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Government sets out new state aid regime plans

Author: ICAEW Insights

Published: 30 Jun 2021

UK plans for a “simpler and more nimble” post-Brexit system of state subsidies have been outlined as the government looks to boost selected industries, level up economic growth across the UK and drive a green industrial revolution.

Business minister Paul Scully claimed the new regime would be “free from excessive red tape” and provide “quicker and more flexible support to UK businesses” following the UK’s departure from the EU. 

The new UK system would allow devolved administrations to decide if they can issue subsidies by following a set of UK-wide principles but will prohibit the awarding of subsidies that will result in displacement - the relocation of jobs and economic activity from one part of the UK to another. 

A ‘subsidy advice unit’ within the Competition and Markets Authority will be set up to offer advice on whether a subsidy is fair. Experts have said locating the subsidy advice unit within the competition regulator would send a positive signal to Brussels that the UK would still have subsidy restrictions. Companies seeking arbitration will have to seek redress through the UK’s courts or tribunal system. 

Business secretary Kwasi Kwarteng said that although the new system would be more agile and flexible, it would not mark a return to what he described as “the failed 1970s approach of the government trying to run the economy, picking winners or bailing out unsustainable companies.”

There will be a ban on unlimited government guarantees to businesses and subsidies to “ailing or insolvent” enterprises where there is no credible restructuring plan, although the government said it was “no longer bound by restrictive EU definitions which unfairly penalised start-ups and small businesses.”

Rows over state aid were a source of friction during the negotiations on the UK-EU trade deal finalised last year, with Brussels pushing for Britain’s rules to remain aligned with the bloc to ensure a “level-playing field”. 

David Petrie, ICAEW’s Head of Corporate Finance said he was pleased to see that many of the issues highlighted by ICAEW’s response to the subsidy control regime consultation had been addressed head-on. “One of the perennial problems with government intervention in normal economic activity is how to ensure that all businesses are treated fairly.”

However, Petrie said he remained sceptical at the prospect of reduced red tape. “It is very difficult to balance the needs of fast-growing businesses with the government's responsibility to ensure value for money for taxpayers and to ensure that other companies in the sector aren’t unfairly disadvantaged.”

Further details on implementation and guidance will be set out in due course, with the regime due to come into effect in 2022 subject to Parliamentary approval. “This regime will benefit those organisations working with medium to long-term growth plans. Those in need of emergency funding should look in other places,” Petrie said.

It was important that the assessment parameters for subsidies were set out in a way that didn’t crowd out other sources of private funding, Petrie added: “At the same time, the regime needs to be able to support the knowledge and services-based economies in the UK and not just those reliant on investment in capital equipment.”

Read ICAEW’s consultation response: Subsidy control – designing a new approach for the UK

Read about the UK Government’s replacement for its Industrial Strategy on page 24 of the latest issue of Corporate Financier (June 2021)