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It was clear throughout the Brexit negotiations that State aid proved a persistent sticking point, linking through to the EU’s commitment to maintaining a level playing field across the trading bloc. The compromise reached was the UK adopting its own subsidies regime taking a decisive step away from State aid – almost.
Despite the new terminology, the subsidies regime feels very familiar with state aid lawyers. The definition of subsidies depends on the specific free trade agreement that applies to a given measure (for example the UK-EU Trade and Cooperation Agreement which has direct effect in the UK through s29 of the European Union (Future Relationship) Act 2020). Broadly though, a subsidy concerns:
- A financial (or in-kind) contribution, such as a grant.
- Being provided by a public authority.
- Conferring an economic benefit on the recipient not available on market terms.
- Causing a distortion or harm to competition (in a way that impacts one of the UK’s trading partners such as the EU).
Without getting bogged down in the detail, this four-part test is reminiscent of State aid to the point where it is not immediately obvious in what circumstances a measure that would constitute State aid under the previous rules, would not also constitute a subsidy. It is also worth bearing in mind that measures that have the potential to impact trade between Northern Ireland and the EU still do engage the EU State aid rules.
This will be disappointing to those who had hoped Brexit would be a chance to tear up red tape. However, there are elements of the new subsidies regime which present the opportunity to simplify subsidies, and to push closer toward a common-sense approach:
- Commission guidance on State aid is no longer binding. This presents an opportunity to move away from some of the less helpful approaches advocated by the Commission such as its convoluted guidance on benchmarking costs to market rate; guidance on selling public assets at an undervalue (which essentially tells us not to); and guidance that a full Official Journal of the European Union (OJEU) procurement may still not rinse out a selective advantage with a contractor if they are the only bidder.
- General Block Exemption Regulations (GBER) and the other block exemptions are no longer applicable. Whilst there has been speculation that some new safe harbour measures may be introduced, we can only hope any new regulations will be easier to navigate.
- The reporting timescales under the new regime are friendlier, giving up to six months to report a subsidy. Though this is dependent on the Department for Business, Energy and Industrial Strategy (BEIS) publishing a national subsidies database which is still in development, and potential benefits may be offset by a higher potential for challenge under the new regime by disgruntled competitors.
Altogether there are positive signs of possible deregulation around subsidies, but we are still left with a pretty complex regime which has a distinct 'State aid flavour'.
For more information
For a law firm of our size, we have a large subsidies team that has extensive experience supporting both grant recipients and funding bodies to administer public funds compliantly. We take a pragmatic approach through our support, being solutions-focussed whilst still supporting robust regulatory compliance.
If you would like support in relation to the subsidies regime, please contact Mark Cook or Martin Brown.
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