The new UK state aid regime – how will it work?
In preparation for it to assume the role of the UK’s state aid regulator following Brexit, the Competition and Markets Authority (CMA) has opened a consultation on draft guidance for state aid notification and reporting in the event of a ‘no deal’ Brexit. This guidance gives us a real insight into the practicalities of dealing with – and seeking approval for – UK state aid post-Brexit.
The guidance supplements the rules set out in the draft State Aid (EU Exit) Regulations 2019 (draft Regulations). As we recently reported, the draft Regulations propose to put in a place a state aid notification regime which, at a high level, appears to be similar to the European Commission’s existing notified aid procedures. Under the CMA’s new procedures, notification will formally begin with an examination phase; if, following examination, the CMA is ‘not satisfied’ either that there is no aid or that it can otherwise approve the aid, it must open an investigation into the aid measure.
The guidance document is particularly welcome as it goes into some detail about how pre-notification discussions will work (something not dealt with in the draft Regulations) as well as the CMA’s approach to investigations (the draft Regulations state that the CMA must ‘carry out such investigations as it considers appropriate to take a decision’, but little other guidance is given). Another noteworthy element of the guidance is the introduction of the concept of ‘central coordinators’, who will essentially act as gatekeepers between state aid grantors and the CMA as part of the notification process.
Following publication of the draft Regulations in recent weeks, there had been some speculation that aid grantors would be permitted to directly access the CMA when notifying new aid measures, rather than having to go through gatekeepers as is currently the case (most commonly, BEIS and the UK Permanent Representation in Brussels).
However, the guidance informs us that ‘central coordinators’ will act as a filter for most state aid notifications before submission to the CMA. Central coordinators will include BEIS, Defra, DfT as well as a number of other bodies in the devolved administrations. The guidance states that aid grantors will receive advice in due course from the Government and devolved administrations, including in relation to the central coordination function.
Pre-notification and informal discussions
The guidance states that pre-notification discussions are primarily aimed at helping aid grantors to submit complete notifications and, by doing so, to minimise the need for the CMA to request additional information at the notification stage and consequent delays in the decision-making process. Even though voluntary, pre-notification will be encouraged in all cases and is ‘highly recommended’ in respect of measures which are complex or novel in nature.
The process begins with the submission of a ‘Pre-Notification’ form on the CMA’s new online state aid system. It will be for the CMA and aid grantors to agree among themselves how the form will be completed before submission to the CMA (presumably something which will be dealt with in due course by advice from Government and the devolved administrations).
Once the form has been submitted, the CMA will review it and generally appoint a case team within 10 working days; however, it reserves the right not to appoint a case team if it feels that the Pre-Notification form has been submitted prematurely. Although the guidance does not tell us how long the pre-notification phase can be expected to last (the European Commission aims to complete this phase in two to six months), the CMA has expressed its willingness to discuss likely timescales with aid grantors once a Pre-Notification form has been submitted and reviewed.
The guidance states that a ‘successful’ pre-notification phase will conclude when the CMA informs the aid grantor of its belief that the measure is substantially ready to be notified. It would then be expected that the aid grantor proceeds to the examination phase.
At the conclusion of pre-notification the CMA may, at its discretion, agree to provide a non-binding preliminary assessment of a state aid measure’s compatibility with the state aid rules (such preliminary assessments are a common feature of the European Commission’s procedures). Separately, the CMA also signals its willingness to meet with aid grantors for ‘informal discussions’ concerning measures which are at an early stage of development and which may amount to state aid – such discussions may be particularly helpful to aid grantors in designing measures which are compatible with the state aid rules.
The guidance largely restates the draft statutory provisions concerning the examination phase: once a Notification form has been submitted, the CMA has 40 working days to determine if it is ‘complete’ (although if it makes an information request, the 40 working days will restart); from the time the form is complete the CMA has an additional 40 working days to decide either that there is no aid, that the aid can be approved (in line with the various CMA statements of policy) or to open an investigation.
The guidance notes that the CMA will not hold state of play meetings as a matter of course but it may agree to requests for such meetings (to which the beneficiary may be invited) if requested at an early stage in the process. The CMA may also separately request to meet with the aid grantor and beneficiary in order to seek clarification on any issues which have arisen from the notification.
In line with the CMA’s intention to ensure that state aid decisions are seen to be taken in a ‘robustly independent’ way, there is stated to be an expectation that decisions at the investigation stage – i.e. after a more detailed review – will be taken by a State Aid Decision Group (the Senior Director for state aid will generally take decisions following a first-stage examination). The Decision Group will be comprised of independent, experienced individuals from the CMA’s Panel (as is currently the case for market investigations and in-depth merger investigations). To this end, the CMA is currently seeking to expand its existing Panel with individuals having experience in a judicial capacity of decision making in complex and high-profile cases. The Decision Group (generally composed of three individuals) will conduct the investigation and take decisions independently of the CMA Board and other decision-making structures (although the Decision Group’s investigation will be supported by a case team drawn from the CMA staff, that may include members of the case team involved at the earlier phases).
Importantly, the guidance states that the CMA may prepare provisional findings and that the aid grantor will be given a reasonable opportunity to review and comment on those findings before the final decision is made. In addition, the CMA will give aid grantors the opportunity to address the Decision Group – in person or by phone – before provisional findings are published, and the beneficiary may be invited to such engagements. It remains to be seen how these commitments will be exercised in practice but, at this remove, it appears that this is a potentially very significant improvement on the procedural rights of aid grantors (and beneficiaries) as compared with the European Commission’s existing procedures.
According to the draft Regulations, third parties’ rights at the investigation stage are limited to the right to submit comments at the commencement of the investigation phase and, if comments have been submitted, the right to be informed of the CMA’s final decision. There does not appear to be any suggestion in the guidance that the provisional findings will be shared more widely than with the aid grantors or, indeed, that third parties would have an opportunity to address the Decision Group.
The guidance also covers a number of matters dealt with in the draft Regulations, including its procedures for dealing with confidential information and its formal information gathering powers at the investigation phase. In relation to the latter, the CMA has the power in certain circumstances to issue market information ‘requests’ and ‘orders’ to persons other than aid grantor. The draft Regulations allow the CMA to impose financial penalties in certain cases of non-compliance with such market information request and orders, and it is stated in the guidance that the CMA will publish a statement of policy on such penalties in due course.
The CMA has invited comments from the public on its draft guidance before 18 March. Separately, the draft Regulations are due to be debated in the House of Lords next week and a parliamentary vote is expected shortly thereafter.