State aid, Brexit and COVID-19

By Mark Jones and Jamie Pollock

Not yet out with the old or in with the new

The COVID-19 pandemic has not helped the progress of talks between the UK and the EU for a post-Brexit trade deal, but the pace may now pick up as the two sides enter a period of intensified negotiations.   

The EU has previously pushed for its rules on State aid to be incorporated into UK law, with the European Court of Justice acting as the final arbiter.  The EU's negotiating directives aim for "the application of Union State aid rules to and in the United Kingdom".  In contrast, the UK's equivalent document does not specifically mention State aid and suggests that "the UK will have its own regime of subsidy control". 

Exactly what this UK regime would look like is not yet fully clear.  The current UK government has indicated that it would involve reciprocal transparency commitments which go beyond the notification requirements set out in the WTO Agreement on Subsidies and Countervailing Measures.  It envisages a right to request consultations on any subsidy that might be considered to harm the interest of the other party.  This is some way off the "common rulebook" for State aid spoken of under Theresa May's government. 

An irony in the current situation is that, just as the government may be seeking to loosen the UK's ties to the EU State aid rules as overseen by the European Commission, the reach of the EU rules and the extent of the Commission's powers in enforcing them have arguably never been more visible, as a result of the impact of COVID-19. 

The UK is still subject to the EU State aid rules during the transition period for exiting the EU, which continues until the end of this year.  As in other countries, the extensive support packages that the UK government has looked to roll out in order to help struggling businesses, which include government-backed loan schemes, have required State aid approval by the Commission. 

The Commission has been quick to review and approve these government support schemes.  However, to ensure their compatibility with the State aid rules, the schemes have had to include specific criteria which have imposed additional complexities in assessing the eligibility of businesses for the loans available under them.  This has arguably inhibited their implementation by the participating banks.  Indeed, the risk of the State aid rules frustrating measures aimed at addressing liquidity needs throughout the COVID-19 crisis has led to calls from within the EU27 for the Commission to adopt a more flexible approach.  

Thus, State aid requirements are playing a significant part in shaping the economic landscape in the aftermath of the pandemic.

For more information you can access our COVID-19 Topic Centre, contact one of the Brexit Taskforce or email Brexit@hoganlovells.com

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