State aid laws to be revoked in the UK

The draft State Aid (Revocations and Amendments) (EU Exit) Regulations 2020 would, if enacted and from 1 January 2021, revoke state aid laws which would have otherwise been retained into domestic law in the UK by virtue of the EU (Withdrawal) Act 2018.

State aid expert Dr. Totis Kotsonis of Pinsent Masons, the law firm behind Out-Law, said: "Over and above revocation of the general state aid prohibition and the prior notification requirement, and other related provisions enshrined in the Treaty on the Functioning of the EU, what is particularly interesting is the decision to also revoke existing European Commission state aid decisions, so that these would have no legal effect in the UK after the end of the transition period. As a result, the UK government would be free to ignore any conditions attached to Commission clearance decisions without this giving rise to liabilities or creating rights or remedies under domestic law."

"While businesses affected by aid granted by the UK government would potentially retain scope to challenge those decisions via judicial review, the new position envisaged under the draft regulations would allow the government much greater flexibility to start subsidising industries and businesses at its own discretion unencumbered by any considerations as to the distortive effects of such subsidies on competition in the domestic internal market," he said.

The proposed new regulations would not impact rights and obligations in relation to breaches of EU state aid rules which occur before the end of the Brexit transition period, which would still be actionable in domestic courts, nor affect legal action commenced before the transition period expires. However, Kotsonis said the draft legislation raises the prospect of the UK being able to disregard any conditions attached to existing state aid clearance decisions by the Commission after the transition period expires. At the same time, the Commission and EU courts would retain some competences in relation to aid granted in the UK prior to the end of the transition period as a result of the Withdrawal Agreement.

"Under the proposed legislation, the UK government would be free to ignore existing Commission decisions addressed to the UK following the end of the transition period. However, at least in terms of international law, the UK would simultaneously be under an obligation to comply after the end of the transition period with new Commission or Court of Justice of the EU decisions that relate to aid granted by the UK prior to the end of the transition period, where those investigations/cases are ongoing on 31 December 2020 or are the result of a Commission investigation that commenced within four years after the end of the transition period," Kotsonis said.

Ultimately, the draft state aid legislation published yesterday represents a seminal moment in the Brexit saga because it could prompt a competition law void that could place considerable strain on businesses operating in the UK, according to Kotsonis. The government has indicated its intention to carry out a public consultation in the coming months and ultimately legislate for the purposes of introducing some form of a domestic subsidies regulatory framework. However, until that happens, Kotsonis noted, the UK would remain subject to anti-subsidy obligations only under the much less rigorous WTO subsidies regime, which doesn’t take the effect of subsidies on domestic markets into consideration. The absence of domestic anti-subsidy rules could be a critical challenge for maintaining a level playing for businesses across the UK, Kotsonis said.