Telegraph: New rules on state subsidies

Article Originally published on The Telegraph Online (30/06/2021). Read it here.


New subsidy control bill promises ‘agile and flexible’ regime but risks new row with Scottish Government

Britain takes a major step towards throwing off Brussels shackles on state aid today as it unveils a more flexible subsidy regime in a move likely to reignite an independence row with Holyrood.

The Subsidy Control Bill announced in last month’s Queen’s Speech will be introduced to Parliament, aimed at channeling taxpayer cash towards businesses to meet ambitions on levelling up and net zero goals.

Kwasi Kwarteng, the Business Secretary, said the new regime covering loans, grants and guarantees would be more “agile and flexible”, ending the need for lengthy approvals from the European Commission.

But the minister stressed that the new subsidy control regime is a “reserved matter” for the UK Parliament, which Scottish First Minister Nicola Sturgeon last year called a “blatant move to erode the powers of the Scottish Parliament”.

A Government source said that Ms Sturgeon “would ultimately start the argument again, that it’s the people of Scotland, the Scottish Parliament, that should decide whether Scottish local councils or the Scottish Government should be able to award subsidies to different companies”. 

“Our argument is you can do that, because this system is way more flexible than the European one. So you either have a British flexible system, which you don’t want, or you want to rejoin the EU.”

The new regime will give public bodies and devolved administrations far greater autonomy to offer support to businesses, while banning so-called “subsidy races” under which authorities can tempt businesses and jobs away from other areas of the UK.

Ministers have also opted for a light-touch approach on enforcement, with subsidies monitored through a new advisory unit based in the Competition and Markets Authority and disputes settled through the courts.

Mr 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.”

Thomas Pope, economist at the Institute for Government, said the regime would be “less restrictive than EU state aid rules”. But he added: “The risk of that approach is that if you’re leaving enforcement to the courts, there’ll be more legal uncertainty. And that will mean that some public bodies choose not to offer subsidies because of the legal uncertainty.”

The new regime is likely to trigger increased subsidy spending. According to the IfG, the UK spends around £4bn a year on subsidies but far less proportionately than other European Union nations. 

Germany spent three times as much on support as a share of its economy compared to the UK in 2018, while Britain spends a fraction of the EU average on regional development. 

John Penrose MP, who authored a competition report for the Government earlier this year, said: “Ministers are right that taking control of our post-Brexit subsidy regime is a once-in-a-generation chance to create a system that’s more dynamic, nimble and far less bureaucratic than the old Brussels regime. 

“But it creates new dangers too, because subsidies are a heady drug that can hook companies and politicians very quickly indeed. If we get them wrong they can featherbed uncompetitive firms and lumber customers with low-quality or overpriced rip-offs.”

Mr Kwarteng said the new regime would avoid wasting taxpayer money on failing companies.

He said: “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.”