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UK subsidy scheme replaces EU state aid rules

Kwasi Kwarteng

Kwasi Kwarteng: ‘significant milestone’

A new subsidy scheme to replace the often derided EU state aid rules has been unveiled by Business Secretary Kwasi Kwarteng.

It has been hailed as a breakthrough in establishing the UK’s ability to help support stricken companies and will be applied equally across all four nations.

Crucially it takes the place of the state aid rules which have blocked many attempts to rescue firms in trouble, such as the BiFab engineering plant in Fife.

Under the EU’s prescriptive rules public authorities had to follow a bureaucratic, detailed set of controls – and may have needed prior approval from the European Commission before providing vital funds to viable businesses or pursuing key domestic policy objectives.

Under the proposed UK system, local authorities, public bodies and the devolved administrations in Edinburgh, Cardiff and Belfast will be empowered to decide if they can issue taxpayer subsidies by following a set of UK-wide principles.

Burntisand Fabricators

BiFab fell foul of the EU’s state aid rules

The Department for Business, Energy and Industrial Strategy said these principles will ensure subsidies are designed in such a way that they deliver strong benefits and good value for money for the UK taxpayer.

The system would also better enable the UK Government to deliver on key priorities such as levelling up economic growth in the regions and tackling climate change, as well as supporting economic recovery from the Covid-19 pandemic.

Mr Kwarteng said: “This is a significant milestone on our historic journey as an independent, sovereign nation.

“Our new, more flexible system will empower public authorities and devolved administrations, and ensure fair competition for businesses across the UK.

“Now we have taken back control of our money and laws from the EU, we want to use our newfound freedoms to propel the UK to the forefront of innovation and help create the jobs of the future, while also making the UK the best place to start and grow a business.

“With a modern, tailored approach to supporting businesses, we will also be able to press ahead with our long-term ambitions to tackle climate change and to level up opportunity as we build back better from the pandemic.”

The system will ensure the UK honours its international obligations under World Trade Organisation (WTO) rules, the UK-EU Trade and Cooperation Agreement and other free trade agreements, and will not be a return to the 1970s approach of Government trying to run the economy or bailing out unsustainable companies.


The UK Government will consult the devolved administrations in Scotland, Wales and Northern Ireland, on the new system.

It will be designed to ensure that subsidies do not unduly distort competition within the UK’s internal market. For example, it will ensure that a Scottish firm is not unfairly undercut or disadvantaged by a subsidy decision in England, and vice-versa.

It will also mean that big companies cannot play off the regions, nations, towns, and cities of the UK against each other in a competition to benefit from taxpayer subsidy – protecting the dynamic and competitive market economy across the UK.

The Government has always been clear that the regulation on subsidy control is a reserved matter. The UK Internal Market Act 2020 clarifies that the UK Parliament alone should legislate for the regulation of subsidies.

The Act also helps to ensure that there is no confusion or ambiguity in law about the interpretation of the State aid elements in the Northern Ireland Protocol.

Daily Business comment: No one should underestimate the impact this new system of support will have on companies seeking support – and on the constitutional debate.

It is an example of why the UK government introduced the Internal Market legislation. The nationalists accused Westminster of a “power grab”, and there is evidence of some squeezing of the devolved administrations.

But the purpose of the new law was to ensure an orderly market within post-Brexit UK. As such it will avoid unwanted and unfair competition among the four nations, while promising a more liberal regime to support struggling firms.

There will be consultation with the devolved governments and it will be interesting to see how Holyrood responds. It was apopletic in opposing the Internal Market bill, but it was also a victim of the state aid rules when it tried and failed to rescue BiFab. Should another crisis emerge, it may be glad of the greater flexibility provided by the UK government’s new replacement scheme.

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