New subsidies system for the UK

New subsidies system for the UK
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Published: February 4th, 2021

A new UK-wide system for providing more flexible and tailored financial support to businesses has been set out under plans by the Business Secretary Kwasi Kwarteng.

The new subsidy control system, which will be the long-term replacement for the EU’s prescriptive state aid regime, will allow the UK to be dynamic in providing support to businesses, including in innovative, R&D-focused industries, to encourage job creation and growth across all parts of the UK.

Previously, public authorities had to follow a detailed set of EU controls – and may have needed prior approval from the European Commission before providing vital funds to viable businesses or pursuing key domestic policy objectives.

Under the proposed UK system, local authorities, public bodies and the devolved administrations in Edinburgh, Cardiff and Belfast will be empowered to decide if they can issue taxpayer subsidies by following a set of UK-wide principles. These principles will ensure subsidies are designed in such a way that they deliver strong benefits and good value for money for the UK taxpayer, while being awarded in a timely and effective way.

The new system will be designed to be more flexible, agile and tailored to support business growth and innovation as well as maintain a competitive market economy and protect the UK internal market. At the same time, it will help protect against wasteful spending.

The system would also better enable the government to deliver on key priorities such as levelling up economic growth in the regions, tackling climate change, as well as supporting our economic recovery as we build back better from the COVID-19 pandemic.

The system will ensure the UK honours its international obligations under World Trade Organisation (WTO) rules, the UK-EU Trade and Cooperation Agreement and other free trade agreements, and will not be a return to the 1970s approach of government trying to run the economy or bailing out unsustainable companies.

The consultation will seek views from businesses and public authorities on a number of areas, including:

  • whether the UK should apply its own additional principles on subsidy control, as well as those set out in the UK-EU Trade and Co-operation Agreement
  • how best to ensure transparency across the system
  • the possible roles and responsibilities of the independent body that will oversee the new system
  • how this independent body could have some role in supporting enforcement of the principles, alongside normal judicial review standards
  • how the system could seek to introduce exemptions consistent with our international obligations, such as ensuring subsidies of low value, those given to support natural disaster relief or in response to global economic emergencies

The government has committed to consulting closely with the devolved administrations in Scotland, Wales and Northern Ireland, so that all 4 parts of the UK can take advantage.

A UK-wide subsidy control regime will ensure that subsidies do not unduly distort competition within the UK’s internal market. For example, it will ensure that a Welsh firm is not unfairly undercut or disadvantaged by a subsidy decision in England, and vice-versa. It will also mean that big companies cannot play off the regions, nations, towns, and cities of the UK against each other in a competition to benefit from taxpayer subsidy – protecting the dynamic and competitive market economy across the UK.

The government has always been clear that the regulation on subsidy control is a reserved matter. The UK Internal Market Act 2020 clarifies that the UK Parliament alone should legislate for the regulation of subsidies. The Act also helps to ensure that there is no confusion or ambiguity in law about the interpretation of the State aid elements in the Northern Ireland Protocol.

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