Wilf Stevenson on the government’s plan to capture ‘state aid’ powers in post-Brexit UK
State aid received little attention during our 47 year-long membership of the European Union, but its importance has been highlighted repeatedly during House of Lords debates on the UK Internal Market Bill, as well as remaining one of the sticking points in the UK-EU trade deal negotiations.
Ministers believe that state aid is beneficial to economic growth and can be ‘support in any form from any level of government which gives an undertaking an advantage that could not be obtained in the normal course of business’. In turn, such taxpayer-funded assistance is useful for achieving policy priorities, through for example R&D or foreign direct investment. As part of a robust industrial strategy, it can help create decent jobs, kick-start businesses, and rebalance regional inequalities.
Yet, state aid can also be harmful. The Institute for Government (IfG), for example, notes how it ‘may be granted to projects that would have happened anyway, and therefore represent wasted public funds’; or lead to ‘subsidy races’ where more affluent parts of the country provide more generous assistance – with a knock on effect that they entrench their economic advantage.
Until recently, the government’s position had been to retain the EU state aid regime and establish an independent body, the Competition Markets Authority, to monitor and police activity. But a statutory instrument (SI) before Parliament today seeks to dramatically change that approach. Retained EU rules are to be revoked once the Brexit transition period ends, and a new domestic subsidy control regime will for the most part follow the less respected WTO rules. No surprise therefore that the Lords Secondary Legislation Scrutiny Committee has said the change is ‘neither a welcome nor indeed acceptable use’ of SI procedures.
The impact of the shift should not be understated. Client Earth suggests that without comparable replacement for the current regime, there could be ‘serious consequences for the environment, and in particular the UK’s achievement of its net zero commitments’. And there are also unanswered questions over the type of regulator – if any – that will oversee the new operation.
Although ministers have promised to consult on the need for legislation, they have so far failed to explain why the existing rules cannot continue in the meantime. Hence my Regret Motion calling for a delay until the government has sought the agreement of the devolved administrations and others; and the relevant primary legislation has passed. Indeed, the IfG has said that ‘it is crucial that such a [state aid] system should have buy-in’ from Scotland, Wales, and Northern Ireland so the ‘regime is treated as legitimate and politically uncontroversial’ in all of the UK’s nations.
As it stands, there is a lack clarity in how the devolved administrations fit into the process (notwithstanding provisions for the latter within the NI Protocol), especially when the Internal Market Bill seeks to make state aid a purely reserved matter. A power that has, for now, been removed following Labour backing for an amendment from Crossbench Peer Lord Thomas of Cwmgiedd. The Welsh Government, meanwhile, has offered to expedite work on a common framework relating to state aid and pause any legislation that would impinge on achieving this.
So, some progressive solutions are afoot. But a piecing together of the government’s actions across legislative debates, the EU negotiations, and the SI suggests that Downing Street has a very single-minded and centralist view of how state aid should work. In short, something that allows UK Ministers to step in at a time of their choosing to play the part of Lady Bountiful.
Lord Wilf Stevenson of Balmacara is a Shadow Trade Minister. He tweets @WilfStevenson
Published 2nd December 2020