Out-Law / Your Daily Need-To-Know

UK's no-deal state aid regulations 'go further than existing rules'

Out-Law Analysis | 28 Jan 2019 | 2:48 pm | 4 min. read

ANALYSIS: Draft regulations published by the UK's Competition and Markets Authority (CMA) implementing the EU's state aid regime in the UK in the event of a no-deal Brexit keep the regime largely the same but there are some differences aid grantors and recipients should know about.

The State Aid (EU Exit) Regulations 2019 (SA Regulations) give the CMA supervisory and, notably, enforcement powers in place of the European Commission. In some places the rules go further than the EU state aid regime. They give the CMA new enforcement powers such as the CMA's 'dawn raid' powers which allow the CMA to enter and search aid beneficiaries' premises in the event that misuse of aid is suspected. The SA Regulations codify the EU state aid rules into one place, and provide a clearer route for notifying aid.

Notification

Any public body granting aid can now notify a state aid measure to the CMA and seek approval. This is a great improvement from the EU regime which required a national body to seek ‘sponsorship’ from Westminster and the UK Permanent Representation to the EU before a notification for bespoke approval could be made. Under the EU regime, this meant that there was no guarantee that a draft notification would ever ultimately be referred to Brussels for the requisite approval, thus choice of state aid solution was often restricted. State aid autonomy at an individual body level therefore appears to be much greater under the SA Regulations.

In addition, the timescales for seeking approval are minimised under the SA Regulations as the CMA has, perhaps ambitiously, capped its rate of reverting back to aid grantors to 40 working days from the first working day of receiving a complete notification. If the CMA does not take a decision within this timescale then the notified measure is deemed to be approved, subject to a possible further 15 working days built in for the CMA to react once the aid grantor notifies of its intention to implement the measure.

This also provides public bodies with certainty that they will receive an answer from the CMA so that the notification process can be factored into lead-in times for projects that depend on aid. The CMA can notify the grantor that the measure does not constitute state aid; approve the aid, or open an investigation. The CMA has limited the period of the investigation to a maximum of 18 months, using its best endeavours, to make a decision during that time.

Categories of aid

The CMA may by its own initiative examine information from any source regarding alleged unlawful aid or the misuse of aid. However, if the CMA receives a complaint regarding alleged unlawful aid or the misuse of aid then it must examine this. Any interested party may send a complaint to the CMA.

Although these new state aid rules will only come into effect at the point which the UK leaves the EU, both aid grantors and recipients should be aware that the SA Regulations take into account both new and existing aid. Therefore, the CMA could potentially re-open existing aid schemes already in place to determine whether it could be approved by the CMA if it were notified under its new powers after the date of exit from the EU. Aid given under the General Block Exemption Regulation (GBER) prior to the date of EU exit does not need re-notified to the CMA, as state aid given under these exemptions are still recognised under the proposed new rules. The CMA’s powers of investigation into misused aid do, however, extend to these legacy measures.

Enforcement

As well as supervisory powers, the CMA will also now have enforcement powers which are now more far reaching than those currently held by the European Commission. Following an investigation, the CMA has the power to grant four different types of orders in relation to an aid measure: interim suspension; interim recovery; termination; recovery.

Of these four measures, the interim recovery is probably the most controversial. The Regulations effectively codify the ruling of the Court of Justice of the European Union (CJEU) in a case between Lufthansa and Frankfurt Hahn airport, which originally provided for clawback or recovery of alleged unlawful state aid during an investigation as an interim measure. What is controversial, however, is that the CMA as investigating body will decide whether such an order is appropriate. Previously this decision was made by  an independent national court. This is an issue which will need further consideration by the UK government, and the CMA is currently deliberating "the design of its decision-making structures and processes, with a view to maximising the robustness, independence and impartiality of its decision-making."

Arguably one of the biggest changes that could be brought about by the SA Regulations is that the CMA intends to award itself ‘dawn raid’ powers. Much like the dawn raid powers which it currently holds in relation to UK competition law breaches, the CMA can enter an aid beneficiary’s business premises and search with and without a warrant in any event where misuse of aid is suspected. This is a new level of supervision for recipients of state aid and one which all staff on the premises must be prepared to deal with.

In addition, the limitation period for reviewing the aid remains the same as the current scheme of 10 years, so there is no change here in terms of how long aid grantors and recipients should hold onto the relevant documentation relating to the granting of the aid.

What if an EU withdrawal deal is agreed?

State aid rules will continue to apply in the UK with the CMA as regulator whether there is a Brexit withdrawal agreement or not. The CMA is already preparing to take on this new role in the UK, recently appointing its first director of state aid and greatly expanding its regional offices in Edinburgh, Belfast and potentially Cardiff, as well as further recruitment at its London headquarters.

At the moment the SA Regulations clarify the CMA's role in the event of a no-deal Brexit. However, as the SA Regulations are largely in line with the current EU state aid regime, they are unlikely to change substantially if a withdrawal deal is struck. If and when the UK does leave the EU, UK companies operating in the EU will still be subject to scrutiny by the European Commission as currently happens with, for example, US multinationals operating in the EU.