New Subsidy Control Bill: how generous are its proposals to support UK plc?

Fri 2 Jul 2021
Posted by: Noelle McElhatton
Features
The long-awaited bill on UK subsidy controls, setting out how the government will aid businesses post-Brexit, was published this week. Here, Institute of Export & International Trade director general Marco Forgione explores whether the bill means the UK will revise its tradition of non-intervention to boost low carbon and levelling-up initiatives

 

This week saw the publication of the UK’s new State Aid regime in the Subsidy Control Bil, another step in disentangling the UK’s economic rule book from that of the EU.

In truth, the ability of governments to subsidise industries was a relatively late addition to the suite of Brexit’s supposed benefits.

1970s-style policy

The UK has long been characterised by an allergy to anything that smacked of 1970s-style industrial policy, almost invariably described as a failed policy of picking winners. Frankly, it was never really necessary for the EU to stop subsidies: HM Treasury has been very keen to do so for most if its history.

Both France and Germany have always had much higher levels of intervention than the UK, while remaining outwardly compliant with EU rule (albeit sometimes employing considerable creativity).

Back in favour

But more recently, government investment in industry has come back into favour among some influential commentators. The challenge of making the transition to a low carbon economy (and to some extent of the digital transformation) is of sufficient magnitude that governments around the world have had to step in to incentivise or tweak the market.

In a more UK specific context, the imperative to ‘level up’ the North and Midlands has seen a level of rhetoric around interventionism that makes some purer-thinking Thatcherites distinctly uneasy.

Good value

The new legislation starts from a position that subsidies are allowed – provided they deliver good value for the taxpayer and are timely and effective. A new Subsidies Advice unit will be set up within the Competition and Markets Authority to advise on the system.

Some subsidies could be deemed ‘of interest’ and subject to challenge, perhaps by competitors – but much of the detail will need to be pored over by lawyers and will depend on how the legislation is implemented.

Breaking the habit

So, will we see the UK government overturn generations of ingrained habit and turn into a sort of economic Santa Claus?

Probably not. Officials have counselled that it is unlikely that the overall levels of subsidy will increase dramatically, preferring to highlight the benefits of a system which is simpler and more ‘nimble’, rather than one which is potentially more generous.

It should also be noted that the UK remains committed to staying within the WTO’s (much looser) framework even as it leaves the EU’s.

So UK businesses can, perhaps, hope for a faster set of decisions.

With officials still being very mindful of value for the taxpayer, however, it is unlikely they can hope for a more generous one.