MNI INTERVIEW: UK Eyeing Brexit State Aid Solution: IFG

The UK government appears open to a robust state aid system with domestic oversight and a new external mechanism for resolving any disputes with the European Union, potentially removing one obstacle to a trade deal with Brussels, a think-tank official who has worked extensively on the issue told MNI, but adding that London has left it very late in the day to flesh out the details the EU would need.

The Institute for Government, a London-based think-tank, has argued for a robust system of subsidy control with an outside adjudicator, saying that it would benefit the UK which has historically made less use of state aid than most EU countries, a point publicly acknowledged Wednesday by the UK's lead Brexit negotiator David Frost.

"This is one of the key stumbling blocks remaining to reaching some kind of deal," said Thomas Pope, senior economist at the IfG.

Frost raised hopes of a deal on Wednesday, telling UK lawmakers that if a strong dispute settlement measures on state aid were set up he could "see us being ready to use them just as much as the EU in future."

RED LINE FUDGE

Although no longer a member, the UK would be towards the bottom of EU league tables on state aid spending as a share of national income, running at just 0.3 to 0.4% of GDP, making it a strange hill for trade deal negotiations to die on.

Back in March Michael Gove, a leading Brexiter minister in the UK government, said that London would create a state aid system that the EU could be confident was robust, although there has been little follow through.

"It would have been a lot easier if they had started making the argument earlier. If they had run from Michael Gove's comment in March and maybe done a consultation over the summer," Pope said.

Instead, the UK government talked of settling for World Trade Organization subsidy rules, rather than creating a bespoke system, and insistence that they would not accept the EU as final arbiter on state aid disputes through the European Court of Justice. The IfG proposal, however, is for domestic UK control of the subsidy system with an agreed third-party dispute procedure.

TOUGH SELL

"It is far enough from where the EU started that it is a possible landing ground but it probably does need a bit of a strong sell (domestically in the UK)", Pope said, as it a long way from the 'WTO only' rhetoric.

Frost told legislators that some progress on state aid had been made in talks but there was still a way to go and the UK's self-imposed October 15 deadline for a deal is looming.

While both sides could agree to broad brush commitments on creating a state aid regime the dispute resolution part will need to be fleshed out, Pope said.

For "the dispute resolution mechanism you need more detail about when that applies, to what subsidies that applies and what tests would be applied to determine whether a subsidy does indeed breach the agreement," he said.