State Aid (EU Exit) Regulations 2019 — House of Lords, 2019-03-14
Topic: Macroeconomics
Jeremy Purvis (Liberal Democrats, Centre to centre-left): My Lords, I am happy to follow my noble friend Lord Fox. I endorse the strong points he made towards the end of his speech, because I live in a very rural part of the Scottish Borders. On my journey to this House every week, I drive past a number of local infrastructure investments that have been made and areas where projects have been brought about by the partnership between the devolved Administration in Edinburgh and the support of the UK Government, but funded by EU structural funds. There is a whole suite of different funds, which the Scottish Borders local authority has been able to link with directly I can only emphasise the point made by my noble friend. The Scottish Borders can be excluded from certain types of funding from the normal budget-per-capita distribution of funds of the Scottish or UK Government. However, it has been able to use the fact that it has the second-lowest wage profile in the country to tap into cohesion funds, because these have been set at a European level on a certain set of parameters, which are not the same as the budgetary distribution formula from the Treasury used by the UK Government. This has meant that the Scottish Borders has benefited from projects from these direct funds and the way they have been established, using objective criteria that are not used in the normal way of distributing funds. Therefore, it would be most helpful if the Minister could provide a degree of clarity as to how the formula would be used for any successor support that would be provided. If it is different from what is currently used, there will need to be some urgent readjustment from the local authorities and the Scottish Government in how they will offer match funding Linked with that, in the multiannual financial framework 2014-20, including all European funds, Scotland received 14% of the UK funds with a population of just 8.3% of the UK. This is because of the particular circumstances of the Scottish industries and the Scottish economy. It would be a major disruption if that kind of financial balance had to be adjusted over a short period, especially in the context of a no-deal Brexit That leads to my next point. I have heard the Minister commit to offering security for funded projects to be supported for their lifetime. I stress, from my direct experience of having been elected in the Scottish Borders and working very closely with the then local enterprise company and the local authority, that the typical long-term basis of the six-year period of the multiannual financial framework has been pivotal, especially in the context that these funds have to secure match funding, which can be over two or three spending review periods of any Government, either a UK Government or a devolved Administration. That period has been critical when there have been other funds and they have had to secure other forms of match funding. If there will be simply a normal three-year spending review period replacing the longer-term multiannual financial framework, that will be very damaging to the ability to secure some of the projects associated with it That is also why it has been typical in my area of Scotland for projects often to run on from the funding period. That has been a beneficial approach by the European Commission, which instituted the principle of n+1, n+2 and n+3 so that projects that have been initiated and are operating can continue to receive funds after the formal closing of that funding period. The funding has been committed but there is no guillotine period at the end of the funding round. In certain areas that has been pivotal. An equivalent commitment would be helpful We now have reference to the areas linking in with the devolved Administrations, certainly for Scotland, and we have the UK fiscal framework, which has been negotiated between the UK Government and the Scottish Government and is the basis on which the non-own revenue funding that the Scottish Parliament is responsible for is distributed. Is it the Government’s plan that there will be discrete funding components, as my noble friend asked for clarity on, or is it their intention that the funding will be operated through the UK fiscal framework? I can tell the Minister straightaway that if it is the latter I can see a situation where certain parts of Scotland will be harmed because they will not be able to tap into the targeted methodology of many of these project funds. Clarity on that would be very important Furthermore, it is also very important to know whether the Government intend to continue the principle that some funds can be bid into. Scotland has a better record of success in bidding into EU-wide funds that are open for bids because of its particular set of circumstances and its economy. In my experience, it has been a very positive element to ensure that all levels of government—local authorities, the Scottish Government and the UK Government—work together with local enterprise leaders to ensure that bids into EU projects have been the strongest they can possibly be. If that is weakened, the whole quality of economic development policy will be harmed. Do the Government intend that there will be some funds that can be bid into? That has been a positive element. Finally, on the element of the structural funds in this support, is it the Government’s intention in their negotiations that, if we are to leave the European Union, parts of the UK will be able to continue bidding into European-funded projects, as those in Norway can? I understand that the Minister may say that this will depend on a negotiation with the rest of the EU, but a signal that this is the Government’s intention would be most helpful Turning to state aid, I am most grateful to the noble Lord, Lord Stevenson, for tabling his amendment to allow us to ask these questions. The points he raised are very important. He and I—and the noble Viscount, Lord Younger, who I see on the Government Front Bench—have debated at length the interaction with the devolved Administration on trade issues as a whole, but also on state aid as a component part of them. In leading up to this statutory instrument, the Minister said that the Government have been working closely on state aid issues. It would be helpful to know if the Government formally communicated the draft text to the Scottish Government before bringing forward this statutory instrument. The Minister will be aware of the operation of Section 2 of the Scotland Act 2016, which states: "It is recognised that the Parliament of the United Kingdom will not normally legislate with regard to devolved matters without the consent of the Scottish Parliament" It is the view of the Scottish Government, endorsed by the Parliament, that state aid is an issue of competence, and that when areas of EU competence in state aid issues are brought back to the United Kingdom, they should fall fully within the legislative competence of the Scottish Parliament. It is an area of dispute between the UK Government and the Scottish Parliament. I am assuming—and hope the Minister can clarify—that this issue has now been resolved. It would be fairly regrettable if this statutory instrument was brought forward without any consultation with the Scottish Government, given that they believe that this will be fully within the legislative competence of that Parliament This leads directly on to the very good point made by the noble Lord, Lord Stevenson, and my noble friend Lord Fox: what will be the interaction with the CMA? Ordinarily, UK regulatory bodies operate within reserved areas, and the devolved Administrations know that if there is interaction between a devolved Administration and a UK regulator, whether it is Ofgem or Ofcom, the statutory underpinning is UK-reserved legislation This is an area where there is not agreement. The Scottish Government and Parliament believe that state aid issues are fully within the legislative competence of the Scottish Parliament. What will the interaction be of a UK regulator not operating under UK legislation when one part of the United Kingdom believes that this is fully within the scope of a devolved Administration? I can tell the Minister that conceptually it is not a new idea. When the Committee on Climate Change was established, the Scottish Parliament made a conscious decision that it would have an oversight role and a formal link to the devolved Administration. That was proactively asked for by the Scottish Parliament, and a mature relationship then developed. It would be very regrettable if this was the reverse—if the UK Government were insisting that a regulatory body had some form of oversight of devolved competences when they themselves will have no regulatory or formal relationship with that devolved Administration. I cannot see it working, but maybe the Government will be able to clarify I hope that the Government are able to provide a degree of clarity on the areas where I believe there is still dispute. It would be very regrettable if something so critical to many parts of the Scottish economy started with a major constitutional dispute about the competences and how it will be interactive.