Brexit: implications for State aid law

The prohibition on Member States selectively granting financial assistance to organisations in a way that distorts competition within the European Union (EU) single market is a long-standing element of the EU Treaties. A key question is whether this prohibition on giving State aid will apply in the UK following Brexit.

The consequences of Brexit on the UK State aid regime

Following the referendum result to leave the EU and European Economic Area (EEA), the UK might be free to grant more aid of this kind, for example in relation to the steel industry or Hinckley Point. However, once the UK exits the EU, it (and UK businesses) would be left without a reliable mechanism to complain about State aid granted to competitors of UK companies. In theory, a complainant from a third country (such as the UK following its exit from the EU ) could bring information about an unlawful State aid to the European Commission’s attention. However, there is no particular incentive for the Commission to act upon this information, particularly if relations are strained between the UK and the EU as a result of Brexit.

Following the UK’s exit from the EU, the UK Government will also be unable to appeal decisions addressed to EU Member States before the Court of Justice of the European Union (or to intervene in cases that are on appeal to the ECJ). For example, Austria has appealed the Commission’s approval of UK state support for a nuclear-power station in southern England. Following the UK’s exit from the EU, the UK government might not be able to appeal Commission decisions relating to other Member States that have an impact on the competitiveness of UK businesses. The UK would also lose its influence over the development of any future State aid rules made by the EU (but may well still be bound by them).

The application of State aid rules following Brexit

Whether the UK Government would in fact be bound by EU state aid rule following the UK’s exit from the EU would depend on the terms of the trading relationships that it negotiates in the coming months. The Swiss Agreements and EEA Agreements contain prohibitions equivalent to those in the EU State aid rules. It is likely that if either the Swiss or Norwegian approach is taken, the UK would continue to be bound by the EU State Aid rules. In other circumstances, the application of State aid rules, or their equivalents, would presumably be part of the UK’s negotiation of its post-exit relationship with the EU. The UK might well find that to maximise its access to EU markets it has to accept additional restrictions on government support for business. If it were to rely upon membership of the World Trade Organisation (WTO), for example, the UK would find itself subject to the WTO’s own restrictions on government support.

Conclusion

The UK Government’s report on the Balance of Competences between the EU and UK, published in 2014, stated that the balance of evidence received by it suggested that the State aid regime generally works well for UK business. This coupled with the foregoing observations leads us to expect that the UK will probably continue to be bound by some form of State aid rules following the UK’s exit from the EU. However the precise form and content of those rules, and the input the UK has into them in the future, is less certain.