New subsidy control system for businesses announced

The government today announced a new UK-wide subsidy control system to provide better support to businesses following the country’s departure from the EU.

The new system, proposed in the Subsidy Control Bill introduced to the parliament today, will also empower devolved administrations and local authorities to decide if they can issue subsidies by following UK-wide principles.

“Today we’re seizing the opportunities of being an independent trading nation to back new and emerging British industries, create more jobs and make the UK the best possible place to start and grow a business,” Business Secretary Kwasi Kwarteng said.

“We want to use our newfound freedoms as an independent, sovereign country to empower public authorities across the UK to deliver financial support – without facing burdensome red tape.”

In the EU’s State aid regime, which the UK followed as a member of the bloc, the awarding of subsidies such as grants, loans and guarantees to businesses had to undergo a lengthy bureaucratic process to get approval of the European Commission, which the government said delayed vital funds from reaching viable businesses in good time.

Moreover, devolved administrations were also subject to the State aid regime which limited their powers to support businesses. The new system will allow public authorities to deliver subsidies where they are needed without facing excessive red tape, the Department for Business, Energy and Industrial Strategy (BEIS), noted.

Kwarteng added that the system will not be a 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.

The new system will start from the basis that subsidies are permitted if they follow UK-wide principles. The devolved governments can issue subsidies by following these principles.

The checks in the new system include a prohibition for subsidies that will result in the relocation of jobs and economic activity from one part of the UK to another – known as ‘displacement’. The BEIS department said this will help strengthen the Union and help level up the entire country by preventing ‘subsidy races’ between public authorities competing to attract the same business.

There will also be a ban on unlimited government guarantees to businesses as well as subsidies granted to “ailing or insolvent” enterprises where there is no credible restructuring plan.

“The UK’s new bespoke subsidy system will be simple, nimble, and based on common-sense principles – free from excessive red tape,” Business Minister Paul Scully said.

“Our modern regime will support the UK government, devolved administrations in Edinburgh, Cardiff and Belfast, and local authorities in swiftly and strategically supporting our economic recovery while ensuring a consistent, level playing field for subsidies across the entire country.”

The new system will introduce two specific categories of subsidies – Subsidies of Interest and Subsidies of Particular Interest – for which granting authorities may undertake more extensive analysis to assess their compliance with the principles. The regime is expected to take effect in 2022 subject to parliamentary approval.