The government is to relax the “burdensome” state aid rules it inherited from the EU and step up subsidies to some businesses, ministers have announced.
The Queen’s Speech on Tuesday included the announcement of a new Subsidy Control Bill that will set a new framework on how cash should be doled out to firms and projects.
The bill will create a set of UK-wide principles that public authorities must follow when granting subsidies – replacing the old EU framework transposed into UK law at the point of exit.
And it will also exempt certain categories of subsidy – yet to be named – from “certain obligations” or leave them entirely unrestricted, potentially giving ministers a freer hand when allocating funds.
Ministers say state aid could be helpful in meeting strategic goals such as increasing research and development investment, or achieving the UK’s net zero climate commitment.
But it remains to be seen how far the rules can be relaxed, as the UK is bound to the EU’s “level playing field” by the trade agreement Boris Johnson signed.
Other trade agreements also include restrictions on state aid, and the World Trade Organisation also requires countries to keep subsidies within certain limits.
If the details of the new regime are too lax it could trigger a trade row with Brussels, or with other countries under the WTO.
Inside the EU the UK consistently did not make significant use of the state aid it was allowed to distribute, significantly trailing most other EU member states in the amount of support it gave.
Just six EU members states spent less on state aid than the UK as a % of their GDP in 2018, with some such as Hungary, the Czech Republic, and Denmark distributing around four times as much as Britain proportionally.
But past polling has suggested that relaxing state aid rules is a popular idea and ministers believe emphasising it will endear them to voters in marginal seats held by Labour in the north and midlands – the so-called “red wall”.
The bill will contribute prohibitions on certain types of subsidy which are “which are at a particularly high risk of distorting markets”.
It will also create a new database of available UK subsidies for businesses to get information on how they can access government cash.
The text of the Queen’s speech said the measures will “ensure that support for businesses reflects the United Kingdom’s strategic interests and drives economic growth”.
