Following the UK and EU’s long-waited agreement on their future trading relationship, the UK Government has published a consultation on 3 February on how best to design a bespoke approach to subsidy control for the UK.
This represents the first step on the UK’s path to creating a domestic subsidy regime which upholds its international obligations, including under the Trade Cooperation Agreement (“TCA”) which sets out a minimum standard and reciprocal commitments for subsidies that impact trade and investment between the UK and EU.
The consultation document makes clear the UK government’s position that it is not constrained by EU State aid rules and that the TCA guarantees the UK’s freedom to tailor a new regime to the UK’s needs. However, this approach brings with it considerable uncertainty for businesses who, more than ever, are looking to the Government for support in circumstances where the new regime and related legislation will not be implemented for some time. In the intervening period, public authorities as well as businesses of all shapes and sizes must navigate an uncertain playing field to assess the risk of potential recovery of UK subsidies that might fall foul of the UK’s commitments. The same goes for firms who feel disadvantaged by subsidies and wish to seek relief from UK courts with little clarity on which courts will be responsible for hearing challenges, the standard of review, or how the TCA commitments - which are part of UK domestic law - will be interpreted and applied.
The consultation itself gives some indication on how the Government intends to develop the UK subsidy control to meet its core objectives, while calling on stakeholders to provide their views. In particular:
- In order to maintain a competitive and dynamic market economy in the UK, the regime would require that subsidies, on balance, do not have a negative distortive competitive impact within the UK. This goes further than the TCA commitment which is limited to the protection of EU/UK investment and trade. How competition assessment will feed into that balancing exercise is unclear;
- In a bid to avoid undue bureaucracy and ensure a light-touch regime where appropriate, there is potential for a block exemption framework for “low risk” subsidies and indication that enforcement will be “ex post” only. The lack of an ex ante regime signifies a significant move away from the EU State aid regime, allowing for a more flexible approach by public authorities granting subsidies but will ultimately require businesses to undertake their own self-assessment when it comes to subsidy risk and places a major emphasis on the role of government to provide guidance – not just in general, but also specific to particular subsidy proposals;
- The role of the independent body, or bodies, in charge of enforcement is noticeably unclear and could be limited to a predominantly advisory role. It is unclear whether this advice would be mandatory or binding in certain “higher risk” circumstances – the consultation also seeks views on the criteria for determining subsidies with higher risk of having distortive effects. Again, this would place the onus on business to self-assess risk, both under new UK subsidy control legislation and the TCA.
The consultation provides an opportunity for businesses to help shape the new regime and ensure it provides much needed clarity. Notably, the coronavirus pandemic has only widened the pool of industries and companies for whom subsidy control is relevant – both as sword and shield: to benefit from support where necessary and not be unfairly disadvantaged vis-à-vis competitors. This is particularly important where the TCA – as an international agreement - is far from providing all the answers on substantive rules or direct routes to relief for interested parties.
For those who are considering the impact of the new era of UK subsidy control on their business or merely if and how this could be relevant for them, please get in touch with our team. We have also considered what the TCA means and its practical implications for businesses here.