought in in relation to the principles mentioned?”
“Q Thank you, Mr Greenberg, for coming to give evidence. We have had some representations to suggest that there could be an incompatibility between, for example, the economic competence of devolved Administrations and the way in which the Bill’s regime is set out. What is your view of the schedules, the interpretation of economic competence and, in schedule 3 I think, the application of principles and the definitions of what is included in primary legislation—which can obviously be more than Westminster—in relation to devolved Administrations and the Bill? Daniel Greenberg: Thank you.”
“The question for you is: can that dovetailing be addressed more expressly?”
“That is why I specifically mention explanatory material, because I would remind the Committee that it is so much easier to have things made clear in explanatory notes, explanatory memorandums, memorandums of understanding, quasi-legislation generally and explanatory material than it is to secure an amendment to the shape of the Bill, particularly because the simple answer to the question you were implying—“Could these powers be used to interfere with devolved autonomy?”—is “Of course they could. No question.” The question for you, therefore, is “Are there mechanisms by which they will not be used to do that?” Clearly, this sits alongside the United Kingdom Internal Market Act. It does not repeal that Act. It sits alongside the Northern Ireland protocol. Clearly, the Government expects and intends for them to operate in unison.”
“Q Yes, that is very helpful. Just coming back to the specific point that we have heard from the Welsh Government about whether there can be interference with the economic competence that the Welsh Government have—that is one example—is your view that it need not be incompatible, but that needs to be made clearer? Daniel Greenberg: The extent to which it needs to be made clearer is obviously for the Committee as it proceeds through the Bill.”
“I think you will want to ask yourselves, not is this compatible—it clearly is—but how continued compatibility would be assured in a case where the article 16 safeguards were being invoked. For me, that is the more interesting question for you.”
“The question is, “Would the Minister be obliged to exercise it in a way that is incompatible?” If the Minister would not be obliged to exercise it in a way that is incompatible, then in itself it is not incompatible, and your next question is, “Do we have mechanisms built in to make sure that the powers are only exercised in the way that is compatible?” That is article 10. Finally, on the article 16 safeguards and the exception, which was of considerable controversy earlier on this year, that looks at economic, societal or environmental difficulties that are liable to persist and allows unilateral action as safeguarding measures in relation to those difficulties.”
“The question to ask in relation to compatibility is this: is there anything in the Bill that insists upon a measure, in respect of measures that affect trade between Northern Ireland and the Union, that being the test in article 10? As I have already said—I am perhaps slightly risking something close to an opinion here—I do not see anything, because the mechanisms of the Bill are deliberately so wide. Perhaps it is helpful to say that we often have this in law. You look at something and you say, “Hold on—the Minister could exercise that in a way that is incompatible with human rights and the protocol.” That does not matter—that is not the question.”
“Primarily, we have to have regard to article 6 of the protocol and remind ourselves that the protocol is designed to ensure that it does not prevent market access within the UK and that the international requirements and commitments are protected. One of the issues about article 6 is that it does have the kind of mechanism that we were discussing before, because the protocol has of course the Joint Committee, which is going to be very significant. So you start off by looking at article 6. You ask yourself, “Will those protections be consistent with this Bill, and how will the Joint Committee be capable of applying its mechanisms in a way that join up with the mechanisms that you develop in relation to the Bill?” Then we move to article 10, which in substantive terms is the key article for you, because it deals with state aid.”
“Q I did. You referred to one of the contextual pieces of legislation. There is the Northern Ireland protocol as well. There has been some debate about whether the Bill is compatible and whether there could be legal challenges to subsidies, particularly in Northern Ireland, and whether that could have an impact on subsidy schemes that are UK wide. I would be grateful for your interpretation of the legal framework on that. Daniel Greenberg: You are not asking me for a compatibility opinion, and I would not give you one, but I will draw your attention and the attention of the Committee to a point for your consideration as you go forward, which is to be sure that you understand the focal points of the protocol in relation to this Bill.”
“It will be for Government and Parliament to decide whether that is a role that you want to give us. I think that was your first point. Could you remind me what the second point was?”
“Under the current proposals, we can look only at the subsidies of interest and subsidies of particular interest that are referred to us, although as I mentioned in my opening remarks we have a wider monitoring role, which will allow us to take a broader view on the regime as a whole. We can, of course, also look at subsidies that are called in by the Secretary of State, so that might to some extent help to address the question of subsidies that we might want to look at, as you referred to. Were we take on a broader role, looking at things under our own initiative, as you were discussing, we would have to really understand the implications of that in terms of resources, as you mentioned, and the powers that we have. Ultimately, of course, it is not really for us to decide.”
“Q Thank you for giving evidence today. May I ask a couple of questions on the CMA’s current powers, and whether there is arguably a case for some extension of them? In relation to the CMA not having the power to instigate a report or investigation by its own initiative, would there be circumstances in which you could see it as beneficial for the CMA to proactively undertake an investigation? For example, something may not be explicitly described as a subsidy by a public authority but seems to have the same effect and is therefore potentially in question. Secondly, what is your assessment of the additional resource and capacity that the CMA will need to fulfil its obligations under the new regime, and do you have any concerns on that? Rachel Merelie: As you know, that wider role is not what is currently envisaged.”
“It was about whether there is sufficient resourcing. Rachel Merelie: Yes, of course. We have been given money in the 2021-22 settlement to take on a number of new functions. Previous witnesses referred to the fact that the CMA has three new functions that we are currently setting up. We have the Office for the Internal Market, the Digital Markets Unit, and potentially the subsidy advice unit. We were given a sum of money in the 2021-22 settlement to start to staff up and resource all three of those functions. We now have a bid in for the spending review for the next three years, and we should hear more about that formally tomorrow.”
“For the subsidy advice unit, what is currently envisaged is a sub-committee of the board, so we would have the opportunity to draw on board members, non-execs, panel members and others, as well as the staff from around the four nations. It is important to emphasise that the CMA does have staff in all four nations, and a growing presence across the UK. We think that is incredibly important to be able to run the subsidy advice unit properly.”
“Your first question was around governance and the way in which the Office for the Internal Market and the subsidy advice unit had been set up. You are right that they are slightly different, in the sense that the Office for the Internal Market has a chair and a panel that are in the process of being appointed by BEIS. There is an opportunity for the devolved Administrations to offer their views on the appointments of the chair and the panel members. That is entirely appropriate; we are talking about a function that is inherently involved in understanding the trade and relationships between the four nations.”
“The database is being set up by the Department for Business, Energy and Industrial Strategy and it is not something that the CMA or the subsidy advice unit will be operating—at least at the moment there is no intention for that to be the case. Our focus will be on those very specific, more complex subsidies—the subsidies of interest and of particular interest—rather than the wider set of subsidies that are contained on the database, although you are right that we will want to look more broadly when we undertake our monitoring role. Because we have the information gathering powers we have been given for that, I think we will be able to gather relevant information when we need to, to get a wider understanding of the subsidies that have been awarded.”
“Q To follow up, in relation to the internal market and the digital services market, is their membership drawn in the same way, solely from within the CMA? Do you have the option of involving external experts to fill any gaps? I have a slightly different question: when you talk about the access to information that you might need, are there sufficient mechanisms to ensure the accuracy of information posted on the database? Do you have views about what information needs to be on the database? Should there be an auditing process, whether random or otherwise, to ensure the accuracy of the information that is being put there? Rachel Merelie: Perhaps I will start with the second question.”
“Obviously, if it were decided for that database to sit with the CMA, we would need to have the requisite resources and powers associated with it. On representation from all four nations, as you say, there is currently no formal requirement in the Bill. The CMA, as I said, is a pan-UK body. It does have good relationships across all four nations, and is very used to working with them. We are not the policy makers here—that is important to underline—we take on board and do our best to implement the policy set by the Government and by Parliament.”
“Q May I come back on two brief points? There is not a requirement to have representation from all four nations, as far as I understand. That seems to be slightly at odds with the UKIM set-up, which has been a cause of concern for what needs to have a four-nations approach and buy-in. Would it be a concern to you if there was that requirement in the Bill? Secondly, the question I do not think I heard an answer to was, where should there be a function for either audit or checking of the accuracy of information put on the subsidy database? Would that need to be within BEIS rather than the CMA? Rachel Merelie: Perhaps, again, I will pick up on the second one first. Yes, at the moment, given that the database sits within BEIS, it would be most appropriate for that sort of checking function to be part of its remit.”
“I think that a lot of this will come from central Government and the guidance that they will publish. The subsidy advice unit, I suspect, will need to flesh out that guidance with respect to the very large subsidies and the information that we will need to carry out our assessment. We are keen to work with public authorities to make sure that they understand what will be required. Yes, we are aware of the need to do that guidance, which is one reason why, I suspect, it will take a little time between Royal Assent and the commencement of the Act, as there will be a need to get that guidance and detail out there and give confidence to those who want to operate under the regime to do so.”
“Q I want to come back on a couple of points. This is in relation to helping make sure that there is a regime that commands confidence and provides the information to public authorities, which are engaging with some of this activity for the first time. To what extent do you think more needs to be done to engage with public bodies and prepare them to be able to grant subsidies effectively and efficiently to enterprises under the regime? It is likely that a lot of that burden could end up with public bodies approaching the subsidy advice unit. Are you factoring that in to how you see the unit working, or do you think that some of that needs to be done elsewhere? Rachel Merelie: That is a very good question. I am sure that you are right—there will be quite a process to educate and support the public authorities as they embrace the new regime.”
“We cannot expect it all to work entirely smoothly from day one, although we will do our very best to make that happen. There will be a need as time goes on to adjust, to iterate and to develop our processes.”
“Q Would you see that being done in a slightly more structured way through the guidance? Otherwise, the likelihood is that you will have a lot of approaches and potentially more voluntary referrals than you might expect, because the earlier information, advice and guidance is not helping to address some of the questions. Public bodies will engage with this—local authorities in particular give rise to concern—and will be doing this for the first time. Rachel Merelie: I think the guidance will be incredibly important. Doubtless, there will need to be a series of roundtables and communication with public bodies to ensure that there is as good an understanding as there can be. The other point to emphasise is that this is going to be a bit of a learning experience for everyone in the first days of the operation of the new regime.”
“Q On fast-cycle learning and the effectiveness of the scheme, do you think that there are merits in the five-year report being produced to a shorter timetable, with greater frequency—for example, three years? You may have a view on that—I am just raising it as an issue. Five years seems a long time, particularly with a new regime, in which to look at how well it is working. Rachel Merelie: Yes, I can see that as a question. At the moment, the Bill allows for the Secretary of State to ask for advice more frequently or when required. There may be an argument that says that we will provide some advice on a shorter timescale than five years, with the set point being the five-year report. Again, that is a question that we are entirely open to discussing further.”
“Q I am conscious that we have only two minutes so, while I can, I will ask whether you have concerns about your ability to scrutinise subsidy schemes if subsidies under those schemes are less likely potentially to be on the database. Do you have concerns about the transparency of subsidy schemes from the perspective of any single role? Rachel Merelie: I think that this is an area where quite a lot more work needs to be done to understand the relationship between the subsidy schemes, the individual subsidies and the information that we will have to analyse. I do not have concerns at the moment, but that is partly because this is a pretty early stage in articulating how that will work.”
“The EU rules obviously allowed different parts of Scotland to be treated differently depending on the circumstances and allowed us to make decisions on how we saw fit to spend money and take action within those rules. It was a slightly different system, but we do not see any specific advantages to the current proposals in this Bill.”