State aid to state subsidy – UK Government launches consultation process on subsidy control
Public sector and other publicly-funded grant-giving bodies across Scotland have been wrestling with the new state subsidy control rules since the beginning of the year.
The new subsidy control rules set out in the UK-EU Trade and Co-operation Agreement (TCA) replaced the EU state aid rules following expiry of the Brexit transition period.
The new rules were brought in at short notice and are a significant departure from the detailed state aid rules which they replace.
While the principles set out in the TCA are similar to those underlying the EU state aid rules, there are (at present) no detailed rules or guidance explaining how these principles are to be interpreted or, indeed, complied with in a particular scenario.
Consequently, in the absence of detailed guidance and given the threat of judicial review, grant-giving bodies have, understandably, taken a cautious approach and have continued to follow the specific requirements of the EU state aid rules as a safe harbour means of interpreting the TCA principles.
Recognising that the UK would be unable to take advantage of the flexibility afforded by the new regime if public authorities continued to follow this approach, and if it were to be developed piecemeal through court decisions, the UK Business Secretary announced on 3 February the launch of a consultation process.
It contains 42 questions and the Business Secretary stated that the consultation would cover a broad range of issues including
- whether there should be a minimum threshold for state subsidies before they face scrutiny by the new regulator;
- what exemptions there should be within the flexibility afforded by the TCA and the UK's other international obligations;
- whether approval of a state subsidy is required before it can be given, or whether this can be done retrospectively;
- whether the subsidy control rules should include additional principles over and above those set out in the TCA;
- how best to ensure transparency around the granting of state subsidies;
- how to create legal certainty for the Scottish Government and other devolved administrations, local government and recipients of state subsidies;
- how to avoid distortions to the UK internal market and prevent subsidy competition between and among the regions and nations of the UK;
- whether the new subsidy control regulator should have an enforcement role which would sit alongside the role of judicial review?
One of the consequences of the flexibilities afforded by the new subsidy control regime is that it creates significant uncertainty among publicly-funded grant-giving bodies about how to interpret the new principles.
Such bodies are fully aware that new guidance, case law and regulation will be introduced later this year and are concerned that decisions which they make now will be later scrutinised in light of this new regulation and guidance.
The consultation is to be welcomed - further clarity and certainty is urgently required to support the economy out of the pandemic.
Read our Subsidy Control Act 2022 guide here
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