House of Lords Brexit report identifies key challenges and opportunities for UK competition and State aid law

On 2 February 2018, the House of Lords Brexit Committee published its findings on competition and State aid. Although the report provides few, if any, new insights, it does represent a useful collection of the challenges and opportunities arising from Brexit that have been identified by leading experts in the fields of competition law and policy.

In particular, the report stressed the following topics and issues that are likely to be discussed with increasing urgency within the UK government in the coming months as the deadline for the UK’s official exit from the EU – 29 March 2019 – looms ever closer.

Transitional arrangements must be agreed

The report emphasises concerns that transitional arrangements need to be established quickly to clarify jurisdiction in relation to cases and investigations which are “live” at the point of Brexit, as well as future cases relating to conduct that occurred when the UK was still part of the EU.

Potential to develop a more individual identity

Once UK competition law is free to develop independently of the equivalent EU rules, this may give the UK’s primary competition watchdog, the Competition and Markets Authority (CMA), greater freedom to take a more innovative and responsive approach to tackling anti-competitive behaviour, including in fast-moving digital markets and by dominant online platforms.

Concern about Brexit leading to political interference in merger reviews

The high profile takeover of Cadbury by US-based Kraft, including the subsequent volte face by Kraft on its promise to protect jobs at Cadbury’s Somerdale factory, the closure of which was announced just a week after the deal was agreed, garnered widespread criticism. One of those critics was the now Prime Minister, Theresa May. The Prime Minister has subsequently indicated her enthusiasm for giving the UK government greater scope to intervene to block mergers that are not in the “public interest”.

As we reported back in October 2017, the UK government has already proposed measures that will enable it to review more transactions on national security grounds.

The report acknowledges that, post-Brexit, there may be pressure for wider public interest criteria to be considered, particularly in relation to foreign takeovers. On balance, however, the report concludes that it would be a mistake to use Brexit as an opportunity to introduce significantly greater scope for political interference into the UK merger control process, particularly due to the deterrent effect that this could have on prospective international investors.

The future of State aid regulation in the UK needs to be addressed

Given the EU’s extensive competence over the existing EU State aid regime, there is very little by way of a national framework for the UK to use as a starting point when determining how to regulate State aid post-Brexit. Accordingly, the UK government has significant decisions to make with regard to future State aid policy.

It is very likely that the EU will insist on some form of State aid controls within any future UK-EU Free Trade Agreement. The report finds that the WTO’s anti-subsidy rules would not represent an adequate “fall-back” position, not least because they would not help to avoid the risk of domestic subsidy races and distortions of competition between various parts of the UK, including the devolved administrations in Scotland, Wales and Northern Ireland.

Despite certain perceptions to the contrary, the hard evidence compiled within the report suggests that the UK government is not significantly inhibited in its ability to make strategic investments by the existing EU State aid rules. On the contrary, the UK spends far less per capita on State aid than countries such as France and Germany. The UK also has a good record in securing approval for State aid measures notified to the European Commission, including the controversial Hinkley Point C power station funding model. Moreover, the Prime Minister made expressly clear in her Florence Speech in September 2017 that she does not regard a more relaxed State aid regime as something the current UK government would look to exploit in any event – “Trying to beat other countries’ industries by unfairly subsidising one’s own is a serious mistake.” 

Accordingly, whilst acknowledging that the EU’s State aid rules have been the source of some frustration in the UK, the report concludes that it is likely that the UK would benefit from adopting its own State aid regime at a national level that closely mirrors the existing EU rules in this field.

A full copy of the report is available here.

How can we help?

We are currently supporting a number of UK-based and international businesses as they seek to prepare for Brexit, to mitigate any potentially detrimental impact on their business or sector and to exploit the opportunities that Brexit may bring.