I am grateful to the noble Lord for the intervention. I will come on to that; I was quoting a definition only to prove that it did not actually work. He has made my point for me—perhaps I will shorten that bit of my speech. I was going on to say that the rules do not work in practice, because they have been applied to a number of very different activities.
There is a definition—it is not very clear what it means in practice—and it applies to the particular issue of competition between states, and we will not have that situation. Within this, of course, there are a number of variations, one of which we have already touched on. It is generally recognised that state aid can do more than simply reduce distortions in competition. It can enhance public welfare, address inequalities, allow for investment in research and development for which there is no direct benefit to individual companies—which is probably therefore a public good—and address inequalities across various areas and regions. These do not fit very well into the definition, yet they happen and have continued to do so. Broadly speaking, the state aid rules are not really designed to prevent states aiding the enterprises that operate within those states; they aim for state aid to be targeted. Is that one of the issues that will be carried forward in these new regulations, should they be applied and there be no deal? If that is the case, we are talking about a slightly different way in which the Government will be operating to preserve some of the elements being transferred. I could list a number of issues under which state aid has been offered that would exemplify that.
If we are going to accept that state aid has in the past been used, under the general block exemption regime, for regional aid, to help SMEs, to support research and development, to support the environment and for cultural and other reasons, we have to accept that the issues are broadly interpreted. I am anxious to get on the record whether the Government see this historical use of state aid in a European context as the basis on which future state aid arrangements will be made in this country, whether done directly by the UK or by devolved Administrations.
If you look at European spending on state aid, the UK is significantly below the median level and well below the average. It was said in the IPPR document I talked about that,
“UK spending on state aid as a percentage of GDP in 2016 was 0.36 per cent, significantly lower than the EU average (0.69 per cent) and far lower than other western European countries such as Germany (1.31 per cent), France (0.65 per cent), and Denmark (1.63 per cent)”.
State aid should presumably be appropriate to the need that has been defined, but if UK expenditure were on the same level that France spends we would be spending £6 billion more. If we were to raise it to the same level as Germany, we would be spending £19 billion more; if to the same level as Denmark, £25 billion more. These are huge sums of money, and we do not need to spend much time thinking about what would happen to that. Previously, that would have been money funded out of the European budget, in a sense, but obviously that can only come from taxation raised in member countries. If we are bringing this home and bringing back control, we will also have to think about where the resources for that would come. Is there any intention to set a budget figure for what state aid will be, going forward, if these regulations come through? Can the Minister speculate about where the indicative level of spending will be?
What happens after Brexit if we leave on a no-deal basis? Clearly, some of the issues here will work whether we leave with or without a deal. With a deal there will
be implications, not just from the transition period but particularly—this is relevant to debates we had only yesterday—on the question of Northern Ireland. If we are working on a backstop arrangement, there are some specific rules, which I am sure the Minister will want to acknowledge, relating to how state aid rules will apply in Ireland, particularly with reference to differential practices across the border. Can the Minister give us some information about how that would happen? If there is no deal, we are back in WTO territory; those are the only rules that generally apply to the use of targeted financial subsidies. They are not as far-reaching or as enforceable as the EU rules, because the EU’s state aid rules come with significant penalties for those who breach them. They will place limits on government, but they are not nearly as bad, so there would be no barrier in a no-deal, WTO environment for the Government to take forward a spending programme which would encourage more spending on state aid in a way which would be helpful to their overall arrangements.
12.30 pm
These issues lead us to a number of questions, some of which I have already asked. Can we narrow down the question of scope? At the moment, I understand the documents to say that the state aid regulations being brought forward are in connection with UK trade with other EU countries. If that is correct, will the Minister explain the reasons for that? Since we are leaving the EU, it does not seem to be appropriate for us to be bound by a rule that would have continued had we stayed in the EU. If there is no deal, there is no reason why that should happen. We would be treating with the EU as a different third country or set of countries. Will the Minister give us a bit more information on that?
The Minister said that consultation had taken place with the devolved Administrations, but in the discussion I have seen there is quite a lot of thought being given to whether Scotland, Wales and Northern Ireland will have their own state aid rules. Will the Minister explain whether that will be the case or they are to be done entirely from a UK Government point of view? The CMA will have responsibility for policing the state aid rules. In his introduction, the Minister mentioned the question of whether the equivalent powers will transfer from the EU to the UK. That might be worthy of further debate because in the EU situation—I make a very general point, but it is worth making—the power to prevent state aid includes the power to overturn legislation made by countries in the EU if it is felt by the EU that they would breach the state aid rules. I understand that the Government do not intend to provide the CMA with the same power and that it would simply have the power to point out that state aid rules had been breached. Is that the power that is being given to the CMA? Will the Minister explain why the power to overturn legislation has not been given to the CMA? Does that power also apply to any decisions taken by the Scottish Parliament, the Welsh Assembly or the Northern Ireland Assembly in relation to state aid? In other words, would the CMA be able
to say to Scotland, Wales or Northern Ireland that a decision in their budget in their territory was not in line with state aid and had to be set aside?
Finally, who has the power to set the framework under which the state aid is to operate? I have already mentioned that variable limits exist across the EU at the moment. There is no absolute limit on what you can spend. There are general rules. These are all matters which should surely have political rather than administrative control. Where will that lie? As I understand it, Parliament will not have a role in this. This matter is being devolved solely to the Secretary of State, who can issue guidance on what is or is not state aid. That surely needs some further check. I beg to move.