New independent state-aid system to cut red tape and accelerate public funding for UK industries

Wed 3 Feb 2021
Posted by: William Barns-Graham
Trade News

The government today (3 February) launched a new system for state-aid, promising to cut bureaucracy and speed up the process of directing public money to key industries.

The move paves the way for a more interventionist approach from government, with Business Secretary Kwasi Kwarteng saying it allows the UK to “press ahead” with its strategy of ‘levelling up’ the regions, tackling climate change and recovering from the Covid-19 pandemic.

Innovation

Kwarteng said leaving the EU freed the UK to create its own ‘agile’ approach to supporting key industries.

“Now we have taken back control of our money and laws from the EU, we want to use our newfound freedoms to propel the UK to the forefront of innovation and help create the jobs of the future, while also making the UK the best place to start and grow a business,” he said in a government statement.

Levelling up

According to the BBC, the new rules could give regional government and authorities more power to support local industries.

The government said that the system will ensure “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”.

Independent authority

The FT reports that a government consultation will now call for public input on how a new independent body overseeing subsidies should operate. 

State-aid became a sticking point in last year’s trade deal negotiations, with the UK agreeing to set up an “independent authority” to oversee the subsidies it provides.

New rules

Under EU rules, the UK was restricted in the financial assistance it could offer businesses with the EU not allowing member states to undermine competition throughout the bloc.

Under the terms of its trade deal with the EU, the UK can now grant subsidies of up to about £340,000 before they are considered likely to have an effect on European competition.

Concern

However, free market think tank the Institute of Economic Affairs said it was concerning that the government sees intervention and subsidisation as a key lever in its post-Covid recovery.

“Governments are notoriously bad at picking winners, whether that’s in the UK or at the EU level,” said the IEA’s Victoria Hewson in City AM.