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Policy / Digital economy

Will the UK tech sector benefit from new state aid rules?

As a strategic priority for the UK government, tech could be a beneficiary of the new regime, but much will depend on the individual grant-awarding bodies.

The UK government has unveiled its plans for the country’s post-Brexit state aid regime, which sets out when and how businesses can receive public funding. While many details of the system have yet to be resolved, the tech sector’s status as an industry of national strategic importance could see it benefit from the new rules.

UK state aid rules
Business secretary Kwasi Kwarteng revealed the UK’s post-Brexit plans for state aid on Tuesday. (Photo by Leon Neal/Getty Images)

The Subsidy Control Bill, published on Wednesday afternoon, sets out the conditions in which companies can be awarded taxpayer funds. Previously, the UK fell under the European Union’s state aid regulations, which are designed to ensure a ‘level-playing field’ across the bloc, and being able to independently set state aid rules has been hailed as one of the benefits of Brexit. The government claims its new system will cut bureaucracy and enable funds to reach businesses more quickly.

Announcing the bill, business secretary Kwasi Kwarteng said it will “empower public authorities across the UK to deliver financial support – without facing burdensome red tape”. Kwarteng added: “Every subsidy must deliver strong benefits for local communities and ensure good value for money for the British taxpayer.”

Indeed, whether or not the UK tech sector will benefit from the change will depend on the priorities of individual awarding bodies, experts told Tech Monitor.

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What changes are coming to the UK state aid regime?

Under EU state aid rules the majority of applications for state funding require approval from the European Commission to ensure a level playing field across the bloc. The only exception is in the case of ‘block exemptions’, a set of specific conditions where aid can be granted without approval, such as for supporting female entrepreneurs or SME job creation.

Matthew O’Regan, a barrister at St John’s Chambers who specialises in state aid, says the UK bill marks a move away from this kind of system. “The UK will move to a system where most subsidies can – if they comply with certain ‘principles’ set out in the bill – be granted without a need for referral to and reporting by the Competition and Markets Authority (CMA),” he says.

While this should make it quicker and easier to distribute grants and funding, O’Regan says it will also leave the beneficiaries of grants open to legal challenge “It will potentially come with a greater risk of ex post challenge, including by third parties in the Competition Appeal Tribunal or by the government referring an awarded subsidy to the CMA,” he adds.

Isabel Teare, senior legal adviser at national law firm Mills & Reeve, says she sees “considerable promise” in the new regime. “The government has said that the system will be fast and flexible, as compared to the EU state aid process,” she says. “Of course, whether that is borne out in practice will depend on the approach taken by granting bodies and the CMA.”

The new UK state aid rules and tech

The UK is not traditionally a big spender when it comes to state aid. According to the EU’s 2020 state aid scoreboard, it spent just over 0.5% of GDP, some £14bn, on state funding excluding aid to agriculture, fisheries and railways. This put it 19th of the 27 EU member states. But this may change in the post-Brexit era, and today it was reported the government had provided £100m in support to help convince Nissan to open a new EV battery factory in Sunderland.

Research and development has been one of the main priorities for UK state aid spending, indicating the emphasis the government puts on new technology.

Whether the new rules will mean tech companies are more likely to receive funding remains to be seen. "The bill is sector agnostic," says Teare. "However, technology businesses are likely to benefit where they are seen as a priority in particular fields of activity or regional hubs.”

O'Regan agrees. "Whether [the bill] will lead to more subsidies for the tech sector will depend on the business support policies adopted by the UK government, the devolved administrations, local authorities and other bodies that disburse public funds, such as Local Enterprise Partnerships and UK Research and Innovation," he says. "However, the technology sector generally is seen as strategically important, so may well be an important beneficiary of subsidies as part of both economic growth and ‘levelling up’ policies."

This could result in more government funding reaching technology companies, O'Regan argues, and more quickly. Beneficiaries could include small tech companies that show promise, which will potentially be eligible for larger grants. "Start-ups and SMEs will benefit from a higher level of ‘minimal’ aid, set at £315,000 over three years," he adds.

Matthew Gooding

News editor

Matthew Gooding is news editor for Tech Monitor.