Take back (subsidy) control?: State aid after Brexit
8 Apr 2022
The Subsidy Control Bill, described as the “most important piece of post-Brexit legislation yet”, has entered its final stage in the House of Commons. It has the potential to create a more agile, bespoke system than under EU state aid rules, but political and economic risks remain. As the Government prepares to carry the Bill over to the next session of Parliament, Toby Chapman takes stock of its goals, implications, and potential challenges.
Image Source: Senedd Cymru
The Subsidy Control Bill (‘Bill’), which has been described as the “most important piece of post-Brexit legislation yet”, has returned to the House of Commons with Lords’ amendments set for consideration by MPs on 20 April. Even if these amendments are swiftly accepted, there is a chance the Bill will not gain Royal Assent before the Queen’s Speech on 10 May. As the Government prepares to carry the Bill over to the next session of Parliament, now is a good time to take stock of its headline goals, likely implications, and potential challenges.
Background to the Bill
The need for bespoke subsidy control legislation is born out of the need to replace EU state aid rules post-Brexit. The new regime is designed to allow public authorities to provide subsidies tailored to local needs in order to deliver wider government priorities, such as Levelling Up and achieving net zero. While the Bill will define broad subsidy control principles for public authorities to apply flexibly, there will be specific alternative principles for energy and environmental subsidies. This could give Ministers flexibility over subsidies for fossil fuels, which are antithetical to net zero ambitions, but may prove politically expedient as the energy and cost of living crisis bites.
The legislation will also establish a Subsidy Advice Unit within the Competition & Markets Authority (CMA), which may be consulted and can give non-binding opinions on the compliance of the proposed subsidy. Only ‘Subsidies of Particular Interest’ will need to be approved in advance by the CMA, with proposed financial thresholds of £10 million generally, and £5 million in certain sensitive sectors (steel, automotive and electricity production), both substantially lower than under EU rules. This increases the likelihood of referral to the CMA, so more specific, clear criteria will be fundamental to navigating the new regime, and the Government has launched a consultation on how to define these.
Legal certainty is highly important to public authorities as well as private businesses, and without clear rules and guidance there is a risk the CMA could become over-burdened by a slew of public bodies seeking its views or intervention.
Toby Chapman - DRD Senior Analyst
A key theme for the Government’s aims in subsidy control has been to create a more agile, less burdensome system than under rigid EU rules (touted as a benefit of Brexit), while finding a balance between flexibility and certainty. Speaking in December, Business Secretary Kwasi Kwarteng said, “[a]t the heart of the regime is a set of clear and proportionate principles which will be underpinned by guidance”, which should maintain a level playing field.
The political significance of the legislation is also not lost on the civil service. HM Treasury is advertising a role for a policy adviser specifically to support the Department’s interests in subsidy control policy, and the Bill itself. Citing frequent ministerial interest in this high profile area, officials are evidently gearing up for more cross-departmental and Parliamentary work to feed into longer term policy developments. They will also be keenly aware of political risks and tensions with devolved administrations, since the Scottish Parliament has refused to give its consent to the Bill, and the Welsh government previously criticised the plans as an “attack on devolution”.
Competition lawyers have expressed concern that the uncertainty in how some of the new principles and criteria will be applied could make life more difficult – not easier – for business leaders.
There are also risks surrounding regulatory implementation of the proposed regime. Legal certainty is highly important to public authorities as well as private businesses, and without clear rules and guidance there is a risk the CMA could become over-burdened by a slew of public bodies seeking its views or intervention.
This legislation is the first step in an iterative process establishing and adapting a bespoke subsidy control regime. This could provide opportunities to create a faster, more lenient system than under EU rules, but the Government will need to balance the political risks around managing public money, with the swift, effective deployment of public funding for political goals.