Briefing: An opportunity to improve government subsidies

Briefing: An opportunity to strengthen the Subsidy Control Bill

Last updated February 2022

1. Summary

The Subsidy Control Bill proposes a new domestic subsidy regime for the UK, changing how public authorities award subsidies to businesses. In 2018, the UK spent about £8 billion on subsidies, and this is expected to increase.
The Bill is missing a simple, low-cost route to support UK businesses and the Government’s own goals by publishing better transparency data.
Subsidies can create harms like ‘rent-seeking’ and cronyism. When subsidies aren’t public, these harms are harder to spot and prevent.
Under the Bill’s proposals, public authorities must report their subsidies on a new transparency database. However, the Bill only requires large subsidies (typically over £500,000) to be published - the level required to meet the UK’s international legal obligations.
As the bill stands, many large subsidies will not be published, making it harder to spot harmful subsidies. This will also make it harder to evaluate subsidy spending, since there is no other single database of subsidies.
Instead, we recommend all subsidies over £500 should be included on the transparency database. This would help everyone spot harmful or wasteful subsidies, and would make it easier for businesses to challenge unlawful subsidies.
Crucially, this would not create any burdens on business, or be expensive - the Government itself estimates it would cost just £20,000 per year.
Our proposals are backed by the Government’s anti-corruption champion, John Penrose MP - and by civil society groups ranging from Transparency International and the Campaign for Freedom of Information to the Adam Smith Institute and Centre for Policy Studies.
We’re calling for a short amendment to the Subsidy Control Bill, to ensure that all subsidies are recorded on the transparency database.
If you agree that we need better data on subsidies, please get in touch: contact@centreforpublicdata.org.

2. Background

What are subsidies?

Subsidies (aka ‘state aid’) are awarded by the public sector (local authorities, public bodies, and devolved governments) to businesses to support R&D, regional development, and priorities like net zero.

They can be paid as grants, loans or tax waivers - contracts are regulated separately.

What are some examples of subsidies?

Some examples of current subsidies are:

grants and loans to support innovation - for example, Innovate UK offers grant schemes to fund R&D and areas like autonomous vehicles
tax reductions by central government to support specific sectors or activities - e.g. HMRC offers the Animation Tax Relief and tax reliefs for R&D.

How much do we spend on subsidies?

The UK spends a lot of money on subsidies - more than £8 billion in 2018.

The Government has said that it plans to increase subsidies significantly, to support its net zero, R&D and levelling up agendas - last year’s Spending Review announced ‘the highest sustained levels of public sector net investment since the late 1970s’.

Why are things changing now?

Before Brexit, the UK’s subsidy regime was governed by EC ‘state aid’ regulations. Now, the Government is developing a new, independent UK regime for subsidies, in the Subsidy Control Bill.

How are things changing in the Bill?

The Government aims to create a regime that is faster, more flexible and less bureaucratic than the EU’s system. It will allow public authorities to grant financial support suited to their specific needs. See the House of Commons Library’s briefing.

However, the Financial Times has warned that the flexible new regime could pose ‘significant risk’, and says that ‘on the altar of speed, [the Government] has sacrificed scrutiny’.

What harms can subsidies cause?

Subsidies can support innovation, but they can also be harmful if not used properly. These harms can include ‘rent-seeking’ (where companies are paid to do things they’d do even without funding), cronyism, or inefficiency, if large companies are supported at the expense of new entrants.

3. What is the opportunity?

The opportunity will make it easier to spot harmful and wasteful subsidies. This will reduce the risks of subsidies, and support the Government’s own goals.

What is the opportunity?

Previously, under the EU regime, all subsidies over €500,000 had to be published online.

In the proposed new UK regime, these limits are increasing:

Subsidies over £500,000 awarded under a registered ‘scheme’.
Subsidies worth over £315,000, if not awarded via a ‘scheme’, and awarded to the same entity within three years.

This means that many large subsidies will not be published, making it hard to spot harmful or wasteful subsidies.

Instead, we think all subsidies over £500 should be reported centrally and published on BEIS’s database. This would mean that all market participants have equal access to information.

This would be a low-cost, straightforward way to help protect against the dangers of subsidies, like rent-seeking and market distortion.

Most importantly, it would not create new costs or burdens for public authorities or businesses.

How would it work?

Implementation is straightforward. BEIS has already implemented a transparency database for public authorities to report their subsidies.

Public authorities can upload subsidies via spreadsheet, so they would simply need to upload more rows in each spreadsheet.

It would not create any burdens for business, and the costs to public authorities would be minimal.

Why has the Government set the reporting threshold so high?

The only reason given in the impact assessment is cost. The Government says that the cost of dropping the threshold to zero would be around £20,000 per year, and the benefits of transparency would be less than this.

We think the benefits of transparency and better data would be much higher than this.

How many subsides are there below the proposed £500,000 threshold?

We don’t know, because no data has been published.

More worryingly, the Government also doesn't seem to know. Its pre-Bill consultation asked respondents to suggest data sources on subsidies - but apparently didn’t find any, since the subsequent impact assessment for the Bill only looked at subsidies over €500k.

We also worked with John Penrose MP to ask a Parliamentary written question about this, and the Government confirmed that it didn’t hold any data on smaller subsidies.

We think that this is troubling, because it means that central government and the public have no oversight into how smaller subsidies are being used.

Is other government spending reported in this way?

Yes:

All expenditure by local authorities over £500 is published.
All grants of any value by government departments and arms’ length bodies are now published annually by the Cabinet Office.
All expenditure by central government departments over £25,000 is published.

So the proposed £500 threshold would match transparency thresholds that already exist in the public sector, and have already been carefully evaluated.

4. What would the benefits be?

This change would create a near-comprehensive public dataset of subsidies awarded, as opposed to a partial and incomplete dataset, as is the case at the moment.

It would have significant benefits for UK taxpayers, who can be confident that harmful and wasteful subsidies will be more easily identified, and it would also have benefits:

For government:
- It will help reveal which subsidies are achieving their goals, and help target spending effectively. And it will help swiftly identify harms if they appear, and analyse and address their causes. (This analysis will be most effectively done both inside and outside Government, so it is important that the data is public.)
For public authorities awarding subsidy:
- It would decrease fraud risk, as transparency will help deter fraudulent applications, reduce fraud recovery costs by enabling public scrutiny.
- It would reduce marketing costs, and encourage applicants to come forward if they can see that their competitors are being supported.
- It will not increase administrative costs, but reduce them, as lower fraud risk will reduce the need for due diligence when awarding subsidies, and it will reduce the need to respond to individual FOI requests.
- It would be in line with transparency thresholds elsewhere in the public sector - e.g. local authorities must publish all expenditure over £500.
For UK businesses:
- It would reduce information asymmetries for small businesses, and increase market confidence as all participants know who is being supported.
- It would support foreign direct investment as overseas investors can be confident that they have equal access to market information.

5. What are the arguments against doing this?

Will this increase administrative burdens?

No. There will be no change for businesses, since public authorities will not need to collect any extra information. And in the digital era, there is no marginal costs to reporting extra rows in a spreadsheet.

In fact, it will reduce the administrative burden for public authorities, which would otherwise have to respond to individual Freedom of Information requests for subsidy spending. This would no longer be necessary if all significant subsidies were centrally reported.

Will this create privacy problems?

No. In the rare cases where individuals are the beneficiaries of subsidies, their names would continue to be redacted.

Will this affect commercial confidentiality?

No. The only subsidy information that could reveal commercial revenues or profits is the level of tax waiver, but this is already redacted and would continue to be so.

6. About us

The Centre for Public Data is a new non-partisan organisation with a mission to strengthen the UK’s public data. We aim to reduce gaps in data that harm civil society and business.

We support legislators and policymakers to improve data coverage and quality, via practical interventions in legislation, codes of practice and governance.

We would be pleased to discuss any of these issues further: contact@centreforpublicdata.org.