UK unveils post-Brexit state aid scheme to support industry

The UK will on Wednesday set out plans for a simpler, more “nimble” post-Brexit system of state subsidies which the government will use to turbo-charge or prop up selected industries. 

The government said the new UK system would “start from the basis that subsidies are permitted if they follow UK-wide principles — delivering good value for the British taxpayer while being awarded in a timely and effective way”.

Rows over state aid were a source of friction during the negotiations on the UK-EU trade deal finalised last year, with Brussels pushing for Britain’s rules to remain aligned with the bloc in order to ensure a “level-playing field”.

Prime minister Boris Johnson resisted those demands, arguing the UK could take a faster, less bureaucratic approach to supporting business that would be tailored to the needs of the British economy.

“The UK’s new bespoke subsidy system will be simple, nimble and based on common sense principles — free from excessive red tape,” said Paul Scully, the business minister.

The EU had wanted the UK to adopt a statutory regulator with powers to intervene when the government proposed to subsidise industries, but ultimately accepted an independent monitoring body.

The UK will set up a “subsidy advice unit” within the Competition and Markets Authority which can only offer advice on whether a subsidy is fair. 

Companies seeking arbitration — for example because they believe the government has unfairly helped a competitor — will have to pursue redress through the UK courts or tribunal system.

Despite ministers’ rhetoric about leaving behind Brussels bureaucracy, experts said the UK proposals did not amount to a subsidy free-for-all.

George Peretz QC, a leading competition lawyer at Monckton Chambers, said locating the subsidy advice unit within the competition regulator would send a positive signal to Brussels that the UK would still have subsidy restrictions.

Under the British system, state support will be divided into three categories, with controversial subsidies being declared “of interest”, and potentially even more difficult cases deemed “of particular interest”. The remainder would be presumed to comply with principles set out in the legislation.

Legal experts said that how these categories were precisely defined and managed would not become clear until the government published the full legislation and accompanying regulations.

James Webber, partner at Shearman & Sterling, a law firm, said the government was wise to have avoided recreating the EU’s mandatory notification regime on state aid in order to create a more streamlined process.

“We will have to wait to see the details, but in principle differentiating between two categories of subsidies is sensible so long as it is done in a less intrusive way than the EU system,” he added.

The proposed regime — to be outlined in new legislation — is likely to revive complaints from the devolved administrations in Scotland and Wales about what they say is a post-Brexit Westminster power grab over subsidies.

The Scottish and Welsh governments have said that, under previous devolution law, control over state aid policy should have come to them after Brexit: they wanted to remain closely aligned with EU rules.

But under the British plans there will be a UK-wide control system under which the devolved administrations will be “empowered” to subsidise companies if they fit a “set of UK-wide principles”.

They will be barred from doing this to lure companies to move from other parts of the UK.

Business secretary Kwasi Kwarteng said the plans would not be a “return to the failed 1970s approach” of the government trying to “pick winners” or bail out unsustainable companies.

There will be a ban on unlimited government guarantees to businesses and on giving subsidies to companies that are insolvent.