UK Subsidy Audit

This is an Economy pillar working paper (June 2026, revised October 2026). It feeds into S3 Tax & Economy but is written to stand alone, setting out what exists, on what scale, with what accountability and with what implications for other pillars, rather than arguing a case.

1. What Counts as a Subsidy?

How subsidies are counted is contested, and the dispute matters politically. The government's own grants register recorded £160 billion of grant spending in 2024–25, up 5% on the year before.¹ But that figure includes formula grants to schools and local authorities. The narrower question, which industries receive state support that distorts markets or replaces private investment, needs a different approach.

Three definitions in common use

• Direct transfers: cash grants, direct payments or equity stakes paid from public funds to private recipients. The most visible kind, and the most argued over in Parliament.

• Tax expenditures: reliefs, credits, exemptions and allowances that reduce tax below the standard rate. HMRC has costed 380 tax reliefs,² and the largest reliefs that aren't part of a tax's basic structure run to tens of billions a year. They are rarely scrutinised as closely as direct spending.

• Implicit subsidies: state guarantees, deposit insurance, favourable regulatory treatment, or costs pushed onto others without a price, such as environmental damage or financial system risk. The IMF's full accounting of fossil fuel subsidies, £29bn for the UK and $7 trillion worldwide, uses this definition.³ Implicit subsidies are far larger than explicit ones.

NOTE ON SCOPE: This document covers direct transfers and tax expenditures. Implicit subsidies are flagged where they are significant but not fully measured, since that would need a separate assessment of fiscal risks along the lines of the OBR's.

2. The Full Picture: Master Audit Table

The table below maps the main UK industry subsidy programmes in 2025–26. Figures marked * are contested: the low end covers direct reliefs only and the high end includes wider implicit support. All figures are approximate and should be checked against primary sources before use in formal documents.

† Corrected 20 October 2026: this row previously said £1.5–2.0bn a year. The OBR puts environmental levy receipts, mostly these three schemes, at about £14bn in 2025-26 (OBR, "Environmental levies" box, November 2025). In size, levy-funded low-carbon support is therefore comparable to the top of the fossil fuel range, not a fraction of it.

Advanced manufacturing, corrected 20 October 2026: this row previously said £4.5bn a year. The Advanced Manufacturing Plan made £4.5bn available over five years from 2025, about £0.9bn a year.⁶

Fossil fuels: the decommissioning backstop, broken down. The £3.5–17.5bn range above covers annual tax reliefs and implicit support. The decommissioning backstop is a separate liability spread over the remaining life of the North Sea, not an annual figure, so it is shown separately here:

The decommissioning figure is a lifetime liability in present-value terms; the other rows are annual. They shouldn't be added together.

* Fossil fuels: £3.5bn in direct reliefs; £17.5bn including consumer subsidies and implicit support (Global Justice Now, 2025).⁹ The IMF's full externalities measure gives £29bn. This document uses £3.5bn as the cautious direct figure and flags the wider range.

* Housing: £3.9bn is the approximate annual rate of the Affordable Homes Programme and related grants. The June 2025 Spending Review committed £39bn over a decade to a new Social and Affordable Homes Programme, which the government described as the biggest boost to social and affordable housing in a generation.

3. The Invisible Subsidy: Financial Services and the APF

The largest single item in this audit almost never appears in public debate about subsidies. The Bank of England's Asset Purchase Facility (APF), created during the 2008 financial crisis and greatly expanded through quantitative easing during the pandemic, has made losses that fall on the Treasury.

• The APF bought government bonds when their yields were low. It paid for them by creating central bank reserves, on which the Bank pays commercial banks interest at Bank Rate, which peaked at 5.25% and stood at 3.75% for much of 2026.
• The Treasury covers the resulting losses. It paid the APF £44.5bn in the APF's 2023–24 accounting year (March to February), falling to £36.3bn in 2024–25 as Bank Rate and the size of the portfolio both came down.¹⁰
• This is a side effect of how monetary policy works, not a deliberate industrial subsidy. Its effect, though, is a large, continuing flow of public money to the financial sector, with no stated objectives, no end date and no accountability mechanism. Whether it should be called a subsidy at all is disputed: paying interest on reserves is how the Bank keeps market rates in line with Bank Rate (see the BoE Reserve Interest working paper).
• Other central banks have handled this differently. Since September 2023 the European Central Bank has paid no interest on the minimum reserves banks must hold, while paying its deposit rate on the rest.¹¹ The US Federal Reserve shrinks its portfolio passively, by letting bonds mature. The Bank of England also sells gilts actively, which brings losses forward. Which approach costs the public least overall is disputed.

IMPLICATION: If the Generational Reset's Economy pillar is to make credible claims about how subsidies are allocated and about fiscal discipline, it can't ignore an annual flow of £36–45bn to the financial sector that gets almost no public scrutiny. The target here isn't the Bank's independence in setting interest rates; it is making the cost visible and the design choices accountable.

4. Accountability Assessment

Subsidies without clear objectives, open reporting or measured outcomes aren't industrial policy. They are institutional inertia with a budget line. The table below assesses each major programme against three basic governance tests.

CROSS-PILLAR: The Energy pillar (S4_01) proposes requiring cash security for decommissioning when licences are transferred to buyers with low credit ratings. If that is adopted, guarantee payouts in the fossil fuels row above should fall over time, and this audit's decommissioning figures become the test of whether it is working. The Agriculture and Welfare rows aren't affected by that reform.

5. Cross-Cutting Findings

Finding 1: The UK has an industrial policy it never explicitly chose

Taken together, UK subsidies amount to an industrial policy that favours fossil fuels, financial services, housebuilding and defence. None of these priorities has been explicitly debated against the alternatives. The Modern Industrial Strategy's eight priority sectors try to add strategic direction on top of this inherited structure, but they sit alongside the old subsidies rather than replacing them.

Finding 2: End dates are the exception, not the rule

Of the eleven subsidy streams mapped above, only three have a real dated end point: advanced manufacturing (2030), the legacy Renewables Obligation (2037), and agricultural direct payments specifically (2027, although their successor, ELMS, is open-ended). The rest are either permanent (fossil fuel reliefs, APF transfers and film tax reliefs have no end date at all) or "programme-based" only in the sense that they run in repeating funding cycles. Housing, defence and digital work this way, which in practice means periodic renewal rather than an end date. The default for UK subsidy is permanence, so the political cost of removing a subsidy, not whether it delivers, decides how long it lasts.

Finding 3: Leverage is rarely measured

The most defensible subsidies in this audit are those that draw in the most private money for each pound of public support: Contracts for Difference, film tax reliefs (typically 10:1) and life sciences R&D credits. The least defensible are those where leverage is unmeasured or low: APF transfers and legacy farm direct payments. The decommissioning backstop sits in between. The industry says the guarantee contracts have released about £13.5 billion of capital, but that is an industry estimate that no government body has checked, and no government body has measured what the released capital was spent on.¹³ The Economy pillar should require leverage to be disclosed as a condition of any new subsidy programme.

Finding 4: Contradictions between pillars are a risk across the system

Agrivoltaics, discussed in a companion paper to the Agriculture pillar, would depend on continued green energy support. The Welfare pillar's work on a fair transition for fossil fuel workers depends on how fossil fuel subsidies are designed. The Education pillar's STEM pipeline is a precondition for manufacturing subsidies to build UK industrial capacity rather than UK consumption of foreign-made green technology. Nobody currently manages these links, and no single body maps them.

6. A Framework for Evaluation

Rather than recommending specific subsidy changes here, which is the job of individual pillars, the following framework is proposed as a standard for judging every UK subsidy. The Generational Reset should apply it consistently across the Economy, Agriculture and Welfare pillars.

• Stated objective: Is there a published, specific, measurable objective for this subsidy? If not, it shouldn't continue.
• End date: Is there a legal end date with review points? Open-ended subsidies should need an active decision to renew, not continue by default.
• Leverage: How much private capital does each £1 of public subsidy bring in? This should be published every year.
• Delivery: Is there independent checking (the NAO, the OBR, the CMA's Subsidy Advice Unit or equivalent)¹⁴ that the subsidy is meeting its objective?
• Who benefits: Is the benefit distributed in line with the government's stated priorities?
• Consistency with other policy: Does this subsidy support or contradict other state interventions? Is a named body responsible for managing the overlap?

CLOSING NOTE: The UK government spent £160bn on grants in 2024–25. The largest item, formula grants for education, is broadly defensible. Much of the rest reflects past political settlements rather than strategic choices. This audit argues for subsidy that knows what it is for, can show it is working and can be ended when it isn't, rather than for less subsidy as such. That discipline is harder to keep up in Westminster than it sounds, and the Economy pillar has to be built on it.

For public discussion. Not affiliated with any political party. | generationalreset.org

The Generational Reset | In Discussion: UK Subsidy Audit | For public discussion. Not affiliated with any political party. | generationalreset.org