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Subsidy system banishes EU state aid rules

Kwasi Kwarteng

Kwasi Kwarteng: seizing the opportunities

A new subsidy system to replace the EU’s state aid rules today takes a big step towards becoming law.

The Subsidy Control Bill, introduced to parliament today, will sweep aside the Brussels regime which governed the awarding of subsidies – such as grants, loans and guarantees. 

Under the EU system, all subsidies except those under a ‘Block Exemption Regulation’ had to undergo a lengthy bureaucratic process of being notified to and approved by the European Commission in advance, delaying vital funds from reaching viable businesses in good time. 

The new UK system will start from the basis that subsidies are permitted if they follow UK-wide principles – delivering good value for the British taxpayer while being awarded in a timely and effective way.

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These UK-wide principles will allow public authorities to deliver subsidies where they are needed “without facing excessive red tape”, said the Department for Business, Energy and Industrial Strategy.  

It added that “the system will not be a return to the failed 1970s approach of government trying to run the economy, ‘picking winners’ or bailing out unsustainable companies.” 

The devolved governments will be empowered for the first time to decide if they can issue subsidies by following a set of UK-wide principles.

Significantly, the new system has a built-in process for preventing competition among the UK regions and nations. It will prohibit the awarding of subsidies that will result in the relocation of jobs and economic activity from one part of the UK to another – known as ‘displacement’.

“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.”

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UK Business Secretary Kwasi Kwarteng said: “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. 

“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. 

“Today’s Bill marks a clear departure from the EU State aid regime and will ensure our new subsidy system will maintain the UK’s competitive, free market economy that has been central to our economic success and national prosperity for decades.” 

The British taxpayer and the UK’s competitive, free market economy will be further protected by banning unlimited government guarantees to businesses as well as subsidies granted to “ailing or insolvent” enterprises where there is no credible restructuring plan, although the UK is no longer bound by restrictive EU definitions which unfairly penalised start-ups and small businesses.  

Under the new regime, enforcement will be through the UK’s courts and tribunal system. Jurisdiction to judicially review the award of subsidies will be given to the Competition Appeal Tribunal (CAT).  

In order to protect UK competition and investment and to minimise distortions from specific subsidies, 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.



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