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State Aid (regulation of financial support by Government)

The Withdrawal Agreement has now been approved by Parliament and the UK will leave the European Union on 31 January 2020 but a transition period will run until 31 December 2020. During that time, the EU state aid rules will apply in respect of measures which affect trade between Northern Ireland and the EU. Furthermore, for a period of four years after the end of the transition period, notifications for approval of aid granted before the end of the transition period will have to be directed to the European Commission.

During the course of the 2019 General Election campaign, Boris Johnson announced that a Conservative Government would by 1 January 2021 introduce a new state aid regime to make it easier for the Government to intervene to protect jobs when an industry is in trouble.

However, the ability of the Government to move away from EU state aid rules as part of a free trade agreement from the end of the transition period is far from certain. In negotiating guidelines issued in March 2018, the Council of the European Union highlighted the need for the future relationship between the EU and the UK to include robust guarantees which ensure a level playing field. The EU’s aim will be to ensure that the UK does not obtain a competitive advantage through undercutting levels of protection with respect to competition and state aid and other measures. The Council identified that this would require a combination of substantive rules aligned with EU and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement mechanisms in the agreement as well as EU autonomous remedies.

If the Prime Minister’s stated intention to introduce new state aid rules is more than electioneering, he will face difficult negotiations to conclude a free trade agreement with the EU whilst preserving the ability to follow through on this, particularly if an agreement is to be concluded this year. History is not on his side. As the House of Lords’ European Union Internal Market Sub-Committee concluded in its Brexit competition enquiry report of February 2018: “[t]he EU has, in almost every case, insisted that trade agreements with third countries include some form of controls on State aid, and it is highly likely that any deep and comprehensive UK-EU Free Trade Agreement (FTA) will include State aid provisions”.

For more information please contact Stephen Cole.