Brexit and state-aid: plans for a "no-deal" scenario

One of the government's first 25 technical notices (published last week) on preparations for a no-deal Brexit covers state aid. While emphasising that no-deal – the UK leaving the EU without an agreement on the terms of its withdrawal – remains unlikely, the government's intention with its technical notices is to clarify the steps that companies and authorities would need to take in the event that no agreement is reached, so they can prepare for that potential outcome.

State aid is one area where the government plans ongoing harmonisation with EU rules, because that fits with competition policy. The technical paper shows there are no plans to diverge significantly even in a no-deal scenario.

The current rules on state aid, contained within the Treaty on the Functioning of the European Union and related EU legislation, apply directly in the UK without the need for specific domestic legislation. The government intends that, on exit from the EU without a deal, these rules would be transferred into UK domestic legislation under the European Union (Withdrawal) Act 2018, with any necessary modifications to make them workable, and would continue to apply in all sectors in the UK. Existing EU block exemptions on state aid (such as the General Block Exemption Regulation and those applying in specific sectors, such as transport) would also be mirrored in the UK rules. All businesses operating in the UK, whether based in the UK, EU or another, third, country would be covered by the new regime and would only be able to receive state aid from public authorities in accordance with the UK rules.

The Competition and Markets Authority (CMA) will be responsible for supervising and enforcing the UK state aid rules throughout the UK when the UK leaves the EU and will do so from 29 March 2019 if it leaves without a deal. From that point onwards:

• state aid approvals already in place, including under block exemptions, would remain valid (carried over into UK law under the Withdrawal Act).
• new notifications, and notifications made to, but not yet approved by, the EU Commission would need to be submitted to the CMA. 
• complaints about unlawful aid or misuse of aid should be addressed to the CMA.

The CMA is opening a regional office in Edinburgh, and has announced plans for a further office in Manchester, partly in anticipation of an increased workload after Brexit. Its new state aid remit will contribute significantly to that increase (along with an expected increase in merger notifications). The CMA will be publishing guidance to explain its state aid function once the necessary secondary legislation (planned for this autumn) is passed under the Withdrawal Act to replicate, within the UK, the current state aid framework.

Addleshaw Goddard has a market leading state aid practice – for details see here. Please contact a member of the team if you would like to discuss the technical notice or other state aid issues.