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State Aid post Brexit

Last updates, 12pm, 26 January 2021

Amidst all the last minute issues related to Brexit negotiations over the New Year period, some may have missed a fundamental change to the State Aid Regime, now more rightly described as ‘Subsidy Control”. The State Aid (Revocations and Amendments) (EU Exit) Regulations 2020 was passed on 1 January 2021.

Crucially, these Regulations state that any rights, powers and obligations imposed under Article 107 or 108 of the Treaty on the Functioning of the European Union cease to be recognised in domestic law. These are the provisions which create the State Aid restrictions that we have had to work with for some years.

Additionally, any decisions previously made by the European Commission (for example giving approval to a system of support with certain conditions) now has no status whatsoever under UK law.

The UK remains subject to less rigorous “anti-subsidy” obligations under World Trade Organisation Rules, but these have a more limited effect with regard to major subsidies, rather than the very detailed and precise regime applying before 31 December 2020.

Additionally under the Trade and Co-operation Agreement (TCA) signed between the UK and EU, the UK Government is obliged to create a new State Aid Regime in order to prevent unlawful competition between the UK and other European Countries. In the interim, there are some general principles expressed in BEIS guidance, which echo the content of the TCA and are obliged to be followed for any aid given by a public body over a raised “de minimis” level of £350,000 (although, truth be told there is no enforcement regime in place!) The key principles are that (paraphrasing slightly);

  • subsidies should pursue a public policy objective
  • subsidies should be proportionate in terms of what is necessary to achieve the objective
  • subsidies are necessary to bring about a change in behaviour
  • the beneficiary would not have funded the project otherwise
  • the objective could not have been achieved through other means
  • the positives of the subsidy outweigh the negative

The Government will in due course create an independent “Subsidy Control Authority”, backed up by enforcement in the Courts – but, in all honesty, we suspect that with everything going on within the government at the moment, the creation of such a regime and an enforcement system imposed by it is probably quite a long way down the government’s “shopping list” – creating what has been described as a “temporary vacuum”.

The government are to advise those giving support to complete a template form recording their reasons for giving support.

Many support schemes proposed, often with the involvement of Local Authorities, government departments and Local Enterprise Partnerships have historically been subject to the need for a legal “State Aid clearance” before grant monies and other support can be paid over, and we suspect that the speed and non-publicised nature of this new regulation means that many bodies may not be aware of it. We anticipate that there may be a need to explain these regulations and their operation to relevant “gatekeeper” bodies going forward.

For further details of the BEIS guidance, together with information on the Government consultation recently launched to gather views on the form that the new subsidy control system will take, see The New UK Subsidy Control Regime: The Effect of Brexit on State Aid.

As always, Freeths LLP are very happy to give advice on these aspects. Please get in touch with Stephen Pearson to discuss anything covered in this article further.

Head to our Brexit Exchange where you will find all the latest updates and developments from our experts, regarding Brexit and how that affects businesses and individuals in a range of areas.

The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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