Brexit was supposed to liberate a ‘Global Britain’ to pursue more beneficial trade deals, but it hasn’t been easy to avoid the EU’s gravitational pull. State aid is an example. Lee McGowan writes that the new UK Subsidy Control Act (SCA) that entered into force in January 2023 avoided EU terminology but offered only minor innovations, sharing a degree of consistency with EU policy.

The Rishi Sunak government’s recent decision to delay the original timetable of removing all EU laws from the UK statute books by the end of 2023 was not unexpected. Some seven years after the vote for Brexit, three and a half years after the UK’s departure from the EU, more time is still required to discuss, debate and determine which EU policies are to be replaced, amended and revoked.

At its core Brexit was about breaking free from the EU’s orbit of influence. The four Conservative administrations from Theresa May 2016 to Rishi Sunak in 2023 all sought to reposition the UK in a new constellation in which a liberated ‘Global Britain’ could establish much more beneficial trade deals and pursue its own policy preferences on the wider international stage.

The concept of orbits is one way of approaching developments in UK policy-shaping post Brexit. Orbits are never permanently fixed, but the ability to switch orbits requires considerable escape velocity. Does the UK have these means and how far does its geographical position, alongside and still physically attached to the EU (given the land border with the Republic of Ireland), inhibit UK government aspirations?

Rather than considering post-Brexit policymaking as de-Europeanisation (which implies distancing from the EU) we should expect to see the UK align closely with the EU in a range of existing policy areas. Why so? It is argued that the UK cannot simply detach itself in practice from the sheer ‘critical mass’ of the EU today, as manifest firstly with the EU being the world’s third largest trading block on the UK’s doorstep and, secondly, in terms of the sheer scope of the EU’s policy remit and the EU’s ability to make direct links to different policy areas in any negotiations.

The idea that the EU has critical mass suggests ‘that the EU is akin to a rather large planet which can exert a strong gravitational pull, holding within its sphere those non-member states which need a trading relationship with the EU’ (McGowan, 2023). It was never going to be straightforward for the UK, if we conceive of it as a satellite within the EU’s orbit, to escape the EU’s influence. Other non-EU member states in Western Europe such as Iceland, Norway and Switzerland also find themselves subject to the EU’s gravitational pull (albeit in different orbits). So, should we understand the UK’s future relationship with the EU post Brexit as one of orbiting Europeanisation?

State aid makes for an interesting example. The UK had long been an advocate of a meaningful EU competition policy. From the late 1980s, it became increasingly critical of other EU member states’ reliance on subsidies to protect national companies and its pro competition stance heavily influenced the shaping of a stronger EU state aid policy.

The EU state aid rules declared subsidies as ‘incompatible’ with the internal market (Art 107), but in practice these rules allowed for a variety of exemptions (boosting employment, regional growth, supporting key sectors of the economy, etc) and the European Commission has shown increasing flexibility when making its decisions. Both realities had suited the UK well.

Brexit meant change and bringing responsibility for state aid back home. The UK government maintained that its law improved on the EU regime and that a new British-based system provided the means of fulfilling the UK government’s levelling-up agenda and facilitating investment in innovative technologies of a fourth industrial revolution.

The Johnson government’s aim was realised with parliamentary approval of a new UK Subsidy Control Act (SCA) that entered into force in January 2023. The Act itself, however, was shaped by commitments made by the UK government with the EU under the terms of the Withdrawal Agreement (2019) and the Trade and Cooperation Agreement (2020). Three points are worth noting.

Firstly, there was a degree of smoke and mirrors in play in the SCA. It may have looked different given that the Act avoided all references to EU terminology of ‘state aid’ and ‘undertakings’, preferring instead to use subsidies and enterprises, but the SCA shares a degree of consistency with EU policy, albeit with the addition of minor innovations. Is the SCA a placebo policy?

Secondly, and somewhat ironically, the UK’s departure from the EU is leading to demands from some EU member states for a more lenient approach to the EU state aid. The UK will continue to monitor and even copy events within the EU on state aid.

Thirdly, and arguably most importantly, the UK has still not managed to escape the EU state aid regime as Northern Ireland (via the Northern Ireland Protocol) remains part of the EU’s single market for goods, including the EU’s state aid rules. This presents immediate challenges. Is Northern Ireland eligible for UK subsidies? Are UK firms operating via subsidiaries in Northern Ireland subject to the EU rules, the UK rules or both? Most significantly, can the EU state aid rules for Northern Ireland via the concept of ‘reach-back’ actually come to impact and influence UK state aid? The Windsor Framework (February 2023) is supposed to address these issues and while the Sunak government may claim that some 98% of state aid cases in Northern Ireland will now fall within the UK’s jurisdiction, doubts continue to linger and ultimately, the EU state aid rules still apply in this part of the UK.

Brexit was supposedly about de-Europeanising the UK from the EU policy base. However, there are constraints as to how much Europeanisation from the EU policy base is occurring. Is EU policy being replaced? Is EU policy the de facto starting point for new UK laws? What do the devolution settlements in Northern Ireland, Scotland and Wales mean for the Sunak government’s de-Europeanisation agenda? The overarching question remains whether the UK can ever fully escape the EU’s orbit.

♣♣♣

Notes:

• This blog post is based on State aid policy in the United Kingdom post-Brexit: a case of de-Europeanisation as orbiting Europeanisation, Journal of European Public Policy.
• The post represents the views of its author(s), not the position of LSE Business Review or the London School of Economics.
• Featured iimage by Rocco Dipoppa on Unsplash
• When you leave a comment, you’re agreeing to our Comment Policy.

Print Friendly