What is the Subsidy Control Bill, and what does it mean for Wales?

Published 28/02/2022   |   Reading Time minutes

The UK Government’s Subsidy Control Bill, introduced on 30 June 2021, is one of the many post-Brexit Bills currently going through the UK Parliament. Senedd Committees have been scrutinising the Bill’s provisions in devolved areas as part of the Legislative Consent process. The Legislation, Justice and Constitution Committee anticipates that the Bill could have a “pernicious impact on devolution”. But what does the Bill do, and what does it mean for Wales?

What is subsidy control, and why is the UK Government introducing new legislation?

A subsidy is where a public authority – such as the Welsh Government or a local authority - provides financial support to a business, or other organisation, that can give them an advantage over competitors. This can take the form of a grant, a tax break, a loan or other form of financial support.

As a member of the EU, the UK was subject to EU rules on subsidies (also called ‘state aid’), which were regulated by the European Commission. The UK-EU Trade and Co-operation Agreement requires the UK and EU to have in place their own independent system of subsidy control. Consequently, the UK Government has developed proposals through the Subsidy Control Bill.

What does the Bill do and what are its key provisions?

The Bill sets out how the UK will replace EU state aid rules by creating a legal framework and setting out conditions within which public authorities can provide subsidies to businesses.

The Bill places an obligation on public authorities to consider seven subsidy control principles before granting a subsidy, as set out in Schedule 1 of the Bill, and ensure that any subsidy it awards is consistent with these. An additional nine principles also apply to specific energy and environmental subsidies (set out in Schedule 2 of the Bill).

The Bill also creates the Subsidy Advice Unit within the Competition and Markets Authority. The Unit will be responsible for monitoring and reporting on how the subsidy regime is working as a whole, as well as advising public authorities on their application of the subsidy control principles.

Other provisions in the Bill include:

  • Specific exemptions to low risk subsidies from the main subsidy control requirements;
  • The creation of ‘streamlined subsidy schemes’ which will allow the UK Government to make provisions to allow lower-risk subsidies to be given by public authorities more quickly and easily;
  • Prohibiting certain subsidies including those which are not compliant with the UKs international obligations or can have overly distortive or harmful economic impacts.

What is the Welsh Government’s position on the Bill?

The previous Welsh Government argued in 2019 that subsidy control was devolved, while the UK Government contended that it was a reserved matter. The UK Internal Market Act 2020 removed any ambiguity by reserving to the UK Parliament the exclusive ability to legislate for a subsidy control regime.

In terms of the Subsidy Control Bill, the Welsh Government has said that it “will not be able to recommend to the Senedd that it gives consent to the Bill as currently drafted”. The Welsh Government “does not accept that the measures proposed in the Bill will serve to sufficiently regulate the provision of subsidies in the UK”. It argues that the Bill has not taken its concerns into account. The UK Government has said it engaged regularly with devolved governments on the Bill, but that subsidy control is reserved and it will act in the interests of all parts of the UK.

The Welsh Government criticises “broad powers” given to the Secretary of State to shape the regime in future with “little scrutiny from the UK Parliament and no scrutiny available to Welsh Ministers or the Senedd”. It also believes that other powers conferred on the Secretary of State in the Bill could “undermine” the powers of the Senedd and Welsh Ministers to act in devolved areas such as economic development, agriculture and fisheries.

The Welsh Government has sought a number of amendments to the Bill to address their concerns. These include amendments aimed at making provisions to allow Welsh Ministers to propose streamlined subsidy schemes, and other provisions “to decrease the power disparity that currently exists in the Bill”. No non-government amendments have been made to the Bill so far.

What have the Senedd and other UK parliaments said about the Bill?

Two of the Senedd’s Committees have scrutinised the Bill – the Economy, Trade and Rural Affairs (ETRA) Committee and the Legislation, Justice and Constitution (LJC) Committee. The ETRA Committee concluded that there is “insufficient detail” about how the Bill will work in practice, which “prevents any meaningful assessment of the potential impact on Wales”.

The LJC Committee has reported on both the LCM and supplementary LCM, finding that the proposals could have a “pernicious effect on devolution”, and that there had not been satisfactory engagement with the Welsh Government in developing them. It expressed concerns about the constitutional implications of the Bill. A particular issue was the potential for judicial review of devolved legislation set out in Schedule 3 to the Bill, when the same provision does not apply to UK Government legislation.

The Scottish Parliament’s Economy and Fair Work Committee (not including its Scottish Conservative Party Members) concluded that the Bill gives considerable powers to the UK Government, cutting across the devolution settlement and presents a “risk of UK Ministers intervening in devolved areas without proper consultation or knowledge of local circumstances”. It also raised similar concerns to those outlined by the Senedd’s Committees, stating that the Bill’s provisions contain an “asymmetry of power” between the UK and devolved governments.

The House of Lords’ Common Frameworks Scrutiny Committee wrote to the UK Government earlier this month stating its concerns about how the Bill interacts with the Common Frameworks agreed by the UK and devolved governments such as those relating to agriculture and fisheries. It called this “an extremely serious matter which bears on the functioning of the Union”. It asked the UK Government to explain how the Bill will not threaten the operability of the common frameworks. The LJC Committee echoed this concern in its report on the supplementary LCM and “drew these matters to the attention of the Senedd”.

What’s next?

The Senedd will debate the LCM on 1 March, where the Senedd will decide whether to give consent to the devolved aspects of the Bill. The Bill is currently going through scrutiny in the House of Lords, and is at report stage, which allows Members of the House of Lords to scrutinise the Bill and make amendments.

There were five UK Government amendments made to the Bill during its scrutiny in the House of Commons, and five at Committee stage in the House of Lords. No non-government amendments to the Bill have been passed so far. Further amendments will be considered during upcoming stages of the Bill in the House of Lords, before the Bill returns to the House of Commons. Depending on the outcome of further scrutiny and amendments made to the Bill, there may be further LCMs for the Senedd to consider in the future.

Article by Gareth Thomas and Rhun Davies, Senedd Research, Welsh Parliament