The future of State aid regulation in the UK after Brexit: what could follow after the Repeal Bill?

The European Union (Withdrawal) Bill is currently making its controversial and precarious journey through the UK Parliament at Westminster.

The Bill is being referred to by the UK Government as “the Repeal Bill” on the basis that a key function of the Bill is to repeal the European Communities Act 1972 and thereby re-assert the primacy of UK law over EU law.

According to the Government, the Repeal Bill is integral to ensuring that the statute book is able to function on the day that the UK leaves the EU. It is intended to promote continuity and certainty. Therefore, the Bill will convert existing EU law into UK law as it applies in the UK at the formal date of Brexit, most likely to be in March 2019.

For some areas of law, this approach may well provide helpful clarity and continuity. In relation to State aid regulation, however, the position remains unclear.

Paragraph 89 of the Explanatory Notes accompanying the Bill lists a selection of the so-called “preserved Articles” that the Bill would incorporate from the existing EU Treaties into UK law from the formal date of Brexit. This list of preserved Articles includes Article 107(1) and Article 108(3) of the Treaty on the Functioning of the EU (TFEU), which effectively preclude a national authority from implementing State aid unless and until it is notified to, and approved by, the European Commission.

Post-Brexit, the continued application of Article 108(3) TFEU in UK law makes no sense. Once out of the EU, the UK is very unlikely to agree to notify State aid to the Commission and, likewise, the Commission may have no power to approve it.

Accordingly, the Government would need to address this matter by statutory instrument (or, conceivably, by primary legislation), amending or adapting Article 108(3) TFEU such that it makes sense in a post-Brexit world.

Precisely how this Article is amended or adapted is a crucial decision and may well shape the future direction of State aid regulation in the UK for many years to come.

For example, if the existing powers of the Commission are transferred to an independent body within the UK (such as the Competition and Markets Authority), it is possible that the UK will continue to operate a State aid regime that is sufficiently robust and “equivalent” to the EU’s regime so as not to jeopardise a future free trade agreement with the EU.

But if the Government seeks to retain more power in this area, and so transfers responsibility for subsidy and public support regulation to a Government department such as BEIS or DCLG, then this “politicisation” of the State aid regime could have profound longer term implications for the way in which the UK is perceived internationally. It could jeopardise the UK’s ability to enter into free trade agreements not only with the EU but also with countries across the globe. It would raise concerns about the UK Government’s long term commitment to ensuring that its industrial strategy does not distort free and fair trade and, consequently, the UK’s continued compliance with the WTO agreement on subsidies and countervailing measures, to which the UK will remain a party post-Brexit.

We will continue to monitor the Government’s approach to this and other important decisions that need to be made by the UK as it seeks to “cut-and-paste” EU law onto the UK statute books.