Paper on post-Brexit options for State aid

 Note: the following paper is a draft paper prepared by us (George Peretz QC and Kelyn Bacon QC) as a contribution to the Commercial Bar Association’s consideration of post-Brexit issues.  The views expressed are however ours alone.  We are grateful to Robin Griffith of Clifford Chance and Isabel Taylor of Slaughter and May for their comments on an earlier draft: any errors are ours.

In this paper, we first provide a brief summary of the EU State rules and concerns that have been expressed about them, and then consider various options that might be considered for maintaining or replacing the State aid rules, or aspects of them, after Brexit.  We conclude by looking at transitional issues that will need to be dealt with, in the agreement with the EU under Article 50 TEU and/or in the Great Repeal Bill, if it is decided not to retain the State aid rules, or to maintain them in a substantially different form.


In our view, it is likely that retention of State aid control will form an essential component of any comprehensive trade deal between the United Kingdom and the EU (whether in or outside the single market).  But we also see considerable advantages to the United Kingdom in agreeing to retain such a regime: and such a regime, out of the EU, is likely substantially to reduce a number of the disadvantages of the EU regime.

In any event, a number of transitional issues will need to be dealt with in domestic legislation and/or the Article 50 agreement with the EU.


The essential thinking behind the EU State aid rules (and other international prohibitions on subsidisation, such as the current WTO rules, which we discuss below) is that the grant of subsidies to firms of one State, in a single market or free trade area, will often distort competition to the detriment of competing firms from other participating States.  Put shortly, it is one thing to open up your domestic markets to foreign competition, but quite another thing to open your domestic markets up to subsidised competition.  And the freedom to export to another country without restriction is of little value if the government of that country can freely subsidise its domestic producers so as to defeat competition from imports.

On the other hand, there may well be powerful arguments for subsidies in order to achieve important domestic (or indeed pan-European) policy aims, such as regional development, promoting R&D, encouraging training, dealing with natural disasters, and supporting important fundamentally viable businesses over short-term market turbulence. These are recognised in the range of justifications that permit the Commission to authorise State aid.

The EU State aid rules (now in Articles 107 and 108 TFEU) date from the earliest days of what is now the European Union.  State aid provisions formed part of the European Coal and Steel Community Treaty in 1952, and the current provisions in the TFEU are in essential respects the same as those in the 1957 Treaty of Rome.  But it may be noted that the historical origins of the State aid rules go even further back, to the 1947 GATT: much of the wording of GATT Article 16 on subsidies found its way into the drafting of the Treaty provisions on State aid.

Brief summary of the State aid rules

In a nutshell, the State aid rules prevent Member States from granting State aid save where the Commission has approved that aid as being justified.

The essential definition of a State aid is that it is an economic advantage, granted to an undertaking out of State resources, which favours certain undertakings over others (i.e. is selective), and which potentially distorts competition and trade between Member States.

Unpacking that definition, the following important points follow in terms of the scope of the EU State aid rules.

First, the State aid rules have a wide scope.  They apply to all sectors of the economy.  They also apply to a wide variety of State measures: not just straight subsidies, but also to measures that are economically equivalent (such as access to government assets on favourable terms, favourable tax treatment, guarantees and so on).  That extensive scope means that the rules will usually catch any attempt the dress up in some other legal form what is in economic terms a subsidy.  But it also leads to criticism that that the Commission, supported by the Court of Justice, has a tendency unduly to expand the scope of the rules.  The recent controversy over the Commission’s decisions finding that tax rulings given to certain multinational companies amounted to State aid (decisions currently on appeal to the EU General Court) are a topical example.

Second, and very importantly in practice, the State aid rules do not apply to measures taken by the State that are equivalent to those that a rational private operator in the market would take (the “market economy operator principle” or “MEOP”)).  Since it is accepted that, in most cases, rational private investors might take a range of views, the MEOP in practice allows a range of measures to be taken by Member States provided that they ensure that they have sufficient evidence that the measure is one that a rational private operator could realistically have taken.

Third, they do not apply to measures that do not (even potentially) affect competition or trade between States.  It is generally accepted that the case-law of the CJEU and the practice of the Commission has set that hurdle quite low, although the Commission has recently taken a number of decisions that indicate that it is trying to raise that hurdle.  Moreover, a de minimis regulation has created a safe harbour for many small aid measures.

As noted above, the State aid rules acknowledge the existence of a range of powerful policy justifications for subsidies.  So the Commission is given wide power under Article 107(2) and (3) TFEU to approve State aids (“declare them compatible with the common market”) on a range of public policy grounds.  That approval mechanism has the following key features.

First, it is unlawful (under Article 108(3) TFEU) for a Member State to implement an aid measure before obtaining approval from the Commission (known as the “standstill obligation”).  National courts are required to enforce that rule if the matter comes before then, although there is flexibility in how that is to be done in individual cases.

Second, however, the effects of that rule have been significantly reduced in recent years by a series of block exemptions (including, most importantly, the so-called General Block Exemption Regulation, applying across a whole range of sectors to numerous types of aid measures) which automatically clear the bulk of Member States’ aid measures without any need to obtain the approval of the Commission.

Third, where individual clearance is required from the Commission, that can be obtained very rapidly in an emergency (there are some examples of banking aid being given within 24 hours); but in general it is a process that takes months or even years.

Fourth, though the EU Courts will carefully scrutinise Commission decisions as to whether a measure is or is not State aid (mainly a question of law), they allow the Commission a wide latitude in terms of its aid approval policy, intervening only in the case of legal or procedural errors, or serious flaws in reasoning or fact-finding.


We suspect that there is wide support for the aim of the State aid rules: ensuring that State subsidies that have an economically distortive effect should be given only where they are appropriate and proportionate to deal with market failures.  It may be noted that the State aid rules do not prevent either nationalisation or privatisation: and many EU countries manage a range of industrial strategies while fully complying with the State aid rules (Germany, for example).

Policy concerns about the State aid rules have generally focused on three areas.

First, as noted above, there is concern that the Commission and the CJEU have tended to widen the scope of the State aid rules to catch measures that should not be the concern of a regime whose principal purpose (at least historically) was to protect competition in the internal market against distortions caused by unjustified subsidies.  Those concerns centre on both the definition of State aid and on the approach taken to the requirements that a State distort competition and affect trade between Member States.

The second set of concerns focuses on the policy of the Commission in deciding whether to approve aid notified to it. Concerns have centred on lack of transparency, lack of economic rigour and, partly as a result of those failings, a concern that the Commission’s approach is sometimes too “political”.  In general, however, it is fair to say that the Commission (encouraged in particular by successive UK Governments as well as academic commentators) has tended over recent years both to set out its approach in different sectors in considerable detail, and to adopt a more rigorous economic approach to identifying the market failure sought to be addressed by the aid measure and to evaluating whether the measure is the most appropriate means of addressing that failure.

The third set of concerns relates to procedural issues: for present purposes the most important of these is the delay caused by the time taken by the Commission to deal with individually notified measures, given the unlawfulness of proceeding with those measures before the Commission’s approval has been obtained.  Those delays are aggravated by the delays caused by appeals to the EU Courts against Commission decisions.  There is no doubt that those delays can prove frustrating to policy-makers and to businesses whose projects depend on State support, and in some cases those delays can stop a desirable project or make it more expensive.  On the other hand, the increasing scope of block exemptions has (as noted above) substantially reduced the number of projects that have to be notified to the Commission for approval, with the consequent reduction in the risk of projects being delayed by appeals against decisions to the EU Courts.  Another area of concern is the limited procedural rights given to aid recipients in the process, even though (in the case of investigations for unlawful aid) the consequence of a finding of aid is often an order for recovery with very serious adverse effects on the aid recipient.

The various concerns summarised above were essentially those expressed by respondents to the Coalition Government’s Review of the Balance of Competences.  §3.7 of the section dealing with Competition and Consumer Policy reported that “there was broad agreement in principle on the current balance of competence on State aid, but some expressed concern about its limits, about real or apparent extension of EU competence into areas of domestic policy, and about the way State aid controls are exercised”.State aid rules in comprehensive trade agreements with the EU


We assume here that the United Kingdom will seek to negotiate a comprehensive trade agreement with the EU.

We note in that respect that, with the exception of Switzerland, every other European country with which the EU has entered into comprehensive trade agreements has accepted that it will comply with State aid rules.  There are, in essence, two models.

The first is the EEA model.  The EEA Agreement effectively replicates the EU State aid rules[1], with the EFTA Court playing the same role as the EU Courts and the EFTA Surveillance Authority (“ESA”) playing a role equivalent to that of the Commission.  The significant differences of substance are that: –

  • the EEA Agreement does not have direct effect[2].  However, EEA States are required to (and have) incorporated into their domestic law the obligation not to implement aid unless and until approved[3] and to implement, for example, prohibition and recovery decisions by the ESA.  Moreover, EEA States must also, under that Agreement, pay damages to any third party harmed by a manifest and serious breach of the standstill obligation[4] – and the ESA has indicated that almost any breach of that obligation would trigger a duty to pay damages[5];
  • the EEA agreement does not apply to agricultural products falling outside the scope of Article 8(3) EEA, or to the fisheries sector[6]; and
  • EFTA Court opinions given in response to references from EFTA States are “advisory”, rather than binding on the courts of those Member States – see Article 34 of the Surveillance and Court Agreement.

The second is what might be called the “domestic implementation” model, and is found in agreements with European countries outside the single market.  Perhaps the most pertinent example (since it is with a large State that will not be applying for EU membership for the foreseeable future) is the Association Agreement between the EU and Ukraine (“the Ukraine Agreement”)[7].  Article 262 of the Ukraine Agreement sets out the State aid rules; Article 264 provides that they are to be applied “using as sources of interpretation the criteria arising from the application of [the EU State aid rules] including the relevant jurisprudence of the [CJEU], as well as [Commission frameworks and guidance].” Article 263 requires each of the EU and Ukraine annually to report to each other on the State aid granted on each side.  Most interestingly for present purposes, Article 267 requires Ukraine to implement a domestic system of State aid control, with “an operationally independent authority … entrusted with the powers necessary for the full application of [the State aid rules][8].

As far as Switzerland is concerned, it has a series of bilateral agreements with the EU. Of those, the ones that mention State aid are the 1972 Free Trade Agreement and the 1999 Agreement on Air Transport.

The 1972 FTA contains, at Article 23(1)(iii), a general prohibition on “any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods.” We understand that this provision has not been applied in Switzerland and that as a matter of Swiss law it is of limited application.  However, the Commission has on at least one occasion raised what it regards as infringements of Article 23 with the Swiss Government[9].

The 1999 Air Transport Agreement is more thorough in its reference to familiar concepts of EU State aid law, containing at Article 13 a provision that closely reflects Article 107 TFEU. However, although specific provision is made in relation to enforcement of the Articles reflecting Articles 101 and 102 TFEU (the general prohibitions on anti-competitive agreements and abuse of dominant position) by the European Commission and the Swiss authorities, no enforcement mechanism for the prohibition is provided other than, at Article 14, a general requirement to keep measures falling within Article 13 under review.  No specific authority has been given power on the Swiss side to enforce this rule.

We also understand that Swiss law contains general prohibitions on public subsidies that fail to meet conditions of economic efficiency and a general requirement that Swiss government bodies respect competitive neutrality, but we also understand that these are not often invoked before the Swiss courts.

The EU has been prepared to negotiate agreements with countries outside Europe – notably CETA (Canada) and the ongoing negotiations on TTIP (United States) – that do not contain prohibitions on the grant of subsidies.  However, Article 7 of CETA reflects and reinforces WTO anti-subsidy obligations by providing for notification to each other of subsidies granted and for a consultation procedure between Canada and the EU if either considers that the other is harming it by granting subsidies.

What can be concluded from that brief survey is that the EU, as far as Europe is concerned, has generally insisted on compliance with State aid rules as a condition of a comprehensive trade arrangement.  (We suspect that, as in other areas, the case of Switzerland is not a reliable precedent.)  It is ultimately a question for diplomats, rather than us, whether and to what extent the EU would so insist in the case of the United Kingdom. But it is at least possible that State aid compliance will be a “red line” condition on the EU side for any comprehensive trade deal anywhere in the range between CETA and the EEA Agreement, not least because it will be hard to explain to EU voters why their employers should potentially face competition from subsidised UK businesses when their employers are unable to receive equivalent subsidies.  Moreover, the EU will bear in mind that (unlike the US or Canada) compliance with State aid rules is not a novelty as far as the United Kingdom is concerned and that the United Kingdom has considerable experience and expertise in applying the State aid rules over the last four decades.

WTO Rules

It is also important to be aware that, even outside any trade agreement with the EU containing State aid rules, the United Kingdom will, in relation to goods, still be bound by WTO anti-subsidy rules.

A good account of those rules can be found in a paper by David Unterhalter SC and Thomas Sebastian[10], as well as in Bacon “EU Law of State Aid” Ch.4[11], which we simply summarise.

As they point out, there is considerable overlap between the WTO concept of “subsidy” in Article 1 of the Agreement on Subsidies and Countervailing measures (the “SCM Agreement”) and the concept of “state aid” under Article 107(1) TFEU. Both concepts involve: (1) measures which are taken by governments or which are imputable to governments; (2) the grant of benefits (to use WTO terminology) or advantages (to use EU terminology) which are assessed using market-based tests; and (3) measures which are not generally applied but which are specific (to use WTO terminology) or selective (to use EU terminology). Moreover, measures which are purely regulatory in nature, for instance exemptions from labour or environmental standards, would fall outside the scope of both sets of rules as WTO law requires the presence of a “financial contribution”/ “income or price support” while EU law requires the involvement of “state resources”.

However, as they also point out, there are considerable differences between the concepts. First, the WTO regime does not apply to services, but only to goods.  Second,  measures which do not involve any cost to the government, such as a price control measure, would clearly be outside the scope of Article 107(1) TFEU but may fall within the scope of the SCM Agreement (although the extent to which the SCM Agreement applies to such measures remains somewhat unclear, as there are few decisions on this point). Likewise, the complex EU law approach to the assessment of selectivity in cases involving tax exemption measures has no direct analogue in WTO law.

Moreover, the enforcement mechanisms for the WTO rules are (i) either state-to-state dispute resolution (there being no mechanism for private enforcement, injunctions or damages, or for actions to be brought in ordinary courts) or (ii) the imposition by the adversely-affected state of countervailing duties on products from the infringing state.  (Calculation of the appropriate rate of countervailing duties is generally more complex than calculating the amount of unlawful State aid that has to be repaid.).  There is therefore no scope for WTO enforcement of the rules by private operators: they have no right of action in national courts and no independent body to which they can complain, and their only option is to persuade their own government to invoke the WTO procedure.

Finally, there is no procedure in the WTO rules for the approval of justified subsidies on public interest grounds, as is possible under Article 107(2) and (3) TFEU.


We now turn to the policy considerations which, in our view, the UK Government should bear in mind in deciding, in the context of negotiations with the EU, what, if any, State aid regime should be retained post-Brexit.

We appreciate that the State aid question will be but one of numerous issues on which the Government will need to negotiate.  However, in deciding its wider negotiating position, the Government will need to form a view on the extent to which a State aid regime imposes burdens on, or benefits, the United Kingdom, and it is this question that we address.

We start by acknowledging that any constraint on the ability of public bodies to act as they see fit in relation to the expenditure of public money requires careful justification.  That is particularly because the United Kingdom has a number of well-established means of ensuring that public money is well-spent (an advantage not enjoyed to the same degree by all EU Member States).

That said, however, we see the following advantages in retaining some form of domestic State aid or anti-subsidy control.

Domestic considerations

There seem to us to be two principal domestic considerations

The first is that the United Kingdom will want to ensure that it respects its obligations under the WTO SCM Agreement.  The UK Government can of course ensure through administrative means that its own conduct complies with those obligations.  But there are large number of public bodies which have wide powers to make their own spending decisions without reference to Whitehall.  Given the overlap between those obligations and the State aid rules, it has to date been unnecessary to consider the extent to which UK law needs to ensure that public bodies do not take measures that conflict with the SCM Agreement. But in the absence of those rules, it may well be necessary to ensure, by means of domestic law, that support measures adopted by public bodies do not put the United Kingdom in breach of its WTO obligations.

The second, linked to the first, is that increasing devolution (both to Scotland, Wales and Northern Ireland and increasingly within England) means that there are now a large number of public bodies with their own substantial tax and spending powers independent from the financial control of the UK Government.  That strengthens the case for a form of legal control on the ability of those bodies to subsidise favoured firms: legal control that to date has been provided by the State aid rules (and is provided by the State aid rules in EU Member States with fiscally autonomous regional government, such as Germany and Spain[12]).  We recognise that there are devolution issues here (and that, under the Sewel convention, it may well be that the consent of the devolved administrations would be needed before their powers were limited by a form of State aid control).  But there is a powerful policy case for such control, given that it is in no-one’s interests for there to be “subsidy races” between different parts of the United Kingdom to attract investment.  Moreover, any such provision would do no more than re-instate the limitations until now imposed by the State aid rules.

EU considerations

There also seem to us to be advantages of retaining State aid rules in terms of protecting the interests of UK business.

First, if the United Kingdom were to enter into a commitment to comply with State aid rules (whether in the form of the EEA Agreement or the Ukraine Agreement), that would carry with it a corresponding obligation on the EU institutions to prevent State aid that harmed competition in the United Kingdom.

Further, the EU State aid rules only catch measures that (at least potentially) distort competition in the EU/EEA.  If the United Kingdom were to leave not only the EU but also the EEA, a measure that affected competition only in the United Kingdom (for example, potentially, an Irish subsidy aimed at assisting exports to the United Kingdom) would not as such be caught by the EU State aid rules[13].   In practice, the Commission would, if it objected to the measure, often be able to find that even a measure targeted at exports to a non-EU/EEA country has sufficient effects within the EU/EEA to satisfy the “effect on trade between member States” requirement: but if the reality is that the effect of a State aid measure is centred on a State outside the EU/EEA, the Commission is perhaps unlikely to make it an enforcement priority.

Those issues would not arise if the UK were to remain within the EEA or were to negotiate an agreement similar to the Ukraine agreement, since the effect of both the EEA and Ukraine agreements is to give the EU institutions the power (and the duty) to regulate State aid measures by EU Member States that harm competition in (respectively) EEA States and Ukraine.

Second, when an EU Member State takes State aid measures that harm businesses trading in (respectively) an EEA State or one of the States with agreements similar to the Ukraine agreement, the relevant Agreement gives a right of action in the courts of the Member State concerned to obtain damages.  So, for example, if the United Kingdom were party to EEA/Ukraine type State aid provisions, and if the French Government decided to subsidise steel exports to the United Kingdom, UK steel manufacturers would have the right to sue the French Government for breach of the State aid rules for losses suffered by them in the United Kingdom.  Such actions have been rare to date, though there is no doubt that in principle State liability does arise.

Third, in cases where the United Kingdom has granted subsidies to UK companies operating in the EU, the fact that such subsidies have been approved (or block exempted) under provisions analogous to the EU State aid provisions will make it in practical terms difficult for the EU to take retaliatory measures against the United Kingdom under the WTO SCM Agreement.  We should emphasise though that that is a practical rather than a legal point: Article 265 of the Ukraine Agreement makes it clear that the State aid provisions in that Agreement are without prejudice to the right of both parties to invoke the WTO SCM Agreement.

Fourth, under both the EEA and Ukraine-type arrangements, the United Kingdom would retain a role in the development of EU State aid law (which, given the importance of the EU market to the United Kingdom, will remain a matter of important policy concern for the United Kingdom).  In the EEA model, the United Kingdom would have a direct role in influencing the practice and jurisprudence of the ESA and EFTA Court, both of which in turn influence the development of Commission and Court of Justice thinking[14]. The United Kingdom’s role in the ESA and EFTA Court would be considerable, given its size and importance, and would be likely to increase the influence of the EFTA institutions.  And, as an EEA State, the United Kingdom would have the right to intervene, itself, in any EEA-relevant case (including State aid cases) before the Court of Justice[15].  But even in the Ukraine model, the United Kingdom would have a right to be consulted about and to influence any decision or policy development in the State aid field that affected its interests.

Would retaining a State aid regime outside the EU give scope for improvements vis-à-vis the current EU regime?

Compared to the EU regime, we see some advantages for the United Kingdom in moving to a State aid regime along either the EEA or the Ukraine lines.

First, although in both cases the notion of State aid would be the same as the EU concept, day-to-day enforcement would be in the hands either of the ESA (in which the United Kingdom would be a major player) in the case of the EEA agreement, or in the hands of a UK agency in the case of the Ukraine model.  As we have already pointed out, in the area of clearance of State aid on the ground of compatibility there is considerable scope for policy judgment even when detailed guidelines exist; and even in terms of the definition of State aid (which is a question of law) we do not think that either agency would be as tempted as the Commission sometimes is  “push the boundaries” (see, for example, in its controversial decisions in the tax ruling cases, which are widely argued to be an attempt to deal in the State aid field with what in fact are wider policy concerns about tax avoidance by certain multinational companies). That addresses the policy concern we identified at §11 above.

Second, in relation to the policy concern we identified at §12 above (lack of economic rigour and transparency in approval decisions), the United Kingdom would, in relation to either the ESA or a domestic agency, be in a very good position to ensure that the agency took transparent and economically rigorous decisions.  Indeed, a number of State aid law practitioners take the view that ESA decisions are clearer and better reasoned than those of the Commission, and involve greater participation by the beneficiary of aid (though that could be because the ESA takes a small fraction of the State aid decisions taken by the Commission).

Finally, in relation to the policy concern we identified at §13 above (delay) the United Kingdom would, in relation to both the ESA or a domestic agency, be in a good position to ensure both speedy decision-making and speedy appeals (we note, in that respect, that appeals to the EFTA Court typically take between six months and one year – which compares very favourably to the period of five or more years it can take to appeal a decision to the General Court and ultimately to the Court of Justice).  The ability to get substantially swifter decision-making would, in our view, very substantially improve the State aid regime compared to the present situation, and very significantly reduce the constraint and uncertainty the EU regime imposes on public authorities and on business.

Choice of model

If the Government decides that it is right to retain a State aid regime on either the EEA or Ukraine model, which is preferable?

That choice is likely largely to be dictated by the extent to which the arrangement with the EU involves UK participation in the EEA.  Full membership of the EEA would of course entail the “EEA option” in the State aid area.  But if the United Kingdom decides to make some use of the EEA institutions under some arrangement under which those institutions are “borrowed” for certain purposes, then it would seem to us to be sensible to make use of them in the State aid field, given the established expertise and reputation of both the ESA and EFTA Court.  It also avoids the legal issues and likely greater expense of setting up a national State aid regime.  It should though be noted that, due to the absence of the principle of direct effect in the EEA Agreement, the United Kingdom would have to make domestic legislative provision for the State aid rules – something which the EU doctrine of direct effect has made unnecessary to date.

Creating a national State aid regime would raise a number of issues.  The body would have to be demonstrably independent, and (given that much of its work would involve dealing with central and devolved governments) would have to be strongly protected against political pressure.  The obvious body to take that responsibility would be the Competition and Markets Authority (“CMA”), but it would have to be recognised that State aid regulation would be a considerable expansion of its responsibilities into an area that it has not to date had to deal with, and it would have to be resourced accordingly.  It also has to be recognised that conferring State aid control powers on the CMA would put the CMA in a position where it was effectively reviewing important policy decisions by Ministers.  It might be that a more “judicial” model was more appropriate, so that enforcement decisions would be taken by a court, perhaps the Competition Appeal Tribunal, on application by a specialist State aid monitoring body: but although the question of whether a measure is State aid or not is suitable for judicial resolution, the question of whether State aid is justified and should be approved on public interest grounds is not obviously one that should be decided by judges (though judicial review of such decisions would be approporiate).  A further issue is that it would be difficult to see how, in the UK constitutional system, a State aid regulator would deal with cases where the State aid was in the form of primary UK legislation: its powers would, we would have thought, there need to be confined to a declaratory power.  It would also have to be decided what powers the body had to deal with secondary legislation incorporating unlawful State aid.

We therefore think that, other things being equal, an arrangement that brought the United Kingdom into the EEA State aid regime would be the best way forward, if the present State aid regime is to be broadly maintained: and, as we suggested above, it may be that the EEA institutions can be “borrowed” for that purpose even if, in some other respects, the United Kingdom does not wish to take part in the EEA Agreement.


We finally turn to transitional issues that need to be considered.  We start here by observing that uncertainty as to the transitional position – particularly if the United Kingdom does maintain some form of State aid control – could well cause delay in infrastructure projects if it is not clear how any new regime will deal with aid necessary to fund those projects.  It seems to us that the following issues arise.

The Article 50 agreement and any new arrangements with the EU or EEA would have to deal with : –

State aid notified to or being considered by, but not yet decided by, the Commission at the time of Brexit;

  • the status of any State aid cases involving the UK that were pending before the EU Courts at the time of Brexit, whether references to the Court of Justice or direct actions in the General Court (or on appeal to the Court of Justice)[16];
  • the extent of the United Kingdom’s post-Brexit obligation to annul (and usually recover) any unlawful aid implemented before Brexit;
  • the extent to which the Commission (or anyone else) had power post-Brexit to order the United Kingdom to recover unlawful aid granted before Brexit, or would the Commission be confined to opening a WTO dispute; and
  • the extent to which the United Kingdom is required, post-Brexit, to comply with the terms of any Commission decisions addressed to it before Brexit, including in particular the numerous Commission decisions approving aid schemes.

If the United Kingdom were to retain a domestic or EEA-type State aid regime, arrangements would need to be made for existing State aid decisions approving ongoing State aid measures to “carry over” to the new regime.

Provision would also need to be made, whether in any new arrangements with the EU/EEA or as a matter of domestic law, for the status of the residual aid measures currently implemented in the UK that predate the accession of the United Kingdom to the EU and are therefore, under the EU rules, regarded as existing aids that are not subject to the same rules as apply to new aid measures: see, for example, the BBC licence fee arrangements.

State aid damages actions against the authority granting an unlawful State aid are rare and none have been successful so far in the UK. But in principle, in domestic law, in relation to unlawful State aid put into effect before Brexit, it seems to us to be clear, without any legislation, that third parties would be entitled to damages in relation to the pre-Brexit period, and could sue for such damages after Brexit.



[1] See Art. 61 and 62 of the EEA Agreement. Art, 61 essentially repeats Art.107 TFEU.  Art. 62 requires “constant review” of existing and planned measures in the EEA to ensure compatibility with Art.61, a task which in the EEA/EFTA States is allocated to the ESA. The ESA then has, under Art.5 of the Surveillance and Court Agreement (“SCA”), the general duty to ensure the compliance of the EEA/EFTA States with their duties under the EEA Agreement, and Article 24 SCA then enumerates compliance with the State aid rules as an aspect of that duty and points to Protocol 3 SCA. That Protocol effectively incorporates the equivalent provisions to Art.108 TFEU: it provides for the duty to notify new aid (Art.2), and an obligation not to put that aid into effect before approval by the ESA (Art.3).

[2] See e.g. Case E-4/01 Karlsson v Iceland at §28.

[3] See §22 of the ESA’s guidelines on enforcement of the EEA State aid rules by national courts, available at

[4] Case E-4/01 Karlsson v Iceland at §29.

[5] See §§43ff of the ESA’s guidelines on enforcement of the EEA State aid rules by national courts, available at

[6] Art.4 of protocol 9 to the EEA.

[7] [2014] OJ L161/3

[8] There are similar provisions in Accession Agreements with Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Serbia, and Turkey.

[9] the Commission decided that certain company tax regimes in Swiss Cantons in favour of holding, mixed and management companies were a form of State aid incompatible with Art.23, and asked the Council for a mandate to negotiate a satisfactory resolution.


[11] In both the present 2nd and forthcoming 3rd editions.

[12]In Spain, there is a specific provision (art.11 of Ley 15/2007 de Defensa de la Competencia) allowing the Comisión Nacional de Competencia (the national competition authority: “CNC”) to review and report on any State aids when asked by a local or regional Government to do so, and to require local and regional authoirities to supply it with relevant information. The CNC is also provided, by the Spanish Ministry of Foreign Affairs, with a copy of all Spanish State aid notifications.

[13] see e.g. Case T-34/02 EURL Le Levant 001 ECLI:EU:T:2006:59 at §§115-117.

[14] Art.64 EEA gives the ESA a formal right of consultation in relation to the Commission’s development of EU State law and policy, and the ESA may intervene in cases in the EU Courts – indeed it did so recently in a State aid reference from the UK’s Court of Appeal in Case C-518/13 Eventech v Parking Adjudicator ECLI:EU:C:2015:9.

[15] As Norway has done in some EU State aid cases: see e.g. Joined Cases T-371 and 394/94 British Airways et al v Commission [1998] ECR II-2405

[16] An example of a case affecting the UK likely still to be before the EU Courts at that time is Case C-356/15 Austria v Commission (Hinkley Point)

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