What does Brexit mean for the UK’s subsidy policy?
The UK has undoubtedly achieved a high degree of flexibility and independence over its subsidy policy which creates new opportunities for the Government and UK businesses. However, that has come at the price of reduced legal certainty: without block exemptions (which under the EU regime covers the vast majority of State Aid situations) or a system for up front approval of a subsidy, granting authorities and beneficiaries are left to assess themselves whether their subsidy is lawful.
The Department for Business, Energy and Industrial Strategy (BEIS) consultation on the new domestic subsidy regime is now underway, but the following features are already worthy of note:
- There are currently no block exemptions (safe harbours), frameworks or guidance notes for the UK regime and the UK has yet to appoint/create an independent subsidy control authority.
- There is no obligation on the UK to create a system for pre-notification.
- Granting authorities will have to carry out a self-assessment of whether their subsidies are lawful (the inevitable consequence of not having a system of pre-notification).
- In carrying out that self-assessment, creating a contemporaneous, documentary audit trail will be critical.
- Complainants (“interested parties”) may seek judicial review of the decision to grant subsidies and the courts can order repayment of unlawfully granted subsidies.
- The concept of a subsidy is little different from that of a State Aid.
- The relevance of the subsidy rules for UK tax legislation has its own complexities which we will cover separately.
The Government’s consultation will run until 31 March 2021. Subject to the outcomes of this consultation, the Government has promised to bring forward primary legislation to establish in domestic law a system of subsidy control that works for the entirety of the UK.
In advance of new legislation, for the vast majority of cases, we expect that it will not be difficult to conclude that a subsidy is lawful: for the time being, granting authorities could default to following EU block exemptions, frameworks and guidance if they want to be as certain as they can be that they will not be challenged in the courts where the TCA applies.
There appears to be a presumption on the part of the EU that its State Aid regime complies with the TCA and so UK granting authorities would not be criticised for following EU rules (at least until UK-specific ones are developed).
Similarly, only the largest projects are likely to engage the UK’s obligations under other trade agreements or the WTO rules. The critical point in these “standard” cases, whether under the TCA or otherwise, is for granting authorities to document fully at the time of award the reasons why they have concluded that the subsidy is lawful.
There are three main “non-standard” situations to look out for:
- Those cases where a granting authority wishes to flex and go beyond what would currently be permitted under EU State Aid rules and where it will need to conduct a deeper and thorough self-assessment;
- Those cases subject to the Northern Ireland Protocol which remain subject to EU State Aid rules (and the jurisdiction of the European Commission and CJEU); and,
- Subsidies under the EU Multilateral Financial Framework 2020-2024 which the UK continues to participate in (under the Withdrawal Agreement) and where EU rules will continue to apply.