State Aid (EU Exit) Regulations 2019

Lord Wigley Excerpts

Thursday 14th March 2019 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, I beg to move that the draft State Aid (EU Exit) Regulations be approved. I will speak also to the draft European Structural and Investment Funds Common Provisions and Common Provision Rules etc. (Amendment) (EU Exit) Regulations 2019, which were laid before the House on 28 January.

The draft State Aid (EU Exit) Regulations transpose the existing EU state aid regime into UK domestic law by correcting deficiencies in retained EU law. In doing so, they transfer the state aid regulatory functions of the European Commission to the UK’s Competition and Markets Authority. The regulations will ensure that state aid rules continue to operate in a domestic context and will come into force on exit day in the event of a no-deal exit.

State aid rules govern the way subsidies can be given, and exist to stop companies getting an unfair advantage over their competitors. The rules are not intended to prevent public authorities supporting industry, but rather to do so in a way that minimises distortions to competition. Where there are good justifications for state aid, the rules enable it to be given. The state aid rules are about supporting fair and open competition. Ultimately, they are good for taxpayers, consumers and businesses.

The existing principles for the regulation of state aid will remain substantively unchanged in the domestic regime, in accordance with the aims and powers under the withdrawal Act 2018. The provisions in the regulations will therefore have minimal impact on public authorities that grant state aid or entities that receive it.

The main practical change under the new regime is that the rules will be regulated by the CMA. To prepare for EU exit and its new state aid role, the CMA received £20 million for 2019-20. This is in addition to the £23.6 million it received for 2018-19. The Government are working to ensure that the CMA will be ready to take on this new role and have every confidence in its ability to do so.

The CMA will adopt the Commission’s existing state aid guidelines, which provide clear parameters for how and when aid should be approved. It will also receive enforcement powers broadly equivalent to those of the Commission. I should, however, explain one point of divergence from the EU regime. Under EU rules, the European Council has the power in exceptional circumstances to intervene and approve aid before the Commission has reached a decision.

We do not consider it necessary or appropriate to use the regulations to vest the Government with similar powers. Ultimately, the Government could bring forward legislation to amend the state aid rules if deemed absolutely necessary. This option is not readily available to the European Council in the EU context.

[Lord Wigley (PC)]

Will the Minister give way?

[Lord Henley]

I shall not give way at the moment. I will take advice from the noble Lord, Lord Adonis, who pointed out earlier that the noble Lord will have his moment to speak later. It would probably be helpful if I get through what I want to say and the noble Lord can speak later.

I mentioned earlier that state aid rules will ensure fair and open competition throughout the UK. Over the past year, the Government have engaged extensively with each of the devolved Administrations and shared drafts of the regulations. The Government have also offered to sign a memorandum of understanding about the operation of the state aid regime with the devolved Administrations, which we hope to agree. These discussions have indicated broad agreement on the substance of the Government’s policy to establish a UK-wide state aid regime that mirrors the EU’s. We will of course continue to work closely with the devolved Administrations on state aid policy.

In conclusion, as we leave the EU, these regulations will give certainty to public authorities and recipients of state aid, and help maintain confidence for businesses across the UK.

I turn now to the overview of the structural funds SI. In a no-deal scenario, this instrument will repeal the European regulations concerning the European structural funds, while ensuring that they can continue operating domestically. It will also repeal the regulations for the Cohesion Fund, for which the United Kingdom is not eligible. Structural funds include the European Regional Development Fund and its cross-border European Territorial Cooperation component, and the European Social Fund. Structural funds support regional investment across the UK and are funded via the EU budget, with match-funding from project participants. In a no-deal scenario, the United Kingdom is expected to lose access to European funding.

HM Government have guaranteed funding for structural funds projects signed before the UK leaves the EU. The guarantee also enables new projects to be signed after exit until 2020. This guarantee covers UK beneficiaries, all beneficiaries of the PEACE programme in Ireland and Northern Ireland, and Interreg VA in Ireland, Northern Ireland and Scotland.

This instrument facilitates the domestic delivery of structural funds in a no-deal situation. It repeals the European regulations for these funds, as they would become inoperable retained law. It also ensures that for European Regional Development Fund and European Social Fund projects started before exit, current fund delivery rules are upheld through existing funding arrangements—without keeping redundant EU regulations. The powers to continue paying beneficiaries for projects already exist under domestic law. This instrument does not make provisions for projects started after exit. New projects will none the less continue to be signed using existing domestic powers and delivery systems, with appropriate simplifications. Structural funds delivery will also remain a devolved matter.

The instrument also makes special provisions for European Territorial Cooperation programmes that fund collaborative projects. It includes a transitional provision that enables the guarantee to be paid out to bodies involved in a European Territorial Cooperation programme. The power to fund beneficiaries of cross-border programmes currently comes from European law, and therefore needs to be continued in domestic law through this instrument to protect beneficiaries in a no-deal situation. The EU has made special provisions to enable the United Kingdom to continue in PEACE and Interreg VA in a no-deal scenario if the United Kingdom continues to pay its share of the programmes. The transitional provisions in this instrument enable the United Kingdom to make such payments to the EU. This is consistent with the United Kingdom’s commitments to PEACE and Interreg VA.

In this arrangement, the European regulations do not need to be retained. The United Kingdom will sign an agreement with the EU to ensure that programme beneficiaries continue to follow relevant rules. The EU regulation does not resolve the question of payment powers addressed by this instrument. That is why we need both the EU regulation and this instrument to safeguard these programmes. The transitional provision to pay the guarantee to European Territorial Cooperation beneficiaries also ensures that beneficiaries of cross-border programmes other than PEACE and Interreg VA can be paid through the guarantee. Without this instrument, delivery departments would lack the powers to pay out the guarantee to beneficiaries of European Territorial Cooperation programmes.

In conclusion, in a no-deal scenario, this instrument repeals redundant European law while ensuring that projects previously supported by the EU, including those supporting peace in Northern Ireland, are protected. I commend the regulations to the House and I beg to move.

Amendment to the Motion