New UK subsidy regime comes into force today allowing authorities to 'tailor aid to local needs'

Wed 4 Jan 2023
Posted by: William Barns-Graham
Trade News

UK government opens subsidy programme

The UK’s post-Brexit subsidy regime has come into force today (4 January), the government has announced.

The new regime sees the UK gain independence from the EU over how it administers and allocates aid for the first time in over 40 years.

A government statement announcing the new regime claims that the previous EU subsidy regime, that the UK was subject to when it was a member of the bloc, “would regularly block” devolved and local administrations from delivering aid that met the needs of their communities.

The government has also announced a new Subsidy Advice Unit in the Competition Markets Authority to support and guide “public authorities wishing to use subsidies to deliver important public objectives”.

‘Tailor-made’

“Our new subsidy control regime is another example of us making the most of our opportunities to be free of Europe’s bureaucracy and forge a future tailor-made for the UK,” said business minister Kevin Hollinrake.

“New rules mean UK authorities will be free to deliver money to businesses in a quicker, fairer, and simpler way, without longwinded and unnecessary approval processes to bog us down,” he added.

Grace Thompson, public affairs adviser at the Institute of Export & International Trade (IOE&IT), told the IOE&IT Daily Update that the new scheme should help local authorities to “tailor subsidies to local needs” and noted that it seems to indicate a practical move to implement some principles of the government’s levelling-up agenda.

“There is even potential for the government to increase the amount of streamlined routes by which public authorities can award subsidies to businesses,” she added.

Streamlined

The government statement also claims that the previous EU regime required subsidies to “undergo a time-consuming bureaucratic process, subject to European laws and the European Commission”.

Under the new independent regime, subsidies will be awarded through “streamlined routes” with three new schemes currently being developed to cover research, development and innovation, energy usage, and local growth.

“We would urge the government to think flexibly about adding additional routes which could more specifically support exporters and manufacturers," said Thompson.

Level playing field

State aid was one of the thorniest issues in the post-Brexit negotiations for a UK-EU trade deal in 2021, with the EU’s chief negotiator at the time, Michel Barnier, at multiple points calling it the “fundamental point” of difference.

The EU demanded that the UK agreed to ‘level playing field’ rules to ensure that it would not overly advantage certain sectors in the international market through subsidies. Dominic Cummings, then the chief adviser to Boris Johnson in Downing Street, called for the UK to push for a light-touch UK state aid regime, despite EU objections.

The trade deal that was eventually agreed was reported to have included an arbitration mechanism to ensure a level playing field between the two sides was secured. The new UK subsidy regime contributes to the country “meeting international commitments on subsidy control” including trade deals and at the WTO, the government has said. 

Subsidy wrangles

Several sectors will be hopeful of receiving state aid in the coming months and years.

Paul MacBean, chair of Multi Union, recently told the Yorkshire Post that the government needs to decide whether the UK “still had a steel industry” following negotiations over subsidies worth £300m for steelworks in Scunthorpe.

Government research, reported in the Guardian, showed that the loss of farm subsidies under the EU’s Common Agricultural Policy could prove the difference between profits and losses for 42% of farms in the UK.

New advice unit

Rachel Merelie, senior director of the new Subsidy Advice Unit, said her new department will “provide public authorities with expert advice to help inform their subsidy assessments and decisions.”

“From today, the CMA’s Subsidy Advice Unit is ready to take on referrals from public authorities and we look forward to playing our part in ensuring that UK consumers and businesses benefit from a leading subsidy control regime,” she said.