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Councils to have power to award subsidies under new state aid plans

English councils of all kinds will be able to award subsidies to businesses as part of growing local economies, the Department for Business, Energy and Industrial Strategy (BEIS) has said.

Business secretary Kwasi Kwarteng has outlined a new state aid system to replace money that formerly went to businesses from European Union bodies.

A BEIS spokesperson told Local Government Lawyer: “To confirm, any public authority that gives subsidies will be in the scope of the new regime – so that would include district councils, regional authorities, counties, unitaries.”

Devolved administrations in Scotland, Wales and Northern Ireland will have similar powers.

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BEIS said the new subsidy control system would provide quicker and more flexible support, with spending decisions resting with devolved administrations and local authorities.

Under the new system there will be an assumption that subsidies are permitted if they follow principles set by Whitehall to deliver good value and be awarded in a timely and effective way.

Subsidies cannot though be awarded simply to relocate jobs and economic activity from one part of the UK to another.

This stipulation would prevent ’subsidy races’ between public authorities competing to attract the same business, the Government said.

Large companies would also be prevented by this rule from playing off areas against each other in search of the largest subsidy.

Subsidies will also be banned where they would be unlimited or given to ailing or insolvent enterprises with no credible restructuring plan.

Mr Kwarteng said: “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.”

Enforcement will be through the courts and tribunal system with jurisdiction to judicially review subsidy resting with the Competition Appeal Tribunal.

Mr Kwarteng said the new system would conform with commitments on subsidy control with the World Trade Organisation and those in free trade agreements.

Alex Kynoch, subsidy control specialist at law firm Browne Jacobson, said the introduction of the bar on subsidies that merely relocate economic activity or jobs from one part of the UK to another meant public bodies “will need to consider not only the impact of their subsidy on competition with the EU and other countries that the UK has trade agreements with, but also the impact that it may have on other parts of the UK”.

They had not had to do this before and there could be an increased risk of challenge to subsidy decisions.

Moving subsidy control enforcement moving to the Competition Appeal Tribunal suggested that the role of the Competition & Markets Authority would be limited to advice, and any guidance it gave would be non-binding.

Mr Kynoch said: “Much has been made of the departure from the old state aid regime and while there was certainly room for improvement, the Government must ensure it does not sacrifice clarity and certainty at the altar of reducing red tape.”

Mark Smulian

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