Reservation of subsidy control
Updated 17 November 2020
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What are we going to do?
The UK Internal Market Bill reserves to the UK Parliament the exclusive ability to legislate for a single, unified UK subsidy control regime in the future.
A future subsidy control regime could help address the effects of distortive or harmful subsidies, whether that is in relation to international trade or the UK internal market.
Why is it necessary?
Subsidy control has never been devolved. The devolved administrations have never previously been able to set their own subsidy control rules, as this was covered by the EU State aid framework. As the government has previously stated, the regulation of state aid is a reserved matter. Whilst the existing reservations contained in the devolution settlements are sufficient to encompass an approach to subsidy control that mirrored the EU state aid regime in the UK, the existing devolution settlements do not contain any general reservation for subsidy control.
Legislating to provide expressly that subsidy control is a reserved matter (or ‘excepted’, in line with the terminology used in Northern Ireland) will ensure that, if a legislative regime is to be introduced, it would apply to the whole of the UK.
Now that we have left the EU it is important that we take a coherent approach to subsidy control across the UK. The UK as a whole has an interest in ensuring that there is a consistent approach to ensure the functioning of the UK Internal market, including, if considered appropriate though legislation. Given this, the future subsidy control mechanisms should be the responsibility of the UK Parliament to determine.
If we do not take this important step there could be divergence regarding the approach adopted in different parts of the UK and that could have a negative impact on the functioning of the UK internal market with ensuing effect on welfare (for example discouraging investment, increasing costs to supply chains and consumers, creating an incentive for subsidy races).
What does this mean for devolved administrations spending decisions?
The devolved administrations are and will remain responsible for their own spending decisions on subsidies (how much, to whom and for what) within any subsidy control system.
What are the next steps?
The government published a statement on 9 September, announcing that the UK would follow World Trade Organisation subsidy rules and other international commitments from 1 January 2021, with guidance for public authorities being published before the end of the year.
We also set out our intention to publish a consultation in coming months on whether we should go further than these international commitments. This will include consulting on whether any further legislation should be put in place.
The approach on subsidy control will have implications for businesses and all public authorities that grant subsidies with taxpayers’ money, including the devolved administrations. We will take the time to listen closely to those voices and design a system that promotes a competitive and dynamic economy throughout the whole of the United Kingdom.
How will this work for Northern Ireland?
The UK’s subsidy control regime will need to take into account the state aid provisions in the NI Protocol. It is important to note that after the transition period the EU State aid rules will not apply to Northern Ireland as they do today. State aid provisions apply only to trade ‘subject to the Protocol’, which is limited in scope to goods and wholesale electricity markets.
Northern Ireland will therefore enjoy new flexibility with respect to support for its service industries.
Background
This provision amends Schedule 5 to the Scotland Act 1998 and Schedule 7A to the Government of Wales Act 2006 to make the regulation of distortive or harmful subsidies a ‘reserved matter’. In respect of Northern Ireland, the provision amends Schedule 2 to the Northern Ireland Act 1998 to make regulation in this area an ‘excepted matter’.