Meeting of the Parliament (Hybrid)

Meeting date: Thursday, March 17, 2022

Official Report 1072KB pdf

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Subsidy Control Bill

The next item of business is a debate on motion S6M-03647, in the name of Ivan McKee, on the Subsidy Control Bill, which is United Kingdom legislation.

14:53  

I am grateful for the opportunity to debate the proposed UK Government legislation and its implications for devolved powers.

The UK’s interim subsidy control regime came into effect on the UK’s exit from European Union membership. The UK must, of course, adhere to international obligations on subsidies that are agreed under free trade agreements, the EU-UK trade and co-operation agreement—the TCA—and the Northern Ireland protocol, and public sector organisations must ensure that subsidies comply with the relevant rules. It is important that the agriculture and fisheries sectors are excluded from the TCA and operate under World Trade Organization rules.

The UK Internal Market Act 2020 received royal assent on 17 December 2020. It completely overrides the devolution settlement by reserving subsidy control and giving UK ministers powers to spend directly in devolved areas without oversight by and consent of the Scottish Parliament and ministers. That has already been seen in the case of the Professional Qualifications Bill, which was debated in the chamber on 10 February and for which we have also refused legislative consent.

The UK Government introduced the Subsidy Control Bill to Parliament on 30 June 2021. Paul Scully, the Minister for Small Business, Labour Markets and Consumers, wrote to me at the end of June to ask whether the Scottish ministers would be content in principle to begin the legislative consent process in the Scottish Parliament. The legislative consent motion was lodged on 25 October. We do not propose to give consent, and I will outline why.

The bill, if it is passed, will bring further erosion of devolution through sweeping powers for the Secretary of State for the Department of Business, Energy and Industrial Strategy that override the devolution settlement and risk UK ministers intervening without proper consultation or knowledge of local circumstances. The bill will empower the secretary of state to refer subsidies and schemes in policy areas of devolved competence to the appointed independent body, which is the Competition and Markets Authority.

Where a subsidy has not yet been awarded or a scheme has not yet been made, a cooling-off period will kick in. The secretary of state will have the power to extend that period without consulting devolved administrations. If enacted, that measure would undermine the long-established powers of the Scottish Parliament and the Scottish ministers to act in relation to matters that are within devolved competence, including economic development, the environment, agriculture and fisheries.

The Scottish Government has argued for the devolved Administrations to have equivalent powers to refer to the CMA subsidies that are made in other parts of the UK, or even by public authorities in their own jurisdictions. The UK Government has consistently rejected that proposal.

The absence of formal regulatory and enforcement arrangements undermines confidence in the process for grant awarding bodies and grants’ recipients. The measures that are proposed in the bill are weak—particularly given the proposed advisory role of the CMA. We continue to press for prior appraisal of awards within a detailed regulatory framework, in order to provide greater certainty on what support will be compatible with the UK’s subsidy control regime. That is essential for both subsidy awarding bodies and businesses that invest in Scotland and the UK.

We firmly oppose the inclusion of agriculture in the permanent regime. Agriculture is fully devolved. Farmers and crofters in Scotland face challenges that are not found elsewhere in the UK, yet the principles that are set out in schedule 1 of the bill risk constraining our ability to develop future policies that are tailored to the needs of Scottish agriculture.

For example, income and coupled support payments play an essential role in supporting many businesses that operate in our most remote and constrained areas. However, they appear to be incompatible with some of the proposed principles, especially principle F, which is on competition and investment within the UK. The UK Government has, however, pressed on and is ignoring our concerns.

The bill, and the internal market principle in particular, risk making the common framework process redundant by putting legislative restrictions on policy divergence within the UK rather than managing it through established mutual co-operation, via the framework. That concern is supported by the House of Lords Common Frameworks Scrutiny Committee.

My colleague Mairi Gougeon, the Cabinet Secretary for Rural Affairs and Islands, wrote to the Department for Business, Energy and Industrial Strategy minister Paul Scully in June 2021, and to Secretary of State for Environment, Food and Rural Affairs George Eustice in November, setting out our concerns and proposing that the bill be amended to exclude agriculture from its scope. George Eustice replied in January, stating that, in his view, the new domestic regime will protect competition and investment in all parts of the UK. However, he did not address our substantive concerns about incompatibility with the principles or impacts on the common framework process.

On the potential lack of transparency, the bill originally proposed that awarding bodies would have six months to place information on the database and that interested parties would have one month to appeal. However, earlier this week, I received a letter from Minister Scully informing me that that has been amended and that awarding bodies will now be required to place information on the database within three months. That is a small and welcome concession, but although other minor technical amendments have been proposed, that goes nowhere near addressing our grave concerns regarding the bill. We still consider that the time limit for challenge should be increased to a more realistic period.

I have addressed a number of specific concerns. However, the overarching theme is that the bill remains high level. The crucial detail, including draft subordinate legislation and in-depth guidance, is lacking, and its absence makes it difficult to take a considered view.

The Subsidy Control Bill, as it stands, proposes broad powers for the secretary of state and will shape the future regime with little scrutiny from the UK Parliament and no scrutiny by devolved Administrations.

I suggest that Parliament backs the motion, refuses legislative consent to the bill as it stands, and backs our request that appropriate amendments be made that respect the Scottish Parliament’s role in devolved competencies.

I move,

That the Parliament notes the legislative consent memorandum lodged by the Scottish Government on 25 October 2021; agrees not to give consent to the Subsidy Control Bill, as recommended in the report by the Economy and Fair Work Committee of 9 February 2022, and calls on the UK Government to amend the Subsidy Control Bill to remove agriculture from its scope, to provide equivalent powers to ministers in devolved administrations to those proposed for UK ministers, and to make it a requirement for it to seek the consent of the Scottish Ministers if it plans legislation that would impinge on devolved areas, to properly respect devolved responsibilities.

Thank you. I call Claire Baker, on behalf of the Economy and Fair Work Committee.

15:00  

I am pleased to speak on behalf of the Economy and Fair Work Committee. We considered the legislative consent memorandum on the Subsidy Control Bill at two evidence sessions in January. We heard evidence on the ramifications of the bill first from academics, legal experts and the Convention of Scottish Local Authorities, then from the Minister for Business, Trade, Tourism and Enterprise. We published our report on 9 February.

Our report raises concerns about the Scottish Government’s engagement with us. Although the bill was introduced in the House of Commons on 30 June 2021, the Scottish Government did not lodge its LCM until almost four months later. We did not receive a clear explanation for that. The delay curtailed the committee’s opportunity for scrutiny. That is unsatisfactory, and I have raised the matter with the Conveners Group.

I turn to the bill. The committee accepts that there must be a subsidy control regime in the UK and we welcome the flexibility that the bill’s proposals for a baseline legal framework for the award of subsidies provide. The Law Society of Scotland said that

“the bill creates a welcome opportunity for schemes tailored to Scottish circumstances.”

However, the report agrees with the Scottish Government on a number of points. We note that the Scottish Government cannot recommend to the Scottish Parliament that it give consent to the bill.

The committee shares the concern that the bill will give considerable powers to UK ministers—powers that operate across the devolution settlement and impact on areas of devolved competence. We share the concern that that will, potentially, result in UK ministers being able to intervene in devolved matters without proper consultation or knowledge of local circumstances. Our witness panel highlighted the asymmetry of power that the bill will create between the UK and devolved Governments, which the majority of the committee agreed was a concern. I stress that the committee’s concerns relate solely to devolved areas.

We are concerned that smaller organisations and community groups—which are at a disadvantage compared with those that have greater access to administrative and legal resources—might find the new regime harder to navigate.

There are also concerns that the changes will lead to excessive caution, which will stop investment. Although there are promises of streamlined and fast-tracked subsidy award pathways, and although the UK Government is now consulting the Scottish Government on schemes, the majority of the committee agreed that the Scottish ministers should have the power to introduce schemes in devolved areas.

We also heard that the bill will make changes to the devolution settlement concerning the status of acts of the Scottish Parliament and their susceptibility to judicial review and interpretation. The majority of the committee is concerned by those developments, so we urge the Constitution, Europe, External Affairs and Culture Committee to continue work in that area.

The majority of the committee is concerned that much of the detail of how the new subsidy control regime will operate is not in the bill, but will be detailed in secondary legislation and guidance, which will centralise decision making and not support scrutiny. It is frustrating that, although legislation that results from the exit from the EU could be used to recognise and support the devolution settlement, it instead reinforces a blinkered approach.

The committee notes that the Scottish ministers will not have equivalent powers to those of the secretary of state in terms of being able to refer subsidies or schemes to the Competition and Markets Authority. The Welsh Government shares the concern that those provisions do not reflect the interests of the devolved Administrations. The committee supports the Scottish Government’s call in the LCM for equivalent powers for devolved Administrations to refer to the Competition and Markets Authority subsidies that are made in other parts of the UK.

My final point is that it is evident that, for whatever reason, Scotland spends significantly more on enterprise and economic development than the UK as a whole spends. That spending is likely to be registered as subsidy under the provisions in the bill, so the bill is anticipated to have a bigger impact in Scotland. The committee is also concerned that, in the absence of clarity, that aspect of the bill will create significant scope for conflict between the Scottish Government and the UK Government, which—frankly—there is enough of without manufacturing more.

All efforts must be made to minimise those concerns and to work in co-operation, if any of the proposed opportunities in the bill are to be realised.

15:03  

Subsidy control is a key part of ensuring an open, competitive and fair market economy. This UK bill tackles a vital missing part of the legislative framework for maintenance of a coherent UK market after our departure from the European Union. We were, of course, previously governed by the EU’s state aid rules requirements. It has been a lengthy and often complex process, so far, to bring such controls into our domestic law.

Continued regulation of state aid is a requirement that has been formalised between the UK and the EU as part of the trade and co-operation agreement, which underlines the UK’s continued links with the EU single market. However, it is also a system that will have a wide-ranging impact on a number of bodies across this country. The Economy and Fair Work Committee has looked at that area in some detail, and our report, which was published in February, is on the record.

Does Jamie Halcro Johnston acknowledge that the bill drives a coach and horses through devolution? NFU Scotland’s submission—one of the strongest that I have ever seen—to the UK Parliament says that it damages devolution. On a practical level, we need subsidy control, but the bill is deficient in respect of a number of measures that will make competition less favourable, could hinder investment in net zero and could cause risk aversion in partnership funding for important community projects.

No, I do not agree. I hope that Fiona Hyslop will make that point in a longer speech later. I do not agree with her, but I will come to my concerns about the bill a bit later.

It is worth noting that the unanimous conclusion of the committee was that the Scottish Government’s

“delay in lodging its legislative consent memorandum curtailed this Committee’s opportunity for scrutiny”,

as the convener said. An LCM was lodged in the Welsh Senedd in mid-July, which allowed time for greater exploration of the bill. Here, we had to wait until late October and, as the committee concluded, there has been no satisfactory explanation for the delay.

The bill sets out a significant set of proposals. It is one part of recreating the structures of our internal market, if not quite from scratch, then certainly with a fresh start. In many ways, the bill sets a framework to be expanded further by means of secondary legislation and guidance. There have been comments from the devolved Administrations and Parliaments and the UK Parliament noting disappointment in the bill’s lack of detail. Although we should acknowledge that the bill will not be the last word on subsidy control, there is a reasonable case to be made that the lack of detail in the bill—at primary legislation level—has made scrutiny more difficult, notwithstanding the late stage at which it came to this Parliament.

However, as I hope members recognise, it is a necessary bill that will ensure the integrity of the UK internal market and meet our international obligations. We can see evidence of the chilling effect of uncertainty on subsidy provision, with public bodies erring on the side of caution in order to avoid legal challenge. That certainty must be returned, but we agree that the bill alone cannot provide it, which gives the associated guidance and secondary legislation a position of considerable importance. What must be provided is a degree of certainty for public bodies to operate within.

The committee heard a number of examples of the positive aspects of the framework that the bill sets out, including greater flexibility and autonomy in decision making for local bodies and a resultant ability to make decisions with greater speed and responsiveness.

My region—the Highlands and Islands—is one in which population density makes state support a more regular requirement in order to secure the policy objectives that the Parliament wants to achieve. We know all too well the rigidities of state aid rules, and the lengthy processes that are required in notifications to the European Commission. It is my hope that, while maintaining a system of fairness and integrity, the new subsidy control regime will go some way towards addressing those issues.

I will return to concerns about detail. I note that additional flexibility will not answer wider questions of policy. In the EU’s state aid regime, many different approaches are taken by the Governments of the various member states. There will remain political questions about where support should go and about obtaining real value for taxpayers’ money. In the previous parliamentary session, I was involved in the Economy, Job and Fair Work Committee’s business support inquiry, which is a good body of work that deals with one small area of subsidy.

There will be choices to be made in Parliament about how to deploy subsidies effectively, and there is a much wider discussion to be had about how we do so. Responding to the consultation on subsidy control last summer, the Secretary of State for Business, Energy and Industrial Strategy cautioned against “damaging” subsidy, such as

“unlimited subsidies to shore up failing companies, where there is no plan for their restructure”.

However, subsidy is largely used in a positive way and will, we hope, increasingly be seen in that light. It can support economic recovery, deliver policies such as net zero and achieve the sort of levelling up that needs to happen across the United Kingdom as a whole and in Scotland.

The Economy and Fair Work Committee has recognised some of the shortcomings in the area, and we need more clarity on how existing objectives will align with the new subsidy control scheme. This Parliament is certainly correct in its wish to see further information from the UK Government on those points.

We recognise some of the points that have been made about asymmetry. Although it should be emphasised that we are considering a matter that is reserved to the UK Parliament, and one in which we should legitimately expect UK ministers to be able to act for the whole United Kingdom, we recognise that there is a reasonable argument for granting to devolved ministers, as well as to the secretary of state, powers to refer to the Competition and Markets Authority.

We acknowledge the significance of the change that the bill will bring, as well as the concerns that members from across the chamber have raised and the remaining uncertainty that exists within a number of organisations and bodies across Scotland. However, we do not accept the Scottish Government’s position that any of the points is fatal to the bill’s progress. The bill has set out a positive direction for subsidy control in the UK, albeit that it is one that requires additional clarity.

I welcome the engagement that has already taken place between the Governments. If the fleshing out of future subsidy controls is to take place, that engagement must continue and go wider still.

I call Daniel Johnson to speak on behalf of Scottish Labour. Mr Johnson joins us remotely.

15:10  

I apologise for joining the meeting late. I have been having some network issues at home, hence the cable that members can see running over my left shoulder. Indeed, I will give the short version of my speech in case I get cut off.

I agree with Jamie Halcro Johnston that this is a necessary piece of legislation. We need an overarching framework for the regulation of subsidy across the United Kingdom now that we have withdrawn from the European Union.

Jamie Halcro Johnston’s acknowledgement of the need for “clarity”, as he put it, also points to the deficiencies in the UK Government’s approach, which lacks transparency and fails to consider the devolved Governments and the arrangements that we have across the United Kingdom. In so doing, the legislation is deficient. Scottish Labour therefore cannot support it and we will vote for the motion to withhold consent at decision time this evening.

This was an opportunity to rethink subsidies and the relationship between industry, enterprise and government. Ultimately, the UK Government has failed to seize that opportunity. What is more, the plans do not target regions or sectors for subsidies, and there are no measures for subsidies to help to tackle regional inequality—the levelling up that the UK Government professes to care so much about.

The bill lacks the transparency that is needed to ensure that taxpayers’ money is spent well. The Law Society of Scotland shares the view that

“a well-functioning subsidy control regime must be based on clear rules that provide legal certainty to businesses and granting authorities”

and that the bill must implement

“a regime that is clear, proportionate and gives businesses and local authorities ... the tools to operate confidently”.

Critically, it is the lack of respect for devolution that is most troubling. We raised those concerns with Westminster, and we also note the concerns raised by the Economy and Fair Work Committee about the lack of devolved engagement and the asymmetry of power between the United Kingdom and Scottish Government. This could have been an opportunity to enhance devolution and thereby strengthen it. However, yet again, the UK Government has shown that it either does not understand devolution or just does not care about it.

In the House of Commons, Labour tabled six amendments to ensure that the devolved Administrations were given a meaningful role in the design and implementation of the new subsidy regime. Although we understand that power over UK-wide subsidies should ultimately rest with Westminster, we also recognise that it is vital that all the nations of the UK are involved in that regime. The bill fails to respect the role of the devolved nations and it does not give them a meaningful seat at the table.

We tabled an amendment that would require the secretary of state to seek the consent of the devolved Administrations before making regulations that define the terms of subsidies, including those that are deemed to be of particular interest. We believe that the devolved Administrations should be a partner in making those decisions and definitions. Those reasonable amendments were defeated, so the UK Labour Party abstained at the second reading of the bill.

We must ensure that we get this right. Poorly designed subsidies can give businesses an unfair advantage, trigger subsidy races and create a risk of international trade disputes. On the other hand, good subsidies can help to achieve policy objectives, boost regional growth and encourage research and development.

Indeed, historically, the UK has spent significantly less on subsidies than EU member states. In 2019, for example, the UK spent just 0.5 per cent of gross domestic product on subsidies, whereas France spent 0.85 per cent and Germany spent more than 1.5 per cent. On average, EU member states spend 63 per cent more of their GDP on state aid than the UK does.

Although a UK-wide system of subsidy control is needed, we are concerned that the lack of a role for the devolved Administrations under the proposed regime fatally undermines it. Labour believes that there is a need for a genuine four-nations approach. We are also concerned about the unworkable position of the UK Government having complete unilateral control over subsidies in Scotland, which flies in the face of the co-ordination that is required in our UK single market.

Although it is clear that some form of regulation is needed, the Subsidy Control Bill cannot be supported, because of its lack of transparency and because of its failure to enhance or even take account of the devolved settlement across these islands. Therefore, at decision time, we will vote with the Government to withhold consent for the bill.

15:15  

I despair. This is the third debate in recent weeks about situations in which our two Governments have been found to be incapable of reaching agreement on a matter that is fundamental to the operation of our country. We had the debate about the internal market and the debate about the shared prosperity fund, both of which demonstrated the inability of our two Governments to work together. People deserve better than this never-ending constitutional argument. They expect more, and they expect a bit of maturity from both sides, because each side is as bad as the other.

As Claire Baker said, there is an asymmetry of power, and that needs to change. I hope that this is the last time that we find ourselves in such circumstances, and that we get the Governments to work together for the benefit of people, who deserve better.

I am quite perplexed by Willie Rennie’s approach. We have heard a Conservative member explaining the asymmetry in the bill and its other deficiencies. Is Willie Rennie saying that we should just roll over, not protect the devolution settlement and allow the UK Government to do whatever it wants in devolved areas, or should we stand up for Scotland and make sure that those areas are protected in the interests of Scotland’s economy as a consequence?

The minister should probably be a little less impatient and wait to hear what I have to say.

I make it clear that there is a need for a UK subsidy bill. As was the case when we were in the European Union, we cannot have a race to the bottom in the different nations and regions of the UK, but there needs to be a process of engagement between the nations and regions of the UK. That is what I am calling for. I think that we need to have a federalist arrangement, as I have argued previously in relation to the shared prosperity fund and the internal market. We need to find ways of agreeing better together across the UK, instead of taking the approach that the SNP and Conservative Governments love to take, which is that of having a never-ending constitutional argument. People deserve better, as I am sure that the minister truly understands.

There is some hope, because discussions are taking place in the House of Lords about the possibility of having a non-legislative route for agreement of such issues. That gives us a constructive proposal to work around, but it has not been agreed yet. Therefore, we will vote with the Government this evening, because—

Will the member give way?

Not just now.

We want to withhold legislative consent because the decision-making process that is currently proposed is not adequate. However, if we reach an agreement as a result of the good work that is being done in the House of Lords, I hope that the Government will come back and recognise that things have changed, so that we can give legislative consent to an amended bill, because we need to try to work together.

The Subsidy Control Bill is very important, because it will bring into sharp focus the Scottish Government’s failure on industrial intervention, which I have previously rehearsed with the minister in relation to Burntisland Fabrications, which collapsed, and the Lochaber plant, where we were promised 2,000 additional jobs, which have not materialised.

This will be the start of a wider debate, which I am sure that the minister will engage in. We need to have a proper arrangement across the UK. We cannot afford to have a race to the bottom. We need to have effective subsidy control, such that, as Daniel Johnson said, subsidy is provided in a way that means that we get the best out of it for the benefit of our economy and our people.

The current at-loggerheads approach of the Conservative and SNP Governments does not serve people well; they deserve better. I hope that we can come back with better arrangements in future, preferably with a federalist solution, which, as we have argued for some time, is the best way forward for the United Kingdom.

15:20  

I thank members for their contributions to a short, welcome and interesting debate. I will touch briefly on those contributions in the limited time that I have.

Jamie Halcro Johnston recognises the chilling effect that the lack of certainty in the bill has on investment scenarios. We have already seen examples of that in Scotland, so I am glad that he recognises that and is critical of that aspect of the bill. We have called for prior appraisal of awards to be made part of the process. The UK Government has refused to do that. He also recognises the asymmetry that is inherent in the bill, why we are where we are regarding the challenges to devolution and our reasons for withholding consent.

I advise the minister that I was referring to the chilling effect of uncertainty as being a reason why we must get the bill through and sorted.

The uncertainty comes from businesses and award makers and not having prior approval of awards. That is one of the key functional aspects of the bill and it is one reason why we are refusing to give consent to it.

In response to Fiona Hyslop’s question, Jamie Halcro Johnston said that he did not agree with her assertions. NFU Scotland’s response to the Subsidy Control Bill says:

“Given the difference in approach regarding future funding already set out by the UK and Scottish Governments, this bill is a risk to future rural policy development in Scotland. The oversight and controls already in place provide protection to the UK Internal Market Act against distortions. The Subsidy Control Bill, together with the UK Internal Market Act, has the potential to seriously undermine Scottish agriculture, which is the turnkey for our thriving rural communities.”

That is a direct quote from NFU Scotland—

Mr Fairlie, I think that the minister has got the gist.

Please resume, minister.

Mr Fairlie is, as always, an expert on this subject. It is great that he is raising those very important issues from NFU Scotland’s perspective. That is hugely important.

Jamie Halcro Johnston recognises the problems with the bill and the asymmetry that it contains, as does Daniel Johnson, whose comments I welcome. He is right that this is an important matter that must be taken forward. He is also absolutely right that it further demonstrates that the UK Government does not understand or care about devolution. That will be its undoing in the end.

I thank Willie Rennie for his comments. We are glad that he supports our position on the bill. It is entertaining to watch him continuing to try to breathe life into the corpse of federalism, but the reality is that that ship has long ago sailed. We have a choice between a UK Government that is determined to remove the powers of the Scottish Parliament and reduce devolution, and our agenda, which is to ensure that Scotland is a normal, independent country. Muscular unionism has had its day. It tried to do what it could, but it has not succeeded.

The disconnect lies within the UK Government. There are UK Government ministers who are very comfortable with and completely understand our position on this. However, they are being told what to do by others in the UK Government who are determined to continue creating fights where there need be none and a bill that contains challenges and problems that even Conservative MSPs recognise.

I ask Parliament to back the motion and refuse legislative consent to the bill as it stands. I also ask Parliament to back our request that the UK Government table suitable amendments, as the bill progresses, so that it provides equivalent powers to the Scottish ministers, removes agriculture from its scope and requires the UK Government to seek the consent of the Scottish ministers if measures impinge on devolved areas. I do not think that that is too much to ask. I do not think that Willie Rennie would ask for more, were he standing in my shoes. It is up to the UK Government to take that forward, and then we will see where we are.

That concludes the debate on the Subsidy Control Bill, which is UK legislation. There will be a short pause before we move to the next item of business.