The UK Government’s Proposals for its new State Aid Regime

HM Government  (HMG) published a consultation document on 3^rd February on what will be a new UK- only subsidy control regime.

The Government does not have an entirely free hand of course as it must continue to respect its obligations under the UK/EU Trade and Co-Operation Agreement (TCA) ; World Trade Organisation rules and other free trade agreements.

As with its proposals for reforming the public procurement rules (also still out to consultation), HMG has its eyes on “reducing administrative burdens” and achieving greater flexibility and coherence within a set of national policy objectives. These include the idea of “levelling -up”; that is, addressing regional economic imbalances.

Some themes that will survive the transition to a new subsidy regime include a drive for innovation, restructuring and regeneration.

One challenge for the government, looking ahead, will be avoiding any measures that create any unwelcome competition between the constituent parts of the UK. HMG will want to ensure its new rules deliver a consistent, UK-wide approach to subsidies.

The basic concepts of state aid will remain essentially unchanged. There will it seems be some change of terminology though. A “specific” financial contribution will become a “selective” financial contribution, for example, but adapting to these changes should be easy enough.

They propose exemptions for low value subsidies; for “emergency situations” such as disaster relief, global economic crisis and Covid-19. 

Certain subsidies deemed to be in the public interest (such as pursuing environmental protection or rural development) will be permitted. 

Mindful of its obligations under the TCA, the Government intends that the new regime will respect the following principles, namely

(i) public policy justification; 

(ii) necessity and proportionality; 

(iii) incentives to change beneficiary behaviour; 

(iv) no excessive compensation or cross subsidy; 

(v) appropriateness; 

(vi) minimised distortion of competition in the UK internal market; and 

(vii) positive benefits outweigh any negative effects. 

Local Authorities (and other public bodies) designing subsidies will also be obliged to ensure they deliver“strong benefits” and “good value for money” for UK taxpayers. But in general terms they should find it easier to devise compliant schemes. For example, there will a presumption that any subsidies pursuing public interest objectives are lawful. The main mechanism for challenging subsidy decisions (a process that has historically been fraught with difficulty, complexity and uncertainty) will be by judicial review proceedings which a claimant would have to bring within one month.

This will be welcome news both for the public bodies providing the subsidies and for the business sector recipients, who will enjoy greater certainty around the validity of the decisions being taken.

Tim Heywood, 

Partner, Gunnercooke llp advises public and private sector organisations on state aid, procurement and public law.

This note is intended as guidance only and is not legal advice and must be relied on as such. Specific legal advice should always be obtained in relation to your specific circumstances.