State aid anyone?

What does the EU referendum result mean for state aid? Paul McDermott and Rebecca Rees explain.

The Brexit vote means the UK must now prepare for difficult discussions with its soon to be economic ex-sweetheart. Like most warring couples the EU and UK are each required to work out how financially and economically close or apart they intend to be after the divorce. However, unlike most couples the consequences of their actions will affect some 500 million citizens and numerous businesses.  

Part of that discussion is what happens to state aid in the UK. State aid is a branch of EU competition law. Plainly speaking state aid rules are intended to control the circumstances when (and also the amount of) public sector subsidies and advantages may be given to support business activity. It directly affects grants for business, regeneration and development, public sector commercial activity and a wide range of other market activities.

Following the Brexit vote can the public sector forget about state aid? The short answer is no.

For so long as the UK is a member of the European Union then state aid together with the rest of EU competition law will apply in Britain. Public sector bodies are bound to comply with this law, irrespective of external pressure, and they will be vulnerable to domestic judicial challenge if they fail to do so. Incompatible state aid (unlawful) has attracted challenge from a diverse range of UK businesses which have understandably taken a dim view of their competitors receiving an unfair advantage from the state. 

There is a more interesting debate to come about the nature of competition law in a post Brexit UK. The outcome is intimately tied to the UK's divorce discussions. If the UK joins the European Free Trade Association (EFTA) also known as the Norway option, then EU competition law and state aid rules will continue to apply. The current public debate seems to rule out this option, at least for now.

Boris Johnson, amongst others, has alluded to some form of association agreement for the UK/EU. This means UK access to the European single market but its associated competition law and state aid rules would be repatriated to UK courts to supervise rather than a European institution (whether the EU or EFTA). This form of "taking back control" would enable, as currently, European institutions and businesses to challenge alleged UK state aid infringements. The key difference is that the UK Supreme Court would be the final arbiter. There might also be some scope for relaxed UK state aid laws to cover essential public services such as affordable housing, care and health. Though, it should be noted that longstanding UK policy means that the UK is rarely in breach of the current EU rules which often permit more generous support for SGEIs than our public purse can afford. 

If our divorcing couple are unable to reach any amicable agreement then UK competition law/state aid will still have to take account of weaker World Trade Organisation anti-subsidy rules. Enforcement of these is not straight forward and involves the offended nation imposing counter measures. 

The UK is a long standing free trade nation and is unlikely to start providing major subsidies to business or distorting competition in its home market. This is reflected in its 'top of the class' compliance with the current EU state aid regime. We suspect that the UK will want to take steps which prevent other nations doing so.

Paul McDermott is a Partner in Public Sector Commercial and Rebecca Rees is a Partner in Projects and Construction at Trowers & Hamlins LLP. Paul can be reached on 020 7423 8043 or This email address is being protected from spambots. You need JavaScript enabled to view it., while Rebecca can be contacted on 020 7423 8021 or This email address is being protected from spambots. You need JavaScript enabled to view it..