My Lords, I thank the Minister for his introduction of the statutory instrument. My amendment calls on the Government to delay implementation of these regulations until they have consulted widely on their proposals; in particular, until they have consulted and sought the
agreement of the devolved Administrations and the primary legislation detailing how the UK’s new subsidy regime will operate after the end of the transition period has received Royal Assent. I will listen very carefully to comments made during the debate, particularly to the response of the Minister, but I give notice that I intend to divide the House on this issue.
This amendment stems from three primary sources. First is the 30th report of the Secondary Legislation Scrutiny Committee, which, inter alia, said:
“The disapplication of EU State aid rules appears to be a reversal of the previous Government’s policy position, which sought a continuity approach in the case of a ‘no deal’ scenario”,
and that:
“This approach raises the question whether it would have been more appropriate to take forward such a policy change through primary rather than secondary legislation, enabling Parliament to scrutinise the new approach more fully”.
The second is an amendment in the name of the noble and learned Lord, Lord Thomas of Cwmgiedd, supported by a vote on Report deleting Clause 44 of the internal market Bill, which he said purported
“to make state aid a reserved matter by the device of expanding or extending the competition policy reservation.”—[Official Report, 25/11/20; col. 317.]
The third is the fact that the rollover continuity free trade deal with Japan, discussed in your Lordships’ House last week, replicates the restrictions on subsidies being repealed by this very SI. If we are still honouring international treaties, this will need to be legislated for, so why is this SI being progressed today?
The SLSC commented that when the previous Government laid the 2019 state aid regulations before Parliament, the plan was to transfer the EU’s enforcement functions to the CMA and to enable the continued application of state aid law in the UK in a domestic policy context in the event of no deal. However, these 2019 regulations were withdrawn in February without being made. The SLSC also points out that this new SI is being
“made under the Withdrawal Act which, according to the Explanatory Notes … ‘does not aim to make major changes to policy or establish new legal frameworks in the UK beyond those which are appropriate to ensure the law continues to function properly from exit day’ and commits the Government to ‘introduce separate primary legislation to make such policy changes which will establish new legal frameworks’.”
Why is this happening? Why is there no primary legislation? I hope the Minister will deal fully with the points made by the committee, particularly its general concern about using secondary legislation to introduce policy changes that should be done via primary legislation.
The noble and learned Lord, Lord Thomas, prefaced his introduction to his amendment proposing to delete Clause 44 of the internal market Bill by saying that
“the regime of state aid is plainly necessary, and it is necessary to have one for the whole of the UK”.—[Official Report, 25/11/20; col. 316.]
I agree with him. The Minister has previously made it clear that the UK needs to design a bespoke state aid, or what he calls a “subsidy control”, regime. He has also said he hopes that it
“will operate in a way that works best for all UK businesses, workers and consumers”,
and promises
“a consultation on whether we should go further than our World Trade Organization and international commitments, including whether further legislation … is necessary.”
So far, so good. However, with no supporting evidence, he asserts that:
“Reserving subsidy control is the best way in which to guarantee that a single, unified subsidy control regime could be legislated for in future.”—[Official Report, 25/11/20; col. 325-26.]
The noble and learned Lord, Lord Thomas, suggested that this was clear evidence that the Government want to use the internal market Bill to alter the devolution settlement. In the Third Reading debate a few minutes ago, the noble and learned Lord, Lord Garnier, spoke eloquently about the need for all unionists to tread very carefully when progressing legislation that affects the current rights and responsibilities of the devolved Administrations. I agree with him.
Whatever the truth here, this is a worryingly centralising Bill. As we learned in the Autumn Statement only last week, the shared prosperity fund which replaces EU funding for regional and local structural projects will in future be controlled and spent by UK government Ministers from Whitehall. The Minister might wish to clarify whether, under the guise of promoting competition, the Government are set on unravelling the devolution settlement.
There is a bit of a mystery about what the Government are up to here. Why are they currently spurning the sensible and pragmatic way forward suggested by the Welsh and Scottish Governments of using the well-regarded common frameworks process? Reinforcing as it does the need for all four nations to work together for mutually agreed solutions, it seems a complete no-brainer.
On international trade agreements, it is an open secret that level playing field issues are one of the main sticking points in the ongoing EU FTA negotiations. It is said that London has been strongly resisting demands from Brussels for the UK to remain in the EU state aid regime. It has even been suggested that this SI has been brought forward and modified from its original form to bolster the UK’s negotiating position. However, as we debated last week, the state aid provisions included in the UK-Japan free trade agreement are effectively the same as the current EU rules and include what one distinguished commentator called
“hard-edged commitments not to provide open-ended … support”
to UK companies. To give effect to these commitments, there will need to be legislation. I do not need to point out the irony if this SI has to be brought back in primary legislation to give effect to the Japan free trade agreement. Will the Minister comment on this? What are the plans for legislation to implement the Japan free trade agreement?
State aid has received little attention during the UK’s 47 year-long membership of the EU, but its importance has been highlighted repeatedly during the parliamentary stages of the internal market Bill, as well as remaining one of the sticking points in the EU-UK negotiations. We have no sense of where the Government want to take their policy on state aid, other than that it cannot be the same as it has been under the EU. Removing a well-understood policy framework that has been in place for half a century
and replacing it with a reliance on WTO rules, which are widely discredited, seems a perverse way of making policy, even if the Government need more time before deciding what to do. There is no doubt that state aid can be beneficial. If deployed as part of a robust industrial strategy, it can help create decent jobs, kick-start businesses, rebalance regional inequalities and power the UK’s internal market. However, it can also be harmful.
The Secondary Legislation Scrutiny Committee said that this change
“is neither a welcome nor indeed acceptable use of secondary legislation”.
Scotland, Wales and Northern Ireland do not understand where they fit into this process, and it is complicated by the Northern Ireland protocol. In the internal market Bill, the Government stand accused of attacking the devolution settlement. Even if that is not the case, they have a lot of ground to make up before their proposals have buy-in from the devolved Administrations and are seen as legitimate and politically uncontroversial in all four nations. The criticism from the SLSC, the gaps in the IM Bill and the need for clarity following international trade treaty commitments suggest in combination that there is a powerful case for delaying this Bill until Ministers have consulted widely and sought the agreement of the devolved Administrations and the necessary changes to existing primary legislation have been agreed. This pause for reflection is what this amendment in my name would achieve. I beg to move.
3.17 pm