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Councils supporting local real estate development must adhere to a new subsidy regime following the revocation of EU state aid rules..

This article was originally published in The MJ on 1 March 2021

Councils supporting local real estate development must adhere to a new subsidy regime following the revocation of EU state aid rules, explains Clive Bleasdale, partner at national law firm Weightmans.

Councils have a vested interest in the success of local real estate development. The UK is grappling with a housing shortage, so supporting schemes that improve the provision of new homes, and in many cases unlock regeneration and deliver a welcome shot in the arm to an area’s economy, makes sense for local government.

This support can come in many forms. It can be financial, involving grants and tax exemptions, or it can be more practical, including the direct provision of council resources, such as goods and services, and the disposal of local authority-owned land to free up a site for development.

But Brexit has changed the rules. The EU–UK Trade and Cooperation Agreement (UK-EU TCO) came into force on the 1st January. Previous EU state aid laws that set the parameters for UK public bodies supporting commercial ventures have been replaced with a new subsidy regime.

The Government is currently gathering views to fine tune the practical implementation of the new regime, but the underlying principles and reporting requirements councils working to get real estate projects moving must follow have already been established.

Shared principles

The new regime is not a radical departure from the old model. Under previous rules, the Department for Business, Energy & Industrial Strategy (BEIS) defined State Aid as any advantage granted by a public body through state resources on a selective basis that could potentially distort competition and trade within the EU.

Local authorities must now refer to a wider set of international commitments to determine if they are permitted to provide various types of support to a commercial organisation.

First, councils must consult the subsidies section of the UK-EU TCO. It stipulates that each trading bloc’s independent regime must follow a set of six shared principles for subsidies that are worth more than £350,000 and given to a single beneficiary.

The most important of these principles, on which the others build, stipulates that subsidies must pursue a specific public policy objective, remedy an identified market failure or address a clear equity rationale, such as the need to improve local housing provision.

After ensuring the subsidy is permitted under the six EU-UK TCA principles, public bodies must then consult the World Trade Organisation’s Agreement on Subsidies and Countervailing Measures (ASCM). However, these rules will only usually be relevant to bodies supporting export sectors, such as manufacturing, and are unlikely to affect councils supporting real estate development.

UK-focused reporting

The biggest change arising from the rule changes is to documenting and reporting subsidies. BEIS is currently developing a database where councils and other public bodies must log the legal basis, policy objective or purpose of the subsidy, its value, its delivery mechanism and the beneficiary’s details.

The database is expected to launch in early 2021, to support transparency but also enforcement of the new regime. Previously, the European Commission was responsible for enforcing non-compliance, but following the EU-UK TCA, a new UK independent enforcement body will take over.

The scope of the body’s powers is a key question in the Government’s consultation, and will be subject to UK judicial review. But, in the meantime, to avoid roadblocks in the future, it’s critical that councils allocate resource to ensure the principles of the regime are being adhered to on any current projects.

The changes in action

We are currently working with a number of local authorities on real estate projects, and in many cases determining if their support of a developer is permitted under the new subsidy regime is a live focus.

We have council clients wanting to use grant funding to develop local infrastructure. The infrastructure will help developers connect the land they need to progress schemes that could provide thousands of new homes for the community. These processes are ongoing, but our position is support can be permitted when it meets the principles set out in the UK-EU TCA.

These cases can be complicated by the launch of the new subsidy regime, so councils planning to support new and ongoing developments should seek expert advice and consult the latest guidance from BEIS.

More information on the subsidy database and independent governing body will be published following the conclusion of the Government’s consultation. Councils that stay abreast of the changes and prepare their internal processes to comply with the new reporting requirements will be well placed to support real estate projects that offer benefits to the communities they serve.

Clive Bleasdale is a partner in Weightmans LLP’s and leads the Local Government Real Estate Team.

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