- Disclose all state subsidies to tackle waste and
corruption, argues new IEA briefing paper
- The Subsidy Control Bill, which replaces the EU’s state aid
rules, could make it harder to identify, scrutinise and contest
state subsidies.
- Under the new regime, it is estimated that £4bn of subsidies
could escape public scrutiny.
- Subsidies keep unproductive businesses alive, discourage
innovation and waste taxpayer funds.
- Requiring disclosure of all subsidies, or lowering the
reporting threshold, could help reduce this waste, increase
democratic accountability, and lessen corruption.
A new briefing paper from the Institute of Economic
Affairs, Transparency in the Subsidy
Control Bill: Lowering the reporting threshold, warns
that the Subsidy Control Bill will allow UK public authorities to
subsidise private enterprise for a range of purposes, with less
supervision and transparency than under EU state aid
rules.
Report author Matthew Lesh recommends that the Bill, which is
currently passing through the House of Lords, be amended to
ensure all state subsidies are disclosed. At the very least, the
threshold at which subsidies must be reported should be lowered
considerably.
The government’s own impact assessment estimated that requiring
disclosure of all subsidies would cost just £20,000 per year – a
miniscule cost in the scope of the billions spent on subsidies
each year. It would take just a single additional inappropriate
subsidy to be identified and repaid to pay for
itself.
Currently, EU state aid law requires subsidies of €500,000
(£415,000) and above to be published online. The proposed UK
regime only requires transparency (through publication in a
database) if a subsidy is worth £500,000 or more pursuant to a
pre-published scheme, or £315,000 or more if not part of a scheme
These arrangements raise significant transparency issues. The
Centre for Public Data estimates that over £4bn of subsidies will
not be disclosed each year because of these thresholds. Further,
once a scheme is approved, it will be possible to hand out
multiple subsidies to the same business with no further public
disclosure.
The paper warns that, theoretically, multiple subsidies of just
less than £500,000 could be made to the same business within a
scheme without the total amount ever being
disclosed.
The government is expected to increase subsidies over the coming
years, from the current level of around £8bn a year. If the Bill
is left unamended, there is a significant risk that billions of
pounds of subsidies will escape public scrutiny and
challenge.
As Lesh
explains, state subsidies can be damaging to the economy for
several reasons. They can unfairly prop up one firm at the
expense of its competitors; they can keep alive unproductive
businesses, preventing workers and capital being reallocated to
more productive uses; they can waste taxpayers' money by
supporting projects that would have happened anyway; and they can
encourage damaging rent-seeking, for example when firms seek
handouts from bureaucrats rather than innovating or improving
customer service.
, MP for Weston-super-Mare, and
United Kingdom Anti-Corruption Champion at the Cabinet Office,
said:
“Leaving the EU means we can decide for ourselves if we want
to subsidise particular industries or not. And, in general, every
free-marketeer should choose ‘not’.
"If we let politicians hide how subsidies are being spent,
the risks of cronyism and waste will only get worse, because
politicians are terrible at picking winners but losers are
brilliant at picking politicians.
"This excellent paper identifies the dangers at a time when
we need to embrace competition. I welcome the IEA’s intellectual
heft in the most transparent regime possible.”
Anna Powell-Smith, Director at the Centre for Public
Data, said:
"The Government says it wants to put data and evidence at the
heart of policymaking. The Subsidy Control Bill creates an
excellent opportunity to do that – but the new UK subsidy
database will not include around half of all
subsidies.
"Instead, the Government should publish all subsidies over
£500. This is low-cost to implement, reduces burdens for
business, and will improve the evidence base on future subsidies
– in short it's a no-brainer."
Matthew Lesh, IEA Head of Public Policy and author
of Transparency in the Subsidy Control Bill,
said:
"This Bill will reduce restraints on handing out taxpayer
funds while making it harder to know when and where our money is
being spent. This is a recipe for disastrous waste of taxpayer
money.
"The very least the government can do is require public
authorities to publish all information about how they are
spending money on our behalf."
ENDS
Transparency in the Subsidy Control Bill: Lowering the
reporting threshold is under embargo until 00.01
Wednesday 9th March. An embargoed copy of the paper can be
found here: https://iea.org.uk/wp-content/uploads/2022/03/Matt-Lesh-subsidy-control-paper.pdf
