BRINGING STATE AID HOME: COULD AN EFFECTIVE DOMESTIC STATE AID REGIME BE DEVISED FOR THE UK?

BRINGING STATE AID HOME: COULD AN EFFECTIVE DOMESTIC STATE AID REGIME BE DEVISED FOR THE UK?

 

 

GEORGE PERETZ QC, KELYN BACON QC, AND ISABEL TAYLOR

 

 

Introduction

  1. In an earlier paper published at the end of 2016, two of us (George Peretz QC and Kelyn Bacon QC) suggested that the EU was likely to make control of State aid a condition of any type of trade arrangement with the UK after Brexit.  The paper also argued that some form of anti-subsidy control was likely in any event to be needed in order to secure UK compliance with anti-subsidy provisions in the WTO agreement and other free trade agreements.  It also pointed out that there was a strong policy interest, in the era of devolution, in preventing “subsidy races” and other distortions of competition between the various nations of the United Kingdom – an aim currently secured, without any need to deal with the point in the various devolution Acts, by the fact that EU State aid rules apply to the devolved governments.

2. The paper contemplated both an “EEA model” (under which, at least for this purpose, the UK would accept the institutions of the EEA, namely the EFTA Surveillance Authority (“ESA”) and the EFTA Court) and a “domestic” model under which State aid would be regulated purely by domestic bodies and under domestic law.

3. Since that paper, the Government has made it clear that it does not intend to join the EEA.  Although we do not understand that the option of limited participation in EEA institutions has been ruled out, and we refer to it below, the purpose of the present paper is to look in more detail at the “domestic option”.

4. There have also been two further important developments.

5. First, the view taken in the paper that the EU is likely to insist on State aid control as the condition of any comprehensive fair trading agreement is confirmed by the statement in §20 of the European Council’s Guidelines that such an agreement “must ensure a level playing field in terms of competition and state aid”.

6. Second, the Government’s White Paper “Legislating for the United Kingdom’s withdrawal from the European Union”[1] makes it clear that the Government intends to ensure that “wherever practical and sensible, the same laws and regulations will apply immediately before and immediately after our departure”[2]. The White Paper does not mention the State aid rules: but there is nothing in it to suggest that those rules are an exception to the declared aim of converting all the acquis communautaire into UK law, at least for a transitional period.

7. Indeed, §10.11 of the White Paper states that “there are rights in the EU Treaties that can be relied on directly in court by an individual, and the Great Repeal Bill will incorporate those rights into UK law.” Given that declared aim, it is significant that Article 108(3) TFEU provides directly effective rights that can be relied on by those affected by an unlawful aid measure. (Article 108(3) is the “standstill provision” that precludes the implementation of an aid measure not covered by one of the block exemptions unless and until the measure is declared compatible by the Commission, and it is well-established that affected third parties have EU law rights to obtain an effective remedy in relation to infringements of that provision in the form of injunctions, declarations, and damages).  So failure to convert that provision into UK law would appear to be inconsistent with the policy set out in the White Paper.  Further, Article 108(3) effectively imports the definition of State aid in Article 107(1) TFEU: as the Court of Appeal put in in R v CEC ex parte Lunn Poly[3] at §22 “It is accepted that the last sentence of Article [108](3) is of direct effect. Whether or not there has been a contravention of the final sentence of Article [108](3) can only fall to be determined if the Court decides for itself whether or not the matters complained of constitute an aid which should have been notified to the Commission.”  Therefore, carrying over Article 108(3) into UK law requires the carrying over of Article 107(1), whether or not Article 107(1) itself is regarded as being “directly effective”[4].

8. Moreover, failure to convert the State aid rules into UK law would have uncertain repercussions into other areas of the law (such as, in particular, tax) where the content of rights and obligations is affected by the existence of the State aid regime[5], thereby generating the uncertainty as to the law in those other areas which the White Paper seeks to avoid.

9. In theory it might be possible to invent a different but equivalent form of anti-subsidy regime which would meet the policy objectives set out above and satisfy the EU’s requirements for a “level playing field” in this area.  But retaining (as far as possible) the current State aid regime seems to us to be greatly preferable to attempting to create some new system of anti-subsidy control.  The State aid rules are familiar in the UK, and there is considerable legal and policy-making experience in their application.  They are bound to be acceptable to the EU as meeting the “level playing field” requirement. And any other form of prohibition on subsidies would inevitably generate considerable legal uncertainty: in particular, there is comparatively minimal case-law relating to the WTO provisions on subsidies that would be the only obvious alternative model, and the decisions that have been taken under the WTO Agreement on Subsidies and Countervailing Measures indicate that in some respects the WTO definition of a subsidy differs from the EU definition of a State aid (for example there is no equivalent of the requirement of a grant through “State resources”).

10. We therefore take it for the purposes of this paper that the United Kingdom will decide to continue to be bound by the State aid rules, at least in sectors where a comprehensive trade agreement is negotiated with the EU.

11. Further, as was explained in the earlier paper, one of the main difficulties, if not the principal difficulty, in operating the State aid rules is the time taken to obtain decisions from the Commission and rulings from the European Courts – delays that may frustrate sensible measures that fall outside the various block exemptions, and which would be likely to be cleared, but which cannot wait for notification and clearance.   A regime outside the EU might well be able to operate more swiftly than the EU institutions have been able to do, not least because it would be able to deal directly with individual aid givers rather than with the relevant Member State’s central Government. Moreover, the UK would doubtless want to “carry over” all the existing block exemptions (and would face no resistance from the EU in doing so): the effect of that would be that the vast majority of State aid would remain exempt (since the vast majority of State aid granted is covered by the existing block exemptions).

Issues in carrying over the State aid rules to UK law: substantive law

12. One issue that arises if a decision is made to preserve the State aid rules post-Brexit is what to do about the point that EU State aid rules catch only aids that have a potential effect on trade between EU Member States. In our view, that “jurisdictional” aspect of the rules would have to be preserved in some form, despite the oddity of referring to the EU post-Brexit: the absence of any such jurisdictional condition in a domestic regime (or its amendment to, for example, require an effect on trade within the United Kingdom) would bring into the domestic State aid regime measures of purely local interest (such as grants to local leisure centres and so on) that the Commission has made clear in its decisions are not caught by the EU regime.  That issue could possibly be solved by widening the scope of the current EU de minimis Regulation[6], but that might create other difficulties, particularly if commitments had been made to the EU as to the content of the domestic regime.  The cleanest solution to us would seem to be to adopt the approach used in the Stabilisation and Association Agreements concluded between the EU and the countries of the former Yugoslavia, namely replacing “in so far as it affects trade between Member States” with “in so far as it affects trade between the EU and the UK”.

13. We also note that the grounds on which compatibility can be declared (set out in Articles 107(2) and (3)) would in the long run need tweaking in the UK context, removing plainly irrelevant grounds (such as the division of Germany) and amending the references to regional development and the internal market.

14. There would also be a risk that the interpretation of key concepts in the definition of State aid might differ over time as between the EU and the UK.  That risk will be minimised if UK courts are permitted to have regard to decisions of the ECJ, and the EFTA Court, on State aid issues (a provision that may well also be appropriate for other areas of competition law, on the likely assumption that the UK wishes to retain the model based on Articles 101 and 102 TFEU).  It is also likely that, as in the EU/Ukraine Agreement, there will be a provision in any EU/UK free trade agreement that provides for a joint committee to discuss and to seek to resolve any differences in interpretation that may arise.  Neither of those suggestions involves, in our view, a concession that the United Kingdom will become a passive “rule taker” in this area: rather, we would hope and expect that there would be a flow of ideas in both directions, and that as the United Kingdom develops its own approach to difficult and controversial aspects of the State aid rules, that approach might well over time have influence on the EU’s approach to those concepts.

Procedural and enforcement aspects

15. However, there are some very substantial problems that need to be addressed in any “carry over”.

16. It may assist at this point if we briefly summarise some relevant characteristics of the EU State aid regime.

17. First, the definition of State aid applies to a very wide range of public measures, ranging from grants to tax advantages to oral guarantees.  State aid can take the form of (for example) a contract, a tax waiver, or legislation.  A grant by a local council to a local football team can be a State aid; so can a difference of tax treatment created by legislation. A domestic State aid regime will need to be able to deal with all those types of measure, implemented by bodies ranging from a small local authority or public body right up to legislation and large national infrastructure projects of high public and political significance.

18. Second, the EU regime accords a wide power to the Commission to declare State aid compatible with the common market on a number of very broadly defined policy grounds. That power involves policy decisions (in particular, balancing the public policy benefits of a measure with anti-competitive distortions) which are unlikely to be suitable for judicial resolution.  Given the wide definition of State aid, and the myriad reasons why State aid may be necessary in order to achieve important public policy goals, this power to (in effect) approve the grant of aid is a critical element of the regime, and is inherent in the structure of Article 107 and 108 TFEU.

19. Third, because State aid may well not be transparent or obvious, there needs to be a body able to investigate possible breaches and to take measures designed to bring those breaches to an end.

20. That summary shows that any domestic carry over of the State aid rules needs to address the following issues: –

  • State aid can have positive and negative effects, and deciding how the trade-off is made and what to approve is a matter of judgment and discretion.
  • There needs to be a body charged with applying and enforcing the State aid rules that is capable of taking often complex decisions of economic policy.
  • That body needs to be politically independent: and since it will be considering key political decisions taken by central government, it needs to be able to resist, and be seen to be able to resist, high-level political pressure.
  • The domestic mechanism needs to be able to resolve the situation where a State aid takes the form of legislation (for example, legislation that confers a selected tax advantage).

The enforcement authority

21. We start by addressing a preliminary question: is it necessary for there to be an enforcement authority at all?  Could the question of whether a measure infringed the State aid rules be left to the ordinary courts to resolve?

22. The key problem with “leaving it to the courts” would, in our view, be that, while the courts are well-placed to rule on the legal question of whether a measure is State aid, they are ill-equipped to perform the key function of assessing whether the aid should be approved (i.e., in EU State aid law, the assessment of compatibility – an assessment carried out by the Commission, exclusively and subject only to judicial review leaving it a wide margin of appreciation).  The key reason why they are ill-equipped is that the question at the heart of any such assessment is whether a public policy objective is such as to justify the distortion of competition inherent in State support: an assessment that involves value judgments of a kind that any court will be uncomfortable in making (particularly in cases where the measure is politically controversial, as many large infrastructure projects are), and which differ in order of magnitude from the relatively narrow value judgments that courts now make in the course of economic assessments under Article 101(3) TFEU (the provision that allows agreements that appreciably affect competition to be exempted if they satisfy certain conditions).

23. A further, practical, reason for not “leaving it to the courts” is that there will be many cases where public authorities and private bodies involved in complex projects where there is clearly State aid will wish to ensure that there is a binding ruling that the aid is approved.  If there is no public enforcement authority empowered to give binding rulings, then Ministers and others involved in key infrastructure would have to apply to court for an approval order (with all the expense and delay that flow from complex litigation) in order to achieve certainty: and anyone seeking to oppose such a measure could threaten delay and costly litigation even in a case where the policy case for the measure was strong.  Further, it is possible, with a public enforcement authority, to have preliminary discussions before any formal notification is made, and a process of iterative negotiation as changes to the project are made in order to satisfy the enforcement authority that it is compatible.  It is hard to see how any court procedure could replicate those features.  Further, we do not see how any court, comprised of whichever judge happens to be available at the time, could ever make the necessary assessment in the speed with which a regulator, familiar with the policy issues, is able to act in highly urgent cases: see the Commission’s decision-making in the bank rescue cases during the financial crisis (and we observe that the balance between the need for such extraordinary measures and the distortions of competition they entailed, and the negotiation of the detailed provisions in those measures, were classic examples of assessments that are in our view wholly unsuitable for litigation or court decision).

24. We also do not see how a court-based system would be able to create and develop consistent policy in response to technological or market developments: see, for example, the way in which the Commission has been able to develop policy in areas such as broadband and transport infrastructure.  That would lead to considerable uncertainty.  Nor, in a court-based system, would there be a regulator able to build up a constructive dialogue with the Commission, ESA, and potentially other anti-subsidy regulators, and to contribute to the development of anti-subsidy policy as a key element of future trade agreements: given the Government’s objective that the UK become a leader in global free trade, that would, in our view, be a significant missed opportunity.  Indeed, without an independent regulator, we suspect that any court faced with taking a decision as to whether to approve aid would tend to reach for, and stick rigidly to, any available Commission decision or policy statement, thereby losing any chance to develop a distinctive UK policy approach in this area.

25. We therefore strongly recommend that the prime responsibility for enforcement of the rules be conferred on a public authority, and not the courts.  The obvious candidate for the role of enforcement authority is the Competition and Markets Authority (“CMA”).  It currently has jurisdiction across the United Kingdom in relation to (amongst other things) competition law enforcement and mergers.  It has the necessary combination of legal, economic and policy expertise.  It has experience of analysing the effect on competition of government policies and of conducting complex investigations involving detailed factual inquiry and economic assessments. Its independence is widely recognised. Finally, it already has experience of giving advice to public bodies on the competition implications of their policies or on proposals for legislation (a function it exercises under section 7(1) and (1A) of the Enterprise Act 2002): see, for example, its Guidelines on Competition Impact Assessment (CMA50) published in September 2015.

26. The CMA performs its functions on behalf of the Crown[7].  It might be regarded as somewhat anomalous for one part of the Crown to regulate other parts of the Crown, especially in a situation where litigation is likely.  However, it should be noted that that situation already potentially arises under the existing UK competition rules: it is entirely possible for bodies that are part of the Crown to be “undertakings” subject to the prohibitions in the Competition Act 1998 and therefore to be (a) subject to the powers of the CMA to make directions and impose penalties and (b) potential appellants to the Competition Appeal Tribunal (“CAT”) against such decisions.

27. Although we have not yet seen the relevant provisions of the Great Repeal Bill, we assume that the powers given to the Secretary of State to adapt EU law to make it suitable for a post-Brexit context will be wide enough to allow a substitution of the CMA for the Commission in the domestic provision that replaces Articles 107 and 108.

29. It has to be recognised, however, that exercising a State aid function would, for reasons that will by now be apparent, place the CMA in a far more politically-exposed position than its current remit generally involves: essentially, a State aid function would give the CMA what would in effect be a “veto” power over potentially very important and controversial decisions taken by UK, and devolved government, Ministers.

30. It therefore seems to us that, if the CMA is to be given this role, its independence and its authority is likely to need strengthening.  It might well be appropriate, for example, for there to be a formal role for Parliament (perhaps via the BEIS Select Committee) and the devolved Parliaments in appointing its key officials.

31. The CMA would also need to be adequately resourced (taking into account that there are expected to be other significant increases in demands on its resources as a result of Brexit): though its expertise in competition law and economics give it a good base for discharging a State aid role, it would need to recruit and train up specialists in the distinct area of State aid.

32.  It seems to us that the functions of the CMA would need to mirror the functions of the Commission under the EU State aid rules (subject to the issue of legislation which we deal with below): that is to say, while the courts could have the power to determine that a measure is not an aid, the CMA would need to have the sole power to declare a State aid to be compatible, and would need to to be given powers to investigate and remedy infringements of the standstill obligation (including the power to block a State aid measure and to require a State aid to be repaid).

33. We would though advocate that the CMA’s State aid procedures should, at least in the long run, provide rather better protection for beneficiaries of State aid than EU procedures currently do, in order to resolve what is at present one of the most frequent criticisms of the EU State aid regime. The domestic procedures should start from the proposition that, given the profound impact of State aid decisions on the beneficiary of aid, the beneficiary should be treated as a full party to the proceedings and not just as an “interested party”.  In particular, it might well be appropriate for the beneficiary of a possible aid measure to be able to notify that measure to the CMA in order to ensure legal certainty, rather than to reserve notification to public authorities (and we note in that respect that the “Member State only” notification model would in any event be inappropriate for a domestic regime).

34. The CMA’s decisions should be subject to a right of appeal to a court (as is the case now for decisions of the Commission) – most obviously (not least because of its expertise in competition law and economics, as well as its UK-wide jurisdiction) to the CAT.  We see no difficulty in principle in there being a full right of appeal on the question of whether a measure is State aid at all (as pointed out in Lunn Poly,that is a role that the courts already discharge, and do so on the merits in even on a judicial review). But we do not consider that decisions as to compatibility of aid measures should be subject to a full merits appeal to a court given the non-judicial nature of the assessment being made: it seems to us that such decisions should be challengeable on only on a judicial review basis.  It is for discussion whether that difference would need to be expressly set out in legislation: our view is that that is the approach the courts would be likely to adopt in any event (as has the General Court, which, despite the single standard of review laid down in the EU Treaties, subjects Commission decisions on whether there is aid to a more intrusive standard of review than decisions on compatibility).

35. We would also suggest that, if the CAT is given an appellate role in relation to State aid decisions by the CMA, any other court faced with a State aid issue should have power to transfer that issue to the CAT for determination: that power would be analogous to the (now implemented) power in in relation to competition law issues in section 16 of the Enterprise Act 2002.

36. We also consider that, apart from primary legislation (discussed in the next section) the general rule should be that a State aid measure implemented without CMA approval should be void and any aid granted recoverable (subject to a limitation period).  In the long run, consideration might be given to permitting the CMA to declare compatibility retrospectively. The advantage of that would be to avoid the problem for beneficiaries of unnotified aid that even if the aid is declared compatible they may still be required to repay the value of interest on the period between the grant of the aid and the declaration of compatibility[8], but the disadvantage might well be to remove a strong incentive to notify potential State aid and hence damage the enforceability of the State aid rules, and the existence of such a material procedural difference between the domestic regime and the EU regime might be controversial at EU level.

37. We have considered whether the Secretary of State should have a “last resort” power to overrule the CMA’s assessment of compatibility on specified public interest grounds, akin to the provisions that currently exist in the mergers regime.  Such an arrangement may of course not be possible under the treaties under which the UK agrees to continue to apply the State aid rules: but even if it is, the risk would be that the Secretary of State would be asked to “second guess” every decision taken by the CMA, which in turn would undermine the independence of that decision making.  We therefore would not recommend that such a power be taken, even if permitted by the EU/UK agreement: but any such power should be very strictly confined to specified matters of major significance.

37. A further key issue is the real risk of differences emerging as between the UK and EU approach to compatibility. We note that the risk of different approaches to compatibility already arises as between the Commission and the ESA, but in practice the ESA appears to have been content to follow the approach of the Commission.  We suspect that, given the size of the UK economy compared to those of the EEA/EFTA Member States, the risk of divergent approaches emerging in the case of the United Kingdom is rather greater than has been the case for the ESA. As we have already observed, if the current approach of the European Courts to the judicial review of compatibility is followed in a domestic regime, the scope for judicial resolution of a divergent approach to compatibility may be limited.  That leaves only a joint committee mechanism by which both the EU and UK agree to seek to resolve any differences by negotiation, with a reserve power on both sides to take protective trade measures in case of irreconcilable differences: there might also need to be a domestic power to amend the legislation to reflect any agreement reached by the UK at that level.  We would, however, hope that both the EU and UK would be prepared to live with some differences in approach: and, indeed, we would hope and expect that both sides would be able to learn from differences of approach by the other, to the mutual benefit of both.

Legislation

38. As pointed out above, legislation that establishes a favourable treatment of a person or class of person may well constitute a State aid measure: the complex litigation surrounding the aggregates levy is a clear example, as is the Lunn Poly case referred to above (although the Court of Appeal’s decision in that case is now accepted to have been incorrect in the light of subsequent ECJ case-law).

39. We do not think that it is constitutionally feasible, or politically realistic, for the CMA – or even a court – to be given power to prevent the passage of primary legislation that constitutes a State aid measure.  Nor do we think that it would be acceptable for the CMA or a court to make an order that effectively renders a State aid measure contained in primary legislation ineffective (for example, by ordering recovery of a tax advantage given by primary legislation to a favoured class).

40. Nonetheless, any State aid provision in a UK/EU free trade agreement is bound to require action to be taken to deal with State aids granted by primary legislation.  It seems to us that the way forward in the case of State aid measure contained in primary legislation would be (a) for the CMA to have power to declare such a measure compatible (in which case no further issues arises) but (b) in a case where it considered that there was an incompatible State aid, for it to be required to apply to a court (probably the CAT, though it might be considered that the High Court – or its Scottish or Northern Ireland equivalents – would be more appropriate) for a declaration of incompatibility.  In such an application, the issues would be (a) whether the measure was in fact State aid (on which the Court would reach its own view) and (b) whether the CMA had acted lawfully in reaching the view that the measure was incompatible.  If the court agreed on both points, it could issue a declaration of incompatibility along the lines of section 4 of the Human Rights Act 1998. As with that provision, the effect of that declaration would, we suggest, be to give the appropriate Minister the power to amend the legislation in question so as to remove the State aid aspect (or so as to satisfy the CMA that the remaining State aid aspect of the measure was compatible).

41. We have considered whether third parties should have the right to apply to the court (or to the CAT) for a declaration that a measure in primary legislation was State aid.  However, we see problems with this given that the Court could not form a view on compatibility (an issue that we consider should be reserved to the CMA).  We therefore suggest that the power to apply for a declaration that a provision of primary legislation amounted to State aid should be reserved to the CMA: however, in order to protect third party rights, a refusal by it to do so would be challengeable by way of judicial review.

42. In the case of primary legislation we do not think that it would be acceptable, or consistent with fundamental UK constitutional principle, for the measure to be void unless and until declared compatible by the CMA.

43. A decision would need to be taken on whether primary legislation passed by the devolved Parliaments should for these purposes be treated in the same way as legislation passed by the UK Parliament.  The devolution Acts already make provision for primary legislation passed by the devolved legislatures to be held to be invalid if that legislation exceeds the scope of those legislatures’ authority (e.g. by legislating for a reserved matter or in a way that contravenes the ECHR): so there is no fundamental constitutional objection to their primary legislation being declared invalid on State aid grounds.  But we can well see that, politically, it might be considered inappropriate for the CMA to be given power, in effect, to veto primary legislation passed by the devolved legislatures: so the correct option there might well be for the CMA to have to apply to the appropriate court for an order declaring the legislation to be invalid rather than (as in the case of other measures) having the power to do that itself (albeit subject to an appeal).

44. As far as secondary legislation is concerned, we see no fundamental objection to such legislation being declared void on State aid grounds: however, again, it might be thought to be appropriate for the CMA (or third parties) to have to apply to the appropriate court for an order declaring the legislation to be incompatible.

Devolution

45. As we have indicated, a UK domestic State aid law would require a limit on the powers of the devolved legislatures to adopt legislation amounting to an incompatible State aid measure.

46. That constraint would replicate the current constraint imposed on the devolved legislatures by EU law.  However, the constraint would be imposed by UK legislation.  Since such legislation would significantly affect devolved competence in non-reserved matters (for example, by limiting the ability of the devolved legislatures to create tax distinctions amounting to State aid in matters falling within their tax competence, or in providing for grants in non-reserved fields), it would appear to engage the Sewel Convention (now set out in statute[9]) by which the UK Parliament will not “normally” legislate in matters falling within devolved competence without the consent of the devolved legislatures.

47. As is clear from the Supreme Court’s judgment in R(Miller) v Secretary of State for Exiting the EU[10], the Sewel Convention imposes a political, rather than a legal, constraint on the ability of the UK Parliament, and the Courts will decline to rule on whether the convention has been breached in any particular case.

48. We do not comment on the political aspects, save to note that the question of State aid is only one of the areas where this problem will arise[11], so that the politics of the approach to the issue are likely to be conditioned by wider issues than State aid.

49. To the extent that the United Kingdom accepts commitments in its hoped-for trade agreement with the EU not to implement incompatible State aid, we note that any devolved legislation that did so could be prevented by Ministerial order under section 114(1)(d) of the Government of Wales Act 2006 and its equivalents in the other devolution Acts on the basis that it contravened the United Kingdom’s international obligations: but we do not consider that that power on its own would be adequate to deal with the problem.

50. We also note that the area of “Regulation of anti-competitive practices and agreements; abuse of dominant position; monopolies and mergers” is reserved to the UK Parliament[12].  But it seems to us to be clear that the effect of that provision is to prevent the devolved legislatures from legislating in the area of competition law, and does not limit the competence of the devolved legislatures to pass a law that constitutes a State aid measure (in, for example, the exercise of a non-reserved tax competence).  Nor would we regard a State aid law as naturally falling within the description “regulation of anti-competitive practices and agreements”: it might just fit the description “anti-competitive practice” but we consider that it would be hard to persuade a court that it was Parliament’s intent in this provision to reserve to Westminster a general power to impose State aid control on the devolved legislatures.

The Great Repeal Bill and transitional measures

51. As will be clear from the above, any domestic implementation of the State aid rules will require considerable adaptation.

52. It is not clear to us whether it will be possible to set up a workable State aid scheme under the powers to be contained in the Great Repeal Bill (which has not yet been published).  It is therefore not possible to express any view as to whether the powers to make amendments to EU law as it is converted into domestic law will be wide enough to enable  the creation of such a scheme on the back of converting Article 108(3) into domestic law. We note, however, that the Bill is also likely to take powers to implement the United Kingdom’s obligations under the withdrawal agreement and any UK/EU Treaty, and therefore suspect that that route is likely to be provide a sounder legal basis for a new regime.

 

53. On the assumption that the United Kingdom continues to accept a State aid regime, it seems to us (subject to any transitional provisions that may be made under the withdrawal agreement) that Commission decisions under EU rules authorising State aid measures that continue to be implemented after Brexit should continue to apply after Brexit as if they were decisions of the CMA under the new UK rules: the CMA would have power to amend those decisions as necessary on the same basis that the Commission has power to amend its compatibility decisions.

Conclusion

54. We do not underestimate the challenges of creating a domestic State aid regime.  But we do not think that those challenges can be avoided if any satisfactory trade arrangement is to be negotiated with the EU and if the Government does not accept the option of using the EEA institutions for these purposes (or if an agreement on use of the EEA institutions cannot be reached).

55. We do not, however, think that the creation of a domestic State aid regime should be seen as an unwelcome imposition forced on the United Kingdom in order to obtain benefits elsewhere.  We consider that, in fact, State aid control will be important aspect of protecting the integrity of the United Kingdom’s own internal market.  We would also argue that State aid law does not generally prevent well-focused subsidies granted in pursuance of a wider industrial strategy, and that many of the problems attributed to the State aid rules arise because of the delays associated with the requirement for notification and approval of aid falling outside the block exemptions, a problem that is likely to be much less severe under a domestic regime.  Implementing a domestic State aid regime will also put the United Kingdom in a strong position to negotiate detailed anti-subsidy arrangements that are likely to form a key aspect of the other free trade agreements which it hopes to conclude port-Brexit (and will ensure its compliance with existing provisions in existing EU free trade agreements with third countries which the Government hopes to extend to the United Kingdom after Brexit).  State aid control should also be regarded, as it has been since 1973, as part of the armoury of measures designed to ensure the efficient spending of public money by public bodies and to provide assurance to business and investors that the level competitive playing field will not be distorted by unwarranted government subsidies to favoured players.  Its continuance will, in our view, bring many benefits to the UK economy and taxpayers.

 

GEORGE PERETZ QC, Monckton Chambers

KELYN BACON QC, Brick Court Chambers

ISABEL TAYLOR, Partner, Slaughter & May

 

 

 

[1] Cm 9446.

[2] Introduction by the Secretary of State for Exiting the EU, fourth paragraph.

[3] [1999] 1 CMLR 1357. See also Case C-368/04 Transalpine Ölleitung [2006] ECR I-9957, §§38–39.

[4] For this reason it seems to us that it is not necessary to determine whether Article 107(1) is itself directly effective. If a decision on this point were required, however, for the purposes of considering the powers under the Great Repeal Bill, we would be inclined to consider that Article 107(1) is indeed directly effective; the compatibility provisions in Articles 107(2) and (3) are, however, clearly not directly effective.

[5] For an example, see the decision of the First-tier Tribunal (Tax Chamber) in Western Ferries (Clyde) v HMRC [2011] UKFTT 243 (TC) at §163 (need to construe tonnage tax rules so as to avoid State aid).

[6] Commission Regulation 1407/2013/EU

[7] Para. 8 of Sched. 4 to the Enterprise and Regulatory Reform Act 2013

[8] See Case C-199/06 CELF [2008] ECR I-469, §52.

[9] See section 28(8) of the Scotland Act 1998 and section 107(6) of the Government of Wales Act 2006.

[10] [2017] UKSC 5, at §151.

[11] Agriculture is another area where similar issues arise: see G. Peretz, ‘Storm Clouds over the Welsh Mountains: Agriculture and Devolution’ U.K. Const. L. Blog (30th Mar 2017) (available at https://ukconstitutionallaw.org/).

[12] See paragraph 69 of Schedule 7A to the Government of Wales Act 2006 (when it comes into force) and paragraph C3 of Schedule 5 to the Scotland Act 1998.

 

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