Post Brexit State Aid: Introducing Subsidy Control

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From 1 January 2021, the EU State aid rules no longer apply to funding and other forms of support measures granted to business by UK public authorities. In place of the EU State aid rules, new provisions are set out in Chapter 3 of Title XI of the new Trade and Cooperation Agreement (the ‘TCA’).

Requirements for a new domestic UK subsidy control regime

While the TCA adopts a familiar set of principles to previous EU State aid regulations, the terminology and structure of the rules the UK must adhere is very different.

The concept of ‘subsidy’ replaces ‘State aid’; a recognition that the UK is no longer in the EU Single Market. ‘Subsidy’ is defined in terms very similar to the concept of ‘aid’, meaning that what would have been considered ‘aid’ before 31 December 2020 is largely likely to be captured under the Subsidy Control regime from 1 January 2021.

The Principles

Article 3.4 of the TCA provides 6 key principles that the granting of any subsidy must respect:

  • It must pursue a specific public body objective to remedy and identified market failure or to address an equity rationale such as social difficulties or distributional concerns.
  • It must be proportionate and limited to what is necessary to achieve the objective.
  • It must be designed to bring about a change in economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided.
  • It must not normally compensate for the costs the beneficiary would have funded in absence of any subsidy.
  • It must be an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means.
  • Its positive contributions to achieving the objective must outweigh any negative effects in particular the negative effects on trade or investment between the parties.

Information Rights

Art 3.7(1) of the TCA imposes an obligation for public bodies to publish within 6 months of the grant of the subsidy:

  • the legal basis, policy objective and purpose of subsidy;
  • name of the recipient of the subsidy;
  • the date of grant of subsidy along with its duration and other limits attached to subsidy; and
  • the amount of the subsidy or the budgeted amount of the subsidy.

There is currently no centralised register to publish such information to and while it is expected the UK Government will launch such database in the near future, in the meantime it would be best practice for public bodies to keep robust records pertaining to any grant of subsidy.

Interestingly, Article 3.7(5) of the TCA allows an “interested party” to request information from a public body in relation to the granting of a subsidy with a view to a potential claim. Public bodies must respond with such information within 28 days of the written request. An “interested party” means “any natural or legal person, economic actor or association of economic actors whose interest might be affected by the granting of a subsidy, in particular the beneficiary, economic actors competing with the beneficiary or relevant trade associations”. Such regime is of interest and we will be monitoring its use over the next few months following implementation.

Enforcement and Remedies

The TCA requires the UK to establish ‘an operationally independent authority or body with an appropriate role’ in its new subsidy control regime. At this point there is no indication from the UK Government as to who that authority or body will be.

The TCA mandates that the UK and EU ensure that their respective courts are able to review a subsidy decision and impose remedies including: its suspension, prohibition or order of repayment, damages, or other action.

Presently judicial review appears to be the only route for challenge for unlawful public subsidy in the UK. However, when the independent subsidy body/authority becomes operational it is possible that it will become the first port of call for challenges. It will be interesting to see how such regulatory scrutiny compares to the previous regime overseen by the EU Commission.

Recovery of unlawful subsidies is subject to time limits. A claim must be brought within:

  • 1 month of transparency publication as per Article 3.7(1) of the TCA; or
  • 1 month of information being provided if an information request is made as per Article 3.5 of the TCA.

Conclusion

As is apparent from the BEIS guidance issued on 31 December 2020, there is likely to be an extensive period of uncertainty pending the introduction of the new subsidy control regime. We will be monitoring with interest how the new subsidy control regime will be implemented (and, no doubt, certain subsidy challenges) over the next few months.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.

Posted in Brexit, Latest news and blog, Nadia Ahmed, Ryan Copeland.