The subsidy control bill does not guarantee post-Brexit state aid success

The government has set out how it intends to design the UK’s post-EU state aid system, a freedom secured in last year’s Brexit deal. Where the EU system required all subsidies to be first approved by the Commission, the newly-published subsidy control bill does away with such rigid requirements in a bespoke UK regime. Instead, grantors can self-assess their subsidy against broad principles, in some cases asking the new Subsidy Advice Unit in the Competition and Markets Authority (CMA) for advice. Subsidies that may not abide by the principles can then be challenged in court.

This framework is a coherent one, and very similar to the model we recommended in our Taking Back Control of Subsidies report last month. It is designed to reduce administrative burdens and facilitates effective subsidies, allowing the UK to capitalise on its post-Brexit freedoms.  

However, the bill does not yet guarantee a Brexit success story. Gaps in the legislation could deny Parliament a proper chance to scrutinise how the new system will work – and point to future rows between the UK government and the devolved administrations.

The bill sets out the building blocks for a successful subsidy control system

The bill’s proposed framework for subsidy control matches many of our recommendations. The CMA will be given responsibility as subsidy regulator and will, in certain cases, provide advice about whether a subsidy complies with the regime’s principles. This will be mandatory in the most high-profile cases – to ensure these are subjected to proper scrutiny –  and voluntary in other cases – to allow public bodies to get more legal confidence before offering a subsidy. The new system will also provide detailed regulations – referred to as ‘streamlined routes’ – which, if complied with, will guarantee compliance with the principles without requiring a separate assessment. We identified this as a crucial step if local authorities were to be able to offer subsidies easily.

But the bill does not adopt all of our recommendations. In particular, it does not give the CMA a role in enforcement, which risks potentially damaging subsidies going unchallenged in court if there is no willing ‘interested party’.

Crucial details that will determine the system’s success are not included in the bill   

As we emphasised in our report, an effective system will need much clearer guidance than is currently provided to help public bodies know how to demonstrate that their subsidy complies with the principles. This guidance will also be needed to ensure that subsidies are well-directed towards priority policies.

It is understandable that this guidance is not included in the legislation, but the bill also leaves key details to be filled in by the secretary of state at a later date. For example, ‘subsidies of interest’ can be voluntarily referred to the CMA for an assessment but referral is mandatory for ‘subsidies of particular interest’. However, the legislation gives no indication as to how these terms will be defined. Likewise, whether this system is effective and usable for local authorities will be heavily dependent on whether the ‘streamlined routes’ are well designed, but again no detail is provided.

The government needs to set out a transparent process for filling in the gaps

Without knowing the government’s intentions, it is difficult to evaluate whether this system will be a success – or how it can be improved. This applies equally to think tank wonks and members of both Houses of Parliament who will be asked to approve the bill. The regulations which will fill in the details will follow later from the secretary of state, and are subject to much less scrutiny.

Under this approach, the new regulations will be written without any input from the devolved administrations. While subsidy control legislation has been reserved to Westminster (in the UK Internal Market Act), a successful system needs buy-in from all parts of the UK. This is why our report recommended that any regulations should be made in consultation with the devolved administrations, with the process preferably led by experts in the CMA. The government’s approach risks future clashes – and potential court challenges. It will also be difficult to draft these complex regulations effectively, and it would be wise to also seek the advice of subsidy control experts as it fills in the gaps.

The bill sets out a promising framework for a post-EU state aid regime, though the role of the CMA in enforcement needs looking at again. However, to ensure that the UK’s subsidy control system is effective, and gets buy-in from the devolved administrations, the government must take a collaborative approach to writing the regulations that will determine how the system will actually work.