The European Commission has published a notice which pushes back on the UK government’s interpretation of when State aid law will apply under the Northern Ireland Protocol.
Is the honeymoon over? Will the EU start challenging UK subsidies?
You’ll recall that on 31 December, @beisgovuk published guidance on the new Subsidy Control regime.
The Northern Ireland Protocol section took a surprisingly robust approach to interpreting when EU State aid law needs to be applied and when it doesn’t.
Some of this was supported by the contents of a joint statement between the UK and EU, but crucially the words “liable to have an effect on trade” were downplayed.
This was surprising to those who followed the Eventech case where the ECJ (which interprets the Northern Ireland Protocol) considered whether black cabs using bus lanes was liable to affect trade between Member States and found it was.
Even so, it is still surprising that @EU_Competition has taken this action.
I expected the European Commission to wait until there was a significantly distortive subsidy before making this argument.
This action may well be grounded in wider concerns about the UK Subsidy Control rules.
For instance, there’s no clear indication which body will be set up to oversee the regime (a requirement under Article 3.9 of the TCA).
If so, there’s some quick wins which can be made which will improve the award of public funding in the UK and give assurance to the EU.
The main one is to set up safe harbours, identifying subsidies which are compliant when conditions are met.
Although the Subsidy Control guidance is clearly intended to be helpful, it’s very complicated.
Statements like the one below, are likely to have a chilling effect on the award of public funding.
2/5
The need for a “dual assessment” (taking account of EU State aid law as well as UK Subsidy Control rules) is necessary for awards due to Article 10 of the Northern Ireland Protocol.
The guidance is more optimistic on the impact of Article 10 than @GeorgePeretzQC (below).
Firstly subsidy races. Each year the US public sector spends c.$100 bn persuading businesses to relocate within the US. No real benefit for US economy.
There are multiple reasons for this, which include:
> State aid rules align with the UK (and in particular Tory) mindset that subsidies should be a last resort;
> Frost has agreed sensible general principles on subsidies;
@Peston@BorisJohnson > having the EU bound to certain standards / principles is in the UK’s interest as it ensures their system doesn’t become more permissive;
> which is in our interest as the UK doesn’t award as much State aid and confident that our businesses can win work on merit alone.
@Peston@BorisJohnson > the rules don’t really constrain the UK, after all Germany spends 4 times as much under the same rules...
> Tech start ups can be funded under the EU rules. That the UK hasn’t is about budget not rules.
If the UK created a 🇬🇧 Subsidy Control regime without any consideration of an 🇪🇺trade deal, what would it look like?
The chances are that many fundamental characteristics would be present, eg transparency of awards, only paying against incurred expenditure and incentive effect.
There would be room for some quick wins, eg the undertaking in difficulty test could be redrafted so it’s clearer and simpler.
Would it go completely? Probably not, it’s useful to have a rule to avoid public funds going via zombie companies to creditors.