Subsidy Control Bill: Tory backbenchers are in for a shock

Following the UK’s exit from the European Union, the Government has published its Subsidy Control Bill, outlining the UK’s new State Aid regime. In this blog DRD Partner Jon McLeod, and Intern Dulcie Brennan, take a look at the details of the new Bill.

The 30th June this year saw the UK Government publish its long-awaited Subsidy Control Bill which sets out the UK’s new post-Brexit State aid regime, as per its obligations under the Trade and Cooperation Agreement (TCA).

Some commentators have claimed that this Bill is the “most important piece of post-Brexit legislation yet” believing it will allow the UK to move away from the overly bureaucratic EU State Aid regime to a new ‘UK Subsidies Regime’ avoiding excessive “red tape” and leaving the UK free to decide subsidy decisions for itself.

The reality is, however, that Tory backbenchers who want light-touch regulation on the subsidy and competition front may be in for a something of a shock. The new regime is far from devoid of the much derided “red tape” and mirrors many aspects of the previous EU regime with additional bells and whistles.

While, in the spirit of the anticipated Brexit freedoms, the new system is a huge improvement on the European Commission’s pre-approval process, at least for the largest awards, for those awards previously caught by Block Exemptions, there is a risk of even more red tape than before.

It is fair to say that, even with the Subsidy Control Bill’s additional seventh principle, the ‘common principles’ set out in the TCA, to which any subsidy must broadly comply, are far more ambiguous than the previous Block Exemption regulation was, at least as currently proposed.

Whilst on paper, the body responsible for protecting competition in the UK, the Competition Markets Authority (CMA), has no absolute power to prohibit grants under the proposed legislation, the lack of legal certainty provided by the new regime, coupled with the risk-averse disposition of most public bodies, suggests a recipe for high numbers of voluntary referrals.

‘Red wall’ Tories are in for a further shock with the removal of the ‘Assisted Areas’ provisions of the previous regime and a prima facie prohibition on ‘relocation’ as a condition for any grant. This has the potential to be seen to fly in the face of bold promises from the government that this new regime will as they promise “create a new system for subsidies that can enable key domestic priorities, such as levelling up economic growth across the UK and driving our green industrial revolution”.

The framework for the new regime is derived from, and very much still aligned with, the Trade and Cooperation Agreement and for those EU State Aid regime rules that weren’t swept away on 31st December 2020, (including in relation to the Northern Ireland protocol), the new Bill would see themremain part and parcel of the UK’s legal framework.

But, no doubt, realpolitik will kick in as the government fashions the legislation and MPs seeking to influence the final result may find there is room for some lobbying here. As things stand, the absence of any real signposting as to which government priorities should now take precedence and the degree to which the content is open to interpretation, potentially leaves the CMA more vulnerable to political pressure than it was under the previous regime.

The Subsidy Control Bill will return to the Commons for its second reading after the recess. Parliamentary approval is expected to take several months, with the regime due to come into effect in 2022.

Photo Credits: Jones Day

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