My Lords, I have tabled this amendment, to which the noble Baroness, Lady Hoey, has added her name, in order to probe the Government’s understanding of the application of the state aid rules which will apply to Northern Ireland and those which will apply to rest of the United Kingdom as a result of the Bill. I know that on previous days in Committee there has been consideration of the relationship between the different rules. When I looked at the Bill, I sought to put down an amendment which would have brought Northern Ireland into line with the subsidy regime for the rest of the United Kingdom, but I was told that because of the provisions of Article 10 of the Northern Ireland protocol, an international treaty, it is not possible to amend the Bill to have the effect that I would have wished to bring Northern Ireland into line with the rest of the United Kingdom.
My Lords, there appears to be some echo in the Room, and I am not sure what is causing it. I shall stand further back from the microphone—I shall pretend that we are in the Ulster Hall—though I am tempted to do without a microphone altogether. I hope that noble Lords can hear me clearly now.
The subsidy control regime in the Bill would apply to only about 50% of the financial support that will be provided to Northern Ireland with the remainder continuing to fall within the scope of EU state aid rules—those applying to goods and wholesale electricity markets. Northern Ireland will be forced to adhere to the strict rules and conditions of EU law on things such as no expansions, maximum grant rates, only new establishments and so on, and when the projects are large or outside the scope of the exemption regulations Northern Ireland will have to seek European Commission approval. Effectively, we have two regimes which are very different in policy terms and practical effect. Under the UK scheme, things will be automatically approved unless specifically prohibited. In Northern Ireland, we are subject to EU rules under which everything is prohibited unless approved, effectively. They are very different policies, and two different systems are applying in one country.
From time to time, the Government have set out their views on the effects of the operation of Article 10 of the protocol. In their May 2020 Command Paper, they were of the view that the provisions of the protocol
would apply only in Northern Ireland. However, they later acknowledged that there was a risk of a maximalist interpretation of Article 10 by the EU, which could give the European Commission extensive jurisdiction over subsidies granted in the rest of the UK—an issue that the Government sought to address by tabling amendments to the United Kingdom Internal Market Bill, but we know how that ended. The European Commission also published a notice to stakeholders in January 2021 setting out its guidance. I would be grateful if the Minister could tell us whether or not, as things stand, he is concerned about the conflicting guidance on the scope of subsidies that would be covered by Article 10.
In July 2021, as we know, the Government published a significant Command Paper arguing that the TCA and the provisions of this Bill
“provide a more than sufficient basis to guarantee that there will be no significant distortion to goods trade between the UK and EU, whether from Great Britain or Northern Ireland, thus making the existing provisions in Article 10”,
referred to in Section 48(3),
“redundant in their current form.”
When the noble Lord, Lord Frost—the Minister responsible—resigned, he said in his statement on 17 December, regarding the negotiations with the EU in this regard, that there had been
“some limited discussions on subsidy control”
but made it clear that:
“The rules need to evolve to reflect this new reality”
of the trade and co-operation agreement and the UK’s subsidy control regime. He said:
“Northern Ireland businesses are facing unjustified burdens and complexity, and the Government cannot deliver aid to Northern Ireland, for example for Covid recovery support, without asking for the EU’s permission.”
Since assuming responsibility from the noble Lord, the Foreign Secretary has said that the UK’s position on the protocol, and with regard to the issue of Article 10, has not changed.
So the Government’s position appears to remain as set out in the Command Paper of July 2021, which states that the aim of their negotiations, their policy objective, is to erase Article 10 from the protocol. I should be grateful if the Minister could therefore indicate what progress has been made in the discussions, particularly on this issue. It is an area that is not discussed much. There is a lot of talk about phytosanitary checks and customs, which are important issues in their own right, but little discussion of the subsidy control regime. However, it is significant for Northern Ireland and I would be grateful for an update.
If negotiations do not result in the objectives set out in the Government’s Command Paper, will the Minister indicate what action they will take on their own account to protect Northern Ireland’s economy and what the timescale is? If action is not taken to resolve this matter, either through negotiations or by action on their own account by the Government, there will be no level playing field across the UK when it comes to the subsidy control regime. Northern Ireland will be at a disadvantage, according to the Department for the Economy in Northern Ireland, compared to other parts of the UK when competing for inward investment,
for example. Other parts of the UK could be much more attractive as a location for investment as a result of not having to wait for the Commission to grant formal approvals. In Northern Ireland, approvals will take significantly longer than the new timescales envisaged in the Bill for the rest of the UK; they could have far fewer conditions or restrictions and might well receive greater levels of funding than would be possible under the EU regime in Northern Ireland, which prohibits subsidies greater than 50%, whereas under the Bill subsidies may be proportionate but no maximum is specified.
When these issues were raised in the other place, the Business Secretary responded by pointing to the changes to the protocol being sought by the Government in the negotiations, which would bring all subsidies within the domestic regime. Can the Minister confirm that there is not really any solution other than that indicated by the Business Secretary? If EU law applies, it is hard to envisage that there can be any mitigation. There is certainly nothing in the Bill that would ease the problems that Northern Ireland will face in this regard.
The reality is that the interaction of the protocol with the Bill before your Lordships has the potential to impact negatively on the development of the economy of Northern Ireland, and I hope sincerely that the Government will implement the necessary measures to avoid that bad outcome. I beg to move.