Wales’ ability to attract investment from other parts of the UK will become much more difficult

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The Welsh Government’s ability to attract jobs and investment from other parts of the UK and the world will be reduced under new post-EU state aid legislation.

The UK government has said its Subsidy Control Bill, currently before Parliament, is designed to effectively prevent the poaching of businesses and investments from one part of the UK to another – although that it does not aim to capture subsidies likely to considerably improve the attractiveness of investments. in a specific area and thus have an indirect effect of relocating beneficiaries.

As well as impacting Wales, this could also apply, for example, to a local authority in the North East of England seeking to use grants to attract, for example, a manufacturing company from Kent.

The legislation has been criticized by the Welsh government, describing it as another example of the UK government‘s ‘assault on devolution’, alongside the post-EU Internal Market Act and structural funding successor to the EU. European Union in the Shared Prosperity Fund, which unlike EU funding will not be administered by the Cardiff Bay administration.

While Welsh Government grants and financial support are primarily focused on businesses already based in Wales, the funding is often used as a means of attracting investment and jobs from other parts of the UK and further afield. the stranger.

Even if a particular grant is not covered by the new legislation, public authorities will still need to consider its effects on other parts of the UK when assessing the grant against the principles.

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The UK government said public funding of a fintech skills scheme to entice a London-based company to move to Wales was an example of how disadvantaged locations could be made more attractive for investment. He said other examples could include subsidized office space in a particular town centre, or a grant to allow a business to expand in a particular area and employ staff in a disadvantaged group.

He said he would also not prevent leveling subsidies that attract investment to deprived areas.

On free ports, where an agreement between the UK and the Welsh government is expected within weeks for their establishment in Wales, the Westminster government has said they fall outside the scope of the bill as their grant principles were set out in the UK-EU Trade and Cooperation Agreement.

The UK government said: “The Subsidy Control Bill aims to empower all public authorities. This would in no way benefit the English authorities over the Welsh authorities – or vice versa – in any respect, including in the ability to attract foreign investment.

However, a Welsh Government spokesperson said; “The Subsidy Control Bill is another element of the UK Government’s assault on devolution. It only reflects the narrow political interests of the UK government rather than the wider needs of the whole of the UK. Despite repeated calls to UK Ministers for changes to be made, we are still extremely concerned that the Bill could create two tiers of legislation across the UK and will make it more difficult to identify and support less favored regions.

‘It will be the complete opposite of a ‘race to the top’ if the Bill ends up making it harder to identify Mayfair with Merthyr. Without significant changes to the Bill, it is not something the Welsh Government can support.

The UK government said the grant scheme would not affect the operations of the Welsh government’s wholly-owned investment bank, the Development Bank of Wales.

While the majority of the Development Bank’s lending activity focuses on local businesses, it has used equity in particular to attract businesses to Wales from other parts of the UK. He said his investment activities are at market rates and in terms of stock trading, he looks to private investors to invest on the same basis.

A spokesman for the bank said: “We have taken advice on the Grant Control Bill in relation to funds managed by the Development Bank of Wales. The bill stipulates that financial assistance is only considered a subsidy when it is provided on terms that are more favorable than could reasonably be expected in the market. Development Bank of Wales loans and equity investments are offered on commercial terms and compared to market and we understand that they are not considered grants.

Bethan Lloyd, a partner at Geldards law firm and who also leads its public sector team in Wales, said: ‘The Grant Control Bill provides that financial aid does not confer a grant if it is provided on terms that are no more favorable to the recipient than those terms which could reasonably be expected to be available to the recipient in the marketplace.

“This means that a loan given at a market interest rate will generally not involve a grant but, of course, a range of factors such as the borrower’s credit rating and the value of any collateral provided in exchange of the loan are relevant in determining what the market rate is in a particular case.

“This rule that an arm’s length transaction does not involve a subsidy is currently spelled out in black and white in the Subsidy Control Bill, without any caveats. It is interesting to compare the position under the EU state aid regime where there are certain caveats, because the fact that a transaction is in line with market conditions does not always guarantee that it does not there is no state aid.

Public authorities will be responsible for determining which subsidies are appropriate in a specific area, subject to subsidy control principles. This, for example, requires that the subsidy addresses either a market failure or an equity objective, and minimizes distortions of competition.

The UK government has said it will provide guidance to help authorities make these assessments. Certain subsidies more likely to cause undue distortions (as defined in the regulations) will be referred to a new subsidy advisory unit within the Competition and Markets Authority.

However, ultimately the grants can be challenged in the Competition Appeal Tribunal – which will assess the legality rather than trying to second guess the public authority’s own judgments.

A Scottish Government spokesman said; “The Subsidy Control Bill is only a framework and it is difficult to discern the real benefits of the new regime. It is unclear how long it will take for full implementation. The regulatory instruments setting out the details and the detailed directives will be published after Royal Assent. »

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