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Paul McDermott and Victoria Thornton: Brexit must reduce state aid red tape

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When ministers confirmed state aid law would be incorporated in UK law following Brexit, it came as little surprise. UK governments of all persuasions have steadfastly supported the framework as a means of eliminating ‘unfair’ public and taxpayer subsidies.

What is interesting, however, is that the plan is to adopt not just the law but the current structure. The UK’s Competition and Markets Authority (CMA) has been nominated to replace the EU Commission as the independent arbitrator of state aid compliance – though it’s fair to say it’s not exactly a role for which the organisation has lobbied.

Subject to the Brexit negotiation mantra of ’nothing is agreed until everything is agreed’, local authorities can assume existing regulation will apply during the Brexit transition period. But after that there is the scope to amend and adapt UK state law.

The EU is likely to scrutinise UK measures which could ‘undercut’ EU businesses and distort genuine EU/UK competition. But it may be less concerned about public sector funding and support for social and general interest activities. Those might include support for affordable housing, social care, cultural and other similar activities. This provides scope for the UK to simplify and reform state aid rules concerning local authority support for affordable housing and social care.

Common law trained lawyers (which includes most in England and Wales) are trained to interpret law differently from most of our European counterparts. This difference has often led to the UK public bodies self-denying state aid support. UK state aid law could translate the decisions and guidance previously issued by the Commission into clear regulations which set out circumstances where state aid does not arise. Examples could include public support for certain small businesses, local sports facilities, local cultural venues, public roads, rail and other public transport and members’ clubs.

Currently, the Commission prioritises state aid regulation in terms of value, distortion of significant commercial markets, or in the event it receives formal complaints. UK local authorities have benefited from this approach due to the UK’s reputation as ‘top of the class’ for compliance, and because much local authority support falls outside the EU’s priorities for state aid policing. Certainly councils will be keen to ensure the CMA maintains this balanced and relatively benign approach to policing state aid.

The danger with a UK-only regulator is if it becomes more interventionist or active. And a UK-based organisation may afford easier access to disgruntled citizens and businesses who want to complain about alleged state aid abuses, and who are seeking to disrupt the decisions of local councils. It would be an unfortunate Brexit irony if state aid red tape actually increased after the UK left the EU.

Paul McDermott, partner and Victoria Thornton, senior associate, Trowers & Hamlins LLP

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