A Select Committee appearance has revealed that progress has been made to find common ground on State aid regulation and that a consultation on a new UK State aid law regime may go ahead this year. Jonathan Branton and Alexander Rose report.
The UK appears close to agreeing the overarching principles of a UK State aid law regime according to evidence provided by Michael Gove and David Frost to the House of Lords EU Committee on Wednesday 7th October 2020.
The UK's Chief Negotatior confirmed that the EU had dropped an original request that the UK adopt EU State aid law and thereafter dynamically align with such rules. Instead negotiations between the UK and EU have proceeded on the understanding that the UK shall have its own subsidy control regime.
Although no formal agreement has been reached, some of the common principles which both the UK and EU regimes will follow in the future were outlined by David Frost, these include that subsidies granted shall be:
- justified on public policy grounds, such as market failure;
- proportionate and not excessive;
- open and transparent;
- aimed at leveraging changes in business behaviour;
- the right instrument for the policy purpose; and
- avoided, in general, if there are negative effects on trade and investment.
These principles are likely to be added to in the coming weeks and be included within the Trade Agreement. In terms of setting up a UK State aid regime, David Frost revealed that the Government consultation may take place "later this year" or early next year.
The timing of such a consultation is likely to be important for the EU as a subsidy law vacuum in the UK early next year would seriously undermine the operation of the UK's own Internal Market, among other things. Therefore our expectation is that the UK will fast-track the consultation or seek to agree an implementation period until such a regime can be established.
What was not mentioned explicitly was the role of a regulator. We understand that the UK and EU have their differences on this issue, which are yet to be resolved. The EU wants an independent regulator which oversees compliance across all subsidies awarded within the UK's Internal Market, whereas the UK has put forward a less formal arrangement.
The evidence session sheds light on the Trade Talks with the EU and shows that despite the political rhetoric progress has been made and there appears a willingness to reach a deal. The EU will expect subsidies to be controlled at the time the Transition Period ends and therefore the UK needs to either set up an implementation period or accelerate the consultation process on a UK subsidy law regime.
It is also noteworthy that the above are just general principles: there will need to be very considerable "meat on the bones" to come for there to be a workable legal system that safeguards these principles and affords legal certainty both to grantors and subsidy beneficiaries so that they may grant and receive public funds in the clear knowledge that it is lawful and thus not likely to be subject to a clawback claim later.