Business secretary Kwasi Kwarteng will today outline the UK’s post-Brexit rules on government subsidies in a major break with the EU.
A statement from the Business, Energy and Industrial Strategy (Beis) department said the new set of rules, which supersede the EU’s state aid regime, will mean “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”.
Beis said it will be “more flexible, agile and tailored to support business growth” than the previous EU rules.
The EU’s state aid regime sees governments forced to adhere to rules on the amount of subsidies they can give to businesses to ensure there is not unfair competitive advantages throughout the bloc.
The post-Brexit trade deal agreed that the UK could set its own state aid regime, however EU countries are allowed to challenge subsidy decisions made by Downing Street if it violates a set of agreed “common principles”.
An independent body will be set up to adjudicate this and decide if either the UK or EU is not acting in good faith in its subsidy policies.
Business secretary Kwasi Kwarteng said: “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 new state aid regime has been a point of contention among fiscally hawkish Tory supporters and MPs.
The government’s insistence on having a more liberal subsidy policy regime may mean the UK will look to grow the economy through expansive fiscal policy.
This goes against the ideological values of much of the Tory party.
Victoria Hewson, head of regulator affairs at the free market Institute for Economic Affairs think tanks, said it was “concerning the government sees intervention and subsidisation in the economy as under-pinning our post-Covid recovery”.
“Governments are notoriously bad at picking winners, whether that’s in the UK or at the EU level,” she said.
“Using taxpayers’ money to prop up failing businesses is likely to distort competition, slow down innovation and favour incumbents.”
Matt Lesh, research director at the free market Adam Smith Institute think tank, tweeted: “Very worrying that the government is set to make it easier to waste taxpayer money on politicians’ favoured projects.
“This inevitably leads to corrupt cronyism and substantial waste — the Government is incapable of deciding which companies have potential.”