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OFT to analyse impact of subsidies on competition

65/04    6 April 2004

The OFT is to commission an independent study into the impact of public subsidies on competition.

External consultants will be asked to undertake a broad-ranging economic analysis of how different kinds of subsidy might impact on competition and, directly or indirectly, on consumers. The study will consider different categories of subsidy and the different market circumstances in which these might be granted.

The UK spent around €9.4 billion on subsidies in 2001. The study will consider the potential effects of subsidy upon the recipient business, its competitors, suppliers and customers. The aim of the study is to inform the OFT about the circumstances that give rise to adverse impacts of subsidies upon competition; the nature of these impacts; and the scope for minimising these through subsidy design. It will not address the justification for subsidies, but focus on their competition effects.

This is the second OFT study to examine the effect of Government involvement in markets. In February, it launched a study on public sector procurement (see press release 16/04). A report of that study will be published in the summer.

The OFT expects the research on public subsidies to be completed by the autumn and to publish a report shortly thereafter. It is anticipated that the study will highlight areas for further work and will create a framework for analysing the effects of subsidies in practice.

NOTE

1. The OFT is following the EU Market Economy Investor Principle (MEIP) in defining subsidies as: any public funds provided to public or private undertakings on terms that are more favourable than a private investor would have provided in a competitive environment.

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