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Calls for clarity on whether UK will match European firms’ support from EU Brexit fund

13 July 2021

A new European Scrutiny Committee report has called on the Government to clarify if it will support British firms if they are affected by an uneven playing field that could be created by an EU €5.3bn (£4.6bn) fund subsidising its Brexit-impacted industries.

If EU countries decide to use much of the new Brexit Adjustment Reserve funds to subsidise private businesses as expected, British firms could find themselves at a competitive disadvantage, the report warns.

The Reserve was set up to help Europe’s businesses adjust to the new processes and increased friction in trading with the UK. The largest slices of the fund will go to the most exposed countries, with the nations nearest the UK set to benefit the most.

The Republic of Ireland alone will be handed €1bn (£860m), while fishing will be one of the industries targeted as a result of EU fishermen’s reduced access to UK waters. France has already announced €100m (£86m) in support for its west coast fishermen and coastal communities from the fund.

Support provided by the UK Government has so far been sector specific, such as the £23m Seafood Disruption Support Scheme and £100m earmarked for fleet modernisation for the fishing industry, for which there is scant detail just yet.

Meanwhile, EU countries can spend money now on measures to support “regions, local communities, and sectors” most affected by the UK’s withdrawal, to help reduce related social and economic impact without having to submit spending plans. How the funds are spent will only be checked retrospectively by the European Commission in 2024.

Although the Government could potentially challenge the EU over Brexit Adjustment Reserve subsidies to individual businesses under the rules set in the trade deal, these powers are limited.

For example, the subsidies must have an impact on trade and investment flows between the UK and the EU. Neither the UK nor EU can prevent the other from subsidising businesses, but are able to take what could be mutually costly balancing measures like imposing tariffs.

Furthermore, fishery subsidies, the industry where much of the Reserve money is likely to end up, are completely outside the scope of the Trade and Cooperation Agreement.

The Chairman of the European Scrutiny Committee, Sir William Cash, has written to Treasury minister Steve Barclay to clarify whether the Treasury has any concerns over the Reserve, how the fund’s effect will be monitored, and on the prospect of additional support for companies if impacted by it. He has asked for a response by the end of July.

More analysis from the Committee

The Committee regularly publishes reports covering proposed EU legislation across all legal and policy areas– usually on a Tuesday at 11.00. Also included in this week’s report:

  • Protection of critical infrastructure: The proposed Directive on the resilience of critical entities aims to protect or reduce the risk to private and public bodies in 10 sectors of natural or man-made disasters. Energy is included, but it is unclear what impact the Directive would have on the single wholesale electricity market on the island of Ireland. It could also affect operators with strong EU links like supply chains. The Committee has written to the Government to seek its views on the proposals, to give updates of meetings with EU counterparts where the topic arises, and how they plan to manage the impact of differing regulatory approaches.
  • Data adequacy: Analysis of the EU’s ‘data adequacy decision’ enabling the continued free flow of data between the block and the UK. The decision was published on 28 June.
  • Country-by-country tax reporting by multinationals in the EU: From 2023 the EU plans to introduce a requirement for multinational corporations to provide country-by-country breakdowns of how much tax they pay and where. Any multinational, including UK ones operating in the EU, will have to account publicly for tax paid in each EU member state and those from a regularly-updated list of countries thought by the EU to be involved in aggressive tax avoidance.
  • Gender equality: Commission Strategy and Stocktaking: The EU’s proposed approach to gender equality over the next five years could become a marker for the UK’s own plans but also raises the prospect of divergence in approaches to gender equality, if not managed, between Northern Ireland and Great Britain.

Further information

Image: CCO