Lawyers Say Government Announcement Will Spark Debate

As the Government sets out its plans for subsidy rules following the Brexit transition period, lawyers at Irwin Mitchell say that UK businesses will welcome the opportunity to shape the future of domestic subsidy control.  

In a wide-ranging announcement, the Department for Business, Energy and Industrial Strategy (BEIS) confirmed that the UK will follow the internationally recognised World Trade Organisation (WTO) subsidy rules post-Brexit, replacing the stringent EU rules and regulations governing state aid. The UK will also observe international obligations on subsidies agreed under future Free Trade Agreements (FTA). 

The main differences between the EU rules and the WTO rules are that: 

• EU rules apply to goods and services, whereas the WTO rules apply just to goods; 
• The default position under the EU rules considers subsidies to be generally prohibited, whereas under WTO rules they are generally allowed; 
• Remedies are available to individuals and businesses under EU rules, whereas WTO rules are enforced state-to-state; and 
• Any illegal state aid paid under EU rules must be repaid by the business, whereas there is no requirement to do so under WTO rules. 

While the Government will have greater scope for state intervention to support the economy, ministers have insisted there will be no return to the interventionist approach of the 1970s, that saw the Government attempt to run the economy and bail out failing businesses. 

Further legislation will likely be introduced to remove references to redundant EU state aid rules, and clear guidance will be published explaining the new rules and international commitments before the end of  2020. Businesses will also be given the opportunity to comment on the UK’s own domestic arrangements concerning subsidy control in the new year. 

The BEIS has made clear its aim to avoid any situation that could distort the UK internal market or allow a firm to play one region off against another for the best deal – an issue that has already ignited debate in respect of the Northern Ireland Protocol, and the recently introduced Internal Market Bill. 

Expert Opinion

“The BEIS announcement on subsidy rules is what we might have expected in respect of following WTO regulations and honouring international obligations.

“The comments on state interventionist polices of the 70s are also not a surprise, but Business Secretary, Alok Sharma, making clear that the UK must have “flexibility” to intervene to protect jobs was a sting in the tail and may be put to the test in a post-Brexit and post-Covid-19 world.

“Avoiding any distortion of the UK internal market, that could allow a Scottish firm to be undercut by an English one (and vice-versa), was also a key feature. While much of the substance will be welcomed by businesses, we haven’t heard the last of many of the issues raised.

“Debate will resume when the Government consults on the twin issues of going further than international commitments demand, and concerning the look of future UK subsidy control once WTO rules are adopted.” Stuart Padgham - Partner