DWF – Supplementary Written evidence FUU0022
We advise on a daily basis on the new Subsidy Control regime and therefore our comments relate to level playing field commitments set out within Part Two, Title XI, Chapter 3 of the EU - UK Trade & Cooperation Agreement ("TCA").
Our headline view is that the UK negotiating team did well to secure the freedom for the UK to set up its own subsidy control regime, however the new, interim regime does not yet make the most of the opportunities available.
We therefore welcome the consultation and hope the government will quickly make the improvements needed to set up an efficient UK Subsidy Control system, one which prevents unnecessary and damaging subsidies being awarded, whilst directing healthy subsidies towards the UK's economic priorities. Awards of subsidies should be able to be made quickly, with a no more than proportionate burden of administration, and preferably with a high level of legal certainty for all involved, including the providers of grant funding and the recipients.
The two main complaints about the new, interim system are focussed upon the significant burden it creates for public bodies and the uncertainty it creates as to whether compliance has necessarily been achieved.
In terms of the administrative burden, the government guidance published on 31 December 2020, states that before making awards public bodies should assess:
Such requirements apply even to low value awards, so creates a disproportionate amount of work for public sector bodies.
The new UK Subsidy Control regime also lacks certainty. Under the previous EU State aid regime around 99% of awards of State aid proceeded under the cover of block exemptions (conditional approvals for smaller, more regularly encountered or "routine" forms of aid). Provided all relevant terms were met the funder and the recipient knew the award was lawful.
There are no block exemptions under the UK regime. Instead public bodies are required to assess measures against six Common Principles listed at Article 3.4 of the TCA. By way of example, the second Common Principle requires that "subsidies are proportionate and limited to what is necessary to achieve the objective".
The terms are not defined nor, at this time, are there any Court decisions to assist with the interpretation of these requirements. Therefore a risk assessment has to be carried out. This creates uncertainty, which could be easily resolved in 99% of cases by setting up safe harbours for lower value, more regularly encountered awards of aid.
There are advantages to the new system. Whereas EU State aid law was prescriptive and some block exemptions overly bureaucratic, the new system allows more opportunities for funding to proceed. Indeed, we welcome the deregulation for awards which would previously have been outside block exemptions.
Most significantly however, we believe that putting in place some form of UK "safe harbours" instrument need not compromise the new-found flexibility to move faster and with less prescription than the EU system for larger awards that sit outside the block exemptions.
In the previous regime the time and administration burden of having to notify a project individually to the European Commission for approval was so great that in many cases the pragmatic judgement came down to "fit it into the block exemptions or don't do it". We see no reason in the new UK regime why all the benefits of a safe harbour cannot be drawn for certain low value awards, while anything which does not fit the relevant limitations can proceed under the new Common Principles and via self-assessment in much the same way as the new regime provides for now. Put simply, we do not see why having safe harbour instruments needs to compromise the freedom to go outside them whenever appropriate.
The TCA gives the right for the UK and the EU to set up their own subsidy control systems, subject to common commitments. These include that subsidies should take account of the same Common Principles and information should be published in the public domain.
The aim is to create a system whereby both parties exercise sovereignty over the award of subsidies, but also do not unduly undermine their respective markets.
As set out above, the UK regime can be improved. In particular, the following steps would assist public bodies by reducing the administrative burden and uncertainty of the new regime and facilitating certain policy agendas:
The importance of subsidies means that Chapter 3 of the TCA is likely to be the subject of disputes in the coming years. One would hope that the parties would work together before such disputes arises to articulate a clearer common understanding, which can then be referred to when disagreements occur.
The Joint Declaration on Subsidy Control Policies, which was agreed alongside the TCA, represents an opportunity for the EU and UK to identify and agree certain types of intervention where the parties can agree not to challenge each other's awards. We would hope that this could be used to cement any new safe harbours, for example excluding public infrastructure projects from the regime.
It is disappointing that under the Northern Ireland Protocol that part of the UK remains subject to EU State aid law, potentially in perpetuity. We would suggest that at the four year review, provided the UK has set up a meaningful Subsidy Control regime that the parties seek to enact Article 13(8) to lift this requirement. There is also an apparent disparity in interpretation of the reach of the Northern Ireland Protocol as between the European Commission and UK Government guidance publications on this point. This suggests that in due course a disagreement will arise as to the application of EU State aid rules to subsidies awarded in England, Scotland or Wales but with an accusation that their effects reach into Ireland sufficiently to grant the EU jurisdiction.
The UK can set up an efficient Subsidy Control system which prevents unnecessary and damaging subsidies being awarded, whilst directing healthy subsidies towards the UK's economic priorities. We believe that the first steps to create this have been taken but that these can be quickly enhanced and with improvements made in the coming years.
 This includes Government Departments, Councils, Mayoral Combined Authorities and private companies bidding for public funding.
 The Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part, which was incorporated into law within the UK by the European Union (Future Relationship) Act 2020.
 Including the Agreement on Subsidies and Countervailing Measures, the Agreement on Trade Related Investment Measures, the General Agreement on Trade in Services and the Agreement on Agriculture.
 The guidance refers to Canada, Japan, Israel, Jordan, Kosovo, Morocco, Palestine, Tunisia, Ukraine and Georgia
 There is a Small Amounts of Compatible Aid provision which reduces the administration under the TCA, but such awards must also be assessed against these other provisions.
 96% of these came under one block exemption, the General Block Exemption 2014 (as amended in 2017 and 2020).
 Alexander Rose evidence: The level playing field and state aid inquiry, 12 March 2020, Q32