Leading members of the UK government are pushing for a minimal, light-touch regime for state aid for British business after Brexit — a stumbling block for talks between London and Brussels over an EU-UK trade deal.
Influential Brexiters led by Dominic Cummings, the prime minister’s most senior adviser, are arguing against any legislation that would see the UK’s internal market subsidy regime between England, Scotland and Wales governed by an independent regulator.
The light-touch regulatory approach would be opposed strongly by Brussels, with the EU’s chief Brexit negotiator Michel Barnier saying last week there could be no future economic partnership without “robust guarantees” on a level playing field for future trade — including on state aid.
Mr Barnier warned that time was “running out” for a deal after the UK again failed to put forward details of its future state-aid regime. David Frost, his UK counterpart, has so far refused to propose such details, citing the need for ongoing “policy discussions” in London.
The two men were due to have dinner together on Monday night in the UK capital ahead of a further round of “informal” discussions about the trade deal this week.
One official familiar with negotiations between the government and the devolved Welsh administration said that the state-aid issue was now “at the crux” of the negotiations with the EU.
“Of all the level playing field issues, it is state aid that the European Commission is most concerned about. Number 10 seems to care enough about this to potentially derail the negotiations with the EU,” the official said.
Mr Cummings was determined the future regime should leave the UK government with a free hand when the Brexit transition period expires on December 31, said two people familiar with the policy discussions.
“The idea is that you’d have a regime based on some ‘administrative principles’ but it would all be very vague and non-statutory, with a watchdog-type body that would only provide ‘persuasive force’ in the event of any egregious behaviour,” said one of the people.
Earlier this month the government announced plans for the UK’s internal market after Brexit that would give the Westminster government legal powers to control state aid for the UK’s devolved nations, stirring outrage in Scotland and Wales.
But the person familiar with the plans noted that the government’s white paper had left the details vague. “The current plan is an odd combination of reserving state aid [for control from London] but then agreeing to a free-for-all. They just want to be able to bung money at things and do not want UK internal market legislation cutting across that. It's very confused,” the person said.
Disagreements over future state-aid policy have been raging in government since the autumn.
The previous administration of Theresa May had planned to allow the existing Competition & Markets Authority to be the regulator for the new state-aid regime — an approach that has since been dumped.
Three people familiar with discussion said Andrea Leadsom, the former business secretary sacked in last February’s reshuffle and replaced by Alok Sharma, had clashed with Mr Cummings by arguing for a new legally enforceable UK subsidy regime.
One Whitehall figure confirmed there were “intense discussions” between Mrs Leadsom and Mr Cummings where final conclusions were constantly deferred and delayed — a position that is apparently unchanged.
“The debate was over what that would look like. If you’re out, Dom would say, why would you tie yourself down to your own similar or same state-aid regime as Brussels? His view was that once you’ve left, you should just do whatever you want,” the person said.
A government spokesperson on Monday said it remained committed to maintaining open and fair competition between businesses in all parts of the UK: “We have always been clear we will be moving away from the EU’s state-aid rules to create our own, sovereign subsidy control regime.”
Legal experts warned that if the government failed to agree a statutory regulator it would both hamstring the chances of reaching a EU-UK trade deal and create an unworkable arrangement between the governments of England, Scotland and Wales.
George Peretz QC, a lawyer at Monckton Chambers in London, said: “The EU is a creature of law . . . Having a body issuing reports, saying ‘this was a bit naughty, don’t do it again’ in the place of a proper independent regulator with teeth is just not going to cut the mustard,” he said.
Both the Scottish and Welsh governments have expressed deep misgivings about the Johnson government’s intention to legislate to “reserve” state aid powers, even if they do not intend to set out a legally binding subsidy regime.
By taking back powers to control state aid but not putting an alternative regime on a statutory footing, the Westminster government was laying the groundwork for the regime to run on pure “power politics”, said one senior figure with knowledge of the discussions.
“We would have hoped for an independent regulator that could give objective analysis of market impact of decisions, with a clear set of rules . . . instead it looks more likely that we’ll get the BEIS [business department] saying, ‘You can’t do that,’ which is pure power politics”, the figure said.
Get alerts on Brexit when a new story is published