The section below provides the background to the subsidy control regime which replaced the EU State aid regime in the UK on 1 January 2021. Following the UK's withdrawal from the EU on 31 January 2020, the UK entered an implementation period, during which the EU State aid rules continued to apply. On 1 January 2021, the EU State aid rules were revoked in the UK. The UK is now bound by the subsidy control rules, The Trade and Co-Operation Agreement between the EU and the UK (TCA), the Northern Ireland Protocol and other Free Trade Agreements that have been made between the UK and non EU countries.
As with the previous EU State aid rules, the new subsidy control regime is intended to regulate subsidies and to stop public authorities from distorting the markets, by selectively favouring particular businesses, or particular sectors or areas.
Although there is a basic prohibition on the provision of subsidy by public authorities, in practical terms, subsidies may be granted for a wide range of activities, for example:
- aid for job creation and capital investment;
- aid to SMEs;
- aid for research, development and innovation;
- training aid; and
- aid for environmental protection.
Whereas previously, public authorities could seek guidance on the legality of aid from the European Commission this is no longer possible. Public authorities are now required to self-assess compliance with subsidy control rules, however this could be open to challenge.
The subsidy control rules do not prohibit public authorities from investing public money on terms that would be acceptable to a market investor (previously named Market Economy Operator Principle).
On 12 February 2021, the Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation on its proposals for a bespoke UK wide subsidy control regime, including the establishment of an independent body to oversee the regime. Any further legislation in this area will be brought forwards by the UK Government as subsidy control is now reserved to the UK Parliament.