The consultation is open from 3 February until the end of March 2021 and seeks the views of stakeholders from across the United Kingdom in order to create a new framework of rules to ensure subsidies most effectively support UK priorities now the UK has left the European Union, and now that the previous EU State aid regime is for the most part no longer applicable.
Introduction
The Department for Business, Energy and Industrial Strategy (DBEIS) has launched the Subsidy Control consultation which seeks views from across the United Kingdom to shape the design of the UK's domestic Subsidy Control regime.
The UK removed the direct effect of EU State aid law at 11pm 31 December 2020 1. The interim Subsidy Control regime was set up at short notice and is a "bare bones" regime. This involves public bodies making assessments of the compliance of subsidies they award against five criteria, these being the UK commitments set out within:
- Part Two, Title XI, Chapter 3 of the EU - UK Trade & Cooperation Agreement ("TCA");
- Article 10 of the Northern Ireland Protocol;
- the Withdrawal Agreement;
- WTO rules2; and
- other non-EU trade deals3.
The TCA contains the primary elements of the new Subsidy Control regime. This covers such issues as to what sort of public interventions qualify as a subsidy, and how these should be evaluated by awarding authorities in order to be considered lawful.
Awards of subsidy may be challenged through judicial review in the national court if, in particular, they fail to show due consideration of six Common Principles for subsidy compliance agreed within the TCA. The TCA does not provide for a regulator to replace the role previously performed by the European Commission in the EU State aid regime, in terms of adjudicating what subsidies may be deemed in compliance, and conveying exemptions to subsidies examined by it, either individually following notifications of proposed awards, or by reference to specific categories of limited interventions that may be deemed automatically exempted (ie. the previous so-called "block exemptions" or "safe harbours" under which the vast majority of awards of State aid under the previous regime were granted).
The new regime is more permissive and seeks to be less bureaucratic than the EU State aid regime, however for many public bodies the interim Subsidy Control regime has created greater administration and increased uncertainty. This should not need to be the case however, indeed with some relatively straight forward adjustments, it is fely by many that the new regime could work better than the previous regime. The new consultation affords an opportunity for all stakeholders to input into the further development of a new improved system. It will therefore no doubt be welcomed across the UK, both by public bodies administering funding and businesses seeking awards.
The Subsidy Control Consultation
The consultation features 43 questions on a wide range of subjects including the responsibilities of an independent authority which will oversee the new system of Subsidy Control and which kinds of subsidy should be considered at high-risk of causing harmful distortion to the UK internal market.
The consultation is split into three chapters. The first is an introduction which makes the case for Subsidy Control rules. In doing so, the consultation notes that it is advantageous to have rules which prevent subsidies which are wasteful or have a negative impact upon the economy. Likewise, well targeted subisides can help achieve positive outcomes such as helping drive greater investment in R&D or contributing to achieving the UK's net zero objectives. That the UK is committed to a Subsidy Control regime is in any event assured, not least by the TCA, but it is helpful to be mindful of the founding principles of why this matters.
The second chapter focusses on the objectives of the new regime. The Government lists these as:
- Facilitating interventions to deliver on the UK’s strategic interests
- Maintaining a competitive and dynamic market economy
- Protecting the UK internal market
- Acting as a responsible trade partner
The third chapter focusses upon the detail of the new regime and contains most of the questions. The chapter is prefaced by a statement that the "the UK has the freedom to design a domestic subsidy control regime that works for the specific needs of the UK economy while meeting our international commitments." Therefore although there are significant opportunities, the new regime will need to take account of the existing commitments.
The consultation proposes an additional potential Common Principle by which compliance might be judged alongside the other six set out in the TCA. This is that "Public authorities should seek to minimise any harmful or distortive effects on competition within the UK internal market that may arise from a subsidy". There is little explanation as to how such a rule would apply and what kind of measure it would catch. For example, would it make awarding a subsidy in Berwick upon Tweed (ie. a location near a border between one of the four countries within the UK) more difficult than in Brighton?
Conclusion
The launch of the consultation is to be welcomed as it gives all stakeholders within the United Kingdom the opportunity to help shape a better, more efficient Subsidy Control regime. It is in everybody's interest to have a faster, clearer system which directs public funding to economic priorities. Although the Government is naturally eager to distance itself from the EU system, it may be better to take ideas from that system which have worked well (for example safe harbours to incentivise investment into disadvantaged areas and generous intervention rates for R&D) and to make new, better rules for elements which have been problematic and perhaps overly rigid (eg. the undertaking in difficulty test). This is a new era and the UK needs to make the most of the opportunities available.
