UK to replace EU state aid rules on business bailouts and support

The UK government has announced new laws to replace EU rules on taxpayer-funded bailouts and business support, launching a subsidy system ministers say will help boost jobs and the economy.

In one of the most important pieces of post-Brexit legislation to date, the subsidy control bill will replace EU state aid rules that require its members to seek approval for government support for businesses.

The government said the new UK rules would provide quicker and more flexible assistance to companies and help with the task of levelling-up Britain’s lopsided regional economy and raising investment in green industries, as ministers push to set out the “benefits of Brexit” after leaving the bloc at the start of this year.

Under the EU system, subsidies, with some exemptions, had to be notified to and approved by the European Commission in advance, in a process Brexit supporters argued was overly bureaucratic and delayed vital funds from reaching viable businesses in good time.

The UK system will replace this process for determining when public bodies can provide support. However, the government said it would not mean a return to widespread 1970s-style state intervention.

The new regime, which comes into force in 2022, bans unlimited government guarantees to businesses as well as subsidies granted to “ailing or insolvent” firms where there is no credible restructuring plan.

The UK must also follow commitments on subsidy controls set out in free trade agreements with other countries, including the EU, as well as in line with World Trade Organization rules.

While Brexit supporters argue throwing off EU state aid rules is one of the biggest advantages of Brexit, critics remain sceptical.

The post-Brexit trade and cooperation agreement signed by Boris Johnson’s government with Brussels requires Britain to ban subsidies with a “material effect on trade or investment” between the UK and the EU.

Many Tories are ideologically opposed to state intervention despite the prime minister promising to “level up” towns and cities in the north and Midlands of England with government assistance.

As an EU member state, the UK government took little advantage of flexibilities within the EU regime, spending a fraction of the amount on supporting industry as other major economies including France, Germany and Denmark. According to the IPPR thinktank, Britain could have tripled state aid spending without breaching EU rules.

Kwasi Kwarteng, the business secretary, said the new system marked a clear departure from the EU state aid regime but would ensure the UK’s competitive, free-market economy was maintained.

“While the UK’s new system will be more agile and flexible, I have been clear that we will not return to the failed 1970s approach of the government trying to run the economy, picking winners or bailing out unsustainable companies. Every subsidy must deliver strong benefits for local communities and ensure good value for money for the British taxpayer,” he said.