Subsidy Control Bill (Tenth sitting)

Kevin Hollinrake Excerpts

Tuesday 16th November 2021 Public Bill Committees

[Kirsty Blackman]

Thank you, Ms Nokes, for your forbearance in continuing to chair these sittings for us; we appreciate it.

It strikes me that there are three really important things in the Bill. The first question is this. What is a subsidy, and when can and cannot a subsidy be awarded? Actually, we have had not much disagreement across the Committee about what constitutes the answers to those points. The second question, which we have raised a number of concerns about, is this. How do we know what has been awarded? Specifically, we have raised a number of issues about transparency, how transparency will work and whether the transparency measures being suggested are adequate. The third question is how subsidy decisions can be challenged. The Bill and this system, the subsidy control regime, will not work if there is not a mechanism for a challenge to be made. That seems to me to be the third of those three important areas.

We have suggested amendment 23, which is specifically about the definition of interested parties. The Bill says that “interested party” means

“a person whose interests may be affected by the giving of the subsidy or the making of the subsidy scheme in respect of which the application under subsection (1) is made, or…the Secretary of State”.

The Minister has been clear a number of times that being too prescriptive about some things and including too many things risks suggesting that we are not including others. If the measure includes a, b and c, potentially an imaginary d would be excluded, because it explicitly says a, b and c.

The legislation talks about “interested parties” as those people who have been affected, but it also includes the Secretary of State, so presumably, in the Government’s eyes, the Secretary of State has a specific role whether or not he or she has an interest or the Government have an interest in whatever it is that has been subsidised. The Secretary of State has the ability to request a call-in whether or not they have an interest. The Minister has spoken at some length—indeed, a number of people have—about the asymmetry of the legislatures in the UK, and there is an asymmetry of legislatures. Westminster has reserved powers and, as we have seen in the United Kingdom Internal Market Act 2020 and various other power grabs, the ability to override some of the devolved competencies. We are not disagreeing that there is an asymmetry, but there is a requirement and a recognition that we have devolved legislatures that have a very important role to play in not just the economic development but the wellbeing of their citizens under whatever the devolved competencies are.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Is the hon. Lady not defining that exactly as the legislation is set out? The devolved legislatures have an important role to play. Therefore they are an interested party. That is the point; it does not need to be set out specifically.

[Kirsty Blackman]

In that case, it does not need to be set out specifically that the Secretary of State is an interested party. There would be no need to include the Secretary of State if the Bill applied equally to any of the devolved legislatures whether or not they had a direct interest or whether or not their interests would be affected. It may be the case that the Scottish Parliament’s or the Scottish Government’s interests are not affected by something but that the interests of a significant number of businesses in Scotland are affected, in which case it would be completely reasonable for the Scottish Government or Scottish Ministers to be included, as we have suggested in the amendment; we have also referred to Welsh Ministers and “a Northern Ireland department”. The aim is specifically to catch the issue that has just been made clear. Sometimes the devolved institutions will not have a direct interest that affects the operation of their Parliament, but they might have an interest on behalf of the wellbeing of their citizens or the economic development of the places they represent. Subsection (7)(a), which defines interested parties, does not go far enough to allow those institutions to raise concerns about potential issues. If the concern does not affect them directly, it seems they are excluded from raising it.

I understand the point made earlier by the Minister about the Competition Appeal Tribunal and how it may define interested parties, but there is a definition of interested parties in the Bill. I feel it is too narrow to include other interested parties such as Scottish Ministers, unless they are directly affected.

Legislatures need to be responsible. We need to take action on behalf of our citizens, and to be able to take that action. Given that these institutions are democratically elected and there have been votes that resulted in the creation of the institutions, we must recognise that the devolved legislatures have a stake and a responsibility—a place to fill in supporting their constituents. This is not about trying to say that the Scottish Government are better than the Westminster Government—I mean, they are, obviously, but the amendment is not about fighting to change the power structure of the UK. It would simply allow Scottish Ministers, Welsh Ministers and the relevant Northern Ireland Department to take their place and be able to exercise their right to protect the people, the businesses and the countries they are elected to represent.

If the term “interested parties” covers everybody, including those who have an indirect interest, then it does not make sense to include the Secretary of State in the definition. However, if the term “interested parties” does not include Scottish Ministers, the Welsh Ministers and the relevant Northern Ireland Department, we have a really big problem. This is not how devolution is intended to work; it is intended that those institutions can support their constituents.

I would appreciate it if the Minister will look at the issue. It is likely I will consider pressing the amendment, because it is such an important issue. As I said, this is one of the three most important parts of the Bill. The devolved legislatures absolutely should have the right to have subsidy decisions called in. This is not a power that is going to be used every five minutes. It is not like anybody is going to be challenging the decisions or looking for assessments on a regular basis—that is not how it is going to work. If the UK Government are committed to levelling up and the principles in the Bill of looking at competition throughout the United Kingdom and the effects of subsidies, it is really important that the three devolved Administrations have this power.

[Kevin Hollinrake]

Does the way that the amendment is drafted not mean that Scottish Ministers, Welsh Ministers and the relevant Northern Ireland Department could interfere or be an interested party even though they had no interest? For example, a Scottish Minister could intervene in something that was happening in Wales, which has no relevance—they would have no interest at all. Is that the intention—that a Scottish Minister can intervene in a subsidy scheme in any part of the United Kingdom, even though it does not directly affect Scotland?

[Kirsty Blackman]

Yes, because that is the point of the Bill. The point of the legislation is to make sure that we do not have those subsidy races. As was made clear on Second Reading, Members want a situation in which there are not subsidy races and in which they can ensure that the best decisions are being taken for their area. If the hon. Gentleman, the local authority in his constituency or the Secretary of State felt that something in his constituency was being affected negatively because of the actions of the Scottish Government or the Northern Ireland Department in granting a subsidy, I would expect the Secretary of State to consider calling that in. If the hon. Gentleman made representations to the Secretary of State on behalf of organisations in his constituency that might not want to go through the process of employing lawyers to get it called in, but are genuinely affected, surely that is one reason why the Secretary of State may be included.

[Kevin Hollinrake]

The hon. Lady makes my point for me. If something were affecting North Yorkshire, I would be an interested party already, because that is how it is defined.

[Kirsty Blackman]

No, the hon. Gentleman would not be an interested party, because the Bill states that an interested party is

“a person whose interests may be affected by the giving of the subsidy or the making of the subsidy scheme”.

The hon. Gentleman’s interests are themselves not affected. His constituents’ interests are affected—

[Kevin Hollinrake]

That is the same thing.

[Kirsty Blackman]

It is not the same thing, and that is the point that I am making. That is why either the definition of an interested party needs to change, or we specifically include those people whose direct interests may not be affected but whose indirect interests—whose responsibilities towards their constituents and their country—are affected as a result. In such circumstances, therefore, the hon. Gentleman would not be an interested party. I cannot see how his interests possibly could be affected, going on the reading of the legislation, although his constituents’ interests would be affected. If that is how we want the measure to operate—which is how I would like it to operate—I would very much like it to operate in the way that he is suggests.

[Kevin Hollinrake]

My interests are my constituents’ interests, and vice versa, so why would my interests not be affected if my constituents’ interests were affected?

[Kirsty Blackman]

The Bill states:

“a person whose interests may be affected by the giving of the subsidy”.

The hon. Member’s interests would not be affected by the giving of the subsidy, his constituents’ interests would be. If the Minister, when he speaks, confirms that a Member’s interests cover all the interests of his constituents, can define the interests of the Scottish Government, Welsh Ministers and the Northern Ireland Department or can say absolutely that, for example, a Northern Ireland Department’s interests cover the interests of businesses and constituents within its jurisdiction, I will be delighted that the hon. Member for Thirsk and Malton is correct. That is what I would like it to say but, as drafted, that is not what the Bill says.

There is therefore a gap, an issue with not enough people being able to make that challenge and in those democratic institutions not having that right. As the Minister said, it is not a foregone conclusion that such things would go through, that the CAT would look at the subsidy decision and say, “Oh, the Secretary of State has referred this, so they are definitely correct and the subsidy is definitely wrong.” That is not how it would work. The CAT is an independent organisation and it will be making those decisions.

On the specific point about people who have the ability to refer subsidy decisions, however, I think that those people with indirect interests on behalf of their constituents or the areas that they represent should have the right to make that referral—and for the CAT to make the decision after that. Again, that will not lead to a significant increase in the number of challenges to come forward, but if the Government are committed to levelling up and to the Subsidy Control Bill regime working as it is intended to work, changes have to be made to the clause. Amendment 23 was the best way that I could see of making the changes to ensure that those interested parties with indirect parties would be able to fulfil adequately their roles to work on behalf of the people who elected them.

SMEs: Access to Finance

Kevin Hollinrake Excerpts

Tuesday 9th November 2021 Westminster Hall

[Peter Gibson]

There is a lot to be learned in this area. My hon. Friend the Member for Thirsk and Malton and his APPG have been championing much of that learning, and I am sure the Minister has his listening ears on today.

The Department for Business, Energy and Industrial Strategy’s 2019 paper, “Equity Finance and the UK Regions”, confirmed that finance is too concentrated in London and the south-east, further increasing regional disparities, with London and the south-east of England receiving 67% of all equity deals and 75% of all invested funds in the UK between 2011 and 2017. The UK’s current financial system, which has historically been dominated by four large, shareholder-driven banks, is not fit for purpose in helping to address this issue. While a Back Bencher, my neighbouring MP, the Chancellor, my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), said in his report, “A New Era for Retail Bonds”, that

“limp competition is likely to result in less availability of credit, higher prices and poor service for SMEs.”

SMEs tend to take smaller loans, and by nature tend to be riskier borrowers. The profit-maximising big four banks will steer away from lending to this demographic, especially when they are able to lend to larger, more profitable and secure companies.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

My hon. Friend makes a good point about smaller loans. Last year, the Government—BEIS and the Treasury—did a fantastic job in rolling out SME finance schemes during the crisis. When those schemes were launched, the banks were initially only interested in lending amounts above £25,000—sometimes above £50,000. We were told there was no demand for smaller loans. Bounce back loans then came along and have been a huge success—£50 billion of lending. It is important we get money right to the bottom—to the smallest SMEs that are so critical.

[Peter Gibson]

I know how much work my hon. Friend put in last year to ensure that bounce back loans were available to small businesses, and I pay tribute to him for that effort.

Moreover, big banks tend to require large amounts of financial data from businesses when assessing their eligibility for loans. For a new or small company, this data simply does not always exist, but should that prevent them from being eligible for finance? SMEs need to be assessed on their business model and their economic potential in local areas and their wider potential contribution to society, not just on existing balance sheets—qualitative rather than quantitative. Yet this process is too time consuming for banks, preventing SMEs from crossing the first hurdle.

Due to the concentration of finance within large, shareholder-driven banks, SMEs are often not even aware of alternative lending providers and think that rejection from a big bank is a life sentence with a lack of finance. The current bank referral scheme, originally designed to help businesses access finance once rejected by a bank, fails to provide adequate information on a diverse range of borrowing options and fails to help SMEs understand why they got rejected, what financial products are best suited to them, and how they can optimise their application to get the best chance of success.

This environment discourages SMEs from continuing their search for finance, despite competitive, socially responsible and trustworthy alternative lenders being out there and wanting to lend to SMEs. In fact, as found by the Federation of Small Businesses in 2018, 73% of SMEs in the UK would rather grow more slowly than borrow. The Centre for Policy Studies also found that the UK is ranked 13th among the 14 OECD countries in the proportion of start-up businesses that grow to 10 people or more in three years.

I recall the huge leap of faith and risk I had to undertake when I began to grow my business. Moving from five to six employees was a big hurdle to overcome, as were the leaps to 15 and to 20 employees. The smaller you are, the bigger the hurdles. Moving from one employee to two is a doubling of the payroll, which will inevitably put a strain on small and fledgling businesses’ cash flow. Because that is so difficult, many businesses do not grow to their full potential.

The critical lack of diversity in the business lending market is detrimental to the resilience of the UK economy. As we continue to debate how the future regulation of the financial services sector should look, we must consider parts of the world where they are already doing well. Take one often-cited example from the critical post-recession period of 2008 to 2013: total bank lending to non-financial business in the UK dropped by about 25%. However, during the same period in Germany, where regional mutual banks and co-operatives are commonplace, lending increased by around 20%.

This critical lack of funding for SMEs is also detrimental to growth of the UK economy. The Department for Business, Energy and Industrial Strategy and the Office for National Statistics estimate that SMEs represent 99% of businesses. Their abundance means they have the potential to increase UK productivity. They are areas that the UK has struggled with for many years. More specifically, many SMEs contribute greatly to their local communities through increasing local employment, contributing to local economic growth and improving livelihoods. As the recent report of the APPG on social integration, which I chair, recently reported, SMEs were at the forefront of community volunteering during the pandemic.

I know the Minister is a good man. Although the Westminster Hall debate he is responding to today does not have the fireworks of yesterday’s, I can assure him that the solutions are within our grasp. It does not need years of planning and strategising; the solutions are out there. They just need support and political will.

First, we must deliver a strong local finance option for businesses in the UK. We cannot continue to deprive hungry and ambitious businesses of access to finance and scaling up, simply because they do not have access to the right financial product. We need to provide capital to community development financial institutions and regional mutual banks, to allow them to increase their offering.

Community development financial institutions are private finance institutions that are dedicated to providing responsible, affordable lending to disadvantaged communities and individuals. They do not prioritise profit, but prioritise allowing local-income areas to flourish. By providing finance as well as financial support and knowledge, CDFIs look at the wider benefits that each SME can provide to its local area, financing businesses that can make the biggest impact, even if they have been rejected by the big four.

Regional mutual banks have a more regional structure, prioritising relationship banking and making use of soft information to assess SME customers for credit.

[Kevin Hollinrake]

My hon. Friend makes a good point on regional mutual banks, and I congratulate him on bringing forward this important debate. It is also a pleasure to serve under your chairmanship. Mr Pritchard. Might my hon. Friend consider, in conjunction with his fellow MPs in the Tees Valley and the excellent Tees Valley Mayor, Ben Houchen, taking forward an initiative to set up a Tees Valley regional mutual bank?

[Peter Gibson]

That is an excellent idea, which I am sure my hon. Friend would be keen to help us spearhead. I am sure that Mr Houchen and the Tees Valley Combined Authority would relish the opportunity to bring more investment to the Tees Valley.

These finance providers tend not to have capital stock but are owned by their members, who have a say over the governance of the fund. Both regional mutual banks and CDFIs bring a refreshing approach to finance, prioritising local growth over profits—an approach that is much needed in today’s market. I know, too, from my own experience in business over 15 years before entering this place, that those relationships, with a dedicated relationship manager, are crucial.

Put simply, we need local solutions to local problems. Tees Valley Mayor Ben Houchen is leading the way in the north-east, having recently launched a new back to business fund worth £250,000, granting small and medium-sized businesses in the hospitality, tourism and events industry the help they need in their journey to recover from the pandemic. That is local leadership with local solutions.

Secondly, we need to turbocharge the challenger bank and non-bank lending sector. Such companies have provided a welcome challenge to the big four banks in recent years, yet they are currently hamstrung by disproportionate regulation. Reforming the minimum requirement for own funds and eligible liabilities—MREL rules—and providing access to the term funding scheme for non-bank lenders, will create a more level playing field for challenger banks in competing against the big four.

Thirdly, we need to continue Government initiatives to unlock patient capital from pension funds, by using social usefulness criteria, an idea currently used in France. We can unlock that money for investment in long-term, socially important companies.

Fourthly—last but certainly not least—we must ease the finance application process to encourage borrowing for growth. We need to ensure that business support services, such as local enterprise partnerships, the bank referral scheme and the British Business Bank—I am grateful to the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for mentioning it—are properly funded.

Small businesses are the backbone of this country— 99% of businesses in the UK are classed as small. They play an essential role in strengthening our local economies, creating job opportunities and introducing innovation to their local communities. They are the businesses that support our local charities and volunteer groups. They are the people who sponsor the local football, cricket or rugby club, and they are the lifeblood of our towns across the land.

As we bounce back and build back better, we must take advantage of this opportune moment to reshape the financial services sector in a way that puts those hard-working businesses at its heart. Improving access to finance will provide SMEs with ample opportunity to scale up businesses and communities and improve employment chances across the country. In short, we need a financial services sector fit for everywhere, from Devon to Darlington—fit for the whole United Kingdom, not just the City of London.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak under your chairmanship, Mr Pritchard. I again congratulate my hon. Friend the Member for Darlington (Peter Gibson) on bringing forward this important debate. It is very important, particularly in these times, to refer the House to my entry in the Register of Members’ Financial Interests. Although I am no longer directly involved in my business, I led and built a business for the best part of 30 years. Access to finance is the critical factor in wanting to grow and scale a business.

As my hon. Friend set out, SMEs are so important in the UK in terms of the dynamism of our economy. Some 60% of the private sector workforce and 50% of our private sector turnover comes from SMEs. We are facing some huge challenges that are relevant to our economy, not least the demographics of costs in the future. We recently had a debate in Parliament about how we pay for the covid crisis and pay for social care, but we have some even bigger challenges in terms of balancing the books. The Office for Budget Responsibility has said that because of healthcare costs, social care costs and pension costs, our debt to GDP ratio, which is currently about 100% or £2.2 trillion, will be 400% by 2060 if we do not change our tax system or change the dynamics of our economy to pay for such costs over the next few decades.

The only way of paying for that is to make the economy more productive and more dynamic. I know, from my experience in running a business, that one thing that made our business more productive and more dynamic was competition. New competitors appearing on the horizon made us more efficient and more productive. We need a much more dynamic business environment. That is why my hon. Friend’s comments are so relevant, particularly on the statistic he cited from the APPG’s report, “Scale up to level up”, which I know the Minister has seen. Some of its conclusions are so important, but so are some of the facts behind it.

As my hon. Friend said, 73% of SMEs would rather grow more slowly than borrow. That means that we have a real problem, because we need those businesses to scale up. Not every business wants to do that, of course. Some businesses are happy to stay at a lifestyle kind of level. But part of the problem we have, as was very well articulated by the Chancellor when he was a Back Bencher, is that we are No. 1 in the OECD report in terms of start-ups, but No. 13 or No. 14 in terms of scale-ups—the number of small businesses that employ 10 people or more after three years. That is a real problem.

It is our belief, which is certainly borne out by anecdotal conversations with businesses, that because of the fall-out of some banking scandals—which came as result, principally, of banks trying to restore their balance sheets after the difficult recessionary problems of the global financial crisis—withdrawal of finance to business in the five-year period post 2008 has, as my hon. Friend the Member for Darlington set out, damaged confidence between business and banks. We need businesspeople to feel that they can scale up and grow, which means taking finance, taking risks, and, in most cases, putting their house on the line. I think my hon. Friend and I have both put our houses on the line in the form of personal guarantees and others. These are big risks that businesses have to take. If we expect them to do that without the confidence that banks will see them through a crisis, then many fewer businesses are going to take that risk.

This is where Germany has won and got it right: regional mutual banks. In fact, it is not just Germany. Every G7 country has a significant regional mutual banks sector as part of their lending mix, and the UK is an outlier in that sense, having just commercial banks. That is important because, particularly post the financial crisis, we saw banks prioritising their own finances, shareholders and balance sheets over the SMEs, which led to tens of thousands of businesses going to the wall.

That withdrawal of finance between 2008 and 2013 saw a 25% reduction of lending to SMEs from our commercial banks in the UK. At the same time, the Sparkassen and Landesbanken in Germany, the community and co-operative banks, increased lending by 20%. That is an incredibly important statistic, because that is when the SMEs needed the finance. There is an old adage we quote in our report—I heard it from my father when I was a young boy—which is that the banks will give you an umbrella when the sun is shining and take it away when it is raining. That proved to be the case in the worst financial crisis—the five-year crisis—we have had in this country and that, again, damages confidence.

That is not to say that our commercial banks are not part of the solution. Clearly, they are, and I must say that they did a fantastic job in 2020 in terms of getting finance out of the door to our SMEs—about £80 billion in coronavirus business interruption loans and bounce back loans. However, I wonder—although I probably do not have to—how much of that money would have been lent had the Government not stepped in to give them guarantees. How much of that money would have been lent if the Government had not taken away the responsibility for a forward-looking viability test? A fraction, I suspect.

Shareholder-driven banks will tend to look after the shareholders in these crises, whereas mutual banks and community development finance institutions, which are effectively not-for-profit co-operatives, really look after businesses. Clearly, some businesses will go to the wall if they are not fit for purpose in the current or future climate; we do not want to see zombie businesses. Nevertheless, we want businesses that hit problems because of a short-term recession to be helped through that period and into the better times ahead.

From my experience in the property sector, we had a good business going into 2008, when we had 210 staff members. However, we were not treated as a good business with longevity by our bank when we went into that crisis, and we had to make huge cuts. We cut our staff from 210 to 65 in a very short period. That was short term—we eventually picked those jobs back up—but we could have been helped through that crisis much more effectively. If the banks had not had shareholders as their priority, and if they had had customers as a priority, then I think we would have seen something different.

[Margaret Ferrier]

Does the hon. Member agree that high street banks could benefit from investing more time in understanding the SMEs they lend to, really taking the time to understand the business model and the entrepreneur throughout the whole lending process?

[Kevin Hollinrake]

That is such an important point, and I appreciate the hon. Lady’s intervention. Again, going back to my days as a child going with my father to see the bank manager, Mr Ron Taylor of Barclays bank, my father had that one-to-one relationship with him. He knew a good business from a less good business; he knew which ones he would support in difficult times. That type of relationship between big banks and SMEs has largely gone now, and the lending decisions have moved away from those relationship managers.

That is a worry and a concern, and it is what CDFIs and regional mutual banks can bring back. In this report, there is clear evidence from the sector, academics and people in the German banking sector that big banks primarily lend to big businesses—not exclusively, but primarily—and that big banks did not want to lend to SMEs, did not want to lend below £50,000, even though they were effectively Government-backed loans, until the bounce back loan scheme was brought forward and businesses could get a loan on demand. That is because that relationship with SMEs has principally gone now.

That relationship is something we need to restore. The CDFIs and regional mutual banks are those smaller banks, and it was great to hear that my hon. Friend the Member for Darlington would consider a Tees Valley version of that. I am very keen to work with the Mayors and the council leaders across Yorkshire. They are in talks now, trying to set up a Yorkshire regional mutual bank. That would be a fantastic step forward. It would not require any money from the Treasury or the Department for Business, Energy and Industrial Strategy, from Government, other than a guarantee or loan, because the money comes back. The money is lent to businesses sensibly. It will then be returned to the Treasury, and with interest, on the basis that that will create tax receipts, which are good for the Exchequer. It would be a very sensible move to pump-prime a number of regional mutual banks, which would have that patient capital approach in the down cycles.

Of course, as my hon. Friend the Member for Darlington set out, what the Treasury and BEIS did in pumping out the money last year was tremendous, and my hon. Friend the Minister did a great job of engaging with businesses. One mistake we made, though, was that we made bounce back loans so cheap—which was a great thing to do to get that finance out to SMEs—that it was not possible to borrow from wholesale markets to lend at 2.5%. It meant that only the big banks had access to very cheap capital through the term funding scheme for SMEs. It meant that, whereas we had seen about 59% of SME finance in recent years coming from the challenger banks and non-bank lenders, suddenly that was down to 11% as the big banks took a great big market share. For people such as iwoca, Tide and others, their market share dropped dramatically and they lost, potentially, thousands of customers during that period.

We will have to do this again at some point, so we might as well be ready for it. I have asked Andrew Bailey about this. It was not all in the Treasury’s gift to sort the term funding scheme for SMEs; it is a Bank of England scheme. Nevertheless, we can square that circle in a couple of ways. Either we find a way for the term funding scheme to work for non-bank lenders, or we put requirements on the banks so that if they access that scheme, they also have to lend a proportion of those moneys to non-bank lenders and the like. It is very important that we get this right now. We must not simply forget some of the things that we learnt last year but actually put those things in place today to ensure that we are prepared for the future.

I say that because there is another challenge ahead, and this is the second requirement that I am going to refer to—there are only three, Mr Pritchard. This is another APPG initiative—Bankers for NetZero. It is a world-leading initiative; we are now one of the key chapters in international financial regulation in terms of how we decarbonise our economy and how we bring the UK finance industry together with business and provide the capital to decarbonise—that will be a critical part of the conversation. We are going to have to do something at some point to provide capital to businesses so that they can decarbonise, because significant investment will be required in lots of businesses to be able to do that. We do not want to simply pull the plug in terms of SMEs that could contribute towards decarbonisation. We should not be thinking, “Oh, they’re businesses that operate in old ways, using what is probably less green technology, and therefore we’re not interested in them. We’re going to pull finance from those people and go to new businesses.” That would be a significant mistake: the scale would probably be a multiple of two or three times what it was during the financial crisis when we pulled money from certain businesses. We should be allowing these businesses to invest in decarbonisation.

To give a simple example, there is a very good business in my constituency—I have used this analogy many times for people who listen to my repetitive speeches—called the York Handmade Brick Company. It makes handmade bricks, as can be imagined, and employs about 20 people in my constituency. It is a very good business. I am not saying that it has any kind of liquidity or capital issues; I am sure that it has not, because it is a very successful business. But that business fires all its bricks in its kilns using natural gas. Nobody has yet invented a different solution to that problem, although no doubt there will be solutions on the horizon—biogas and the like. But whatever it has to do to make the business less carbon intensive will cost money—cost investment. Then it will have to find some capital to invest in new technologies. What we do not want to see, of course, is a bank coming along and saying, “Actually, our own business and our customer base have capital requirements that require us to not lend to businesses with a large carbon footprint,” and simply withdrawing finance from those kinds of business. It is a significant problem—a significant danger.

We will have to ensure that capital is made available, probably at a cheaper rate, a discounted rate, to decarbonise such businesses. For example, a term funding scheme for net zero, which the report on mainstreaming net zero proposes, is something that we should consider. We must get that right to ensure that all lenders can access those things. The Conservative Environment Network, of which I am proud to be a member, is also looking at this, and we had a conversation earlier today. It is very clear that we need finance for environmental reasons as well as for economic reasons. I could not put it better myself. The Conservative Environment Network is also very worried about divestment.

The last report to which I will refer is “Resolving insolvency”, because the Minister has responsibility for this area as well. It is a very important report. Today’s debate is not just about businesses that are growing but about businesses that might hit difficulty. The Department for Business, Energy and Industrial Strategy has made some very important changes to insolvency over the last year or so, giving businesses that are under pressure and having difficulties time to restructure. That is absolutely right.

However, what we have not addressed yet, although the Government have legislated to address it, is reform of the insolvency industry. The report highlights some very concerning conflicts of interest between insolvency practitioners and, for example, banks and private equity. There was a very disturbing recent case in which KPMG was fined £13 million in relation to Silentnight. That certainly highlights the kinds of conflicts that occur between secured lenders and insolvency practitioners.

The report recommended that the Government set up a totally independent regulator, as they have set out to do in the past. Currently, insolvency is regulated by recognised professional bodies—membership organisations. It is the only significant part of our economy that is not properly and independently regulated. We urge the Government to introduce changes to put in place an independent regulator, an ombudsman, a statutory code of ethics and a central database of repossessions.

My final comments relate to another change that the APPG on fair business banking has worked very hard to bring about. Following the global financial crisis, the APPG advocated an increase in the coverage of alternative dispute resolution. The Financial Ombudsman Service now has jurisdiction over businesses with a turnover of up to £6.5 million, up from £1.8 million previously, which is good. However, there is a scheme that looks at historic complaints and covers businesses with turnovers of up to £10 million. The Business Banking Resolution Service is a voluntary scheme involving seven banks, but at the moment it is an embarrassment to the banks that established it. It hears very few cases. Of the 626 cases that have currently applied to the scheme, only 90 are likely to be deemed eligible. Some of the cases fall into what is called the concessionary cases area, and of the 10 cases that the BBRS is recommending that the banks accept into the scheme, only one has been accepted, which is absolutely wrong.

The BBRS needs more independence and greater jurisdiction. I saw comments in The Times today about this particular issue to the effect that the APPG on fair business banking and the SME Alliance unanimously approved the eligibility rules for that scheme. That is absolutely not what we said. We said that we will have a watching brief over the scheme. It is not working. It needs urgent reform. I have talked to the Minister about this before, and I am sure that he will take those comments on board.

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[Kevin Hollinrake]

The hon. Lady is making some good points, but I am nervous about turning a loan into a grant or making it non-repayable, as I think she outlined that TheCityUK suggested. Lots of businesses did not take loans and used their own funds to keep going, and lots took loans and paid them back. Would there not be a moral hazard in effectively saying that some businesses could have free Government money when others did not take it?

[Marion Fellows]

I take the hon. Member’s point, but I think my point was worth making. We have to be so careful, because businesses took those loans on and are now likely to be hounded by banks that are mainly interested in providing money to their shareholders. The hon. Members for Darlington and for Thirsk and Malton spoke about the mutualisation of banks and local regional banks, which are also on the SNP wish list. I take the point, but my main point is that businesses should not be forced out of business because they borrowed money at a time when they were able, and perhaps would not have been able in the past.

The Chancellor invoked Margaret Thatcher and said:

“The budgets are set; the plans are in place; the task is clear. Now we must deliver because this is not the Government’s money— it is taxpayer’s money.”—[Official Report, 27 October 2021; Vol. 702, c. 279.]

That makes it clear that we must be wary of warm words. The Scottish Government will have to consider the detail of the Budget when it has been confirmed. The £150 million small business fund for Scotland should be disbursed by the Scottish Government and Scottish Enterprise, not the UK Government or the British Business Bank exclusively.

Although the coronavirus business interruption loan scheme and bounce back loans were offered, not all our constituents could access them due to their business banking accounts not being with one of the big banks on the list. They tried to access them through feeder accounts from other banks such as HSBC, but continue to be denied access to any financial support. They were mostly SMEs, many of which were forced to close.

Will there be any guarantee that those who were unable to access those loans but managed to survive with grants from, for example, the Scottish Government will be able to access the recovery loan scheme? Will the scheme allow those forced to close to rebuild their business? I hope the Minister can give assurances on those matters and take on board TheCityUK’s plan and the warnings from the Bank of England, FSB Scotland and nationally.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Thank you for your chairmanship, Mr Pritchard. I am grateful to the hon. Member for Darlington (Peter Gibson) for proposing the debate and to the hon. Member for Thirsk and Malton (Kevin Hollinrake) and the APPG on fair business banking for their work on the issue.

As we have heard, small and medium-sized enterprises are at the heart of the economy. They employ millions of people and are responsible for much of the innovation and creativity that makes this country such a special place and such a dynamic economy. They have, of course, been through a tough time over the past 18 months or so. Many small businesses could not trade at all for much of the period, and others only in very restricted circumstances. In that context, programmes such as the bounce back loan scheme and the coronavirus business interruption loan scheme were important and welcome. As we now unwind from that level of Government support, it is important that the repayment mechanisms and the schedule are realistic. The SNP spokesperson referred to the burden of debt that has been left. It is also important that we have a proper assessment of the level of fraud and the use of public money in those schemes. A lot of money went out of the door and it is important that the taxpayer gets good value for money in support schemes of that nature.

As we recover from the pandemic, many SMEs are facing labour shortages, rising crises in materials and other effects, and our capacity to recover economically from the covid pandemic will depend to a large degree on how SMEs meet those challenges and manage to fare over the coming years. There are, as we have heard, particular traditions when it comes to access to finance for SMEs here in the UK. They include a dependence on loans from a relatively small number of traditional high street banks, a major focus from banks on mortgage and other property lending, a relatively new group of challenger banking entrants and less-developed non-bank sources of finance that are not always easily available to SMEs. The hon. Member for Darlington mentioned community development financial institutions in that regard and I believe they have an important role to play. I am familiar with the role of the Black Country Reinvestment Society, which operates in the area I represent. It has been able to step in at times and offer loans when the main high street banks have turned people down, and I believe it has helped around 1,500 businesses in the west midlands region over the years. I am sure it is a similar story in other parts of the country with other CDFIs.

The debate has also seen some discussion about the challenger banks and their potential to do more. The Minister heard the points made by the hon. Member for Darlington about MREL funding. That is important, because there is an active debate between the banking sector and the Bank of England about how that operates. The concept of bail-in debt was introduced after the financial crisis to avoid the situation where the taxpayer has to step in if a bank goes belly up—or, as it was termed, privatising the gains and nationalising the losses. With bail-in debt the bondholders are supposed to be on the hook, not the taxpayers. That is the right thing from the public interest point of view, but inevitably it entails a cost that will be applied to those who are lending to banks under those circumstances.

In this country, once a bank’s balance sheet increases above the range of £15 billion to £25 billion, the MREL bail-in rules kick in, although the Bank of England has indicated recently that the staircase for compliance will be shallower and over a longer period than was previously the case. The thresholds elsewhere are much higher. In the European Union, the threshold is €100 billion. In the United States, it is $250 billion. That means that bail-in in those jurisdictions is aimed at much bigger banks. There is another factor, which is related to the different ways that deposit insurance works in those jurisdictions, which has an impact on the risk appetite of regulators, but those are still much higher thresholds than in the UK and they allow medium-sized banks to grow before having to adapt to this new regime.

The challenger banks argue that if the threshold for requiring bail-in debt was higher, that would release more capital, which could be lent to the SMEs that are the subject of today’s debate. When the Minister winds up, I would be really interested in his reflections on the debate about challenger banks and the minimum requirement for own funds and eligible liabilities.

For the purposes of clarity, I should say that this is not a Brexit issue. The differential balance sheet limits for MREL predate Brexit, but challenger banks have all made the point that it places a ceiling on their capacity to grow.

[Kevin Hollinrake]

The changes that the Bank of England has made on MREL are very modest and will not help a bank such as OakNorth, which is a very successful challenger bank, in terms of its ability to lend more, which it could do if the limits were changed. Does the right hon. Gentleman agree that it seems perverse that bail-in requirements are there to try to protect the taxpayer and to take away the systemic risk, but the biggest systemic risk is having all the banking concentrated in a few big banks?

[Mr McFadden]

There is a potential tension here between competition and safety. The rules were brought in to insulate the taxpayer, but, at the same time, the Bank of England, the Treasury and the Government—everybody—subscribe to the idea of more competition in the UK banking sector, so I believe this discussion will continue.

More broadly, the issue of access to finance is also related to the question of economic growth. Economic growth has been sluggish in the UK for the past decade, averaging just 1.8%, which is significantly lower than pre-financial crisis rates of growth. Once we strip out the covid effects of huge plunging growth last year and a sharp bounce back this year and next, the recent report from the Office for Budget Responsibility, published at the same time as the Budget, predicts a return to those sluggish growth rates, averaging just 1.5% between 2024 and 2026.

Let us be clear: taxes are increasing because economic growth has been low. It has been low for more than a decade, and the Government cannot continue to blame that on the past. This low growth has left the country less wealthy than it would have been, and it has made it harder to fund public services adequately without upward pressure on taxes. Low growth is the foundation for the series of tax rises that the Chancellor has announced over the past year. That is a much bigger factor than the pandemic; the OBR report makes that clear. In fact, in that report it downgraded the long-term impact of the pandemic on GDP from 3% to 2%. Its estimate of the long-term impact of the Prime Minister’s Brexit deal was a hit to GDP twice as high as that from the pandemic.

We are talking about the financial services industry today. It was hung out to dry in the Prime Minister’s Brexit deal. It is not that the Government fought for market access and lost—the Government did not even try. This is 10% of the UK economy, hundreds of thousands of jobs around the country. It was simply left by the wayside when the Government negotiated the Brexit deal.

It is in everyone’s interests to address the issue of the UK’s sluggish economic growth. If the economy grows more, tax revenues will increase without tax rates having to rise. The country will become more prosperous and we will be able to pay our way. That is another reason why a healthy and properly financed SME sector is so important. Businesses need access to finance to be able to invest in expansion, to make the new idea happen, to be able to buy the new piece of equipment that might be able to do the job in a greener or more efficient way, to move into new premises, and to increase capacity to meet new orders. That is the foundation of economic growth, and right now we do not have enough economic growth. That of course is not the only thing that will impact growth.

If we talk to many businesses, they will tell us about business rates. In advance of the Budget, we called for an increase in the threshold for small business rate relief from £15,000 to £25,000. That could have lifted many small businesses out of paying business rates altogether, but that did not happen. Nor did the more fundamental reform needed to ensure that business property tax fits the economy of today and tomorrow, rather than the economy of yesterday. There will be other factors, too—not least our education system and whether we are equipping the workforce of tomorrow for the labour market of the future. Every time talent or potential goes unfulfilled, it is a drag anchor on economic growth, and that denial of opportunity is not just socially unjust, but economically destructive. We need to examine everything that can contribute to economic growth, and that means an SME sector firing on all cylinders.

This debate calling for more access to finance for SMEs is timely, but access to finance is not an end in itself. It is a contribution to the economic growth that the UK needs if it is to escape the high-tax, low-growth trap in which it finds itself, and for which households and businesses will have to pay the price in the tax rises recently announced, which will kick in over the next few years.

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[Paul Scully]

I thank the hon. Lady for that intervention. I mentioned levelling up the country, and she is absolutely right that we need affordable, diverse finances for SMEs right across the country, and that includes in Scotland. I want to make sure that we go further to make the UK the best place to start growth. It should not matter where we are in the country. It should still be the best place to start to grow and scale a business. That is as equally true of Scotland as it is of Wales, England or Northern Ireland. Brilliant businesses can be found everywhere in the UK. However, access to finance is undoubtedly skewed towards London and the south-east, and we need to rectify that.

At the Budget, we took some major steps towards redressing those regional imbalances. For example, the British Business Bank’s start-up loans have been helping entrepreneurs since 2012 with viable ideas that might otherwise struggle to obtain finance from more traditional sources. In fact, the bank has made 165 loans to businesses in Darlington, totalling more than £1.5 million. At the spending review, we built on that success, pledging another 33,000 loans over the next three years. That is not all for Darlington—it would be a significant number of start-ups there—but across the country. That is money that will get other great ideas off the ground.

Members have spoken of the need for strong local options for business; we absolutely agree. That is why the Budget committed a further £150 million to the bank’s successful Regional Angels programme, which helps entrepreneurs obtain early-stage finance across the UK. We also announced more than £1.6 billion for the British Business Bank’s regional funds, which provide debt and equity finance for SMEs to help them with their next stage of growth. Across those funds and start-up loans, CDFIs will continue to play an essential role to help get finance to underserved SMEs.

To answer the points hon. Members raised on CDFIs and mutual banks, community development financial institutions play a massive role in the landscape of alternative lenders, including those essential lenders providing credit to SMEs. They are such an important delivery partner for the start-up loans programme; 11 of the 21 start-up loans delivery partners are CDFIs. They account for approximately 30% of the loans issued through the scheme in 2021. More widely, the British Business Bank was working with 21 CDFI delivery partners, across a range of programmes, at July 2021. That includes the regional funds and the recovery loan schemes.

In addition, 14 CDFIs were accredited lenders for the covid loan schemes. In the wake of the spending review, we will continue to explore opportunities for collaboration between the BBB and CDFIs. The Government are also supportive of efforts to establish the regional mutual banks that we have heard so much about this afternoon across the UK. I understand that some prospective mutual banks have had success in raising capital from various sources, but they have also encountered some challenges. There are no plans directly to capitalise regional mutual banks, but I know the Government have been engaging with prospective mutual banks and are willing to explore solutions that are practical and proportionate.

My hon. Friend the Member for Darlington is not only not far from the Treasury in this place and constituency neighbour to the Chancellor, but the Treasury is moving a number of its operations to Darlington, his home town, which he represents. He will not have too far to go to knock on the door to further his case for regional mutual banks. I am sure he will be delighted to know that businesses will continue to obtain funding through all those schemes, along with those in the north-east and the wider south-west of England for the first time as we get regional funding for the British Business Bank increased.

The new regional funds the British Business Bank is setting up in Scotland and Wales, while building on its existing activity in Northern Ireland, will bring levelling-up opportunities for businesses across the UK. As the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) said in relation to Scotland, it is important that we support businesses wherever they are. The regional funds will support a wide range of businesses, including the innovative, high-growth firms that play such a big part in creating prosperity and opportunity. We are further turbocharging those firms through the £375 million Future Fund: Breakthrough, which sees the Government co-invest with private investors and businesses that are heavily focused on R&D.

Finally, as we have heard, the Chancellor announced the extension of the recovery loan scheme to 30 June 2022. From 1 January, the scheme will be open only to small and medium-sized enterprises and the maximum amount of finance will be £2 million per business. The guarantee coverage that the Government will provide to lenders will be reduced to 70%.

We also heard from Members about patient capital, and we are looking to improve access to longer-term sources of finance. We absolutely agree with my hon. Friend the Member for Darlington that we need to unleash the hundreds of billions of pounds in pension funds and other institutional investors for long-term investment. That is not just good for the wider economy, because it will support growth, but good for the customers who will benefit from the opportunities for returns offered by UK long-term assets. It is an area where we know we can and should make more progress. I am happy to say that this Government are taking significant steps in that direction.

We are implementing a plan to unlock more than £20 billion to finance growth in innovative SMEs. As part of this, British Patient Capital, a subsidiary of the British Business Bank, is supporting UK companies with high-growth potential to access the long-term financing they need to scale up.

We have also taken significant action to remove barriers to pension scheme investment in a wide variety of asset classes. Members may recall that in the Budget, the Chancellor announced the consultation on further changes to the auto-enrolment charge cap to remove barriers to higher-return investments, while ensuring vital member protections remain in place.

[Kevin Hollinrake]

I would like to put on record my thanks to the British Business Bank, which has done a fantastic job in engaging with the APPG over the last 18 months or so and a tremendous job in helping to get that money out of the door. In terms of releasing equity capital—the Minister talked about pensions, which is a very good move by the Treasury—I think Octopus also suggest we allow ISA investments into unquoted companies which, again, could provide a source of equity finance for some of the good, high-growth companies he was talking about. Would the Minister consider having a discussion with the Treasury about this?

[Paul Scully]

That is certainly something the Economic Secretary to the Treasury will have heard and will consider as we look to diversify finance, especially in longer-term projects. We have established the productive finance working group, which is an industry-led body, which has now published recommendations setting out how we can unlock new investment in those long-term assets. I am pleased to say the Financial Conduct Authority has just published its rules for a new long-term asset fund structure, which will make accessing illiquid assets easier and encourage investors to look increasingly further ahead.

Finally, we are encouraging asset management and pension funds to play their part. I am delighted to say that the Chancellor and the Prime Minister are planning an institutionalised investment summit later this autumn, which will be a chance to celebrate the progress and commitment to further industry-led action.

Although we undoubtedly need to do more to widen access to finance for business, we should not overlook the great support that existing lenders provide to our SMEs. Last year, in fact, members of the Finance & Leasing Association provided SMEs with more than £16 billion to fund new equipment, plant and machinery, or software. According to the British Business Bank’s “Small Business Finance Markets Report”, banks provided £104 billion in SME lending, up 82% compared with in 2019.

I am delighted that some major lenders are helping our Help to Grow scheme, which aims to boost productivity by giving entrepreneurs management training through the Help to Grow Management scheme, and helping them to adopt digital technology through Help to Grow Digital. I encourage all hon. Members in the Chamber and further afield to promote those schemes to their SMEs because they are incredibly important opportunities to boost productivity wherever they are in the country.

Subsidy Control Bill (Seventh sitting)

Kevin Hollinrake Excerpts

Thursday 4th November 2021 Public Bill Committees

[Bill Esterson]

I suspect that more than one party would be very interested in repeating those remarks multiple times, certainly in two of the nations of this country. They are called nations within the devolved settlement; we have a devolution settlement that has “four nations” within it. It will be interesting to see how many times the hon. Gentleman is quoted saying that.

I will quote what George Peretz told us about why it matters that there should be a call-in power for all four nations:

“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.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 44, Q63.]

I have not heard from either the hon. Member for Clwyd South or the hon. Member for Aberconwy an argument against what he told us last week.

Rachel Merelie, senior director for the Office for the Internal Market at the CMA, noted:

“It is really important that all granting authorities are treated fairly and equitably, regardless of whether they are in the devolved nations or in England.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 69, Q98.]

I am not the only one talking about the devolved nations by any means; we have it from the CMA.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Will the hon. Gentleman give way?

[Bill Esterson]

The hon. Gentleman does not have a mask on, so I will not. He will be able to make a speech afterwards, as I think one of his colleagues said.

The devolved nations of the United Kingdom cannot be treated as second class when it comes to economic matters that could have potentially monumental impacts on the proper functioning of their markets. The devolved Administrations must have equitable powers with the Secretary of State to call in subsidies where they could be damaging to their own economies.

Subsidy Control Bill (Eighth sitting)

Kevin Hollinrake Excerpts

Thursday 4th November 2021 Public Bill Committees

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I beg to move amendment 55, in clause 60, page 33, line 20, after “Secretary of State” insert

“, the Scottish Ministers, the Welsh Ministers and the Department for the Economy in Northern Ireland”.

This amendment extends the post-award referral powers under this section to the Devolved Administrations.

It is a pleasure to serve under your chairship, Mr Sharma. You beat me to it: I wish you, and all who might be celebrating, a happy Diwali and Bandi Chhor Divas today. It is a very auspicious day, and it is a pleasure to be debating the Bill on such an auspicious day.

Clause 60 gives the Secretary of State the power to refer subsidies or schemes to the CMA after they have been awarded. Although Labour supports the general principle of post-award referrals, there are key problems that we wish to raise about this clause, not least the asymmetry of powers between the Secretary of State and the devolved Administrations, as well as some other key details. Amendment 55 has been tabled because, in our view, the Bill fails to provide the devolved Administrations with the proportionate and fair symmetry of powers that they should have, given that the Bill will operate across the UK.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Is that not the point, though? The hon. Lady said “across the UK”; this is a UK-wide scheme, so we have to have somebody in overall charge of the scheme, which is why we cannot have symmetry of powers for all the devolved regions. The Secretary of State is Secretary of State for the entire United Kingdom, so does it not have to be the case that he holds some powers that the devolved Administrations do not?

[Seema Malhotra]

I thank the hon. Member for his contribution. He will see from the contributions of Opposition Members that we are not saying that exactly the same powers should be given in all circumstances to the devolved Administrations, but that there are areas in which arguments for the devolved Administrations having similar powers make sense within the context of how the regime may operate. With a view to how issues could be raised and dealt with, there may be very good reason for doing that. We propose this not for political purposes but because we seek a regime that will work effectively and with some symmetry of powers relating to the opportunity, where it would be helpful, to challenge subsidies. I will lay out a couple of reasons why.

The clause gives the Secretary of State the power to make post-award referrals to the CMA but does not extend this power to the devolved Administrations. The specific purpose of the amendment is to extend the post-award referral powers in the clause to the devolved Administrations. As it stands, the Secretary of State can refer to the CMA subsidies granted in Scotland, Wales and Northern Ireland that may be perceived to damage the interests of enterprises in England. However, the devolved Administrations cannot bring forward an argument. They may in time have good reason to refer subsidies—English or others—to the CMA that they may perceive damage interests within the devolved Administration areas.

Subsidy Control Bill (Fourth sitting)

Kevin Hollinrake Excerpts

Thursday 28th October 2021 Public Bill Committees

[Paul Scully]

Streamlined subsidy schemes have an important role to play in supporting public authorities to deliver well-designed subsidies: subsidies that address market failures but minimise the risk of excessive distortion to competition, investment and trade and that are not subject to mandatory or voluntary referral to the subsidy advice unit under the provisions of chapter 1 or part 4. The Government intend that streamlined subsidy schemes will be a pragmatic means of establishing schemes for commonly awarded subsidies, including in areas of UK strategic priority, that all public authorities in the UK would able to use if they wish. They will therefore function best when they apply across the entire UK. The Government will design them so that they are fit to be used in all parts of the UK. In addition, clause 10 sets out the procedural requirements when making a streamlined subsidy scheme, including the requirement that it is laid before Parliament.

The practical effect of the amendment would be to require devolved Administration Ministers to lay streamlined subsidy schemes before the UK Parliament, both when they are made and if they are modified. The appropriateness of that procedure is questionable, given that devolved Ministers are not directly accountable to the UK Parliament.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Can the Minister give an example of a streamlined subsidy scheme?

[Paul Scully]

The streamlined subsidy schemes will be worked up as we come up to the commencement of the Bill, so I will not set out a list of streamlined moots as yet, but they are there for something that is common and not necessarily devolved in particular areas that needs to be rolled out at speed with minimum interruption to the public authorities. The obvious example––it is not necessarily a streamlined moot––in recent years is the grant scheme that we have had in covid, which came under a lot of pressure from having to ask for exemptions within the European Union to get the framework available there, which meant that we could not roll it out to the extent that we wanted to, as quickly as we wanted to.

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[Seema Malhotra]

I thank the Minister for his comments. It feels as if this area is not sufficiently defined. I cannot see why we would not want to have better symmetry of powers between the devolved nation Administrations.

[Kevin Hollinrake]

Is not a reason that this could distort competition between different parts of the United Kingdom? If an example of a streamlined subsidy scheme is the business rate grants for hospitality, whole parts of the UK—Scotland, for example—could provide a huge amount of support across the hospitality sector, which would unfairly disadvantage the rest of the UK. Is that not an example of how this might be a danger?

[Seema Malhotra]

I am not sure I fully agree with that. Surely it would mean that it was incompatible with the principles in schedule 1. I think that the principles would preclude that. I come back to the point that at the moment we have an asymmetry of power. I cannot, in the circumstances of streamlined subsidy schemes as they are currently defined, see why that should not be a power that is there for the devolved Administrations. It is important to go further with the amendment, and I would like to put it to a vote.

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[Paul Scully]

I remind hon. Members that the principles in schedule 2 include general matters such as requiring energy and environmental subsidies to be aimed at, or to incentivise the beneficiary in, delivering a secure, affordable, sustainable energy system, or to increase the level of environmental protection relative to that which would have been achieved in the absence of the subsidy. The schedule also includes a number of more specific principles, covering for example the decarbonisation of emissions linked to industrial activities or subsidies to electricity-intensive users to compensate for rises in electricity costs.

While I recognise the commitment shown by the hon. Member for Aberdeen North to our transition to net zero—subsidies that are correctly devised, designed and targeted can be a powerful means to achieve that—public authorities grant subsidies for many reasons and in connection with many policy objectives.

[Kevin Hollinrake]

The UK is pretty much a world leader in tackling climate change, second only to Sweden in the Climate Change Performance Index. We must look at this question in the context of what the United Kingdom does, rather than something so specific. Would not the amendment effectively open the door to a lot of judicial challenges on whether subsidies were always in the interest of energy and the environment? Is that not opening the door to a lot of problems in the granting of subsidies?

[Paul Scully]

It might be. Whether there would be a slew of judicial reviews remains to be seen, but certainly, there is a question whether subsidies for other policy objectives would be awarded in the first place, because it would be too onerous to do so. Let me take the example of subsidies for training young people. There are some valuable economic and societal purposes there, but depending on what we are training the young people for, they do not always necessarily have much connection to the energy and environmental principles.

Expanding the principles in schedule 2 to include all subsidies may discourage public authorities from granting subsidies in pursuit of otherwise valuable aims. We do not want that to happen. The additional principles in schedule 2, which apply to energy and environmental subsidies and to subsidy schemes, fully support the UK’s priorities on both net zero and protecting the environment. I want to ensure, particularly given this morning’s discussion and the fact that we are in the lead up to COP26, that we are championing those priorities and continuing to lean in and show global leadership from the front. In this instance, owing to the reasons I have set out, I ask the hon. Lady to withdraw the amendment.

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As we know, there seems to be confusion in the Government about what levelling up actually means. Every Government Member probably has their own definition—a slogan still in search of a strategy. The Minister will be relieved to know that I will not ask him to provide a definition, but I will ask him to explain how clause 18 is consistent with reducing inequality across the UK.

[Kevin Hollinrake]

Is it not quite obvious? We are trying to target new investment to go into those regions, rather than existing investment being transferred from one part of the country to another. Is that not what the clause is trying to say?

[Seema Malhotra]

I hear what the hon. Gentleman says, and that is indeed what it is probably trying to do, but the problem is not only that it potentially undermines levelling up; it could also undermine and challenge the Government’s freeport policy. In the Queen’s Speech and the 2021 Budget, the UK Government announced eight new freeports in England, which are intended to promote regional regeneration and job creation and to become hotbeds of innovation. However, it is notable that no mention of freeports was made in the Government’s consultation on subsidy control policy, which closed on 31 March.

Under the Government’s freeport policy, significant subsidies, particularly tax reliefs, move to a particular site. In fact, they are conditional on a relocation. Are these tax reliefs—enhanced capital allowance, enhanced structures in building allowance, business rate relief and relief from national insurance contributions—which are conditional on relocating to a freeport, prohibited or not by clause 18? We heard significant reservations about clause 18 from our expert witnesses on Tuesday. As Jonathan Branton from DWF Group put it:

“Having a prohibition in the Bill, even a badly worded one, is potentially too blunt a tool, which might backfire.”––[Official Report, Subsidy Control Public Bill Committee, 26 October 2021; c. 56, Q77.]

Amendment 13 would mean that the prohibition in clause 18 would not come into force until the Secretary of State has laid before Parliament a report that explains how the provision is consistent with both reducing deprivation across the UK and the Government’s freeport policy. This modest amendment is designed to ensure that the Government have properly considered the impact of the clause 18 prohibition on tackling regional inequality and on the freeport policy. However, we are not convinced at the moment that sufficient thought has been given to that impact.

Beyond our concerns about whether the Government have considered the impact of this provision on their claimed commitment to levelling up across the UK, there are also questions about how public authorities should interpret the clause 18 prohibition. Specifically, the prohibition applies where a subsidy is conditional on moving all or part of the economic activity from one area of the UK to another, but I cannot see where we have had a definition of “area”. Will the Minister explain whether “area” refers to a nation of the United Kingdom, a region, a local authority, a town, a village or any or all of the above? What about a council subsidising a business to move from one part of a local authority to another? There might be perfectly sensible and sound economic and regeneration reasons to do that—for example, to make way for an infrastructure project—but presumably this would be caught by clause 18. Therefore, it is arguably prohibited. Will the Minister clarify the interpretation of the current wording of clause 18?

--- Later in debate ---

[Paul Scully]

Basically because this is a framework Bill. The policy objective of the Bill specifically is not levelling up. It enables levelling up through the framework, but it is the spending and subsidy themselves that are the policy objectives we are talking about. That is why schedule 1 refers to having to explain those policy objectives. Ultimately, this is a framework Bill that allows a permissive approach to subsidy, rather than the opposite—the state aid regime that we had when we were a member of the EU. The Government are fully committed to making sure that the UK subsidy control regime does support disadvantaged areas and facilitates the levelling-up agenda.

As part of the broader consideration that public authorities are required to undertake when assessing a subsidy, the subsidy has to be compliant with the principles within the Bill, and the wider impacts of the subsidy on competition and investments in other parts of the UK must be taken into account. We will publish guidance to make clear how this requirement should be applied by public authorities when considering subsidies that advance the levelling-up agenda or promote the economic development of relatively disadvantaged areas.

I welcome the interest in freeports, which are one of the Government’s flagship programmes to support levelling up and economic recovery. They are there to encourage new investment and create new businesses. The freeports offer follows the subsidy control principles set out in the Bill. They are an example of the UK Government levelling up economic growth across the UK—a strategic interest, which the domestic regime has been designed to reflect.

[Kevin Hollinrake]

On the Minister’s earlier point about technology needing subsidy, actually touchscreens, GPS and the internet were all developed initially through public funding, both in the US and the UK. Is the clause not trying to prevent companies from gaming the system by trying to pit one local authority or area of the country against another through a bidding race to bring their jobs to a certain part of the country?

[Paul Scully]

That is exactly right. Look at subsidy control regimes around the world. Witnesses in the evidence sessions focused on America and the subsidy race between various states, which is exactly what we are trying to avoid through this sensible and proportionate measure. Accordingly, we believe that requiring the Secretary of State to report to Parliament on clause 18’s consistency with the Government’s strategic priorities to do with supporting deprived areas and freeports is not necessary. The new UK domestic regime is designed to ensure that disadvantaged areas have maximum freedom and reassurance to receive levelling-up subsidies that best suit the characteristics of the area. I request that the amendment be withdrawn.

--- Later in debate ---

[Bill Esterson]

I am grateful to my hon. Friend for adding some extremely important examples to my point.

[Kevin Hollinrake]

Can I give the hon. Gentleman some other examples?

[Bill Esterson]

Not yet; let me answer my hon. Friend first before I take what I am sure will be an incredibly important and insightful intervention, as always—it does not mean he is right. It is extremely important that we take nationally significant businesses seriously, that we have a regime that enables us to support them when appropriate, and that we take on board what is in the national interest. That is the purpose of our amendment. I will take the intervention from the hon. Member for Thirsk and Malton, even though he is not wearing a mask today—he did partly on Tuesday.

[Kevin Hollinrake]

I understand the hon. Gentleman’s point about national infrastructure and inward investment, but would he and the hon. Member for Aberavon not concede that Tata’s investment in the UK steel industry is important? Investments in Jaguar Land Rover, which was a failing business before it was taken over, were important for the UK and they protected and effectively created lots of jobs. If the hon. Member for Sefton Central thinks that foreign direct investment in the UK is bad—I know Morrisons is an important company in Yorkshire—is it also bad that our UK-based private equity businesses invest in other countries?

[Bill Esterson]

No, not at all. I have no idea at all why the hon. Member thinks that is where my or my hon. Friend’s arguments were going. We are very much in favour of foreign direct investment to this country and investing overseas as well. Indeed, the success of foreign direct investment in the north-east of England under the Thatcher Government has been put at risk by the attitude of this Government towards the Japanese and the rather strained relations, which hopefully are beginning to repair since the UK-Japan deal. However, let us not underestimate the reputational damage that was done by the way some of that was handled.

Subsidy Control Bill (First sitting)

Kevin Hollinrake Excerpts

Tuesday 26th October 2021 Public Bill Committees

[Stephen Kinnock (Aberavon) (Lab)]

Q I have a question for Professor Fothergill about aid intensity. As we know, under the previous state aid regimes, there were upper limits on the percentage of state aid that could be given. There is no guidance on what the aid intensity percentages should be in this legislation. Could you briefly set out what your thoughts on that are —I would certainly assume that aid intensity should be higher than was the case previously—and why that should be?

Professor Fothergill: The detail is not there in the legislation. It is all to be determined; it will follow in the guidance, one presumes. Under the old EU rules, the aid intensity ceiling varies from scheme to scheme and from place to place, but if we were talking about regional investment aid, for example, the maximum aid you could give in the top tier of assisted area was 30% for a larger business. It actually rose to 50% for a very small business, but the problem that we had under the old EU rules was that in the lowest category of assisted area, which covered most of the assisted areas in England, the ceiling for regional investment aid was only 10%. Frankly, at 10%, that is very marginal and very unlikely to make much of a difference to business decisions. If a decision is that marginal, really, come on: is it going to tip the balance? Incidentally, the EU has recently raised that lower threshold to, I think, 15%.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Q Are you talking about the turnover?

Professor Fothergill: The 10% to 15%?

[Kevin Hollinrake]

Of turnover?

Professor Fothergill: No, that is 10% of the cost of a capital investment. It has recently been raised to 15%. Certainly, if we are setting aid intensity ceilings in the UK under the detailed guidance, we need to set them at levels that really can make a difference; otherwise, you are probably ending up just giving money to projects that would have gone ahead anyway, which is not the objective and is actually contrary to the principles of the legislation.

[Kevin Hollinrake]

Q Subsidies are allowed only for enterprises. Are we missing anything out? Does that mean that social enterprises are excluded? Are the thresholds—£500,000 and £315,000—the right ones? That is pretty much mirrored in what we have already in the EU. Is that the right level? Should it be lower or higher for scrutiny purposes, and should there be a central register of subsidies, rather than those being held at local authority level?

Professor Fothergill: I do not think I have a definitive answer on your first point. I was asked the same question a couple of days ago, and I was not actually sure where charitable and third-sector businesses stood in all this. On your third point, which is about a central register, I think there is a lot of merit and transparency in the whole system.

I hope I have understood your second point correctly. The intention behind the Bill is that there will be what is called, in technical terms, a de minimis threshold, below which you do not have to comply with the rules.

[Kevin Hollinrake]

Q You do not have to report it.

Professor Fothergill: Yes, you can just get on and do things. Colleagues with whom I work in local government say that when they are involved in giving small amounts of financial support to businesses, or would like to do so—when we are talking about small amounts, it is unlikely to distort competition within the UK, or indeed international competition—there are too many hurdles if you have to go through lots and lots of paperwork.

[Kevin Hollinrake]

Q But £500,000 is not a small amount.

Professor Fothergill: We may be talking about slightly different things. I am talking about the de minimis threshold, which the Bill sets at £315,000 over three years or thereabouts.

[Kevin Hollinrake]

Q There are two different levels: £500,000 inside a scheme and £315,000, accumulative, outside a scheme. Do you think those are the right levels?

Professor Fothergill: I do not have a view on the £500,000 issue. Is that about reporting?

[Kevin Hollinrake]

Yes.

Professor Fothergill: I see no reason that things should be reported. This is a personal view, not the view of the alliance, but I know that the local authorities that I work with in the Industrial Communities Alliance have welcomed an increase in the de minimis threshold. Operationally, that makes sense and does not lead to big damage to competition across the country, or indeed to damage to international trade.

[Seema Malhotra]

Q May I ask for some final clarification on that? Part of the question was about the reporting. If all the decisions have been made and the work has been done on a subsidy, reporting—putting an entry on the database—should not be an onerous matter. Are you objecting to that also?

Professor Fothergill: No, I am not objecting to reporting. By the way, when I speak of reporting, I should clarify that the alliance has not taken a particular view on the issue. If I am speaking about reporting, I am expressing a personal opinion that it should not be too onerous. I would have to consult some of my local authority colleagues to clarify their precise views on that, but I know that their precise view on the de minimis threshold is that the increase is a good idea.

--- Later in debate ---

[Andrew Bowie]

Q Why do other countries around the world choose not to do it?

Thomas Pope: That is a very good question. I think there are various benefits, and in our research we have outlined them. I think there is a particular case, in a system where competing jurisdictions can offer subsidies, for worrying about subsidy races. Actually, that is effectively a co-ordination problem, and a subsidy control regime is effectively that co-ordination.

I also think that, in general, there are benefits to setting out very clearly what the principles are by which you are going to offer subsidies. An interesting analogy—it is not quite the same—is fiscal rules; they are not legally binding in the same way, but these rules are set out by politicians to indicate what we think is sensible policy. They can sometimes help you to resist, for example, political pressure to save a business that is going under but that has no long-term prospects. Those rules can also be quite helpful.

In general, it is quite hard to hold the line on those things, and that probably explains why there are not domestic subsidy control regimes in general, because this is Governments tying their own hands. In general, it is quite hard to do that. It just so happens that we have an international obligation that requires us to do that, but I think that is actually a benefit rather than a cost. That would be my answer as to why there are not lots of subsidy control regimes elsewhere. Professor Rickard may know better than me on that.

Professor Rickard: No, Mr Pope is absolutely right. You are committing to saying that the regions within the United Kingdom will not compete with each other in trying to win business, jobs and investment by awarding subsidies. It is difficult to give up that ability, and say that we will not engage in that type of subsidy war, but we have seen the damage that competitive subsidy provisions have caused. Estimates suggest that in the United States $80 billion a year is spent by states competing for business with subsidies. If they agreed not to do it, and had their own subsidy control regime, real income in manufacturing alone would increase by 5%, so there are real economic gains to tying your hands and saying, “We’re not going to engage in subsidy races.”

Evidence suggests that subsidy races do not work in the long term. Even providing big subsidies does not necessarily guarantee that you will get businesses where you want them to be. For example, the US biotech industry is concentrated in five cities with world-leading universities and very deep and highly educated labour pools. Businesses locate there despite the fact that 41 out of 50 states have very generous subsidies to try to lure them to their regions, so evidence suggests that spending subsidies to try to attract jobs may not always work, and doing so is really a waste, in terms of spending a lot of money in a way that potentially hurts productivity and real income.

[Kevin Hollinrake]

Q Professor Rickard, Mr Pope said that he felt that the level for reporting should be lower than £500,000; it should be £175,000. You agreed, but you did not specify a level. What level do you think it should be?

Professor Rickard: I don’t have a strong feeling on the level. I am not sure where the £175,000 number came from. I heard Mr Pope mention it. I do not know the logic behind it.

[Kevin Hollinrake]

I think it’s the EU level.

Professor Rickard: Okay, thank you. I do not see why it could not be lower. I recognise that there is a concern that we are putting a burden on granting authorities, but the granting authorities have this information. They have already collated it and made a decision. Increasingly, with tech, I do not think it is a huge burden to upload that type of information to a database, so I would argue for an even lower threshold than £175,000. If I gave you a number, it would be an arbitrary number—as I suggested, all thresholds are arbitrary numbers—but it could be as low as £100,000. I think that would not unduly burden governing authorities, but would increase transparency to ensure value for money and compliance with the principles.

Thomas Pope: I completely agree that all of these numbers are somewhat arbitrary. The reason I mentioned £175,000 specifically is that it is the EU level, and it is the number that was in the Government’s consultation at the start of the year. That was a question in the consultation, but in the end the level was higher. It is very hard to say whether the right number is £100,000, £80,000, £150,000, £175,000 or £210,000. It should be low enough that we have a good sense of how the system is actually affecting how subsidies are offered.

[Seema Malhotra]

Q I want to follow up on a couple of points, starting with the duty to provide pre-action information—primarily, clause 76. There are ways in which a public authority may refuse or suggest that it would be difficult to give information based on a number of categories—commercial sensitivity, confidentiality and so on—without it seeming to be clear how that could then be challenged. I wonder whether transparency, and being able to bring a challenge with the information needed, needs to be stronger, or whether the role of the CMA might need to be stronger to support requests for information.

Thomas Pope: I am not an expert on that, and you will probably want to ask other witnesses. I think part of the point here is that a failure to comply with something like this could be challengeable, not directly, under the process set out in this Bill, but that is also a violation of public law. But as I say, it would be better to ask a lawyer than me on that.

Professor Rickard: One possibility, potentially, when you are talking about commercially sensitive information is not to limit the amount of commercially sensitive information that would be in the database but, when you do get a public request, to do something similar to what they do with Nomis and the labour data, which is very disaggregated by firms. You have to sign a declaration saying why you are using this information and that you are not going to use it in a commercial way. That may be a way to provide the necessary information to a potential challenger, but in a way that protects information that is potentially commercially sensitive. So I certainly think there are ways around it, and I think that it would be important to explore some of those mechanisms.

Subsidy Control Bill (Second sitting)

Kevin Hollinrake Excerpts

Tuesday 26th October 2021 Public Bill Committees

[Seema Malhotra]

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.

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. 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—

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Q How many, sorry?

Alexander Rose: Two hundred and fifty seven out of 501. In order to bring a digital review challenge, you are probably going to have to spend between £25,000 and £40,000, so if you are seeing a nil value, you are very unlikely to bring a claim.

Some of those are going to be schemes, and I will bring out some of the schemes on that website at the moment. SC10261, the Tees Valley Capital Grant Scheme, is listed as having been posted on the website on 1 April 2020, but the website did not exist on 1 April 2020. SC10388 is a real estate grant of £675,000 in Girton in Cambridgeshire—I picked this one because it is the last—and that one does not have a date at all. There is no way that somebody wanting to challenge would be able to know that date unless, as I have personally done, they have been saving the spreadsheets and comparing them.

Now, essentially, what we have here, therefore, is a mousetrap that is lacking a spring. Unfortunately, the Bill does not fix that. The way to fix it is at clause 32, which relates to the database, and it must expressly say that there needs to be two things. First and foremost, that information has to be included—the date it is actually entered and/or modified. Secondly, I think you need to end up having a search function that gives you three pieces of information. You need to have the date an entry was entered or modified; the name of the funder, because that is currently not searchable; and the name of the beneficiary, which is on there at the moment. Those are the three key pieces of information. The other element is, in order to capture that scenario where people simply are not putting into the database, you need to have some sanction if you fail to put it on.

The other issue that needs to be considered is that, at the moment, you have up to six months to put that information on the database. A large enough subsidy could make a business insolvent within that six months, so it feels to me that the period needs to be shorter. Likewise, the period to challenge needs to be longer. There is no obvious reason for having a shorter period for what is rightly described as the most important piece of post-Brexit legislation than for a planning permission judicial review. It should be longer. The next point is that there should be some level of sanction if that information is not put online. For example, maybe a sensible level would be the challenge period is extended to six months.

Jonathan Branton: The challenge period is not validly started if the right information is not put online. That is one way of looking at it. If it is not validly started, it never ends.

[Stephen Flynn]

Q Thank you all for that very helpful information. There are perhaps two different elements of discussion in relation to the Bill going on here. Richard referred to the Bill perhaps providing more of a light touch in that regard, and it may well be beneficial. We heard from individuals earlier today in relation to the lack of guidance or understanding as to how the Bill will operate. How do you get to that conclusion, notwithstanding the lack of guidance that sits behind the Bill that is due to come from the Secretary of State in future? Ultimately, do you foresee a situation where the Bill will actually provide an increase in state aid, as I am sure your organisation would like to see?

Alexander and Jonathan, if I may say so, you gave quite a devastating indictment of current practices and we would all hope that the Bill will improve on that situation. Do you think it will, as it stands?

Alexander Rose: First and foremost, I think that the general structure of the Bill is good. I think it is quite sensible. My concern is in terms of those details. I think there is capacity to refine the Bill so it is better. I agree that transparency is a concern.

The other area I am very concerned about is the ability to create schemes because the schemes can then only be challenged in the period they are set up. Why that nil point is so important is that, essentially, you have got a situation where there is an unlawful aid––an unlawful subsidy––but you can only challenge it within the month the subsidy is set up. I struggle to see how an organisation could ever really know that it is going to be affected by that subsidy scheme unless it identifies the competitors who are going to get a subsidy and the amount.

Clause 70(2) needs to be amended to add some wording at the end along the lines of providing that, at the time of entry of information about the subsidy scheme on the subsidy database, sufficient information has been made available for an interested party to make an informed decision as to whether and to what extent their interest may be affected. To my mind, the transparency database and the addressing the schemes point are the two issues that will most damage the award of subsides in future if not rectified.

Jonathan Branton: I would second that. The transparency register is relatively easily fixed, I would have thought. The schemes point is a potential loophole that, if not closed, could lead to some frankly bad schemes being adopted and then being impervious to challenge on the basis that the time had passed since the scheme had been published, but the actual awards pursuant to that scheme were somehow protected.

That is at odds with the fundamental principle that interested parties ought to be able to see what is out there and affecting them so that they may challenge it, and they cannot see that until an actual award has been made to a competitor or another party in which they are interested. Until cash is parted with, they do not see that, and that is arguably at odds with at least the spirit of the TCA provisions around schemes, and I think that could be very much tightened up.

Broadly, the Bill does a good job. It will help the regime to mature and become more effective, but it must be recognised in huge part that it puts in place a framework to achieve a whole load of things that have not yet been decided. There is talk of streamlined subsidy schemes, referrals to the CMA and so on, but the Bill does not say what will be in a streamlined subsidy scheme or what will be the subject of a referral, so all those details will come in the future. I absolutely applaud the creation of the framework to be able to implement a streamlined subsidy scheme. What will matter—the proof of the pudding—will be what is actually within that scheme in due course.

A final point: a lot of people have mistaken the detail of the Subsidy Control Bill and the subsidy control framework regarding their effectiveness for remedying, levelling up, or whatever might be the question of the day. The Bill does not set the division of funding to different places and activities, which is a fundamental part of the redistribution of wealth. A lot of misconceptions suggest that the Bill should achieve all that, but the fundamental point of how the cash is carved up and distributed is not necessarily a question for subsidy control law.

Richard Warren: Just to go back to the question about problems that might arise with a light-touch approach, from our perspective the difficulties we have had with the system that we are replacing—the European system that we removed ourselves from—have been on the more prescriptive side. When we have asked the Government to introduce x, y and z, the response has often been, “The EU doesn’t say you can do it, so we assume you can’t.”

Other Governments have taken a different approach. When we proposed to the Government that they should provide an exemption from the cost of the capacity market within electricity pricing, BEIS said that as EU state aid law did not provide explicit rules on that, it could not introduce an exemption. The Polish Government took a different approach, saying, “We’ll come up with one and introduce it.” The more prescriptive approach in the EU has been limiting, certainly as the UK Government approached it, so we feel that we will be more empowered as industry to bring forward proposals with greater confidence that they will be within the UK scheme for subsidy control because, as I said in response to a previous question, everything is allowed apart from what is explicitly not allowed, so we will be in a stronger position to be confident of saying, “Actually, this is allowed by UK subsidy control rules.”

My final point is that the biggest barrier has probably been the UK’s culture of not using the power. Time and again, the reason why we cannot do x, y and z that has been given by either Ministers or officials is that the state aid rules will not allow it. We have often taken a different view, but that excuse has been an almost permanent barrier to doing things. The new regime might reveal whether the excuse has been something to hide behind, or if there is a general culture of preferring not to use state aid rules or subsidy. That is probably a more important point for the steel sector than the Bill, which broadly provides the right framework—we have no major concerns about it.

Let me briefly touch on the regional point that Jonathan made. It is valid, in that the new system opens up a huge amount of flexibility for regional development. Historically, the UK has not done a huge amount of regional development. If we look at the split of what we have spent in the past few years, barely anything has been spent by the UK on regional development in terms of state aid. The system gives us an awful lot of flexibility to redefine which areas we want to give regional development to.

Under the EU system, the map of which areas of the UK were considered to be category A was pretty limiting. One of them happens to be where Port Talbot is based, but it has been a slightly moot point because it has not received a lot of regional aid anyway. The point is: the Government can redesign it, and that will be a key element if they are to use their new subsidy control regime to the maximum flexibility to pursue their levelling-up agenda.

--- Later in debate ---

[Stephen Kinnock]

Q Just zooming out for a second, I know that you all have an interest in this levelling-up agenda. The stated priorities of the Bill are to be able to drive forward both the levelling-up agenda and the transition to net zero. Mr Rose and Mr Branton, do you think it is possible to achieve the levelling-up agenda without an assisted areas map or some way of actually focusing resources? There is also the issue that relocations are prohibited. What impact does that have on the levelling-up agenda?

We will achieve net zero in this country only if our steel industry transitions towards it. Mr Warren, what kind of state aid support do you think would be needed for that? Do you think there should be more explicit guidance in the Bill about how to achieve the transition to net zero as part of this overall strategy?

Jonathan Branton: I will start with the levelling-up question. I think you were asking whether it is possible to do something there without the equivalent of a regional aid map. The short answer is yes. You do not have to have a map of the country with shades of different colours for different levels of qualification in order to do something similar. The point is to give some form of preference or favouritism to areas based on some kind of measure of comparative disadvantage.

You could quite easily do that if you established a series of criteria. If you found that a given area had exhibited one or more of those criteria—and there would obviously need to be quite some thought given to what they were—that would be a means establishing that somewhere is regionally disadvantaged. Obviously, you can layer that with all sorts of different complications and grades of disadvantage, if you wish. That might be complicated or overly political, but you can establish the fundamental point of something being disadvantaged or not by reference to, I would like to think, a set of criteria, which would not be too hard.

For the relocation point, the wording in the Bill talks about something prohibiting subsidy that was given as a condition of relocation. In some ways, to my mind, that invites somebody to give a relocation that is not a condition, but achieves it anyway. Maybe that is just lawyers being cynical. Perhaps it is not fit for what it seeks to achieve, but is that a good thing anyway? I have seen a number of situations where a relocation has taken place, which has been positive for several reasons—perhaps someone relocates to make physical space for an infrastructure project, for example. Linking that back to levelling up, relocations can be advantageous and good in the grand scheme of things, and definitely positive for redistributing wealth. Having a prohibition in the Bill, even a badly worded one, is potentially too blunt a tool, which might backfire.

Alexander Rose: I have a slightly different position on clause 18. I think the way to resolve it would be to put in a value figure—maybe £20 million. I also agree that relocations can be hugely beneficial. Schedule 1 outlines the common subsidy principles and paragraph F is designed essentially to avoid competitions developing within the internal market.

I think that the issue trying to be resolved here is avoiding what would be regarded as a distortive subsidy. The way to deal with that is to define distortive subsidy and say that that would then be referred to the CMA, or however that works. That leaves you with the potential to include a replacement additional principle—you mentioned levelling up and net zero. I note that the strategy announced last week requires all civil servants to take account of net zero, yet these rules will be used by more than 550 public bodies. That is a great opportunity to instil that kind of thinking in every single subsidy.

Jonathan Branton: Without necessarily preventing them.

Richard Warren: To answer very briefly, yes, undoubtedly decarbonisation of the steel sector will require considerable subsidy or state aids, however we wish to term it. In sectors such as the power sector, we see billions of pounds’ worth of subsidy to decarbonise, and the steel sector will need precisely the same. Net zero or low-carbon forms of steel production will add anything from 30% to 50% to the costs of steel production, depending on which route you go down. If other countries are not moving at precisely the same speed or putting the same constraints on their industries, you will need some sort of intervention to correct that market failure.

There are two key areas where we would like to see additional movement. Again, I come back to competitive electricity prices. Fixing the issue there will require some sort of intervention. Secondly, we need pretty hefty support for capital investment in carbon capture and storage, hydrogen or even new electric arc furnaces. That will require hundreds of millions of pounds of investment.

On your final point about whether we need anything further in the Subsidy Control Bill to direct us towards that, I think that the light-touch approach is the right way to go. It does not exclude the Government from doing anything and it leaves open a huge number of options.

For example, the clean steel fund of £250 million that we hope will be confirmed in the spending review tomorrow is perfectly legitimate under the current regime. Maybe under the EU system, which says, “You can do this, you can’t do that”, you would have had to go through a more complicated approvals process. By the time you start introducing explicit requirements for certain industries, you will get a bunfight where everyone wants something mentioned in the Bill. You may end up down a route of, “If it’s not mentioned, maybe we shouldn’t be doing it”, so I think that the light-touch approach is the best way to go.

[Kevin Hollinrake]

Q In terms of the thresholds for reporting—I think it is £500,000 and the minimum financial assistance threshold is £315,000—are they the right level to achieve the transparency you are looking for?

Jonathan Branton: I think probably yes. In terms of the small amounts of financial assistance, it is basically double what the EU’s de minimis has been. The feedback I have had so far across the piece is that the doubling has been a sensible, long overdue move. Frankly, that has been set by reference to what the TCA sets anyway, so we do not have a lot of flexibility to play around with that. Setting it at a fixed, sterling level is immediately sensible. There can be no debate about that.

In terms of the transparency, yes, you have to draw the line somewhere and the £500,000 seems like a sensible, rounded figure. I certainly do not have a strong view that it should be put at a different level—not yet, anyway.

Alexander Rose: The £500,000 is for schemes. I think that the question ultimately is that if you amend clause 70(2) in order to address this gap in terms of, essentially, accountability, you will need some level of incentive to use schemes. It appears that transparency has been chosen as that route.

Personally, I think that the £500,000 seems quite high, but you do need some kind of incentive; otherwise, people will not go down the route of using schemes, when clearly a decision has been made that that is a good idea.

[Bill Esterson]

Q I want to ask Mr Rose and Mr Branton about this. You have both talked about building the framework and the additional details have to come later. Are there any elements of the additional details that you think should be in primary legislation? I think that Mr Warren has ruled that out, but he may want to comment on that.

Looking at the other things you have said, rather than saying in general terms that the reporting period should be less than six months, do you have a particular figure in mind? Similarly, do you have a figure in mind to replace the one-month opportunity to appeal?

Jonathan Branton: I will take those questions in reverse order. There is the clearest possible case for extending as soon as possible the period in which someone can appeal—but not to more than three months, which is the standard time limit for judicial review. I think that is relatively clear.

On the six months, I have yet to hear a really persuasive case for why you need that long to publish the fact that you have made a award. Why do you need six months to get yourself together to publish that something has been done? I would think that that could possibly be as much as halved.

--- Later in debate ---

[Seema Malhotra]

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. 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.

[Kevin Hollinrake]

Q If you have a monitoring requirement, you would think the obvious place for you to go to look at would be the database, yet we heard evidence earlier that fewer than half the entries on that database even have a figure for how much subsidy has been allocated. Is that not a concern to you, because how else will you gather the information other than looking at the database?

Rachel Merelie: That is a very good question. I think we will need to understand how that database is operating, and I am sure you are right; that will be one of the ways in which we will gather information. We may also be going directly to public authorities to ask them questions. I guess we would also be doing some market analysis, some desktop analysis, and so on, of how the subsidy regime is operating more widely. I think there will be a number of different ways in which we gather information, but you are absolutely right—the database will be an important part of that.

--- Later in debate ---

[Simon Baynes]

Q Just a quick question. We have talked rather a lot in this session about the four nations, but the terms of the Bill are such that the devolved Administrations take their place alongside local authorities, public bodies and central Government in being involved in delivering the subsidies to businesses. Therefore, do you agree that they are of equal importance in this endeavour and that, in a sense, the whole point of the Bill is that it spreads the responsibility across the UK and across different levels of government?

Rachel Merelie: Thank you for the question. It is really important that all granting authorities are treated fairly and equitably, regardless of whether they are in the devolved nations or in England. Yes, certainly the spreading of the load across the different granting authorities, and the ability for the subsidy advice unit to engage with each of those on an equal footing, is very important.

[Kevin Hollinrake]

Q On the minimal financial assistance, how are you going to monitor that? It is up to the company to record the assistance it receives. A company could receive assistance from numerous local authorities if it has premises in different parts of the country—for example, through the business rate grants that we saw last year. Those items will not be recorded anywhere. How would you monitor that?

Rachel Merelie: We will be taking the submission from the public authority, and it will be assessing its subsidy against the seven principles that are set out. It will then be for us to look at whether it is providing the evidence that we need to take a view on the strength of its assessment against those principles. That is what we will be relying on in order to do our assessment. Where necessary, we will be able to ask questions of third parties, but in the time available, we will be largely reliant on the public authority giving us the information we need.

[Kevin Hollinrake]

Q I realise that your primary focus is going to be very large schemes—not hundreds of thousands of pounds, but millions of pounds. Nevertheless, somebody has to monitor the smaller stuff as well to make sure that people are not abusing the system. I do not see how anybody can monitor that. To monitor that, you would have to monitor every local authority in the country and stitch all their contributions together against a certain entity.

Rachel Merelie: In the way the Bill is currently set up, that wider monitoring on a day-to-day basis is not something that we will be involved in.

[Seema Malhotra]

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. 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.

--- Later in debate ---

[Simon Baynes]

Q But do you support devolving powers to local authorities in general as part of the devolution settlement?

Ivan McKee: Clearly, it depends on what it is. In the devolution settlement, local government is obviously a devolved area, and those areas are for Scotland to decide on.

[Kevin Hollinrake]

Q It seems to me, looking at schedule 1, that you are able to design a scheme that the devolved Administration in Scotland deems appropriate. I think you said that you were worried that, having done that, you might be challenged—by the Secretary of State, for example. However, under clause 70(7)(a), you could challenge another part of the UK on their scheme, too. Why does Scotland have any less discretion in challenging another part of the UK than another part of the UK has in challenging you? It seems to be exactly the same either way.

Ivan McKee: Not really. Look at the calling-in powers, for example, that the Secretary of State has that we do not. The streamlined subsidy schemes, which have not been clarified yet, can be made only by the Secretary of State, not by the devolved Administrations. The cooling-off period, again, has no equivalent powers for the devolved Administrations. Requesting a report from the CMA cannot be done by the devolved Administrations. Referring to the CMA’s subsidy advice unit can be done only by the Secretary of State and not by the devolved Administrations, so the Secretary of State has a range of powers that can operate in areas where the devolved Administrations do not have the authority to do those things as well. That asymmetry in devolved areas is something that we are concerned about.

[Kevin Hollinrake]

Q I am sure that the Secretary of State would argue that that is because it is an umbrella scheme for the United Kingdom, but do you accept that under the Bill you have the powers to design your own scheme for your devolved Administration, and you have the same powers as the UK Government have to challenge a scheme in another part of the UK?

Ivan McKee: In terms of designing the scheme, clearly it is open to challenge within the scope of that. As I have outlined, the Secretary of State has a range of powers that the devolved Administrations do not.

[Kevin Hollinrake]

Q That was not the question that I was asking you. I was asking whether you agree that clause 70(7)(a) gives you the same powers as any other part of the United Kingdom to challenge a scheme?

Ivan McKee: It does not give us the same powers as the Secretary of State, which are much more wide-ranging than those that you mentioned.

[Kevin Hollinrake]

Q That is not the question I asked you. I asked whether under clause 70(7)(a) or (b) you have the same powers to challenge a scheme in any other part of the UK as any other part of the UK has to challenge you?

Ivan McKee: That is true as far as it goes, but that is not the point. The point is that we do not have the same powers that the Secretary of State has under section 55.

[Kevin Hollinrake]

It was my point, though. Thank you.

[Seema Malhotra]

Q We had some discussion about clause 70(7)(a), and there is some point of clarification about the definition of “interested party”, which I do not think is fully clear in relation to the devolved Administrations, but either we agree on the need for the Bill to be taken forward, I hope with some significant improvements, or there is a view that that cannot be achieved. I want to come back on a couple of points that you made, Mr McKee, that I was not fully clear on. The first is on being prepared to be involved in discussions, the question being what outcomes would be achieved. Do you feel clear at the moment on what specific changes, whether in relation to call-in powers, an obligation to consult or consent, you would want to see inserted in the Bill to meet some of those concerns? It would be very helpful to understand specifically what they were. Perhaps that could be in writing afterwards.

Secondly, I was not fully clear on what your view was in relation to local authorities. It seemed that it was more for the Scottish Parliament to decide what local authorities in Scotland may or may not do, rather than local authorities across the UK being able to make subsidies if they felt that they were in line with the subsidy control principles, and beneficial for their area. I was slightly confused on what your view was about local authorities being able to make subsidy decisions in Scotland. Perhaps you could come back on both those points, and put in writing what specific changes you want to see.

Ivan McKee: On the specifics of what our asks would be, I am very happy to put that in writing. In broad terms, it centres around, as I said, the requirement to not have the Secretary of State able to operate in devolved areas, as per the devolved settlement, and for the Scottish Government and Scottish Ministers to be able to do that. For us to have equivalent powers as it refers to devolved areas would be the ask, in broad terms. I have outlined some of that verbally, but I am very happy to come back to the Committee in writing with the details on specifically what that means.

Local authorities have always been able to grant aid within the rules that exist, so effectively nothing changes there. What changes with regard to the Bill is the authority that it gives the Secretary of State that it does not give in devolved areas to Ministers in the devolved Administrations. That is our concern.

Employment and Trade Union Rights (Dismissal and Re-engagement) Bill

Kevin Hollinrake Excerpts

Friday 22nd October 2021 Commons Chamber

[Laura Farris]

I am afraid the hon. Gentleman is incorrect. This concern was raised by my head of chambers and it is shared across the employment Bar. We cannot have a just and equitable jurisdiction in the law of unfair dismissal as it does not work.

The hon. Member for Feltham and Heston (Seema Malhotra) raised a point about the aviation sector. The conduct of British Airways was poor, but there is an important issue at stake. If in primary legislation the risks of fire and rehire are so great that employers are more inclined to lay people off, think what that would mean for airline pilots, for example. Airline pilots must fly within a two-year period to retain their flying licence. If they are sacked by British Airways at a time when the entire travel sector is struggling badly, they would be very unlikely to get a job and it could easily be two years. It is not just the loss of a job; it is the loss of an entire career. We need to tread very carefully when we consider primary legislation in the area of fire and rehire.

[Kevin Hollinrake]

My hon. Friend is making an excellent speech and some important points. She talks about the risk of moving to layoffs or redundancies, is there not also a danger that businesses will not recruit people in the first place or will not scale up because of the fear that employment legislation is so complex and is increasingly one-sided on behalf of workers? That would deter employment, which is the exact opposite of the situation we all want to see.

[Laura Farris]

We all know there is always a risk that we make employment relations so onerous that there is a temptation to engage consultants. What we are primarily looking at is employers that have larger, unionised workforces. I am not sure how many employers it would engage, but the short point is that Conservative Members want a solution that does not make an existing problem worse, drive redundancies or lead to more business failures. Fire and rehire must be a genuine option of last resort when a negotiated settlement cannot be reached, when the business is on the brink of insolvency and when the alternative is layoffs.

--- Later in debate ---

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak after the hon. Member for Bradford East (Imran Hussain). [Laughter.] At least we have a Yorkshire heritage in common, which is always a pleasure.

It is quite daunting to speak after the eloquent speeches by the promoter of the Bill, the hon. Member for Brent North (Barry Gardiner), and by my hon. Friend the Member for Newbury (Laura Farris). They both made fantastic and constructive speeches. Prior to my being in this Chamber, my life was in business, and I feel like I am in some kind of mediation. We have heard the workers’ perspective, we have heard the lawyers’ perspective, and now, perhaps, we will listen to the business perspective, which is a very important part of the conversation.

It was great to hear the hon. Member for Brent North talk about the engagement that he has had with business, and about seeing the issue from their perspective. I can see why he has made sure that the Bill does not ban fire and rehire outright. I am not sure that all his colleagues would support that position, so he has taken a brave line on that. He said right at the start of his speech that he wants to make the UK the best place to work. I absolutely agree. We also want to make it the best place to start a business, because the relationship is symbiotic. The shadow Minister, the hon. Member for Bradford East, said that workers create the wealth and the chief executives and shareholders hoard it. I do not see it like that. It is a much more interdependent relationship than that.

Let me talk about a personal experience of mine. I have been in business for 30 years. I know that the situation would not have been quite the same, because my business would not have come under the legislation contained in chapter 1, but there are other elements that would have been the same. We entered the crisis of 2008 with a workforce of 200 people, so we would have come under this legislation in scale, although the legislation that covered our business would probably have been slightly different.

We were in the property sector, and we were faced with a 70% reduction in turnover that year. The first thing that happened was that all the directors of the company—all the people who ran the company—took a 50% pay cut. That was the first thing we did, before we made any redundancies whatsoever. Then, of course, we sat down and talked to our workforce about how we were going to get through this period. That was a very difficult period, because we had been in business for 26 years and a lot of those people had worked for us for over 20 years. We had to reduce our workforce from 200 people to 65. It was a desperate time. We were not trying, as was described, to coerce them into a certain situation; we were simply trying to get our business through a very difficult situation. We were under pressure from all directions.

The key thing for us at that point was pace. The bank was putting us under huge pressure. We did go through consultations. As part of the section 188 requirements—the 30-day requirement—we went through consultation with our workforce. The workforce were very supportive of what we did, and I think in many cases they felt more sorry for us than we did for them, although, as I say, the conversations were very difficult. However, if we had had to go through endless consultations and reviews, challenges through the committee and challenges through the employment tribunal, our business would have gone under. That is the reality behind that delay.

[Andy McDonald]

The hon. Member is making some excellent points. I do not think that anybody in the House is suggesting that the sort of practices that he engaged in, as a good and responsible employer, are the issues at play here. The issue that concerns us is employers that are making very significant profits using the cover of covid to deploy these dreadful tactics, not the sort of good practices that he is describing. He is making reasonable points about periods of consultation. If he finds that those are too onerous, we can address and debate those issues in Committee. We need to hear evidence directly from people, including his considerable experience.

[Kevin Hollinrake]

The hon. Gentleman makes a good point, and I should have clarified this. I am not a lawyer, but I can read, and subsection (1) of proposed new section 187A covers not just fire and rehire but, as set out in clause 1,

“reasons other than conduct or capability”,

which could cover a situation where someone was making redundancies simply to cut their coat according to their cloth. Is it possible to amend in Committee a Bill that is potentially so flawed? I defer to my hon. Friend the Member for Newbury, who said that guidelines and sanctions would be the better approach. It is only fair that we look at that. As legislators, it is important that we tread carefully when we legislate at all. Bill Shankly, a great Liverpool manager, said to his players before he sent them out on to the pitch that, “The score is 0-0, don’t let it get any worse.” Before we move down a path of legislation, we legislators have to think about whether there are unintended consequences—we must not make things worse, particularly for business, which is looking for stability, frameworks and certainty. I will also come to the retrospective nature of the Bill, which I am uncomfortable with.

I am of course totally opposed to fire and rehire where a profitable business that does not need to restructure is taking advantage of a particular situation. Opposition Members are trying to cover those situations, and who would not want to do that? Such conduct is absolutely wrong and a stain on business, and every Minister I have heard at the Dispatch Box has criticised it.

There is only one thing worse than fire and rehire, and that is fire and not rehire. That would be a concern if the Bill went through, instead of companies taking the opportunity to restructure in a way that keeps their business going and gets it through a difficult time. If the provisions were not in the Bill, companies would just make redundancies or dismiss staff in other ways.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

The hon. Gentleman says that there is only one thing worse than fire and rehire, and that is just fire. But if this is about the option of an offer of redundancy with a redundancy payment, as opposed to someone having a gun over their head and being told, “Take these worse terms or you won’t be able to pay for your housing. You can have no job at all, with no redundancy pay-off”, I am not sure he is right. And the situation may even be worse than that. He needs to remember the stress that our constituents were facing when they were faced with fire and rehire.

[Kevin Hollinrake]

The hon. Lady makes a good point, but all these matters are covered under employment law. Whether on wrongful dismissal, unfair dismissal—constructive dismissal—or redundancies, an employer has to follow due process.

[Laura Farris]

rose—

[Kevin Hollinrake]

My hon. Friend may be able to enlighten us better than I can.

[Laura Farris]

To pick up on the point about redundancy payments and that being a suitable alternative, does my hon. Friend agree that of course a business in financial trouble could dismiss in any case for “some other substantial reason”, which would not lead to a redundancy payment? It is all there in section 98(1)(b) of the Employment Rights Act 1996, and it would leave an employee as badly off as somebody who is subject to fire and rehire.

[Kevin Hollinrake]

I defer to my hon. Friend, who knows far more about this issue than I ever would. The principle behind our discussion is making sure that, where the question is a business’s survival, it can get through a very difficult time. There is no doubt that last year many businesses and many sectors were in a situation where there were question marks about their very existence, so in those times they must have the opportunity to sit down with their workforce and restructure, where that is the only way forward.

[Geraint Davies]

The hon. Gentleman professes to speak for business. My background is in business. I mentioned earlier that the productivity rate in Germany had been twice that of here because employers are required not to fire and rehire people easily, so they train people. Does he also know that the Government-commissioned research by the Department for Business, Energy and Industrial Strategy shows that, in terms of productivity, the return to training in Britain is about 24% compared with only 6% in Germany? In other words, they have done much more training but our returns are much higher. Does he not agree that this sort of Bill, which puts pressure on employers to train and tool up their workers instead of just firing them when times are tough, is very important for the economy? Will he not join hands with us and take this forward to Committee?

[Kevin Hollinrake]

I think that there are two separate things entirely. Who would not agree with skilling up our workforce? Of course we need to skill up our workforce and good employers will do that to enhance productivity, particularly if we move to a higher-wage, higher-skilled economy. It is absolutely right that we should do that. However, the key question on whether the Bill should go forward to Committee is: is the Bill in any shape or form amendable so that it can do what the hon. Gentleman wants? [Interruption.] I accept that Opposition Members may feel that it is, but there are cogent arguments from Government Members that it is not and that there are better ways to do this.

[Tom Hunt (Ipswich) (Con)]

I look to my hon. Friend for guidance, as a wise head. There are certain turns of phrase that I perhaps do not understand. The shadow Minister, the hon. Member for Bradford East (Imran Hussain), said that this about not banning the practice, but ending the practice. Does my more experienced colleague, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), understand what he means by that?

[Kevin Hollinrake]

I was not legally trained, so I am struggling. The key point is this: if we can find a way to meet the objectives of the hon. Member for Brent North (Barry Gardiner) without legislation, I would prefer to see that, and I think we all would because life is tricky enough when someone is trying to run a business, so if there are better, non-legislative ways to do it, we should absolutely look at them. The danger is that this becomes hugely bureaucratic.

[Shaun Bailey]

My hon. Friend the Member for Newbury (Laura Farris) is a lot more learned on this matter than we are, but as a general point, does my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) not agree that the way in which we make good laws in this place is by ensuring that they are operational? Does he not share my concern that the Bill is very much open to legal challenge in its current form and that, if we want to make sure that it works, it has to be operational on the ground?

[Kevin Hollinrake]

My principal concern is the amount of bureaucracy in and the interpretation of the Bill. I have many good lawyer friends—this usually has a “but” attached to it, doesn’t it?—but there are bound to be different interpretations of this kind of legislation. My hon. Friend the Member for Newbury (Laura Farris) set that out very clearly. Let us take just the phrase “all information”—that can mean virtually anything. A process can be subject to challenge all the way down the line and there can then be a claim for wrongful dismissal on the basis of a simple document that was not provided. Who would decide whether all the information has been provided? The appointed representative, at any point, could challenge the fact that all the information was not provided. It could be a very small piece of information that the employer never considered relevant to the discussion. Again, there is a huge opportunity for interpretation and bureaucracy. That cannot be positive for a good business environment.

There is also the issue of capacity. We already have issues about capacity for employment tribunals. This also brings in a whole new set of responsibilities for the Central Arbitration Committee and there is no understanding of whether that capacity can be filled.

[Barry Gardiner]

There is much in what the hon. Gentleman has said that I agree with. I just point out that the Bill does not actually ask for the disclosure of “all information”. It asks for the disclosure of

“all information…without which the appropriate representatives would be to a material extent impeded in carrying on consultation with the employer, and… which it would be in accordance with good industrial relations practice that the employer should disclose”.

That is not a catch-all. It is specifically about the information necessary to conduct proper consultations about the future of the business. He is being very fair in the remarks that he has made, but he must not misrepresent the Bill in that way.

[Kevin Hollinrake]

I certainly do not seek to do that. Proposed new section 187B(2) of the 1992 Act says:

“The information to be disclosed is all information relating to the employer’s undertaking (including information relating to use of agency workers in that undertaking) which is in the employer’s possession, or that of an associated employer”.

There is a double requirement, so “all information” does seem to apply.

[Kevin Brennan (Cardiff West) (Lab)]

On a point of order, Madam Deputy Speaker.

--- Later in debate ---

[Madam Deputy Speaker]

I thank the hon. Gentleman for that point of order. Basically, a Second reading debate is very wide-ranging and hon. and right hon. Members are entitled to raise issues that they feel might be problematic if the Bill were enacted. This is a very wide-ranging debate that on another occasion I am sure the hon. Gentleman would appreciate enormously.

[Kevin Hollinrake]

The hon. Member for Cardiff West (Kevin Brennan) makes a very good point, and I have a lot of time for him generally. My point is a general point, but there are specifics underpinning it that we have to consider. The definition of “all information” is relevant, as is the definition of “less favourable” when considering whether an employment contract is now less favourable. That interpretation will be left for the courts and lawyers to decide. I am looking at this from a business perspective. How would it affect the likelihood of businesses wanting to employ people? That is a big commitment for any business.

[Clive Efford]

If we refused to send legislation into Committee because of how lawyers might or might not interpret it in future, we would not pass a single Bill. The hon. Gentleman is going into minute detail on the wording of clauses, and that debate belongs in Committee. It demonstrates that Government Members have lost the argument. This Bill should go into Committee.

[Kevin Hollinrake]

The hon. Gentleman makes a fair point, but in my view it is better to have no legislation than poor legislation. It is important that we look at the Bill and decide whether it should go into Committee.

As I was trying to say in response to the intervention by the hon. Member for Brent North, it is about capacity. We would be giving the Central Arbitration Committee huge responsibility, not only for taking on lots more cases but for making lots more determinations about information.

[Andy McDonald]

That’s its job.

[Kevin Hollinrake]

Yes, but it would require a huge scaling up of the role and there are no money resolutions attached to the Bill. [Interruption.] If I or any other person does not want to see this Bill passed, we have a perfect right to stand in this Chamber and express that opinion. That is exactly what I am doing. As I say, it is better to have no legislation than poor legislation.

The capacity of employment tribunals is another big issue. The ACAS document says that employment tribunals are under enormous strain today. The Bill would likely significantly increase the workload of employment tribunals. Additionally, it would require them to make all kinds of interpretations. The ACAS document observes that tribunals are not economists. Tribunals would consider the situation between businesses and workers and would have to make decisions that, in my view, they may not be capable of making. This might introduce undesired complexity, for example. There are all kinds of questions, not just about capacity but about the competence of employment tribunals.

I am also concerned about duplication, as it seems to me that there are provisions in the Bill about situations covered by redundancy.

[Simon Baynes (Clwyd South) (Con)]

Can my hon. Friend perhaps provide a little more information from his expertise about the additional costs, both financial and for staffing, that he estimates will result from the high number of employment cases that might arise from this situation?

[Kevin Hollinrake]

I would like to be able to, but I am not sure that is incumbent on anybody who opposes the Bill. It is right for somebody who introduces the Bill to state alongside it what extra capacity will be needed, and the cost of that to the taxpayer or the businesses concerned. To my knowledge, that work has not been done.

I am also concerned about clause 27D, on the unilateral variation of employment contracts. No doubt some of the evidence taken showed that some contracts of employment allow unilateral variation. That is not something I have never done in my business practice, but nevertheless the Bill seeks to make those provisions unworkable or not legal, meaning that employers will not be able to rely on that in future, and those elements of the contract will effectively become null and void. I do not blame the hon. Member for Brent North for seeking to do that. As an employer I would not involve myself in such a practice, but it seems to be retrospective legislation. It is bound to make businesses nervous if we legislate retrospectively about such matters, and I wonder whether he has considered that point.

[Barry Gardiner]

Indeed. The hon. Gentleman is right, and the courts find it disagreeable that such a clause, purporting to allow retrospective variation of the contract, should be embedded within the contract. I would support the hon. Gentleman’s objection if indeed it were retrospective legislation, but the precise point is that any such clause purports to give a right to one party in the contract, and in effect to dispense with the entire contract and simply change it at will. That is what is so objectionable about it, that is what the court found objectionable, and that is what the Bill seeks to change.

[Kevin Hollinrake]

It is an interesting point, and I appreciate the hon. Gentleman’s clarification. My final point is on clause 187E, which seems to say that in almost any circumstance where new terms are offered, the employee has an automatic right to go to a tribunal. That seems to me strange. If any of the things outlined in subsection (1)(a)(iii) happened and an offer has been made, the clause seems to give an automatic right for someone to go to an employment tribunal, without requiring the provisions in clause 187A or B. I might have read that wrong, but it is certainly seems to be the case. Admittedly, that kind of point could be picked up in Committee, but my overriding point is this that issue requires cross-party thought. I would much rather see the provisions become effective through guidelines, financial sanctions or other means, and I do not feel that I could support the Bill were it to be voted on today.

--- Later in debate ---

[Kevin Hollinrake]

My hon. Friend’s points on capitalism were not totally accepted by those on the Opposition Benches. I think we all concede that capitalism is at times not perfect, but has the alternative ever been shown to work anywhere?

[Richard Fuller]

Certainly not, which is why Labour Members are on the Opposition Benches, and the Conservative party, which supports working people, is in government.

I should like to say a few more words about the detail of the Bill and to support some of the points made by my hon. Friend the Member for Newbury.

Supporting Small Business

Kevin Hollinrake Excerpts

Tuesday 19th October 2021 Commons Chamber

[Rachel Reeves]

My hon. Friend is right to make that point. I have had constituents raise concerns about cuts to money advice, for example, through StepChange, the charity based in Leeds. This is linked to the fact that a lot of the funding comes from banks and, due to the formulas set by Government, the funding that goes into debt advice charities is falling at a time when inflation is going up and there is a risk that interest rates might go up, and all the rest of it. She is right, and I hope that Ministers have heard those concerns, which I expect will be echoed by Members across the House.

In November 2019, just weeks before the general election, the Prime Minister told the CBI conference that

“to make sure that the businesses of this country can continue to flourish I am announcing today a package of measures cutting business rates further…particularly for SMEs to help…stimulate the high street.”

Labour welcomed the Government’s review of business rates, which was formally launched 15 months ago, four months into the pandemic. They were right to make the decision to start the review. Businesses, even during those difficult times, found the time to make submissions, and they did so in good faith. The Government promised

“final conclusions in Spring 2021”,

so they are already overdue, and now there is news that the review may be pushed even further into the long grass.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

rose—

[Rachel Reeves]

Perhaps the hon. Gentleman can give us an indication of when the review might finally be published.

[Kevin Hollinrake]

I am afraid I cannot, but I am interested in whether the hon. Lady will come on to her own proposals for reforming business rates, which she announced at her party conference. I welcome at least a first stab at some reform, but I have a question. She would use the digital services tax, but as I understand it, the multinational agreement on the issue means that that tax will no longer be allowed—it has to be scrapped as part of the corporation tax deal. How does she propose a sixfold increase to a tax that cannot exist?

[Rachel Reeves]

I will come on to those points. It is great that Conservative Members are asking for advice, because we have plenty about how to level the playing field in taxes for businesses. I will come on to points about the global minimum rate of corporation tax, because that is how we can help to level the playing field.

The Chancellor must now complete the review and make the changes that the Government have promised. It would be quite astonishing if the Treasury had time to cost up the Prime Minister’s vanity yacht, yet no time to fulfil its pledge on something as important as reforming business rates.

The Minister may argue that everything has changed because of the pandemic. He would be right: everything has changed, including for businesses. The unfairness in the system has been enlarged, not narrowed, during the past year and a half. Almost 180,000 retail jobs were lost in 2020, according to the Centre for Retail Research, while some online retail profits have soared.

Fundamentally reforming business rates is more important now than ever before. I am sure that Members on both sides of the House would welcome confirmation from the Minister that the Government will take the radical action required, which is exactly what businesses are urging them to do in next week’s Budget.

Last week, 42 trade bodies wrote to the Chancellor making clear their view that

“in their current form, our business rates system is uncompetitive…and unfair.”

The British Chambers of Commerce are clear that tinkering around the edges will not do. The British Retail Consortium warns:

“Sky high business rates are closing stores up and down the country and preventing new ones from opening.”

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[Rachel Reeves]

I thank my hon. Friend for speaking up for businesses in Reading that are struggling because of the unfair system of business rates. I expect that, like many other businesses up and down the country, they talk about the unlevel playing field and the unfair competition whereby some businesses pay their business rates—and corporation tax, if they make enough money—but their main competitors are paying a lower level of corporation tax because they have no shop fronts and might not even be registered for corporation tax in this country. That is not right for businesses in Reading, and it is not right for businesses in any of our constituencies.

As the Federation of Small Businesses points out, unlike other forms of business taxation, business rates are a tax that

“hits firms before they’ve even made a pound in turnover”,

let alone in profit. The CBI says that business rates have

“literally become a tax on investment.”

The Union of Shop, Distributive and Allied Workers explains that the crucial jobs and services provided to our local communities are under threat.

In each of the last four Conservative Party manifestos, there has been a promise of action on business rates. How many businesses and shops have needlessly closed as a result of the dither and delay in delivering on those promises? In 2011, the Conservative Government brought in Mary Portas to work on ideas to transform the fortunes of the great British high street. Her frustration with Ministers a decade on cannot be dismissed. She has said:

“It’s shameful that they have still not readjusted their thinking on how Amazon and the delivery giants should be paying equivalent rates of tax online…Their slowness in understanding, their tardiness, is ridiculous."

We agree. Labour is unapologetically pro-worker and unapologetically pro-business. We believe in helping businesses large and small, start-ups and the spin-offs from our universities, all of which can provide exciting new growth for the future. In the everyday economy, the fate of shops on our high street matters.

If the Conservative Government will not make these reforms, the next Labour Government will—and more. My core principles are to tax fairly, spend wisely, and grow the economy. That is why Labour will scrap business rates as we know them. We need a much fairer system. Labour will incentivise investment, promote entrepreneurship and efficiency, reward businesses that move into empty premises, and help our high streets to thrive again. We will ease the burden on the bricks-and-mortar businesses, and especially on the smaller businesses. Our party is on the side of entrepreneurs and the communities who want to do something different—who want to start a business and get on in life.

If Labour were in government today, we would freeze business rates next year and extend small business rate relief. We would pay for easing that burden on businesses by raising the UK digital services tax. We would ensure that online companies, including Amazon, which have thrived during this pandemic and made bigger profits than ever were paying their fair share too. But we know that more fundamental reform is needed beyond just one year, and so, in government, Labour would scrap business rates entirely and replace them with a fairer system fit for the 21st century.

We welcome the backing of the G20 and the OECD for a global minimum rate of corporation tax for multinationals. Labour supports its being set at the 21% originally proposed by President Biden and US Treasury Secretary Janet Yellen, which would have done more to level the playing field between online giants and retail stores and small businesses; but even at 15%, as watered down by the British Chancellor, the global minimum rate of corporation tax will bring in substantial amounts of money that could be used to ease the burden of property taxation on our high streets and for our small and start-up businesses. That is a model of fair business taxation, and that is what a Labour Government will do.

Today’s Opposition day debate on business rates is important for businesses and for our country’s economic recovery. It is about so much more than rates and multipliers: it is about business growth and opportunities in all the places that we are sent here to represent. It is about what we as a country buy, make and sell.

[Kevin Hollinrake]

I thank the hon. Lady for giving way again. She is being very generous. If I heard her correctly, she is going to scrap business rates in the next Parliament. Business rates bring in about £30 billion a year. How will she make up that shortfall? What will be the replacement system to bring in that £30 billion a year?

[Rachel Reeves]

The Chancellor would have a lot more money to play with if he had gone ahead with President Biden’s proposals for a 21% global minimum rate of corporation tax. There are choices in politics, and this Chancellor chose to water down the 21% proposals to 15%. As a result, he has lost £5 billion or £7 billion. We would have used that money to reduce—[Interruption.] We will use that money to reduce the burden of business taxation, and I hope that the Ministers will stand up today and say that they will use the global minimum rate of corporation tax to ease the burden on high streets and small businesses. That is the choice that a Labour Government will make, and we will hear shortly whether it is the choice that this Government will make. [Interruption.] You are not doing anything! The Minister says that we are still short of money, but this Government made the choice to water down proposals that would have brought in £15 billion a year. They made that choice because they are not interested in levelling the playing field on taxes.

In four manifestos now, the Conservatives have said that they would ease the burden of business rates. If the Government want advice ahead of the Budget, they can look at the speech that I wrote for our party conference in which I set out what Labour would do. Instead, they propose to kick this into the long grass and to do nothing to help our high streets and our small businesses. A Labour Government would ease the burden on our businesses and help to create a level playing field with a system of property taxation that asks the retail giants with warehouses and out-of-town centres to pay a bit more, to ease the burden on our small businesses and high streets. That is the right thing to do.

The Budget should be about recovery. The cost to businesses has been going up, supply chains have been disrupted and costs are spiralling as a result of the Government’s unwillingness to invest in gas storage and the skills of British workers or to take any meaningful action to deal with the chaos that has been created. What is the answer from Ministers? A jobs tax and an increase in business rates next spring. Our high streets have been paying a high price for Government inaction for too long. The case for fundamental reform has been made by businesses, by trade unions and by Labour. This is now about the Government’s priorities and their political will. Will they ask more of those online giants, or will they leave the burden of business taxation as it is today, falling on our high street businesses and small businesses? Those are the choices that the Government can and must make in the Budget. We have set out the choices that we would make. It is now time for the Government to act on business rates. Those choices will be available next week, and I hope that the Government will take them.

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[Peter Grant (Glenrothes) (SNP)]

It is a pleasure to contribute to this debate. I commend the Labour Front-Bench team for bringing it to the House and the shadow Chancellor, the hon. Member for Leeds West (Rachel Reeves), for her well-informed and often thought-provoking speech. As a lot of Back Benchers wish to contribute to the debate and much of the substance of the motion concerns devolved matters, I shall not detain the House for too long.

It is important that we recognise the fundamental part played by small businesses in our economy—the economy of the United Kingdom and all its constituent nations. I am reminded that many years ago my good friend Alasdair Morgan, who served with distinction in this place and in the national Parliament of Scotland, addressed a meeting about economic regeneration and pointed out that there were twice as many small businesses in his constituency as there were unemployed people. This was in the days when the unemployment figures were not fiddled, so the numbers were a lot higher than they are just now. Alasdair pointed out that if every small business could be helped to take on less than half a full-time employee, we could abolish unemployment. Instead of helping small businesses to increase their workforce, though, we are far too often faced with a Government who take steps that seem deliberately designed to make it harder for small businesses to take on additional employees.

Small businesses face structural problems that bigger businesses do not. Although we hear a lot of rhetoric from the Government about supporting small businesses, a lot of the specific difficulties that they face seem to get ignored. I confess that I never appreciated one such difficulty until several businesses in my constituency contacted me independently of each other. What they all had in common was that they had been taken to the cleaners by dodgy suppliers, because the suppliers knew that even a small business that is not much bigger than a single-person operation is regarded as a business and so has no consumer protection. Tech companies and telephone supplies companies—which tended to be the worst, by the way—understood that they could fleece small businesses and get away with it, whereas if they tried the same tactics with individuals, the consumer protection laws, although not ideal, would protect those individuals from being too badly damaged. A couple of long-established small businesses in my constituency were brought very close to closure purely for that reason. The Government might want to look into that.

Business-to-business enterprise and business-to-business commerce tends to operate on the basis that it is between two equal partners, but when a two-person or three-person operation deals with a multinational corporation with a turnover of billions, that is not an equal contest or an equal deal. Perhaps, in the same way as we need to protect individual citizens from being taken advantage of by bigger suppliers or businesses, we need to do more to give smaller businesses some kind of consumer protection.

Smaller businesses are much worse affected when there is a recruitment crisis, as there is just now. The Government blame covid, but everybody knows that Brexit is as much to blame as covid. If a company has a workforce of 100 and loses two or three people, it still has 97% of its operation; if a company has a workforce of three and loses a person, that can make the entire business unsustainable and unviable. The clear message that we get from small businesses and organisations such as the Federation of Small Businesses is that the labour shortages we see in key sectors of the economy just now have not yet been adequately addressed. I am not convinced that the Government have even adequately recognised them.

It is all very well to say, “Isn’t it great to have all these vacancies?” but if the people who are looking for work do not have the skills that are needed for those vacancies, or if there are reasons why they cannot take on the work in those jobs, it is quite possible to have very high vacancy levels. Businesses are struggling because they cannot fill those vacancies, and, at the same time, a lot of people are struggling because they cannot get a job that fits with their commitments or responsibilities outside the workplace.

Much of the debate so far has focused on the retail sector, partly because the traditional picture of the high street is one where there is a lot of retail activity, most of it generated by small independent retailers. That is a great thing to have in a town, but how many of us could walk down any high street in our constituency today and see more than half of the existing businesses independently owned and run, never mind locally owned and run?

There has been a huge shift in ownership in the retail sector, as there has been elsewhere. The sad thing is that, when times get tough, a big business, which has no soul in the community, is likely to clear out, whereas the smaller business, locally grown and locally based, is much more likely to dig in and to hang on in there for as long as it possibly can. That is why we will often find that, when things get difficult in the retail sector, the small locally owned shops will try to stay open for as long as they can, whereas the big chains will sacrifice 100, 200 or even 300 properties and the jobs that go with them at the stroke of a pen without a thought to the devastation that they are leaving behind.

I have a particular situation in Glenrothes. To the best of my knowledge, it is the only town in the United Kingdom where the high street is shut at night. A stroke of genius by the then Conservative Government in the 1990s when the development corporation was being wound up was that they sold what the Americans would call a shopping mall to private owners, and it has been struggling ever since. We do not have a night-time economy because the high street is shut. People cannot get in. If they are in and the doors are locked, they cannot get back out.

In spite of that, there are still some remarkable success stories in the Kingdom shopping centre in Glenrothes. I was delighted to pay a visit to Jessop Jewellers to congratulate the owner on their 50th anniversary in the one premises in the town. I can highly recommend their products as well by the way, although I may have made a mistake by telling the owner that I am now only a few years away from my ruby wedding, so I think she may be going to contact Mrs Grant about that in the not too distant future.

A lot of the focus today has been on non-domestic rates. Clearly, because that is devolved, the specific way in which the rates system operates in England does not apply in Scotland. For a number of years, the Scottish Government have had the most generous and most supportive non-domestic rates scheme anywhere in the United Kingdom. We had small business support, whereby small businesses did not pay any rates at all for years, before it was introduced in other parts of the United Kingdom. We still have greater support for our small businesses than any other part of the United Kingdom.

My message to the Government, and indeed to the Opposition should they be in a position to move into government in the near future, is to continue to support small businesses in England, whether through supporting the domestic rates scheme or something else. That then generates additional funding through Barnett consequentials for the devolved Parliaments in Scotland, Wales and Northern Ireland and allows those Parliaments to support our small businesses at the same time.

We could quite easily have filled this Chamber with a debate that would have run for four or five days if we had invited every Member of Parliament to come in and describe the exact situation for businesses in their constituency. I know that there have been a number of contributions along those lines from Labour Back Benchers already today, but the simple fact is that the party that used to be the party of small business is not recognised as that any more, certainly not by small businesses themselves. I suspect that, in their heart of hearts, it is not recognised as a party of small business by its own members and its own voters. It has lost sight of the part that small businesses have played in creating the economy that we have just now. It has lost sight of the fact that, without small businesses, we cannot have a successful and sustainable economy. [Laughter.] I can hear the laughter from the Conservative Back Benchers—that sums up their attitude. It is the attitude that a lot of small businesses feel they have received from this Government over the past two or three years—[Interruption.]

[Kevin Hollinrake]

As my hon. Friend the Member for Bexhill and Battle (Huw Merriman) has just said, it was not laughter; it was astonishment. I have been in business for 30 years. Not every businessperson I meet votes Conservative, but the vast majority do, and I have not heard anybody say what the hon. Member for Glenrothes (Peter Grant) has just said—that the Conservative party is no longer the party of small business. Not only that, but there is huge support for what this Government have done over the last 18 months in supporting those businesses through the worst crisis to hit business in the last 100 years.

[Peter Grant]

If the hon. Member does not understand what the Federation of Small Businesses thinks about his Government tearing up their manifesto promise and increasing the burden of national insurance, if he does not understand what small businesses are saying about the impact that Brexit has had on them, if he does not understand that the energy crisis that the United Kingdom still faces, with massively increasing energy costs that then increase costs for every single business on these islands, and if Conservative Members do not understand that all those things are purely the result of their party’s policies, each and every one of which is devastating for the wellbeing of small business, then we have to wonder why on earth they are still in Government.

--- Later in debate ---

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak after the hon. Member for Sefton Central (Bill Esterson), and I agree with him that this conversation should be had with the engagement of business in order to find a solution. I have tried to do that over the last few years when we have debated this issue time and again. Of course, I have been in business for a number of years—three decades—and the No. 1 thing any business wants is a fair and level playing field on which to compete. That is not just good for businesses; it is also good for consumers. The best thing to drive down prices and drive up service is a healthy, competitive market—a free market. I draw the House’s attention to my entry in the Register of Members’ Financial Interests; our business did occupy a couple of hundred shops up and down the country.

There is no doubt that business rates were built for a completely different era. In this conversation, we talk about how business rates are actually making life difficult for some businesses, and that is true of course. They are additional costs that they could do without, but the No. 1 thing driving problems for businesses is consumer choice—the choice to shop online rather than to shop in the high street. Nevertheless, I think everyone in this Chamber wants to make sure the high street stays lively. Of course, it will change—its make-up will change—and we still want to see a high street at the end of it, but the problem is driven principally by consumer choices. As I say, the business rates system was built for a completely different era, when pretty much every part of commerce and trade was done from a premises.

The other thing to say is that in the whole discussion of business rates reform, we talk a lot about retail, and of course retail is particularly hard hit by some of the changes to consumer demand, but this is not just about retail. It is also about the competition of restaurants and takeaways—often with the dark kitchens of Deliveroo which, again, have a different business make-up—and a different proportion of turnover that is basically driven by business rates. It is the same in my own business, the estate agents and lettings business, where we increasingly have competition trading online, and in plenty of other sectors, not least the travel sector, so we cannot look at this issue purely in the context of retail.

I welcome the fact that the Opposition have brought forward this debate and have made some suggestions about how we reform, because we need to look at some suggestions. The Treasury has of course suggested in its consultation a couple of things we would look at—a land value tax, which it pretty much discounts, and VAT, which I will talk about shortly—but it seems to centre around an online sales tax. That would be problematic, further complicating what is an already very complex tax system. An online sales tax is also a crude measure, because on the face of it, it will not have input and output, which VAT does, dealing with different profitability margins that businesses operate on, so I am not sure it could even work. We already have a sales tax in this country, VAT, and it would be far simpler to use VAT as the mechanism.

The Opposition suggest lifting the threshold for paying business rates for a temporary period and then increasing digital services tax sixfold. That can only be a very temporary solution, because digital services tax has to be eradicated when we introduce the multinational agreement on corporation tax. Also, when this Government brought in the digital services tax to try to level the playing field, Amazon added it straight on to prices for consumers. Those on the shadow Front Bench might know that, because of the way the digital services tax had to be drafted, it does not even apply to Amazon’s direct sales; it applies only to marketplace activity, or third-party sellers. So the Opposition proposal does not even hit Amazon’s direct sales by using a digital services tax. For all those reasons I think that is therefore the wrong thing to do.

It is right to look at this issue completely freshly again, but I do not think property taxes are a solution for replacing the £30 billion of revenue. I thought my hon. Friend the Member for Bexhill and Battle (Huw Merriman) was very clear in his comments, although others might not agree that he was clear. The simple way to deal with this issue is to add about 3p to VAT, increasing it from 20p to 23p. That would, on the face of it, increase the take from VAT to about £20 billion a year, which gets us quite a long way towards replacing business rates revenue; and it is also simple for retailers.

John Lewis has three sales channels: not just high street and online, but click and collect as well. With an online sales tax, John Lewis and everybody else would have to decide how a product is sold and apply online sales tax just to those sold online or by click and collect, depending on how we draft the legislation. That would be hugely complex, whereas VAT is brutally simple: everybody pays the same rates; everybody is on a fair and level playing field; it is simple and quick—although I accept that none of this conversation is easy, as simple and easy are two different things.

The final area we should look at in this conversation is far more controversial: the VAT threshold. Businesses currently do not have to register for VAT until their taxable turnover reaches £85,000. We should look at reducing that significantly. In Germany the threshold is £20,000. The £85,000 threshold is a real disincentive for businesses to grow. Lots of businesses stay under the threshold as they do not want to register for VAT because of the costs to the business. That distorts the marketplace. We should have a full review of how VAT operates in terms of its level and replacing business rates with it, and look at the threshold, because that would overnight take away one of the major blockages to productivity in our economy—it stops businesses recruiting extra people, taking on extra premises and opening longer. Indeed, many businesses close for a portion of the year to try to stay under the threshold.

This fair and level playing field needs to be in place right across the economy. Keep it simple, keep it stable; that is what businesses want. I hope the Minister on duty and Treasury Ministers look at this and take a broader view of how we get our businesses taxes right.

--- Later in debate ---

[Mr McFadden]

I am happy to talk about our proposals and the hint we got on what the eventual outcome might be.

We tabled this proposal because we want to support Britain’s businesses as they try to recover from the pandemic. Many physical retailers could not trade at all during the pandemic. Consumers changed their habits and went online. Our high streets were shuttered and closed. The problem of business rates is well known and has been for a long time: they are weighted against high streets; they are weighted on physical versus online businesses; and they create negative incentives for investment. If someone invests in their business, does the right thing and does their bit for the transition to a greener economy, their business rates actually go up. It is a 20th-century tax for a 21st-century economy.

Our calls for reform have met with widespread support from the business community. UKHospitality says that the biggest cost danger in sight for the hospitality sector is the reintroduction of business rates from 2022. The Federation of Small Businesses said that business rates

“hits firms before they’ve even made a pound in turnover.”

The CBI said that business rates are

“literally…a tax on investment”.

The British Retail Consortium found that without a reduction in rates next year, 83% of retailers said that it was “very likely” or “certain” that they might have to close stores. The Institute for Family Business has also backed this call.

In the short term, businesses need help. That is why our proposal, in the motion before the House, sets out positive steps that will help businesses right now: a freeze on business rates; an increase in the threshold for small business rate reliefs; and a proposal that is fully costed and fully funded.

The Government know that business rates need reform. That is why they launched a review 15 months ago, but where is it? Where are the conclusions? Where is the Chancellor’s plan on business rates? Has it not been published because he is fighting with No. 10 about it, as he is over climate change? Has he not published it because he is fighting with the Business Secretary, as he is on industrial support?

But we did get a clue as to what the preference of Government Members is, because many Members went for the Tory party’s three favourite initials: VAT. Time and again in Government, when they have needed to raise money, they have gone for VAT. We do not yet know what the conclusions of the business rate review will be, but the prospect of the VATman returning is certainly possible given the contributions that we have heard today.

[Kevin Hollinrake]

Will the right hon. Gentleman give way?

[Mr McFadden]

I cannot; I have to watch the clock. We put forward a plan both for the short term and the long term, but this is not just about business rates, is it? This is about the broader relationship between politics and business. The Opposition want a partnership with business to help the country to recover from the covid pandemic. We will not blame businesses for every shortage of workers or every shortage of goods. We will not use business as a weapon in ideological battles, as we saw throughout every day of the recent Conservative party conference. And we certainly will not go down the absurd road of trying to retrofit a justification for shortages and problems by claiming that they were part of some plan all along. When there is chaos at the pumps, blame business. When there is chaos at the ports, blame business. When there are shortages on the shelves, blame business. We have heard far too much of that from the Conservative party in recent weeks and, because of that, it has forfeited its right to be called the party of business.

--- Later in debate ---

[Kevin Hollinrake]

Will the right hon. Gentleman give way?

[Mr McFadden]

I will not. And the Conservative party willingly gave that up by putting ideology in its place. When the Prime Minister said “f*** business”, some of us thought it was a quip. We did not expect to see it followed through by briefings on and off the record that business is part of the problem and not part of the solution.

Any serious party of Government has to take wealth creation as seriously as it does wealth distribution. It has to celebrate entrepreneurs, not blame them. It has to champion creativity and innovation. It has to move its policies in line with economic change and the ceaseless process of technological change. That is what we on the Opposition side of the House are doing. Businesses will find, in today’s Labour party, a ready partner that wants to see them grow and see a fair deal for their employees; that wants to see both prosperity and security for the people who work in business; and that will work with business, not blame them for the failures and consequences of Government decisions. That is what this motion is about, that is what this argument is about, and that is the case we will continue to make.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I thank all hon. Members for their contributions. First, can we celebrate and commend the small businesses up and down the country that have been so hard-pressed during the pandemic, especially in the areas that we have heard about today—hospitality, retail, leisure, tourism and indeed travel?

Businesses have shown incredible resilience throughout the pandemic and it is right that we support them, as the Government have done with £352 billion-worth of immediate financial support through loans, grants, the furlough scheme and various reliefs. That leaves us, as free market Conservatives who do not believe in big interventions but who are the Government with probably the biggest intervention since the war, with 352 billion reasons to get the recovery right and build resilience into our economy.

All I have heard from Opposition Members for nearly three hours is re-diagnosis of the problems. We can all agree that business rates need reform: that is why the Chancellor launched the fundamental business rates review. It is not starting now; we are concluding it now. It is looking at the entire scope of the business rates system, from the multiplier and reliefs for plant and machinery to billing, the administration of the system and alternative taxes. All those matters are being looked at and the report will be coming in the autumn.

I have heard nothing from the Opposition as an actual response. One can say that everything is funded and costed, but saying that does not mean that it is actually there. We have heard pledges from the Opposition to scrap business rates; that is £26 billion, and we have heard nothing about how it will be paid for. We have heard about freezing business rates until the end of the financial year; that is another £6 billion. What are they going to do to pay for it?

We heard from my hon. Friend the Member for Bexhill and Battle (Huw Merriman), who talked about changing high streets, and from my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who proposed changes to VAT. He made a cogent argument, albeit a controversial one—at least he came up with a solution that he had costed and threw it into the mix. That is the difference between Government Members and the Opposition: we come up with solutions that businesses can understand and that we can debate and work through.

My hon. Friend the Member for Ipswich (Tom Hunt) was accused of talking down his area. Actually, he was talking about the issues that he is tackling and that he is bringing together and convening people to tackle, such as antisocial behaviour. He is doing things like that through the town deal that he is championing. He raised the future high streets fund, which is already bringing empty properties back into use—there is a lot of infrastructure going on and it is already delivering upgrades. He also talked about shopping parades. It is really important that we talk about retail parks and shopping parades as well as high streets: they are part of the ecosystem of our local economy.

[Kevin Hollinrake]

The shadow Chancellor did present a short-term solution: a sixfold increase in the digital services tax. Does my hon. Friend agree that when we implemented the digital services tax, Amazon added that 2% straight on to the prices of the merchants on its site? Does he accept that if there were an increase, it would be passed directly to consumers?

[Paul Scully]

My hon. Friend raises a really important point. We also heard about business rates being scrapped and replaced with a property tax—on a property that would presumably be owned by a business, and I guess we could use our rating system to work it out. Essentially, that is just semantics, not a systematic and effective way of replacing business rates. That is why the fundamental review is so important.

My hon. Friend the Member for Wantage (David Johnston) made a comparison to Chris Hemsworth and talked about the Great British Mead Company, which reminds me of the importance of the hospitality sector as part of the ecosystem of our local and night-time economy and indeed the high street. My hon. Friend the Member for Devizes (Danny Kruger) talked about opportunity and connectivity, which are at the heart of what we are doing to allow high streets to bounce back further.

All I have heard is negativity from the Opposition with no answer, but we are making sure that the 352 billion reasons to allow the economy to bounce back are as effective as possible. Our plan is working. Our unemployment rate is at less than 5% and falling, which is lower than France, America, Canada, Italy and Spain. We have one of the fastest recoveries of any major economy in the world, and GDP is growing. That shows that the Government’s approach is a success and that we have fostered the right environment for the economy to grow.

The Labour party will never admit this, but the UK is a great place to do business. We have the lowest corporate tax rates in the G20, and the kind of lean regulation that puts us in the global top ten for ease of doing business. Next year, my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy will publish an enterprise strategy which will explain how we want to revive Britain’s spirit of enterprise and help more people to start and scale up a business.

It is easy to see why the UK is consistently home to one of the largest and most resilient economies in the world. All this underlies the reason why it has long been a great place to do business, and why we are seeing so much excitement in the rest of the world about investing in the UK. People are queuing up to spend at the global investment summit that is being held today. In the last 10 months, we have already seen a flurry of spending in the UK: there is to be a gigafactory in Sunderland, Ford and Stellantis are churning out electric vehicles in the north-west, and GE Renewable Energy and others are creating an offshore wind hub in Teesside. Those projects constitute a huge vote of confidence in the UK as a place to do business as we recover from the pandemic.

We have been there for small businesses since the start of the pandemic, we are there for them now, and we will be there for them for as long as they need us. I want to ensure that as we move forward into this area of recovery, we build resilience into our economy as well. We will do that through the fundamental review of business rates and through our enterprise strategy, and by making sure that we stand behind our businesses.

Question put:

Subsidy Control Bill

Kevin Hollinrake Excerpts

2nd reading
Wednesday 22nd September 2021 Commons Chamber

[Kwasi Kwarteng]

I do not agree with the hon. Gentleman’s description of what the Bill does. If he listens to the rest of my remarks, he may well hear further clarification. Of course, as is always the case, many of these issues will be discussed in Committee if the Bill’s Second Reading receives the assent of the House.

Public authorities will be empowered to make their own assessment of whether a new subsidy meets the requirements of the regime and, in the vast majority of cases, to proceed directly to granting that subsidy. For the first time, the decision on whether to grant a subsidy will always fall to the granting authority itself. For the largest subsidies, or those that present the highest risk of distorting competition, it is worth recalling that the default process under the EU state aid regime could last between nine and 12 months, and that that often determined whether a project could happen or not. Under the new regime, a new body, the UK subsidy advice unit, must publish its report within 30 working days. That is in huge contrast to the nine-to-12 month period under the EU.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) mentioned ideology. One ideology that I hope will always hold firm on this side of the House is that of not wasting taxpayers’ cash. Is the Minister comfortable with the situation in which local authorities and devolved Administrations could grant subsidies of hundreds of thousands of pounds without having to publicly declare them? Would we not be better with a much lower threshold, so that public scrutiny could always be in place?

[Kwasi Kwarteng]

Local authorities have to declare spending at much lower levels than the figure that my hon. Friend has just put forward. Clearly, transparency is at the centre of what we are trying to achieve. Instead of a year, the whole process will take only a few weeks. It will be a much quicker process and it will allow public authorities to act with far greater agility than before. However, I do not believe that the transparency will be in any way compromised. This is an area that will give more flexibility while not diminishing accountability. In fact, it will enhance accountability because, under the EU state aid regime, there was no way we could change the rules in any way.

At the same time, this is a regime that will provide certainty and confidence to businesses within the UK, and also to those among the foreign investment community who are keen to invest in the UK, by protecting against subsidies that risk distorting competition or causing harmful economic impacts. And of course, the regime will operate alongside our usual, traditional stringent spending controls to ensure the best use of public money.

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[John Penrose]

The right hon. Gentleman is right, particularly because in the modern digitising economy, everything is moving faster and faster every year. Even if that issue was not a problem before—and I think it probably would have been—it certainly would become one in future. There is scope for tightening that part of the Bill technically, so as to deliver on the principles that the Secretary of State has rightly enunciated regarding timing, the degree of transparency and the level of disclosure. As we will have nothing to hide, we should not hide it; we should get it all out there and ensure that it is available.

[Kevin Hollinrake]

My hon. Friend makes some strong points, and I absolutely agree with those about transparency. One objection to lowering the threshold to a few hundred pounds rather than £0.5 million might be the burden of red tape attached, but, as I understand it, the costs for having a database that includes pretty much every subsidy—about £20,000 per annum—are minimal.

[John Penrose]

My hon. Friend makes an important point. Indeed, he has led me to the final point in my speech. He is right to say—I know Ministers in the Department have this instinctively in the marrow of their bones—that we must not turn this into some bureaucratic red tape burden. Indeed, one chapter in the report that I was asked to write about competition policy refers to reducing red tape burdens. We all understand that too much of that will slow down even the best company and reduce its competitiveness compared with companies in other countries, so he is right to be concerned.

In this case, however, doing what I suggest should reduce the red tape burden rather than add to it. That is because one of the other exemptions, which I think is £325,000, is for a cumulative set of subsidies. If I have three or four subsidies granted by three or four different local councils, or perhaps by a devolved Government and some local councils, and they cumulatively add up to £325,000 over a three-year period, that has to be declared and everyone has to keep track of that. Under the existing Bill, individual councils making those grants will not be keeping that record. They will not be able to, because they will not know what the other councils have done. The companies that are getting those grants will have to keep their own records for three years. That is a business burden that we will create if we do not change the Bill right now.

If we just said instead, “There’s one central public database and everything gets put on it; no company has to keep any records whatsoever because it’s all out there and it’s visible, searchable, clear and transparent,” there would be no extra business burden at all and, as my hon. Friend the Member for Thirsk and Malton just pointed out, there would be minimal extra public burden, because the local councils, devolved Administrations and Government Departments keep these records anyway. All they would have to do is extend the print range on their spreadsheets slightly further down the page, or organise their automatic file uploads a little more simply, so the burden would be minimal. If we did it that way round rather than what is currently in the Bill, we would avoid creating a new red tape burden.

With that, I will do something unusual for a politician and shut up. This is a good Bill, it is an essential Bill, and it does some really important things. I am really pleased to see it come forward. My right hon. Friend the Secretary of State is doing precisely the right thing, in the right way. We have one concern about detail; with any luck, I am sure that can be ironed out.

[Stephen Flynn (Aberdeen South) (SNP)]

It is a pleasure to follow the hon. Member for Weston-super-Mare (John Penrose), who gave a fair tour de force of the Bill. I admired his concern about transparency, which was perhaps ironic, given that he sits on the Conservative Benches. The Tories have quite happily dished out billions of pounds worth of contracts to their donors and friends for wasted personal protective equipment throughout the pandemic, but I guess that in real terms, transparency comes and goes depending on—

[Kevin Hollinrake]

Has the hon. Gentleman bothered to read the National Audit Office report, which specifically says that Ministers had no involvement in any procurement decision? Will he put that properly on the record? All he is doing by making those points is trashing the name of the whole of politics, not just that of the Conservatives. It is a complete nonsense, and he should admit it.

[Stephen Flynn]

I welcome the hon. Gentleman’s intervention. It does not put a stain on all of politics; it puts a stain on the Conservative party, where it firmly belongs, because Conservative party donors and friends have gained the most from this pandemic when it has come to contracts. [Interruption.] Conservative Members can argue all they want, but the facts are as clear as that.

Now, to the Bill before us; we got a little side-tracked there. It is important to look at the wider context of the Bill: the present situation, the past regime, and what is to come, which of course is what the Bill sets out. Let us look first at what is in place at this moment in time. As I see it, and as I think all of us in the Chamber will see it, we left the European Union, but we left to a system of nothing. We do not actually have an effective system at the moment. Indeed, I think it was the Institute for Government that deemed the current system to be completely ineffective.

That is understandable. Of course, a public body looking at what it is going to be doing does not want to break any rules, so if it does not have a full understanding of what the rules are, it will obviously err on the side of caution. In many ways, that might be an argument for the Bill. I can certainly understand why that may be the case, and that was what the shadow Minister, the hon. Member for Feltham and Heston (Seema Malhotra), intimated in terms of meeting international obligations and the like. I do not think anyone would necessarily disagree with that.

Let us reflect slightly on where we have come from in relation to state aid. Some of this has been touched on already by Members on both sides of the House, but there is one specific aspect of it that I think needs to be aired properly. It was mentioned by the former Foreign Secretary, the right hon. Member for Esher and Walton (Dominic Raab), at the Dispatch Box during Prime Minister’s questions earlier, and again by the Secretary of State—perhaps not directly, but he certainly inferred it—that state aid was a problem of unelected bureaucrats in Brussels. Yet if we look at the facts before us, 95% of all state aid measures did not even go near the European Commission’s desk, so we are almost fixing a problem that did not exist in the terms that the Government think it did, irrespective of how much they want to make Brussels seem like the bad guys.

I appreciate, though I disagree with, the stance of some Conservative Members—the hon. Member for Weston-super-Mare made this point, as I think did the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) when she was in her place—that we did not, when we were in the European Union, make the most of what we could do under state aid regulations. However, the facts are that, under those terrible state aid regulations, we invested but a third of what the Germans invested, and a fraction of what others invested, so the big bad guys in Brussels were not so bad after all. Yet we left that arrangement for a system that, at this moment in time, is completely ineffective.

That brings us to the next stage, as represented by this Bill. As I see it, the Bill’s objectives are to enable strategic interventions to support economic recovery, levelling up and net zero. That is not wholly different from the EU state aid rules, which were, of course, to support the environment and innovation. The one slight difference, however, is that the EU state aid rules had a specific remit for the EU regional aid system, whereby people advocated money to be directed to less developed regions.

I have to say that I am a little surprised that there are not a few more red wall Tories present, whose regions could be described as—[Interruption.] The hon. Member for Stoke-on-Trent North (Jonathan Gullis) is waving at me; I am sure he will seek to intervene on me in due course. If I were a Conservative Back Bencher representing a constituency in the north of England, I would be deeply concerned about this aspect of the Bill. Although the Government say that the objective of the Bill is to level up, it contains no detail at all. It says that the Secretary of State will come back, subsequent to the Bill, to provide the detail on how levelling up will work. More importantly, we have walked away from a system that put money directly into less developed regions.

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[Angus Brendan MacNeil]

But is the CMA not a body of Westminster construction, as opposed to being a body of the Union?

[Kevin Hollinrake]

This is the United Kingdom Parliament.

[Angus Brendan MacNeil]

Well, there are many Parliaments in this United Kingdom at the moment, and we know that each and every one should have the same voice. If this is the poacher and gamekeeper Parliament, surely that is a problem for Northern Ireland, Scotland and Wales—that is the argument that I would postulate.

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[Kirsty Blackman]

Principle F rejects that, so which one has primacy? Which one is the most important? If they directly disagree with each other, is it more important that we can do what is said in principle A or is it more important that we can do what is said in principle F?

I think the subsidy regime should be used in the same way as the EU state aid regime, which focuses on regions that need additional support. Whatever this Conservative Government say—we will not believe them anyway, given the amount of lies we have been told—it is not the case that this regime assists levelling up; it does the opposite. If they want to assist levelling up, they should design a regime that ensures different areas can have different subsidy regimes that benefit their local area even though they may disadvantage other areas.

[Kevin Hollinrake]

The hon. Lady may have identified this herself already, but freeports, for example, allow businesses to relocate and benefit from different taxation regimes. Such businesses are treated more beneficially in how they operate and in their cost of operation. Does she accept that freeports do exactly what she is setting out?

[Kirsty Blackman]

Freeports are not covered by the subsidy regime we are talking about today. They are a separate thing. I can say from the Back Benches that I am not particularly keen on freeports, but the idea is that there is a wall around the port—the guidance specifically says that there has to be a physical barrier around the area—and there is a different taxation regime within that wall. I am yet to be convinced of the economic benefits that will come as a result.

We hope to have green ports in Scotland, and the failure of the UK Government to agree that we can pay the real living wage and focus on net zero within those green ports means that the freeport system, as it stands, is not nearly as advantageous as it could or should be. Even though the freeport system is set up to encourage such things, I have not seen evidence that it will actually do so, particularly given the rejection of the key principles we want to put in place.

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak in this debate and to listen to the various arguments on both sides of the House.

I am a committed free marketeer and have been in business for most of my life, and I do not think that I have ever accepted a Government subsidy—other than perhaps last year under the coronavirus business interruption loan scheme. I would be interested if the Minister could reflect on whether that would qualify under this legislation. I do not really believe in subsidies, but a world without subsidies requires a perfect free market and we do not have a perfect free market. We do not have the perfect consumer, the perfect market competition or the perfect provision of small and medium-sized enterprise finance. At times, a Government absolutely need to step in and provide subsidies where there is market failure, so I welcome this legislation and the vast majority of its provisions.

[Stephen Flynn]

Does the hon. Member think that the Government, under these new terms, will provide more subsidies than they did under EU state aid, or the opposite?

[Kevin Hollinrake]

I know that is the hon. Member’s question, but I think it is the wrong question. For me, the key question is whether the subsidy is going to spend taxpayers’ money well. We can claim success not just by giving more money away than was wasted, but when the taxpayers’ money that is used proves fruitful. We should not be disappointed that we have had one of the lower subsidy levels of the countries compared today. We should be proud of believing that our businesses should stand on their own two feet. Nevertheless, I do support on occasion the Government and other public authorities providing subsidies in certain areas and for certain things.

I welcome the Bill. I know that the Minister will ensure that it receives good scrutiny and passes through its different stages. I echo the comments of my hon. Friend the Member for Weston-super-Mare (John Penrose), in that my key point is about having a greater level of scrutiny and transparency. The No. 1 reason for transparency is that, as my hon. Friend said, Governments of all shades are pretty poor at picking winners, so it is important that Governments and public authorities are held to account for their decisions to grant subsidies, which are taxpayers’ money and must therefore be spent well.

The hon. Member for Richmond Park (Sarah Olney) made an important point about cronyism. Some of the claims of cronyism in procurement that we have heard today are unsubstantiated and have been shown to be inaccurate in the National Audit Office report. People who claim otherwise bring shame on every single Member of this House; it is a flawed method of political point scoring that is deeply unhelpful. The National Audit Office clearly said that Ministers were not involved in procurement decisions.

Nevertheless, I believe in scrutiny and complete transparency, particularly when significant amounts of money—up to half a million pounds in some schemes, as we can see from the legislation—can be handed out by a local authority or devolved region, without scrutiny. Some local authorities have better reputations than others when it comes to spending money, so it is really important that we can see exactly what local authorities and devolved Administrations are doing. My right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) brought up this point. If we do not see a level of scrutiny, different parts of the country could try to use different means of creating some advantage, or indeed try to raise grievances, which is something that we hear not too infrequently in this place.

I absolutely support the proposal to reduce the threshold for scrutiny and transparency from the current level of £500,000, or £315,000 for cumulative subsidies outside a scheme, to a much lower level of £500. As a businessperson myself—I declare an interest—I would have no objection to declaring any taxpayers’ money we had received in our business. I think the only time we have ever received it was through the furlough scheme and the coronavirus business interruption loan scheme, which we returned without drawing on it. If we are taking taxpayers’ money, we should be accountable for it, whatever level it is at. I think the only objection that could be raised to a much lower limit would be creating red tape, but according to the research I have seen, there is a minimal amount of red tape and a minimal amount of cost—about £20,000. This simplifies matters in many areas.

In all the different cases where things have gone wrong—I deal with lots of cases of fraud and malpractice in all kinds of different financial markets—the key element of scrutiny and transparency in identifying wrongdoing has usually come from members of the public, who are perhaps closer to the ground than our regulators. If the database is made fully public, we are more likely to pick up on wrongdoing. Members of the public, and members of the press, do a fantastic job in tracking down this kind of wrongdoing.

I urge the Government to look at the threshold and bring it down to a much lower level. Aside from that, I welcome the Bill and look forward to the comments of my hon. Friend the Minister.