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State Aid And A No Deal Brexit - Everything Changes, Everything Remains The Same

State Aid And A No Deal Brexit - Everything Changes, Everything Remains The Same

The UK Government recently issued a total of 10 guidance notes, being the first of a series of notes on the potential effects of a “no deal” Brexit. The note “explains to state aid givers and beneficiaries how the state aid rules will apply in the United Kingdom in the unlikely event that the UK leaves the EU in March 2019 with no agreement in place.”

Other than a commitment to a “rigorous state aid system”, the note states that the current state aid framework governed by the EU Treaty (the Treaty on the Functioning of the European Union) and associated legislation will have effect until 11pm on 29 March 2019. Thereafter, if no deal is reached, the UK Government will create a UK-wide subsidy control framework to ensure anti-competitive behaviours are regulated. The UK’s Competition and Markets Authority (“CMA”) will take over responsibility (from the European Commission) for the role of enforcing the subsidy control framework and will supervise its operation throughout the UK.

From 11pm on 29 March 2019, UK public authorities would need to notify the CMA, rather than the European Commission, of any state aid it proposes to provide to any ‘undertaking’. The note makes clear that the current EU state aid rules will be transposed into UK domestic legislation under the European Union (Withdrawal) Act 2018. The existing EU block exemptions, including the General, Agriculture and Fisheries block exemption regulations will also be transposed. Existing approvals of state aid, including those approved under EU block exemption rules, will also remain valid and be carried over into the laws of the UK under the 2018 Withdrawal Act. Any full state aid notifications which were made to the European Commission prior to 29 March 2019 and which have not, as at that time, been approved, should, under the “no deal” scenario, be re-submitted to the CMA.

The UK Government has stated it will pass secondary legislation under the 2018 Withdrawal Act in autumn of 2018. The CMA will then publish its own guidance explaining in more detail how it intends to operate this function.

While the UK Government’s note makes it clear that the underlying state aid legislation and supervising body will change and that the CMA will govern state aid throughout the UK, it seems that the Government’s current intention is to keep state aid law exactly as it is at the moment. This is not entirely surprising as the UK has been a staunch advocate of EU state aid rules since their inception.

However, should the next general election be won by the Labour party, indications are that we could expect radical changes to state aid rules – particularly if the UK is not restricted from changing the rules by a new Treaty with the EU. A future Labour government would, of course, need to bear in mind the Bombardier saga of 2017 where the United States sought to impose a 219% trade levy on Bombardier’s planes on the basis of state aid given to them by the UK and Canada.

While, in the short term, the state aid rules will stay the same, the future medium to long term position has not yet been settled. Watch this space.   

By Graeme Palmer, Partner, Procurement

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