Herbert Smith Freehills’ have submitted written evidence to the House of Lords Internal Market Sub-Committee in its inquiry into the impact of Brexit on UK competition policy. In this submission, we focus on the questions posed in the call for evidence in relation to the application of State aid rules post-Brexit.
In summary, the key points are:
- The question as to whether State aid rules may form a necessary component of any future UK-EU trade agreement will depend in large part on the degree of market access that the UK and EU will seek to conclude under that agreement. If the UK Government’s ambition to conclude a “comprehensive, bold and ambitious free trade agreement” with the EU is to be fulfilled, then it is likely that a form of State aid control close to the existing EU State aid rules would form a necessary component of that agreement.
- The need for a domestic State aid authority post-Brexit will depend ultimately, on the nature of the State aid regime that is adopted by the UK and the broader institutional framework under any future UK-EU trade agreement. To the extent that any future UK-EU trade agreement provides for a standing authority to supervise and monitor the proper functioning of the agreement, then that standing authority could be a natural candidate for being the State aid authority post-Brexit. Failing that however, and assuming that State aid rules would form a necessary component of any future UK-EU trade agreement, it is likely that an operationally independent domestic State aid authority will be required.
- Both the substantive scope and the institutional and procedural dimensions of the WTO anti-subsidy rules are less far-reaching than that of the EU State aid rules. Consequently, should the UK be bound only by the WTO anti-subsidy rules post-Brexit, it would likely have much greater freedom to support industries, or individual companies through favourable tax arrangements.
- In principle, industrial strategy and State aid policy are intrinsically linked. Clearly, if the UK Government were to depart from the existing stance of non-intervention absent clear evidence of market failure, then that would require material changes to the existing State aid framework. It should be noted however, that there is no clear indication that the EU State aid rules have significantly limited interventions that the UK Government may have otherwise pursued.
- Should the UK adopt a domestic State aid regime post-Brexit, we think it would be important for that regime to be UK-wide and consistently applied across the UK. Assuming that any UK State aid regime is to be policed by a domestic authority, we also see little attraction in decentralising enforcement through the creation of independent authorities in each devolved administration, given the potential for a differentiated approach in enforcing the rules.
- It will be necessary for the UK and EU to agree a transitional arrangement for a number of matters relating to State aid after the UK’s withdrawal from the EU. In addition, it will be necessary for the UK Government to take action to address a mismatch arising from the operation of the draft EU (Withdrawal) Bill, which incorporates into domestic law only the prohibition on the implementation of unapproved State aid but not the provisions that allow for State aid to be approved.
See our full submission here.