Michail Papadakis
Posted on 3 Sep 2018

No-deal Brexit? – Implications for UK State aid rules

The UK Government (HMG) has started to publish a series of technical notices which set out the implications for businesses under a ‘no-deal’ Brexit scenario.

The notice on State aid covers what will happen to the application of the EU State aid rules in the UK in the event that the UK leaves the EU with no deal in March 2019.

Background

State aid is any benefit (financial or in kind) from any level of government – central, regional or local, or agencies and private bodies which are entitled to handle public monies – which gives a business or economic entity an advantage that it could not have obtained in the normal course of its business.

The award of such benefits is governed by a legal framework whose rules are set out in the Treaty on the Functioning of the European Union (TFEU) and associated EU legislation. The EU State aid rules aim to ensure open and fair competition between businesses and EU Member States and prevent State benefits distorting competition in the EU Single Market.

Status prior to 29 March 2019                          

As long as the UK is a member of the EU the current State aid framework has direct effect and no UK implementing legislation is required. This framework is enforced primarily by the European Commission (EC) (reviewed by the EU Courts) and the Courts in the UK, as it is possible to bring a claim in a UK Court to force State aid givers, who have not notified State aid to the EC, to stop giving such aid until notification has been given and the EC has approved it.

The UK has been a strong supporter of the EU State aid framework and, to date, has been one of the EU Member States which has awarded the lowest level of State aid to businesses.

After 29 March 2019 if there is ‘no deal’

HMG proposes to create a UK-wide framework to ensure the continuing control of subsidies that distort competition. The plan is for the EU State aid framework to be transposed into UK domestic legislation under the European Union (Withdrawal) Act. This will apply to all sectors of the economy and will mirror EU State aid block exemptions as allowed under the current rules, including the Agricultural Block Exemption Regulation, and the Fisheries Block Exemption Regulation.

The Competition and Markets Authority (CMA), the UK's Competition law regulator/enforcing authority, will be responsible for enforcing the State aid regime and supervising the award of State aid for the whole of the UK. The CMA will publish its own guidance explaining in more detail how it will fulfil its State aid control function after the passing of the relevant legislation.

HMG will be working with the devolved administrations to ensure the new UK State aid regime works for the whole of the UK.

Consequences

Under a 'no deal' scenario the new UK State aid regime which will apply to all businesses with operations in the UK, irrespective of where they are headquartered.

From that point:

  • UK-based State aid providers will need to notify any State aid to any undertaking in the UK to the CMA instead of to the EC, as long as the State aid is not subject to any relevant block exemption
  • Existing EC approvals of State aid, including block exempted State aid, will remain valid and will be carried over into UK law under the Withdrawal Act
  • Any State aid already notified to the EC for approval, but not yet approved, should be submitted to the CMA.

Actions

UK and EU businesses with operations in the UK will still be able to receive State aid from UK public authorities in accordance with the new UK State aid rules.

Any complaints about unlawful State aid, or the misuse of State aid, should be made to the CMA.

Businesses would need to review further guidance on this topic by the CMA in early 2019.
 

If you would like more information on this topic, please contact Michail Papadakis, Senior Associate in Michelmores' Projects team.