We never liked it anyway…

The difficulty with EU State aid law is the width of transactions captured. If the Government was proposing to subsidise our steel industry, so that it could survive and produce cheap exports, it is logical in a free single market (whether you agreed with it or not!) that State aid law would act to prevent this. However, State aid law went much further and State aid rules caused administrative and sometimes real barriers to sensible transactions between local authorities and community groups or making local authority investment activity much more of a headache. As many local authorities have found out when setting up housing development vehicles or carrying out regeneration activity, State aid law required the authority to demonstrate that it was carrying out these transactions as if it were a private investor, or find an exemption to the rules.

Welcome relief then?

So is this a victory for Brexit, reducing the regulatory burden and making authorities’ lives easier?  Well, it may be in time, but do consider these three points:

  1. Authorities will still have to consider State aid law when making or receiving grants or investments until we actually leave the EU. Perhaps the Commission will look more closely at a number of UK transactions as part of the inevitable leaving process negotiations!?;
  2. After we leave, in the absence of any other deal, authorities will have to comply with the WTO rules on “Subsidies and Countervailing Measures”. These rules will have to be placed into direct effect on public bodies in the UK. The rules are narrower than the State aid rules and largely relate to the subsidy of exporting parts of the economy. How the Government achieves all the legislation necessary to translate the WTO rules into place in the time available is anyone’s guess.
  3. In certain parts of the economy, bi-lateral trade deals might affect how local authorities are able to subsidise or interact with certain parts of the economy, most likely in higher value manufacturing (i.e. steel).

Not all bad…

State aid law compliance is a series of hoops. There are very few situations where State aid law prevents a transaction entirely, but it usually influences the way that you can achieve your goals. The removal of the “hoop jumping” would be welcome, but in the meanwhile it will keep us all fit!

For more information

Please contact Richard Brooks.

Contract management pitfalls – payment
Contract management pitfalls – payment

In the second part of our series on contract management pitfalls, we look at the risks and opportunities presented by payment mechanisms in construction contracts.