I start by welcoming the noble Baroness back to her rightful place on the Front Bench, fully recovered. In fact, I say that with more than a modicum of delight—to use my favourite phrase of the week so far. For the noble Lord, Lord Fox, that is the equivalent of being damned with faint praise. So as not to be sexist about this, it is good to see the noble Lord, Lord McNicol, back as well.
The interaction of the subsidy control regime with the Government’s levelling-up agenda has rightly occupied many noble Lords during their consideration of the Bill, both in Committee and on Report. I hope that so far I have been able to provide sufficient reassurance that public authorities are no less able to give subsidies to address regional disadvantage under the Bill than they were under the previous EU state aid regime. Indeed, moving away from the EU’s default prohibition on subsidies and the resulting exemption for certain categories of subsidy in specified areas will allow public authorities greater ability to design measures that address not only regional disadvantage but the stark differences in social and economic opportunity that exist at a much more granular local level.
It is important that public authorities understand the way that they are empowered by this regime to give levelling-up subsidies, so I recognise the value of noble Lords’ suggestions that this would benefit from being made clear in the subsidy control principles. Amendment 2 to Schedule 1 therefore makes it clear that addressing local or regional disadvantage is considered to be an equity rationale for the purpose of assessing compliance with principle A. That was urged on me by many noble Lords in Committee and I am delighted to be able to
put that forward—with more than a modicum of delight —on behalf of the Government. This puts it beyond any doubt or confusion that a subsidy to address local or regional disadvantage can be given, provided, of course, that the other principles and requirements of the regime are met.
I am grateful to the noble Baroness, Lady Blake, and the noble Lord, Lord Ravensdale, for supporting this amendment—I am not sure that there are many occasions when people put their name to my amendments but I am more than delighted when they do so. I am also happy to reassure noble Lords, the noble Lord, Lord Ravensdale, in particular, that beyond this change to the Bill, the Government will be exploring the creation of streamlined routes to support levelling up. I reassure the noble Lord that these streamlined routes may have deprivation-related eligibility criteria, although it is important to note that levelling up is about improving opportunities in the whole of the UK.
A streamlined route could therefore facilitate interventions—high street regeneration is one example—that could be used by a range of public authorities, but particularly those who wish to address deprived areas. Although streamlined routes will be produced by the Secretary of State, none of this prevents local authorities or other public authorities making subsidy schemes that have deprivation-related eligibility criteria.
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We must also be clear that a streamlined route is no more than a procedural facilitation and not a source of funds. Routes will create significant value by making it easier for public authorities to distribute certain subsidies, but creating a streamlined route in itself does not guarantee that those subsidies will be given. It is perhaps more important to look at where the money is coming from. For example, the £4.8 billion levelling-up fund invests in infrastructure that improves everyday life across the UK, including regenerating town centres and high streets, upgrading local transport and investing in cultural and heritage assets. The fund has adopted a prioritisation index that takes account of need according to objective criteria. Using this, the majority of funding in the fund’s first round was allocated to category 1 areas that are most in need of levelling up.
Turning to Amendment 9 from the noble and learned Lord, Lord Thomas of Cwmgiedd, I want to address the fundamental question that he implied here: how to ensure that public authorities’ use of subsidies to tackle disadvantage or other equity rationales remains objectively proportionate and justified. In general, the answer to that question is found in the subsidy control principles as a whole and in the common law duties of public authorities, including the need to act in a rational and unbiased way. That is a clear requirement of public law and provides a baseline of protection against the kind of abuses that I think the noble and learned Lord fears.
The principles then provide further reassurance, including principle A itself. I hesitate to say it to the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Ravensdale, but the illustrative guidance makes it clear that public authorities must use supporting
evidence that demonstrates the need for the subsidy. For a social equity intervention, it specifies that this should include measures or statistical indicators set against appropriate comparators such as regional or national averages. The Bill requires public authorities to have regard to this guidance, as I think the noble and learned Lord implied.
Principle B then makes it clear that the subsidy should be proportionate to the policy objective, principle E states that the subsidy should be an appropriate policy instrument for achieving its objective and principle G sets out that the benefits of the subsidy should outweigh any negative effects it may cause. Those negative effects must be assessed and evaluated over the lifetime of the subsidy or scheme before a decision to give a subsidy or make a subsidy scheme is taken. The Government therefore consider it unnecessary for the Secretary of State to set out extra conditions to establish the validity of the public authority’s rationale for an intervention.
I turn to the amendment’s provisions that would require the Secretary of State to set out specific measures that would justify a subsidy on an equity rationale. As I understand it, this is to prevent such subsidies being used in wealthy areas. That was the noble and learned Lord’s implication, and I understand his concern, but I do not think the amendment fits with the nature of the levelling-up agenda or the subsidy control regime. This is also goes to the heart of the point made by the noble Lord, Lord Fox.
Conceptually, as the Prime Minister has said, levelling up is a nationwide project, not a jam-spreading operation. It is about unleashing potential, so improving opportunities in the poorest parts of the country does not need to involve limiting them in richer parts. It is not a problem if a wealthier public authority has the resources to give a subsidy that improves social or economic opportunities in its area—even in the wealthiest boroughs, there are some areas of deprivation—provided, of course, that it is compliant with the subsidy control requirements.
I make the point to the noble Lords, Lord Wigley and Lord Fox, that where central government is giving out money for levelling up and wishes to target those funds at the most deprived places, it makes sense that this happens through the eligibility criteria for accessing those funds. Instead of doing it in an inflexible and general manner through this subsidy control regime, this allows the targeting to be done in a way that fits with the purposes and nature of those funds. For example, as I noted earlier and as the noble and learned Lord implied, the levelling-up fund has used a needs-based index of priority places to help direct those funds. It is also worth noting that an equity rationale does not necessarily have to be specific to a geographical area. For example, a subsidy scheme might be set up to support certain categories of disadvantaged worker into employment. It is all about giving ourselves the maximum flexibility.
In short, the subsidy control regime—in particular the principles and the guidance—already ensures that all subsidies, including those given for an equity rationale, must be used transparently for a defined purpose that has an objective justification, and proportionately.
Where there is a need to direct central government’s levelling-up interventions towards the most deprived places, the way to do that is through the administration of those funds themselves, not by introducing general restrictions in this subsidy control regime. I hope that the noble and learned Lord is reassured and is therefore able not to move his amendment.
I turn to Amendment 14. I again thank the noble Lord, Lord Ravensdale, for his interest in and the discussions he has had with me and officials on the prohibition on subsidies contingent on the relocation of economic activity. The prohibition is there to prevent subsidy races, in which public authorities attempt to outbid each other in providing subsidies to attract investment, which is an inefficient use of public money; and to prevent public authorities poaching economic activity, which will tend to have highly distortive effects on competition.
Nevertheless, I accept the argument made by the noble Lord, Lord Ravensdale, the noble Baroness, Lady Randerson, and other noble Lords that there may be circumstances in which the relocation of economic activity is a legitimate way of delivering on levelling up. It might be needed to help with the regeneration of high streets, for example, or to move economic activity to disadvantaged rural or seaside areas. Therefore, I have tabled an amendment that exempts from the prohibition those relocation subsidies that have the effect of reducing social or economic disadvantage. At the same time, of course, the subsidy must still comply with the principles and other requirements. The test in principle G to balance the positive effects of the subsidy against the negative will be particularly important.
However, the reason for maintaining the general prohibition is that relocation subsidies carry some significant risks. This remains true even when the subsidy is given to tackle disadvantage. Clearly, relocation to place B involves leaving place A and potentially aggravating disadvantage there. The drafting of this amendment therefore includes extra safeguards to mitigate this risk. It requires the public authority not only to consider that the subsidy reduces disadvantage in the area to which the relocation takes place but to consider the United Kingdom as a whole—that is, to look, as a minimum, at the vacated area as well as the place to which the economic activity is subsequently moving—and be content that the subsidy reduces the overall level of disadvantage. I hesitate to say this to the noble and learned Lord, Lord Thomas, but the Government will of course produce guidance to assist public authorities in making this assessment.
The Government are also considering whether some or all of these subsidies should be deemed subsidies of interest or particular interest and therefore be referred to the subsidy advice unit for extra scrutiny. These types of subsidies will be defined in regulations that will be laid in draft and debated before commencement of the wider regime. As I have said, the Government intend to launch a public consultation on this in the coming weeks. This exemption and the safeguards that go with it will ensure that public authorities have the broadest range of tools to enable them to tackle disadvantage and help to level up the UK, and for that reason I commend it to the House.
Finally, I address the amendment tabled by the noble Viscount, Lord Chandos. He will be pleased to know that I shall not repeat at length the arguments that I made to the similar amendment tabled in Committee. In short, I believe that it is important to emphasise that subsidies come in many forms, and the Bill therefore sets out a fairly comprehensive test for public authorities to apply to all situations where financial assistance is being considered to identify whether a subsidy exists: from grants to loans, to loan guarantees, to benefits in kind, to contractual payments to provide services of public economic interest. The purpose of giving examples in the clause is to make it clear that this diversity exists, ensuring that no one makes the mistake of thinking that all subsidies are given in the form of grants. There are a number of different forms.
There is no question that an investment in equity securities may constitute a subsidy if it is made on more favourable terms than those dictated by the market. But there is no utility in attempting an exhaustive list on the face of the Bill. Not only is it unnecessary but it also runs the risk of implying that a measure not listed would not be considered a subsidy. The proper place to provide more extensive lists of examples is in guidance and, as the noble Lord mentions in his explanatory note, equity investments made on favourable terms are already mentioned in the illustrative guidance published by my department in January. I am happy to confirm that I will ensure that this remains beyond doubt in the final version of the guidance. I therefore hope that the noble Lord will feel able to withdraw his amendment.