Leading Brexiteers driven by the Prime Minister’s senior advisor, Dominic Cummings, are opposing any legislation which would have the UK’s internal market subsidy regime governed by an independent regulator. But a minimal approach to the regime would be disputed by Brussels who seek to achieve a level playing field.
Michel Barnier has said there can be no future economic partnership without “robust guarantees” on a level playing field for future trade.
The EU’s chief Brexit negotiator also warned time was “running out” for a deal after the UK did not detail its plans for the future state-aid regime.
The UK’s counterpart, David Frost, has refused to reveal the details explaining there are ongoing “policy discussions” in London.
Mr Barnier and Mr Frost were set to have dinner together on Monday night in London ahead of further informal discussions about the trade deal this week.
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The state aid issue is now a key element of the negotiations with the EU.
An official source told the FT: “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 UK Government announced plans for the UK’s internal market post-Brexit giving Westminster legal powers to control state aid of Scotland, Wales and Northern Ireland.
Dominic Cummings is driving for a minimal state aid regime post-Brexit
Friction over the future state-aid policy has been sparked in Government since autumn.
Theresa May’s administration aimed to allow the existing Competition and Markets Authority to regulate the new state-aid regime.
This approach has since been dropped by Boris Johnson’s team.
A Whitehall source told the Financial Times there were “intense discussions” between the former business secretary, Andrea Leadsom, and Mr Cummings causing final conclusions to be delayed.
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Mr Barnier and Mr Frost were set to have dinner together on Monday night in London
David Frost said there are ongoing “policy discussions” in London
The source said: “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 Government has been warned that if they fail to agree a statutory regulator it could harm the chances of reaching a trade deal with the EU.
George Peretz QC, a lawyer at Monckton Chambers in London, said: “The EU is a creature of Law.”
He added: “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.”
Earlier this month, Scotland’s First Minister Nicola Sturgeon blasted the UK Government’s plans to withhold state aid powers.
Nicola Sturgeon blasted the UK Government’s plans to withhold state aid powers
Downing Street said it wanted to keep all of the powers for the UK Government after the Brexit transition period ends.
Ms Sturgeon tweeted: “This would be a full scale assault on devolution – a blatant move to erode the powers of the Scottish Parliament in key areas.
“If the Tories want to further boost support for independence, this is the way to do it.”