Subsidy Control Bill (Second sitting) - 26th October 2021

Seema Malhotra (Labour)

Thank you for giving evidence to us today, Dr Barker. I shall start with a more general question about your view of the Bill and the regime as a whole. Where do you see the opportunity for small businesses to work towards the Government’s objectives of levelling up and net zero that have been talked about?

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14:05 Seema Malhotra (Labour)

Q You have said this week that grants—or subsidies—made under the global Britain investment fund should have more conditionality associated with them to ensure that they support long-term commitments into the UK as well as levelling up. Do you believe that that Bill does enough to set out those goals? Is even net zero sufficiently enshrined in how subsidies should be used and their impact evaluated?

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14:19 Bill Esterson (Labour)

On your second question, yes, we do need to learn the lessons of other major countries that seem to be doing a better job than the UK in terms of building technology companies and science-intensive-type enterprises. What is it that they are doing that we are not? I do not think they have achieved their success entirely by business acting alone and Governments simply stepping out of the way. A lot of the industries of the future are those that require very close collaboration between business and Government. Certainly, the green industrial revolution that we are all seeking to work towards in order to achieve net zero is also something that will require a lot of partnership between business and Government, so for me, an effective subsidy system can be part of that.

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15:03 Seema Malhotra (Labour)

Q Thank you to our witnesses for coming in today. We are very appreciative of your time. I will ask two questions to cover the areas that you have commented on. First, I am interested to know your view on the question of transparency in the Bill around decisions that are made on how challenges might be brought if there are concerns about subsidies and their impact. Secondly, more positively, what might the opportunities be for the Bill and its regime? What would success look like in terms of how it positively affects the areas that we, on both sides of the House, are interested in, such as levelling up and the transition to net zero? Will the scheme actively support delivering them?

Some of the regimes that we are recipients of—the most beneficial for the UK steel sector—are around some of the subsidies and exemptions we receive on the costs of renewables and carbon taxes in relation to electricity prices. That is a really big issue for the steel sector. The UK steel sector pays between 80% and 100% more for its electricity than its counterparts in the EU. Those exemptions have reduced our electricity prices. There is a still a big gap, but they are really important to improving competitiveness in the UK.

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15:28 Stephen Kinnock (Labour)

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?

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.

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.

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