UK government unveils new subsidy system and claims it will be 'more flexible' than the EU's

Wed 30 Jun 2021
Posted by: William Barns-Graham
Trade News

westminster

The government today (30 June) announced a new subsidy system which it claims will be quicker, more flexible and less bureaucratic than the EU’s.

As a member of the EU, the UK was previously subject to the EU’s state aid regime.

The UK government’s post-Brexit capacity to set its own rules for supporting British industries became one of the most contested negotiating points in the talks for the trade deal that was agreed at the end of last year.

According to the BBC, government officials have dubbed the subsidy bill “the most important bit of post-Brexit legislation yet”.

Agile and flexible

The new system will involve the devolved administrations and will be a key part of the government’s levelling up agenda, a government statement said.

However, the new regime will not pit regions against each other, encourage displacement of jobs or prop up unsustainable businesses, it claims.

Business secretary Kwasi Kwarteng, said: “While the UK’s new system will be more agile and flexible, I have been clear that we will not return to the failed 1970s approach of the government trying to run the economy, picking winners or bailing out unsustainable companies”.

“Every subsidy must deliver strong benefits for local communities and ensure good value for money for the British taxpayer,” he added.

Vexed issue

The UK’s independence to set its own subsidies became a vexed issue during the negotiations for last year’s post-Brexit trade deal.

The FT reports that the EU had wanted the UK to remain aligned to EU rules and pushed for ‘level playing field rules’ to ensure the UK could not distort the wider European market. The UK pushed back on this as well as European demands for an independent statutory regulator.

Oversight in the UK will be provided through a new Subsidy Advice Unit within the Competition and Markets Authority.

No increase in support

However, the UK has historically given much less government support to businesses than EU countries France and Germany, with officials saying that they do not expect the overall level of state aid to increase significantly.

A Commons research briefing says that, in 2018, the UK spent 0.38% of GDP on state aid (excluding railways, and agriculture and fisheries), while France spent 0.79% and Germany 1.45%.

Value for Britain

The government said it will judge cases for support on whether they deliver good value for money and help hit targets such as “levelling up” and decarbonising the economy.

According to Politico the government hopes the bill will allow it to focus on “key domestic priorities,” including its “levelling up” economic growth agenda and green industrial projects.

‘Reserved matter’

However, the Telegraph reports that the new regime will set Westminster at odds with the devolved nations, particularly Scotland, by making subsidy control a “reserved matter” for the UK Parliament.

Scottish First Minister Nicola Sturgeon last year called this a “blatant move to erode the powers of the Scottish Parliament”.

The European Commission will also closely study the wording of the bill in case it distorts competition by failing to ensure UK and EU firms operate on a level playing field.