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Published 24 October 2018
The UK plans to leave the European Union at 23:00 GMT on 29 March 2019.
The UK and EU are negotiating a withdrawal agreement, which should include a transition period to the end of 2020. EU law would continue to apply in the UK during the transition period – including in relation to state aid. However, there would be immediate implications for public authorities in respect of state aid if the UK and the EU fail to conclude an agreement and we are left with 'no-deal'.
This alert explains in general terms what is likely to happen in respect of state aid under: (i) a transition agreement and (ii) a no-deal scenario,
and sets out some practical steps public authorities should be taking now in respect of both outcomes.
Any withdrawal agreement is expected to include a transition or implementation period, until 31 December 2020. During that transition period EU law will continue to apply in the UK as it does today – including in relation to state aid. Under this transition period scenario, public authorities would have regard to state aid rules as at present. In effect, there would be no change during the transition period. State aid rules are set out in the Treaty of the Functioning of the European Union and associated European legislation. Current state aid rules would continue to apply meaning that, amongst other things, public authorities would not be allowed to provide aid to undertakings, unless:
In practical terms, a public authority would continue to be required to:
Note that in order to implement a withdrawal agreement, the Government will need to amend the European Union (Withdrawal) Act 2018. For further details, see its July 2018 white paper.
If a withdrawal agreement cannot be agreed with the EU, there would be immediate changes to state aid when the UK leaves the EU at 23:00 (GMT) on 29 March 2019.
These are set out in an advice note issued by the Government on 23 August 2018.
According to the advice note, the government will create a UK-wide subsidy control framework to ensure the continuing control of anti-competitive subsidies. The EU state aid rules will be transposed into UK domestic legislation under the European Union (Withdrawal) Act. The Competition and Markets Authority (CMA) will take on the role of enforcement and supervision for the whole of the UK.
The advice note sets out the implications for public authorities. These are as follows:
It remains to be seen how the implementation of EU state aid rules into national law would work in practice. In particular, the technical note is silent on how the European Union (Withdrawal) Act will deal with the fact that EU state aid rules are only engaged where there is an effect on trade between EU member states. If this was to be replaced by state aid having an effect on trade within the UK, then these provisions may capture tiny projects that would currently not be caught by state aid rules.
Another question in case of a no-deal scenario and the CMA taking on the role of enforcement and supervision for the whole of the UK is capacity. Enforcing state aid rules is a major new function for the CMA. In March, the Government allocated an additional £23.6 million to the CMA's budget for 2018-19 in order to prepare for the UK’s exit from the EU. However, any additional budget will have to be used to deal not only with new responsibilities regarding state aid enforcement, but also those arising in mergers and general competition law enforcement. Questions have been asked as to whether the CMA has enough staff and resource to deal with these new roles. In addition, the CMA will be making decisions on questions that are often politically charged and contentious. According to the CMA itself, there is still much to be worked out on the practical implementation of this.
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