Joe Biden’s election heralds a turning point for US politics. And it could have real consequences for the future of UK state aid.
On Saturday 7 November, four tortuous days after the polls closed in America, major networks across the world finally called the 2020 Presidential election.
Joe Biden, and his history-making running mate, Senator Kamala Harris, had won. They had clinched the coveted battleground state of Pennsylvania, securing enough electoral college votes to win the Oval Office.
The news resonated around the world. In far-flung countries, the former Vice President’s victory has been hailed as a blow to populism, and the return of a more unified discourse.
But the Democrat’s ascendency has ramifications far beyond the political. And by a strange twist of fate, it could have a sizable impact on the future of UK state aid.
Will Biden scupper a US-UK trade deal?
The critical issue is where Biden’s victory leaves the post-Brexit trade deal between the US and the UK.
Before the election both sides of the Atlantic had been talking up the possibility of a deal, with negotiations entering their fifth round in May. These negotiations have been buoyed by the strong relationship between President Trump and Prime Minister Boris Johnson.
But Biden’s victory means a fresh start, and an uphill battle for the Prime Minister.
Unlike President Trump, President-Elect Biden is a vocal supporter of the European Union. His administration is unlikely to pursue talks that compromise UK-EU relations, or encourage other European nations to consider departing from the bloc.
Just yesterday, Johnson conceded that reaching a trade agreement with a Biden government would not be “a pushover.” And according to the Guardian, fears are growing in Number 10 that a no-deal scenario would “threaten relations with a new Democratic administration.”
It’s early days. And the President-Elect has a lot to deal with before he can look at international trade.
But many analysts already believe that Biden’s victory has effectively scuppered the chance of a UK-US trade deal near the end of the transition period.
A major problem for Johnson
This poses a significant problem for Johnson.
The Prime Minister knows that ending the transition period with neither a trade deal with Europe, nor meaningful inroads with Washington, could be disastrous.
Biden’s victory has put the government under immense pressure to reach a deal with Brussels. And to make concessions before the mid-November deadline.
Concessions on state aid
One such concession is required on state aid.
The UK is seeking complete sovereignty over business subsidies, freeing itself from the strict caps and regulations imposed by the European Commission.
That’s not to say British companies should expect a torrent of tax breaks from 1 January.
In 2018 Britain invested just 0.34% of its GDP in state aid, well behind the likes of France (0.79%) and Germany (1.45%), according to the European Commission’s State Aid Scoreboard.
This trend looks set to continue, with one government official telling Politico “we won’t be picking winners and will remain a low subsidy regime. The UK position is about retaining our freedom to decide what’s best for us in our own interest.”
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Brussels Pushes Back
The government may be planning some secret and profound expansion to state aid, perhaps focused on creating and elevating tech unicorns. Or it might simply be seeking sovereignty for the principle.
Either way, the EU has other ideas. It has made it clear that it will not allow state-backed UK businesses to outcompete their European counterparts.
If it wants access to the single market, the UK will have to mirror the EU’s subsidy regime.
Talks restart with aid on the table
With UK-EU negotiators kicking off another round of talks today, the future of state aid remains a major stumbling block.
Much like the widely-reported disagreements over fisheries, on which the government now says it is open to “sensible compromise.”
But unlike fisheries, the government is under far less political pressure to stick to a hard line on state aid.
The business community has made it clear that it would much prefer access to the single market than the seemingly slim promise of larger subsidies.
Thanks to Biden’s earth-shaking victory, they might just get their wish.
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