Many in the pharma and life sciences sector have expressed concern over the seemingly low prospects of a trading deal between the EU and UK after the end of the Brexit transition period on 31 December 2020...

... including no mutual recognition agreement to recognise each other's standards and testing. The two major sticking points in the negotiations have been State aid laws and fisheries. However, is there an upside for pharma and life sciences businesses? 

Supporting the Life Science Sector

As the UK economy looks to recover from coronavirus (COVID-19), the UK Government has signalled a desire to have greater flexibility to protect jobs and to support new and emerging industries now and into the future, particularly in the innovation sectors.  Clearly the life sciences sector has an important role to play in helping the UK tackle and recover from coronavirus. 

One of the ways the Government hopes to achieve this is through the reform of State aid laws.  As the life science sector is one of the beneficiaries of the current State aid regime receiving favourable tax credits, grant funding and exemptions for research and development, understanding the future of State aid will be important to the sector.

What Is State Aid?

The EU State aid rules restrict the ability of a member state to subsidise its own companies to ensure a level playing field across Europe.  For example, the EU Commission has previously investigated a rebate scheme by the German government to provide financial support to its pharmaceutical industry in response to complaints from other member states, although the scheme was subsequently found to be lawful and granted an exemption. 

Revoking State Aid Laws

As from the beginning of next year, the Business Secretary has announced that the UK will cease to apply the EU State aid rules and will adopt the lighter touch WTO subsidy control regime pending the introduction of a new UK regime.  

Under the WTO rules, the prohibition on subsidies only applies to goods not services, a distortion of competition must be effects based rather than the current EU low threshold for any actual or potential impact on competition to suffice, and there are more limited remedies.  Notably, the deterrent for beneficiaries to repay State aid plus interest does not apply.

Following on from the announcement, the draft State Aid (Revocations and Amendments)(EU Exit) Regulations 2020 have been published. The effect of these is to revoke all State aid laws in the UK, including the State aid general block exemption, so that at the end of the transition period EU State aid law will have no practical effect in the UK in relation to future measures and will become redundant.

What Next?

The UK intends to publish and consult on a replacement subsidy control regime later this year (see its press release on the planned approach to subsidy control).

The move away towards a lighter touch subsidy control regime may present opportunities for the sector and reduce the State aid burden. We will keep you updated on developments as further information becomes available.

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