Now that a deal has been struck between the European Union (EU) and the UK in the form of the EU-UK Trade and Cooperation Agreement (TCA), the question remains whether one of the biggest stumbling blocks in the negotiations (State Aid) has been resolved in a way which provides an opportunity for UK businesses to receive, and funding bodies to provide, grant funding with less oversight moving forward.

The TCA, in effect, has brought an end to the application of the State aid regime in the UK, with the exception of Northern Ireland where EU State aid rules will continue to apply to subsidies affecting trade in certain goods (Article 10 of the Northern Ireland Protocol).

As of 1 January 2021, a new regime of subsidy control has been introduced and the state aid rules, including the detailed exemptions that apply, have been replaced by a set of guiding principles. Where subsidies are caught by the TCA, those principles are required to be observed to ensure that there is no detrimental effect on trade or investment between the EU and the UK.

This could allow UK public bodies greater flexibility in granting financial assistance to UK businesses without having to go through the process of applying the relevant exemption and adhering to strict levels of aid intensity and, in turn could allow a greater number of business to benefit from public funding.

However, both funding bodies and grant recipients need to tread carefully, particularly in the early stages of the new regime. The UK is committed to transparency and is required to publish details of all subsidies so funding bodies need to assess subsidies caught by the TCA against the principles and record this. The courts will also have the power to review compliance with the principles and to grant remedies, including orders to recover assistance that was granted.

Of immediate concern is that, without a clear mechanism under which subsidies can be “signed off”, both funding bodies and recipients are essentially proceeding at risk of any issue with the provision of a subsidy going straight to the courts to determine whether the principles have been correctly applied.

Where does the UK go from here?

Given the apparent flexibility in the granting of subsidies coupled with the uncertainty around potential retrospective legal challenges to UK subsidies, until more detailed guidance is provided, both funding bodies and UK businesses will need to undertake a thorough assessment of the subsidy against the principles and make contingency plans in the event of a successful challenge.

As the TCA places the UK under an obligation to establish an independent body to oversee the new regime, we would expect guidance to be issued in due course to add further detail to the new subsidy control regime and allay immediate concerns.