New system of subsidies to support UK jobs and businesses, stimulate the economy and strengthen the union

Companies across the UK will benefit from financial support after we leave the EU thanks to a new subsidy control system.

The Subsidy Control Act before Parliament today is taking advantage of the opportunities presented by the exit from the EU’s bureaucratic subsidy regime to create a new system of subsidies that will address key national priorities such as stimulating economic growth in the UK and boosting ours green industrial revolution.

Previously, when the UK was a member of the EU, the UK followed the EU state aid regime, which regulated the granting of subsidies – such as grants, loans and guarantees. In the EU system, all subsidies, with the exception of those under a “block exemption”, had to go through a lengthy bureaucratic process in order to be pre-notified to and approved by the European Commission, preventing critical funds from reaching viable businesses in time.

The new UK system will assume that subsidies are allowed if they follow UK principles – providing good value to the UK taxpayer while being granted in a timely and effective manner. These UK principles will allow public authorities to target subsidies where they are needed without incurring excessive bureaucracy.

The system will not be a return to the failed 1970s approach of governments trying to run the economy, “pick winners” or save unsustainable businesses.

For the first time, decentralized governments are empowered to decide whether to grant subsidies by following a set of UK principles. Previously, decentralized administrations were governed by EU state aid rules, which governed the powers of elected governments in Edinburgh, Cardiff and Belfast to support viable businesses.

The new system will prohibit the granting of subsidies that lead to the relocation of jobs and economic activities from one part of the UK to another – known as “displacement”. This will help strengthen the Union and level the whole country by preventing a ‘subsidy race’ between public authorities competing for the same companies.

This ensures, for example, that a Welsh company is not unjustifiably undermined or disadvantaged by a subsidy decision in England and vice versa. It will also mean that big corporations cannot pit the regions, nations, cities and towns of the UK against each other in a competition for tax subsidies – to protect the dynamic and competitive free market economy that has been central to our national prosperity for decades .

UK Economy Secretary Kwasi Kwarteng said:

Today we are seizing the opportunity to be an independent trading nation to support new and emerging UK industries, create more jobs and make the UK the best possible place to start and grow a business.

We want to use our newfound freedoms as an independent, sovereign country to empower authorities across the UK to provide financial assistance – without the hassle of red tape.

While the UK’s new system will be more agile and flexible, I have made it clear that we are not going to return to the government’s failed approach from the 1970s of trying to run the economy, pick winners or save unsustainable businesses . Any subsidy must be of strong benefit to the local communities and good value for money to the UK taxpayer.

Today’s bill represents a clear departure from the EU subsidy regime and will ensure that our new subsidy system maintains the UK’s competitive, free market economy, which has been central to our economic success and national prosperity for decades.

UK taxpayers and the UK’s competitive free market economy will continue to be protected by banning unlimited government guarantees to businesses and subsidies to “ailing or bankrupt” businesses without a credible restructuring plan, even though we are no longer bound by restrictive measures are EU definitions that unjustifiably punish start-ups and small businesses.

Under the new regime, enforcement will be through the UK judicial and tribunal system. The Competence Appeal Tribunal (CAT) is responsible for judicial review of the granting of subsidies.

UK Economy Secretary Paul Scully said:

The UK’s new bespoke subsidy system will be simple, agile and based on common sense principles – free from undue bureaucracy.

Our modern regime will help the UK government, decentralized administrations in Edinburgh, Cardiff and Belfast and local authorities to support our economic recovery quickly and strategically while ensuring a level playing field for subsidies across the country.

In order to protect UK competition and investment and to minimize distortions from specific subsidies, the new system introduces two specific categories of subsidies – Subsidies of Interest and Subsidies of Special Interest – for which the granting authorities will be able to carry out more extensive analyzes to ensure compliance to judge the principles.

The new regime will help meet the UK’s international obligations to control subsidies, including compliance with World Trade Organization (WTO) rules in this area and those in free trade agreements (FTA) – and safeguard our place on the international stage.

The draft law on subsidy control contains essential elements of the new national subsidy control system in primary law. Further implementation details and guidance will be announced in due course. The regime will come into force in 2022, subject to parliamentary approval.

The UK government has always made it clear that regulating subsidy control is a reserved matter. The UK Internal Market Act (UKIM) 2020 makes it clear that the UK Parliament alone should legislate to regulate subsidies. The UKIM Act also helps ensure that there is no legal confusion or ambiguity in the interpretation of the aid elements of the Northern Ireland Protocol.

Today’s announcement follows a consultation earlier this year in which the UK government asked businesses, public authorities, including decentralized governments, and others to comment on the future shape of the new subsidy control system. The response to this consultation was published today.

Notes for editors

A grant is a financial contribution from public funds that gives a specific beneficiary an advantage. This can be, for example, a cash payment, a loan with interest rates below the market rate or a guarantee. The subsidies are administered by all levels of government in the UK.

Since January 1, 2021, the United Kingdom has complied with the obligations to control subsidies in its free trade agreements with other countries, in particular the provisions of the Trade and Cooperation Agreement (TCA) between the UK and the EU and the WTO rules on subsidies as the relevant provisions of the Northern Ireland Protocol. How our international obligations are transposed into UK law is a national choice, and the new subsidy control system announced today builds on and aligns with those obligations.

The new funding advice center will be set up at the competition and market supervisory authority.

To further streamline the new system, the government exempts a limited number of subsidies from the control principles, such as those necessary to protect national security and subsidies that are temporarily granted to cope with emergencies such as floods. As before, all subsidies are subject to WTO rules.

To ensure this new system works for all parts of the UK, the UK government has worked closely with the decentralized administrations throughout this process, including providing the consultation response document prior to publication and taking into account the representations of the decentralized administrations.