UK State Aid Law Association

Two recent blogs on this site (here and here) have described the subsidy control provisions in the Trade and Cooperation Agreement (TCA) to which the current UK government signed up on Christmas Eve. Those obligations bite on 1 January 2021: the obligation to have an independent authority playing an “appropriate role”, and the right of affected parties to apply to the court for a review of decisions granting subsidies that must be prohibited under the TCA or which fail to comply with the principles that the TCA lays down.

As matters stand, there appears to be no implementing legislation in place (though the extraordinary Henry VIII powers in the EU (Future Relationship) Act 2020 (as it will be by the time most people read this) would in theory allow the government to put in place a whole new regime by a statutory instrument made at 1059pm on 31 December, without having even been placed before Parliament (see paragraph 14 of Schedule 5 to that Act).

In default of legislation, and given the removal of EU State aid law from the UK lawbook by SI 2020/1470, all that will be in place is the provisions of section 29 of the EU (Future Relationship) Act, which (in effect) provides that the TCA is law if not otherwise implemented. That means that the subsidy control provisions in the TCA become law. But it is law that fails to give any functions or powers to the independent authority it contemplates, and no framework in which courts are supposed to adjudicate on the application of the broad principles laid down. It is a recipe for extrordinary confusion and uncertainty.

There is one day left for the government to get a more coherent position in place. As I said in my blog, the obvious short-term patch is to keep a “repatriated” version of the EU State aid rules going. Let us hope that the current Prime Minister’s boast in the debate today on the Bill that his government had removed the EU State aid regime from the UK has not put paid to that sensible option.

GEORGE PERETZ QC

The provisions of the (draft) UK-EU Trade and Cooperation Agreement (the “Agreement”) that govern subsidy control (Title XI, Chapter three, starting at page 184) are unprecedented in comparison with other free trade agreements.  They impose significant constraints on UK policy towards public subsidies.

What “subsidies” are caught by the Agreement?

As to scope, the definition of “subsidy” in Article 3.1 of the Agreement essentially parallels the definition of “State aid” in EU law.  Thus, it covers: public grants, loans, and guarantees; forgoing revenue otherwise due (e.g. tax waivers or debt write-offs); and the provision of goods or services or the purchase of goods and services, such as agreeing to purchase services at an overvalue or only in order to assist an operator. The provision of general infrastructure is not in terms excluded – as it is under Article 1.1(a)(1)(iii) of the WTO Agreement of Subsidies and Countervailing Measures – perhaps because it was considered that the provision of general infrastructure would not be a specific advantage, just as it is not a selective advantage under EU State aid law. 

A subsidy must also confer an advantage and be “specific” (a term derived from WTO subsidy law but which, both there and here, means much the same as “selective” in EU law). The assistance must also have actual or potential effects on trade and investment between the parties: whether that threshold is much higher than the notoriously low threshold that similar words have created in EU State aid law remains to be seen (it may be noted that Article 3 refers elsewhere to “material” effects on trade, perhaps suggesting that the omission of “material” at this point is deliberate). 

Tax measures can be subsidies.  Article 2(a) attempts to limit the application of the concept of “subsidy” to tax measures by setting out circumstances in which a general tax measure will not be considered “specific”.  These broadly mirror existing case-law of the ECJ in EU law: a tax measure will not be a subsidy unless some economic actors pay less tax than they would in comparison with a “normal” tax regime (the often-criticised “reference framework” concept in EU law); those economic actors must be treated more advantageously than those in a “comparable position” from the point of view of the objective and features of the tax regime; and favourable treatment is not a subsidy if it is justified by features such as the need to fight tax evasion, tax neutrality, the progressive or redistributive nature of a tax or its link to ability to pay (all of which mirrors current ECJ case-law on the nature and logic of the tax system).  So the subsidy provisions are more or less as likely to apply to tax measures as are EU rules on State aid (either to tax rulings, such as the Apple case (Cases T‑778/16 and T‑892/16), or to general tax measures that operate in favour of particular operators, such as the recent UK case on the tax treatment of certain controlled foreign companies).

Article 3.2 of the Agreement limits the scope of what counts as a “subsidy”.  Again, much of this mirrors EU State aid rules.  Subsidies to compensate damage caused by natural disasters or other exceptional non-economic occurrences (such as pandemics) are largely excluded from the rules on subsidies – but State aid falling in that category has to be cleared by the Commission under Article 107(2) of the Treaty on the Functioning of the EU, so, again, there is little change from the State aid position.  The exclusion of subsidies targeted at consumers also mirrors EU State aid law, as does the de minimis provision (set, at SDR 325,000, or ~EUR 380,000, over three years, at about twice as high as the EU de minimis threshold of EUR 200,000 over three years). 

There are, however, two significant departures from EU State aid law.  Subsidies to the audio-visual sector are entirely excluded,  so the rules do not apply to the funding of the BBC or to support for the film industry.  And the provisions of the agreement that prohibit subsidies or require remedial measures do not apply to subsidies granted on a temporary basis to respond to a national or global economic emergency, though such subsidies must be targeted, proportionate and effective.

Article 3.3 of the Agreement again rings bells for State aid lawyers by excluding from the rules subsidies granted to providers of services of “public economic interest” (cf “general economic interest” in EU law) if application of the rules would obstruct them in performing their tasks: Article 3.3.2 requires the avoidance of over-compensation and cross-subsidy, while Article 3.3.4 fixes a higher de minimis threshold for such subsidies.  Again, all familiar to State aid practitioners.

What rules apply to subsidies caught by the Agreement?

Articles 3.4.2 and 3.5 of the Agreement provide that certain types of subsidies must be prevented by the parties, if they are such as to have an actual or potential “material” effect on trade or investment between the parties.  They are:

• unlimited state guarantees;
• rescue and restructuring assistance where there is no credible restructuring plan, no provision for current owners to contribute to the plan (except for SMEs), or no social hardship or severe market failure consequent on business failure (this provision, and the first bullet above, parallel provisions in the UK/Japan FTA);
• assistance to banks, credit institutions and insurance companies exceeding what is needed to secure an orderly exit from the market unless there is a credible restructuring plan;
• export subsidies other than short-term credit insurance for non-marketable risks;
• subsidies conditional on domestic content; and
• subsidies to air carriers for the operation of routes, unless they are start-ups, where there is a public service obligation, or in special cases where the funding provides societal benefits.

Article 3.5 also creates special rules for assistance for secure and sustainable energy and for environmental sustainability, and for large cross border or international cooperation projects.

Outside those categories, the Agreement commits the parties to applying the general principles set out in Article 3.4.1 to all subsidies within the scope of the Agreement.  Those principles are familiar to any student of Commission State aid policy: assistance should pursue a specific public policy objective to meet an identified market failure or address an “equity rationale”; should be proportionate and necessary; should generate a change in economic behaviour that assists in achieving the objective; should not compensate for costs the beneficiary would have funded itself; that there is no less distortive alternative; and that positive effects outweigh negative ones.

In applying the Article 3.4.1 principles, the Joint Declaration on Subsidy Control Policies provides at page 5 useful guidance on some issues. First, it sets out a framework for clearance of subsidies to address regional disadvantage – important to any ‘levelling up’ policy. The framework itself is fairly anodyne (it requires policy to take account of the needs of the area, the size of the beneficiary and the size of the project, and to require a substantial contribution from the beneficiary), but it means that there is no doubt that the UK can develop its own system of what State aid lawyers think of as regional aid. It also makes it clear that such assistance cannot have as its main purpose or effect the poaching of activity from the other side – thereby discouraging subsidy races between the EU and UK (something that is very much in the UK interest, given the greater resources of many EU Member States). Further provisions of the Declaration deal with transport (generally summarising standard EU State aid policy and law on subsidies to airports, road infrastructure and ports) and research and development (again summarising the established EU law and policy approach). The value of these latter declarations is largely to make it clear that the UK government, committed to major investment in both transport and R&D, can do so within the framework of the Agreement – though it will be observed that it could also have done so within the framework of EU State aid rules.

Article 3.6 commits the parties to ensuring that beneficiaries only use assistance for the purpose for which it was granted (no “misuse of aid”, in EU law).

How are these rules to be enforced internally, within the UK?

The provisions do not commit the UK to replicate the ex ante mechanisms of EU State aid law (i.e. that State aid may not be implemented unless and until it is notified to and cleared by the European Commission). Note, though, that most State aid actually granted in the EU is granted under legislative block exemptions that mean it does not have to be notified.

One important commitment – especially bearing in mind concerns expressed recently over Covid-19 contracts – is a commitment to transparency in Article 3.7 of the Agreement.  All subsidies have to be published within six months with details and, if there is a letter before action from an interested party, that party has to be provided with all relevant information within 28 days (see Article 3.7.5).

But, more substantively, the UK is committed, under Articles 3.9, 3.10, and 3.11 respectively, to:

• an independent authority or body that will play “an appropriate role” in its regime;
• a power for courts to review compliance with the principles set out above by granting authorities and to review decisions of the independent authority, to do so on application by interested parties with standing, and to grant remedies including injunctions and orders to recover assistance granted; and
• a power of recovery if an application is made in time (there are complex provisions as to what “in time” means) by an interested party on the ground that a measure should have been treated as a subsidy but wasn’t, or has misapplied the principles applicable to that subsidy.

In deference to the principle of Parliamentary sovereignty, recovery is not required where the subsidy is granted on the basis of an Act of the UK Parliament (Article 3.11.5),  but, importantly, that exception does not cover subsidies granted by the devolved Parliaments.

Against that background, the UK Government’s resistance to an ex ante commitment may well prove not to matter very much.  No beneficiary (or provider of loan or equity finance) is going to commit to a project if it is vulnerable to being overturned by a court.  In some cases, certainty and immunity from challenge could be achieved by simply allowing the time for challenge to lapse before proceeding with a project; however, in others that will be too slow and uncertain a device.  In practice, therefore, the UK regime is going to have to provide some mechanism for clearance by the independent authority – a clearance that will have binding effect.  Once in place, any such mechanism is likely to have to be gone through before beneficiaries and funders will agree to proceed – effectively requiring an ex ante clearance as a matter of commercial necessity rather than law.  Moreover, it is hard to see that the Government would in reality be content with a system that left the courts as the judges of whether the Article 3.4.1 principles had been correctly applied, given the need for consistent and transparent policy so as to guide granting authorities and beneficiaries in working out what types of assistance are likely to be acceptable given the broad parameters of the Article 3.4.1 principles.  In practice, therefore, the application of the Article 3.4.1 principles is likely to have to be a matter for the independent authority rather than the courts. 

All this therefore points to a regime that in substance, if not in form, ends up rather similar to the structure under the EU State aid rules: an independent authority issuing policy guidance and deciding the application of the Article 3.4.1 principles in particular cases, and whose decision is in commercial reality if not in law needed before most significant projects involving subsidies can proceed, combined with a role for the courts in dealing with cases where there is a real argument about whether the measure is a subsidy at all and where the independent body has never been approached, and in reviewing the decisions of the independent body. 

How are these rules to be enforced by the EU, if it considers the UK rules have not worked?

All the following provisions apply equally, vice versa, where the UK is unhappy with an EU subsidy.

First, the EU can appear as an intervening party in any court action in the UK concerning the subsidy rules: Article 3.10.2.

More importantly, in relation to an individual case, the EU can seek information and consultations: Article 3.12 of the Agreement.  If that does not work, it can take remedial measures if there is evidence that a UK subsidy will cause, or runs a serious risk of causing, a significant negative effect on trade an investment as between the UK and the EU.  Article 3.12.5 and .6 emphasise that that assessment must be based on facts and not speculation, and on reliable evidence.  The remedial action must be limited to what is strictly necessary and proportionate to remedy the significant effect.  If the UK considers that the EU has exceeded its rights to take remedial measures, then it can take the matter to an arbitration panel. Failure to comply with that panel’s ruling (if it is against the EU) triggers a UK right to take remedial action.

A more general UK failure to comply with the subsidy control rules (e.g. a claim that UK law does not meet the requirements imposed by Article 3) gives rise (except in relation to Articles 3.9 and 3.10) to a dispute settlement procedure under the general dispute settlement rules in Part Six, Title I.

Article 10 of the NI Protocol

Article 3 of the Agreement makes no reference whatsoever to Article 10 of the Ireland/Northern Ireland Protocol (the “Protocol”).  But Article 10 – which applies the EU State aid rules in full to the UK in relation to measures that have an actual or potential effect on trade in goods between Northern Ireland and the EU – will apply to many UK measures which have effects in Northern Ireland.  Article 10 of the Protocol will apply in parallel with the UK regime set up to implement the subsidy provisions of the Agreement.  That is well short of ideal, as there will be two separate subsidy regimes applicable to the same measures (as to which, as Lady Bracknell might have said, to have one set of subsidy rules to worry about may be necessary: to have two looks like carelessness).  The only way of avoiding that would be to carve out measures subject to Article 10 of the Protocol from the UK regime; however, given the penumbra of uncertainty as to when Article 10 will apply, that is not a satisfactory option either.

As I explained in my blog post here, the problems with the application of Article 10 of the Protocol – and in particular the “reach-back” issue, that is to say, the likelihood of its applying to general UK measures affecting Great Britain as well as Northern Ireland, as well as to GB measures with an indirect effect in Northern Ireland – were not adequately addressed by the 8 December statement by the Joint Committee.  It is also unlikely to be assisted by guidance issued by the Secretary of State under section 48 of the Internal Market Act 2020: as I pointed out in my blog post on the Joint Committee statement, the ambit of Article 10 is for the courts, and ultimately the ECJ to determine: what the Joint Committee says, and what the Secretary of State says, is in the end no more than a view.

It is regrettable that the UK Government did not seek (or if it sought did not obtain) an amendment to Article 10 to reflect its commitments under the subsidy control provisions of the Agreement.  The result is going to be, inevitably, something of a mess.

The short-term and the medium-term

Article 3 of the Protocol requires implementing legislation by the UK Government.  The Sewel Convention is not in play as subsidy control is now a reserved matter outside devolved competence: section 52 of the Internal Market Act 2020.

It is, however, inconceivable that a new regime could be up and running by 1 January 2021 – less than a week away.  As far as I am aware, there is no detailed legislation prepared, and the sudden production of detailed new legislation would both be unwise at this hyper-late stage and contrary to the spirit if not the letter of section 53 of the Internal Market Act 2020 (which requires the devolved governments to be provided with a pre-publication draft of the Government’s response to its consultation on a new UK subsidy regime).

There therefore seems to me to be no real alternative to preserving the EU State aid rules, modified only to make sense outside the EU, until a new system is up and running.  Fortunately, in best “Blue Peter” fashion, draft legislation – in the form of a “no deal” statutory instrument under the EU (Withdrawal) Act 2018 prepared under the May Government – already exists.  With a few tweaks to deflect accusations that the current Government was doing anything designed by its Conservative predecessor, it could be pressed into service, and the recently-made statutory instrument removing the State aid rules from retained EU law could simply and quietly be revoked. It would also be sensible – since there will not be time to devise new ones – to press back into service all the current EU block exemption regulations, compliance with which will provide certainty that a subsidy is lawful.

What the current Government’s plans are in that regard will presumably be made clear when the Bill implementing the Agreement is published and voted on this week.

Conclusion

This blog post is no more than an immediate reaction to the detailed provisions in the Agreement. 

What can be said, however, is that the UK has accepted a framework that fundamentally resembles the EU regime, even though in form it self-consciously avoids expressly drawing on it.  The UK will have to create a robust domestic framework for the regulation of subsidies, including an independent regulator and a set of rights to bring subsidy control issues to the courts.  The challenge will be to create a regime which makes use of the ability to move away from some of the more rigid aspects of the EU State aid regime while continuing to provide a useful check and review on the power to subsidise – a power which can often be used wisely to promote very important public policy objectives, but can also be abused for bad political or even venal reasons, and in ways that seriously damage the legitimate interests of trading partners.

GEORGE PERETZ QC BL

Monckton Chambers, London, and Law Library, Dublin

(This post originally appeared on www.eurelationslaw.com)

After much fanfare the UK has agreed a new Trade and Cooperation Agreement (“TCA”) with the EU which, subject to ratification, allows for zero tariff, zero quota trade between the two blocs with effect from 1 January 2021.  One of the final points to be agreed was future State aid regulation, which is addressed under Chapter 3 (Subsidies) of Title XI (Level Playing Field) of the TCA.  Here are our first reflections on the contents of the Subsidies section of the TCA and we consider what it means for grant authorities awarding and undertakings receiving public funding from 1 January 2020, and consider how the UK can regulate subsidies more effectively, now it has “taken back control“.

The UK and EU negotiating teams agreed the terms of the TCA on Christmas Eve, with fisheries policy, rules of origin thresholds for the automotive sector and State aid regulation being the final points to be brokered.  For the UK, the discussion on subsidies centred on ensuring the freedom to create its own independent regime.  For the EU, the focus was upon ensuring the Single Market was not compromised by UK businesses being able to trade with a competitive advantage derived from receiving greater subsidies than those permitted by the existing EU regime.  Chapter 3 (Subsidy Control) of the TCA therefore appears a success for both parties.  However, with the implementation of the new UK regime yet to be clearly set out, the big question is how the UK will use its new freedom to diverge.

Overview of Title XI Chapter 3

Title XI Chapter 3 of the TCA sets out reciprocal commitments on subsidy regulation. Although the agreement pointedly doesn’t generally use the existing EU State aid texts (possibly with an eye on ensuring the ECJ would not have a role in interpreting the meaning of any provisions) we start with the premise that the text is drafted with the understanding that the current EU State aid regime generally already meets the commitments from the EU’s perspective.

From our perspective the key themes emerging from Title XI Chapter 3 at this stage are as follows:

• what is and what isn’t a subsidy appears largely consistent with current understanding, albeit including a concept of potential effects on investment (in addition to trade), which suggests the concept of what is a subsidy will not be clearly narrower than what is a State aid;
• the 6 stated General Principles around which the legitimacy or otherwise of subsidies must be judged are self-evidently sensible, and encapsulate what has hitherto gone into the approval of individual subsidies by the European Commission, and the drafting of block exemptions which have set out the conditions under which over 99% of subsidies have been legitimately granted without any need for regulator consultation or approval;
• the TCA acknowledges and endorses a concept similar to the EU’s services of general economic interest with a notion of subsidies for public economic interest, including compensation for the delivery of public service obligations;
• the UK must appoint an independent body charged with oversight of its subsidy regime, but does not dictate that this body be a regulator like the Commission responsible for giving approvals;
• the TCA does not dictate that the UK adopts its own block exemptions or safe harbour equivalents  pursuant to the General Principles (although as explained below we believe it would be most unwise not to);
• the TCA provides for clear transparency obligations including procedures entitling interested third parties to receive, upon request, minimum information from grant authorities on subsidies granted, including how they satisfy the General Principles;
• the TCA sets heightened de minimis subsidy levels (ie. subsidy amounts per undertaking over three fiscal years) below which the respective procedures should not apply, , which are roughly double the current €200,000 threshold;
• the TCA provides for temporary subsidies to respond to “a national or global economic emergency” (such as presumably the COVID-19 pandemic) to be allowed, provided they are targeted, proportionate and effective in order to remedy that emergency;
• existing methods of challenge in the national court (eg. judicial review in the UK) may continue, in which an ultimate remedy of recovery of the subsidy (ie. repayment) must be provided for;
• recovery is not required in cases of subsidy provided directly by act of Parliament (UK) or by the European Parliament and/or EU Council; and
• the TCA provides for mechanisms for consultations between the UK and EU regarding subsidies of concern to either party, including procedures for arbitration of disputes and remedial action in cases where significant negative effects to the other’s trade (or a threat thereof) are clearly evidenced. 

Alignment with the Northern Ireland Protocol from the Withdrawal Agreement

The substantive issue which Title XI Chapter 3 TCA does not deal with is continued application of the notorious Article 10 of the Northern Ireland Protocol in the pre-existing Withdrawal Agreement, entered into on the UK’s formal departure from the EU in January 2020.  This provides that EU State aid law will continue to cover subsidies provided in the UK “which affect that trade between Northern Ireland and the Union” even after the end of the agreed transition period (ie. from 11 pm on 31 December 2020).

While this is apparently limited in its effects to goods and the all-Ireland single electricity market, there will no doubt be speculation as to how readily an effect on trade between Northern Ireland and the EU can be deduced.  Pending further clarification (and no doubt test cases in due course) this will lead to a concern that subsidies in the UK related to the production of goods which will readily move across borders (eg. the automotive sector) may still fall within the reach of EU State aid control.  As noted by Mathew Holehouse in his article, “Brexit deal’s State aid rules may have long reach” the notion of effect upon trade under EU State aid law has been interpreted to have a “famously low bar“, raising the spectre of two subsidy law regimes applying simultaneously within the UK in some situations, creating potentially significant administrative burdens.

Immediate concerns arising for the ongoing delivery of subsidies grants in the UK

Title XI Chapter 3 clearly provides the UK with considerable flexibility in adopting its own subsidy control system.  However there will need to be significant implementing measures undertaken quickly in order to render the UK in immediate compliance.  In the absence of relatively immediate implementing measures there is a danger of a relative legal vacuum emerging.

As things stand, the EU framework ceases to apply in the UK in less than a week from the time of writing, without a fully formed replacement regime yet in place. Grant authorities (of which there are over 550 in the UK) in the middle of delivering many ambitious funding programmes such as the Getting Building fund will ask how do they ensure the legality of proposed grants as of 1 January 2021.  This is creating considerable uncertainty for public sector bodies administrating grant programmes and businesses looking for public funding to take forward new investments.

This is consistent with our experience that the biggest immediate issue of concern arising from this “on the ground”, will be legal certainty.  The vast amount of subsidies (over 99%) currently proceed under the block exemptions, which provide assurance to grant authorities and beneficiaries that the grants may be presumed lawful and therefore should not be subject to clawback later.  Based on this we would hope that the UK Government will quickly enact provisions for some form of safe harbour or block exemption equivalent under which this majority of non-contentious awards may continue.  The last thing the UK Government will want is for its new found flexibility to result in standstill.

Need for implementing measures and suggestions for UK Government

As noted the most pressing issue for ongoing delivery of routine grants and investments is for articulation of where are the safe harbours, ie. what can be granted safe in the knowledge that it will definitely be acceptable?  Such safe harbours must of course deal with all of the General Principles in the TCA in arriving at a set of circumstances and procedures that would allow pre-defined types of subsidy and respective amounts which could be deemed expressly lawful.  We would start with a presumption that the existing EU block exemptions do this already.  There will be time to refine the details of a UK safe harbour instrument in due course later but some form of starting place is urgently needed for awards to be granted as of 1 January 2021.  For reasons simply of speed, our recommendation would be to borrow from the existing block exemptions until there has been time to hold suitable consultations in order to define and support new UK policy initiatives, for example the ‘levelling up‘ agenda . 

Based on the above and noting the need to set up a new regime by 1 January we urge the government to:

• immediately set up a “safe harbour” system based on the current block exemptions (which are used for over 99% of all awards of State aid), which would allow almost all subsidies to be granted quickly and with the minimum of fuss from 1 January 2021 (NB. if time allows then immediately adjust some of the less user friendly elements of the existing block exemptions such as revising the rules around undertakings in difficulty);

• set up a temporary approval system for larger awards of aid outside the block exemptions, to enable quick decisions to be made pursuant to evidence supplied on the application of the TCA’s General Principles.  Clearly the Government’s intention is for this to be a reserved matter for central government (ie. not for the devolved administrations) and possibly such larger awards will be wholly retained within central government administration;

• appoint an independent body for oversight of the new subsidy control regime generally (noting that the powers to be awarded to the authority can be developed over time following due consultation);

• run a consultation for new rules to come in with effect, for example, from the end of 2021.  The consultation would include how best to shape the safe harbours for optimal pursuit of UK policy objectives, plus what powers to give to the new independent supervisory body; and

• consider whether at the four-year review of the TCA to argue that Article 13(8) of the Northern Ireland Protocol should be invoked and Article 10 removed in favour of a single subsidy control regime for the UK, to phase out what may prove to be difficult considerations of dual regimes to apply in certain cases.

The UK has a huge advantage now of starting afresh but also having been part of the EU State aid system, in order to observe the good and the bad.   Therefore it should be possible for the UK to take the best parts of the EU’s regime and design further elements of its own subsidy control regime to work much better. 

How should public bodies handle subsidies in the meantime?

Awards made before 11pm 31 December 2020 remain subject to EU State aid law, as will other awards after that under the last vestiges of the EU Structural and Investment Fund (ESIF) programmes.  Awards made after that may consider whether the EU State aid rules might arguably continue to apply by virtue of the Northern Ireland Protocol, and otherwise have regard to the TCA and all implementing measures as they come into force. 

In the absence of swift implementing measures (in particular safe harbour clarifications) we would suggest it will be important to work through the requirements of Title XI Chapter 3 TCA individually for each proposed award, to establish whether the measure falls within the definition of a subsidy and if so, whether it will be in line with the General Principles.  In interpreting the General Principles we would expect regard to be had to previous experience of the EU rules.  Some may argue that until what is not compliant is expressly clarified, there should be flexibility to award freely and the risk in so doing will accordingly not be high.  However our experience is that grant authorities and sophisticated beneficiaries alike will want to know things are being done right and that good administration is seen to be done.  Public authorities will not wish to be considered reckless and therefore will wish to balance the above considerations.  No one will want to become the new test case.  Until implementing measures are clarified therefore we would recommend that meticulous records are kept and that care is taken to ensure the prescriptive transparency rules are satisfied.  Individual authorities may develop their own protocols and checklists for approvals prior to execution of awards. 

Conclusion

The new TCA is to be welcomed, as are Boris Johnson’s emphatic statements about levelling up the UK. In order to make the most of the hard-earned opportunities created by the TCA, the UK government should develop meaningful subsidy control rules that target and coordinate public funding as efficiently as possible towards the UK’s economic priorities.  Given EU State aid law is revoked as at 11pm on 31 December 2020, the development of such rules will need to be accelerated to prevent an immediate legal vacuum stifling delivery and interventions from January 2021, when it is arguably needed most in the continued wake of the pandemic.  An interim regime, based on quick wins, would allow for a new modern regime aligned to the UK’s interests to be carefully planned over the next year, thereby helping the UK build a new economy fit for the future.

JONATHAN BRANTON

ALEXANDER ROSE

DWF Law