30 March 2021

The UK’s subsidy control regime is a great chance to promote competitive markets and grow the economy

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While recent media coverage of trade policy has tended to focus on either our relationship with the EU or striking trade deals further afield, the bigger question was always about what kind of country Brexit Britain would be once it had more control of its own regulations. Would the Government promote the kind of pro-competitive market reform one would expect the Conservative Party to embrace, or would it retreat behind a wall of regulatory distortion, barriers and self-harming subsidies?

We are now seeing the beginnings of the decision-making process that will answer these vital questions. The choices the UK makes in its regulatory settings will also have a huge impact on its external trade policy. We can only negotiate the kind of expansive trade deals the Prime Minister talked about in his Greenwich speech if the UK is open and competitive domestically.

The heart of maintaining an open and undistorted market at home is in ensuring that the UK does all it can to reduce anti-competitive market distortions which slant markets in favour of privileged, protected incumbents and against the interests of smaller, new entrants. These distortions drain the entrepreneurial spirit out of an economy.

One of the principal ways in which large incumbent cronies benefit at the expense of more agile, new-entrant entrepreneurs is through subsidies. It is therefore very welcome that the UK is considering a Subsidy Control Regime to ensure that it can indeed reduce the number of anti-competitive distortions in its market. The UK already has a very effective Competition and Markets Authority [CMA] which focuses on private anti-competitive practices. It is high time this is complemented by work on government distortions that have similar or frequently more pernicious effects.

Today, the Competere Advisory Council, which I chair, submitted detailed comments into the BEIS consultation of the proposed UK Subsidy Control Regime. We wanted to make a number of key points. 

Firstly, that the goal of the UK Government should be to reduce subsidies, especially those that distort conditions of competition to only those cases where they are truly justified by some overriding legitimate public policy goal that can only be achieved through the use of a subsidy. Even in that event, they should be time-limited. Too often a subsidy that was intended to deal with a very specific market failure is continued well beyond its anticipated time, and becomes set in stone as a host of companies benefit from it.

This view is not just the preserve of wide eyed free-marketeers. It is exactly the recommendation of the OECD in its Competition Assessment and Regulatory Toolkit, and the International Competition Network in its Competition Advocacy mandate.

In line with the work of the OECD and the ICN (whose former Chairman sits on my Advisory Council), we propose that the subsidy control regime be administered by the CMA, or if it is administered by another body, the CMA should play a very strong role in advocating for competition. This is not a radical proposal. Another member of my Advisory Council is the former General Counsel of the Federal Trade Commission, one of the US’ antitrust agencies.

We also explain the harm that anti-competitive distortions cause, of which subsidies are the most obvious kind – and we link the domestic resolution of these issues with a trade mechanism which enables the UK to discipline distortions which occur in other markets and give foreign producers an artificial cost reduction. 

This is noteworthy because the Trade and Agriculture Commission (on which I sat as a Commissioner) also made similar recommendations as a potential defensive mechanism if a foreign country was derogating from agreed standards in trade agreements or internationally agreed standards in order to seek trade advantage. The US has also suggested a similar approach in the WTO, and the UK-EU Trade and Cooperation Agreement includes a Rebalancing Mechanism which could achieve similar ends if its trade distortion test is used in an economic and not a legalistic manner.

As with many things in Brexit, the UK has an opportunity to build on the learning of others, to stand on the shoulders of giants and come up with mechanisms and policies that seek to solve the real problems of the 21st century. But that opportunity could be squandered if it merely seeks to replicate what others have done or to start its new journey down well-trodden paths that seem to present to it no risk.

The UK will either rise to this opportunity, making it not only relevant but a vital trading nation, or it will fail to do so. But as the world watches, one thing is certain. This opportunity will not come again to these shores.

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Shanker Singham is CEO of Competere, a former cleared advisor to the US Trade Representative and a former advisor to the UK Secretary of State for Trade.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.