UK Subsidy Audit

This is an Economy Pillar working paper (June 2026). It feeds directly into S3 Tax & Economy but is designed to stand alone. It is not an advocacy document — it presents what exists, on what scale, with what accountability, and with what cross-pillar implications.

1. What Counts as a Subsidy?

The accounting is contested, and the contestation is itself politically important. The UK government's own grants register recorded £160 billion in grant spending in 2024–25 — up 5% from the previous year.¹ But that figure covers formula grants to schools and local authorities. The narrower question — which industries receive state support that distorts markets or substitutes for private investment — requires a different frame.

Three definitions in common use

• Direct transfers: Cash grants, direct payments, or equity injections from public funds to private sector recipients. Most visible; most contested in Parliament.

• Tax expenditures: Reliefs, credits, exemptions, and allowances that reduce tax liability below the standard rate. HMRC has costed 380 tax reliefs²; the largest non-structural reliefs run to tens of billions annually. These are rarely debated with the same rigour as direct spending.

• Implicit subsidies: State guarantees, deposit insurance, preferential regulatory treatment, or the unpriced externalisation of costs (environmental damage, systemic financial risk). The IMF's full accounting of fossil fuel subsidies — £29bn UK, $7 trillion globally — uses this definition.³ Implicit subsidies dwarf explicit ones.

NOTE ON SCOPE: This document covers direct transfers and tax expenditures. Implicit subsidies are flagged where material but not fully quantified — they would require a separate OBR-style fiscal risk assessment to measure properly.

2. The Full Landscape: Master Audit Table

The table below maps the principal UK industry subsidy programmes as of 2025–26. Figures marked * are contested — the low end reflects direct reliefs only; the high end includes wider implicit support. All figures are approximate and should be verified against primary sources before use in formal documents.

* Fossil fuels: £3.5bn direct reliefs; £17.5bn including consumer subsidies and implicit support (Global Justice Now, 2025).⁴ The IMF full externalities measure produces £29bn. This document uses £3.5bn as the conservative direct figure and flags the wider range.

* Housing: £3.9bn is the approximate annual run-rate of the Affordable Homes Programme and associated grant programmes. The June 2025 Spending Review committed £39bn over a decade, the largest sustained housing investment since the post-war period.

3. The Invisible Subsidy: Financial Services and the APF

The single largest item in this audit is one that almost never appears in public subsidy debate. The Bank of England's Asset Purchase Facility (APF) — created during the 2008 financial crisis and massively expanded through pandemic-era quantitative easing — has generated structural losses that fall on the Treasury.

• The APF purchased government bonds at yields of approximately 1.5%. Those purchases were financed by creating central bank reserves, which now pay commercial banks the Bank Rate — currently 4.25%.
• The resulting loss is borne by the Treasury. In 2023–24 the transfer was £44.5bn. In 2024–25 it rose to £54bn.⁵
• This is a contingent consequence of monetary policy design, not a deliberate industrial subsidy. But its effect is identical: a sustained transfer of public money to the financial sector, with no stated objectives, no sunset, and no accountability mechanism.
• Other central banks have managed this differently. The ECB tiers interest rates on reserves. The Federal Reserve allows passive portfolio runoff. The Bank of England chose the most expensive approach for the public finances.

IMPLICATION: If the Generational Reset's Economy Pillar is to make credible claims about subsidy allocation and fiscal discipline, it cannot ignore a £44–54bn annual implicit transfer to the financial sector that receives no public scrutiny. This is not a call to undermine monetary policy independence — it is a call to make the cost visible and the design choices accountable.

4. Accountability Assessment

Subsidies without clear objectives, transparent reporting, or outcome measurement are not industrial policy — they are institutional inertia with a budget line. The table below assesses each major programme against three basic governance criteria.

5. Cross-Cutting Findings

Finding 1 — The UK has an implicit industrial policy it has never explicitly chosen

The aggregate of UK subsidies constitutes a de facto industrial policy favouring fossil fuels, financial services, housebuilding, and defence. None of these priorities have been explicitly debated against alternatives. The IS-8 Modern Industrial Strategy is an attempt to impose strategic intent on top of this inherited structure — but it sits alongside, not in place of, the legacy subsidy architecture.

Finding 2 — Sunset provisions are the exception, not the rule

Of the eleven subsidy streams mapped above, only advanced manufacturing (5-year programme) and renewables (partial) have clear sunsetting. Agricultural BPS ends 2027 but ELMS is open-ended. Fossil fuel reliefs have no sunset. The APF transfers have no sunset. Film tax reliefs have no sunset. The default assumption for all UK subsidy is permanence — which means the political cost of removal, not the delivery of outcomes, determines longevity.

Finding 3 — Leverage ratios are rarely measured

The most defensible subsidies in this audit are those with high private leverage ratios: 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: fossil fuel decommissioning backstop, APF transfers, and legacy agricultural direct payments. The Economy Pillar should require leverage ratio disclosure as a condition of any new subsidy programme.

Finding 4 — Cross-pillar incoherence is a systemic risk

The Agriculture Pillar's agrivoltaic transition depends on green energy subsidy continuity. The Social/Welfare Pillar's just transition work depends on fossil fuel subsidy design. The Education Pillar's STEM pipeline is a prerequisite for advanced manufacturing subsidies to produce UK industrial capacity rather than UK consumption of foreign-manufactured green technology. These interdependencies are currently unmanaged. No single body maps them.

6. A Framework for Evaluation

Rather than recommending specific subsidy changes in this document — which is the work of individual pillars — the following framework is proposed as a standard against which all UK subsidies should be evaluated. The Generational Reset should apply this framework consistently across Economy, Agriculture, and Social/Welfare pillars.

• Stated objective: Is there a published, specific, measurable objective for this subsidy? If not, it should not continue.
• Sunset provision: Is there a statutory end date with review gates? Open-ended subsidies require affirmative renewal, not passive continuation.
• Leverage ratio: What private capital does each £1 of public subsidy mobilise? This should be published annually.
• Delivery assessment: Is there independent verification (NAO, OBR, or equivalent)⁶ that the subsidy is achieving its stated objective?
• Distributional impact: Who benefits? Is the incidence of the subsidy consistent with the government's stated distributional priorities?
• Cross-pillar coherence: Does this subsidy complement or contradict other state interventions? Is there a named body responsible for managing the interaction?

CLOSING NOTE: The UK government spent £160bn in grants in 2024–25. The largest single-year item — education formula grants — is broadly defensible. Much of the rest reflects accumulated political settlements rather than strategic choices. The purpose of this audit is not to argue for less subsidy but for subsidy that knows what it is for, can demonstrate it is working, and can be ended when it is not. That discipline is harder than it sounds in Westminster — but it is the foundation on which the Economy Pillar must be built.

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