24 Nov 2004 The OFT has published a report on public subsidies. The report develops an analytical framework for determining the likely competition distortions caused by subsidies and identifies the need to improve aspects of the current approach to controlling subsidies.

The OFT will now undertake further work on this issue, using specific case studies, to provide Government with detailed recommendations on how subsidies affect competition in practice, and how to design subsidies so that their impact on competition is minimised.

The study identifies four broad areas to be considered more specifically in the second phase of the study:

• in what way the economic basis of the EC rules on state aid should be strengthened to take better account of the potential for competition distortions to arise  - the Government should continue to press for such changes to the rules
• whether national guidance on subsidy design and appraisal should include competition considerations
• whether subsidy providers should have monitoring procedures in place that assess the impact of the subsidy on competition
• whether central government and devolved administrations should collate and publish more detailed data on the subsidies provided across the UK.  

The report can be found on OFT’s website at www.oft.gov.uk

The Department of Trade and Industry (DTI) has a general interest in OFT's market studies and co-ordinates Government responses where those studies make regulatory recommendations. The Government is now working with the OFT to take forward Phase 2 of their work to develop more specific recommendations. This will include case studies of specific subsidies.

Background

The OFT launched its’ initial study on public subsidies (Phase 1) on 6 April 2004.  Phase 1 was an initial research study to provide an economic framework against which to assess the types of and delivery methods for Government subsidies, their impact on competition and how such impacts might be minimised.

Under Phase 2, OFT will collect empirical evidence on the actual effects of UK subsidies on competition, which will provide a clearer picture of exactly how current rules and guidelines could be improved.

It is envisaged that the empirical work will take the form of case studies into a diverse range of subsidies, including examples of best practice.  These would examine the extent to which the characteristics identified through the stage one research affect markets in practice.  The OFT would welcome views from subsidy providers and other stakeholders on suitable examples for study.

Market Study information page

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