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New subsidy system must deliver on levelling-up agenda

5 February 2021: UK government’s replacement for the EU’s State Aid regime must deliver on its promised aim to spread opportunity across all regions of the country, says ICAEW.

Under the system outlined in a new government consultation this week, local authorities, public bodies and the devolved administrations can decide to issue taxpayer subsidies by following a set of UK-wide principles. The government says this will allow the UK to be “more dynamic” in providing support to businesses, including the targeting of small businesses and new R&D focused industries to encourage job creation and growth across all parts of the UK. 

Iain Wright, Director for Business and Industrial Strategy at ICAEW, said the proposals “should allow us to make the most of our considerable competitive advantages, especially in sectors such as professional and business services, advanced manufacturing and the sustainable economy”.

“We must avoid the mistakes of industrial policy in the 1970s, which often resulted in picking losers. As well as reinforcing existing success and strengths, this new system must spread opportunity across all regions of the country, including areas which currently feel marginalised,” Wright added. 

The eight-week consultation on the “subsidy control” approach promises more tailored financial support to UK-based businesses after it outlined a system to replace the EU’s State aid regime which, according to a government statement, will “better level the playing field and spread opportunities for businesses across the UK.”

Business Secretary Kwasi Kwarteng said the system would help support the UK’s economic recovery from the COVID-19 pandemic. “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,” he said.

The Department for Business, Energy, and Industrial Strategy (BEIS) says a UK-wide subsidy control regime will ensure subsidies do not unduly distort competition within the UK’s internal market. 

“For example, it will ensure that a Welsh 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,” BEIS explains.

The proposed 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.

The public consultation on the proposed new subsidy regime, which closes at 11.45pm on 31 March 2021, is seeking views from businesses, advisers and public authorities on a number of areas. These include whether the UK should apply its own additional principles on subsidy control in addition to those set out in the UK-EU Trade and Co-operation Agreement, how to ensure transparency across the system, and the role and responsibility of the independent body that will oversee the new system (including how principles would be enforced). 

  • Access the BEIS consultation document on the proposed new subsidy control system. 
  • Previously published government guidance for public authorities on the UK’s subsidy control international commitments including the UK-EU Trade and Cooperation Agreement, the World Trade Organisation rules on subsidies and the Northern Ireland Protocol.
  • ICAEW’s dedicated Brexit Hub.