7.4 Competition and State-Aid Rules

Who would set competition and state-aid (subsidy) rules?

Scotland would set its own competition law and subsidy control regime. The system would be designed to prevent anti-competitive behaviour and unfair subsidies while giving the Scottish Government flexibility to support strategic industries, regional development and the energy transition. Rules would be transparent and independently enforced. Close cooperation and information-sharing with the UK competition authorities would be maintained to manage cross-border markets and avoid unnecessary disputes.

Scotland would gain full authority over competition law and subsidy (state aid) control. The residual application of UK-wide competition and subsidy rules would end. The Scottish Parliament would legislate the framework; an independent Scottish authority would enforce it. This is a significant practical power: it determines how markets are policed and how far government can intervene with public money to shape industrial and regional outcomes.

The main design choice is a dual-purpose regime: discipline against abuse and distortion on one side; defined space for transparent, proportionate public support on the other. The main constraints are institutional capacity to enforce rules credibly, the fiscal limit on how much subsidy the budget can bear, the reality of cross-border markets with rUK, and international obligations under the WTO and future trade agreements. Continuity for firms operating across the border requires cooperation arrangements, not regulatory isolation. Control of these rules is a practical instrument of economic sovereignty, exercised with clear principles and an open process.

Independence would transfer full authority over competition law and subsidy control to Scotland. The residual application of UK-wide competition and subsidy rules would end. The Scottish Parliament would legislate the framework; an independent Scottish authority would enforce it. This is a significant practical power. It determines how markets are policed and how far government can intervene with public money to shape industrial and regional outcomes. Markets function better when firms cannot abuse dominant positions, fix prices or carve up markets, and when government support does not simply prop up inefficiency or distort competition without justification. At the same time, government needs the ability to support strategic industries, address regional disparities, accelerate the energy transition and pursue other public goals. A regime that made every form of public support legally precarious would cripple industrial and regional policy.

This section sets out a dual-purpose design. The system would prevent anti-competitive behaviour and unfair subsidies while leaving defined space for transparent, proportionate intervention to pursue clear public purposes. Rules would be transparent and independently enforced, with rights of appeal. Close cooperation and information-sharing with the UK competition and subsidy authorities would manage cases that affect both jurisdictions and reduce the risk of conflicting decisions. Because Scotland would not seek EU membership, it would not be subject to the EU state-aid regime, removing a significant external constraint. WTO obligations and any commitments in future trade agreements would still apply. Fiscal rules would still bind overall public spending. Flexibility to subsidise is not the same as capacity to afford unlimited subsidy. Continuity for firms operating across the border requires cooperation arrangements, not regulatory isolation.

Current Position and Legal/Institutional Baseline

Competition law and subsidy control currently operate under UK-wide frameworks. The Competition and Markets Authority and related bodies apply UK competition rules. Subsidy control follows the UK’s post-Brexit regime. Scotland has limited distinct competence in these fields. Many markets and firms operate across the Scotland–rUK border, so enforcement and case assessment already have a cross-border dimension in practice.

Independence would change the legal baseline. Competence would transfer fully to Scotland. The institutional baseline includes experienced practitioners, case law and administrative practice that can inform a Scottish regime, and integrated cross-border markets that will not disappear with constitutional change. The task is to enact Scottish statutes, establish an independent enforcement authority, set up appeal routes, and put in place formal cooperation arrangements with UK counterparts so dual investigations and inconsistent remedies do not become a recurring cost for business. International practice among small advanced economies confirms that credible competition and subsidy regimes are feasible when they combine independent enforcement, published criteria and proportionate flexibility for public-purpose intervention.

Mechanism and Delivery

The legal mechanism is straightforward. On independence, competence over competition and subsidy control transfers fully to Scotland. Parliament enacts a competition statute and a subsidy-control statute, or a combined framework. An independent authority is established or designated with powers to investigate, decide, remedy, and, where appropriate, fine. Appeal routes to the courts provide legal accountability. Without independent enforcement, the rules remain on paper. Without clear statutes, enforcement becomes arbitrary.

The regime would be built on practical principles: transparency — the rules, the criteria for assessing subsidies and the decisions of the enforcement authority would be public; independent enforcement — a body at arm’s length from government would apply the competition and subsidy rules, with rights of appeal; proportionality — interventions would be judged against the scale of the public interest they serve and the degree of distortion they cause; predictability — firms and public bodies need to know where the boundaries lie so that legitimate activity is not chilled by uncertainty; and compatibility with the priority rUK market — the design would take account of cross-border markets and the need to avoid constant friction with UK rules and authorities. Predictability matters as much as strictness. A regime that is formally tough but opaque deters investment and invites litigation. Published guidelines, reasoned decisions and consistent practice are part of the mechanism, not optional communication.

The flexibility built into the subsidy rules would be especially relevant for support to strategic industries where Scotland has or can build comparative advantage; regional development measures aimed at areas of persistent economic weakness; and the energy transition — including support for renewable deployment, grid and infrastructure, and the just transition for workers and communities affected by the decline of mature oil and gas activity. In each case, the rules would require clear objectives, transparency and an assessment that the support is a reasonable means of achieving the stated public purpose. Flexibility would not mean an open-ended licence to subsidise without scrutiny. Fiscal rules still cap the overall volume of public spending; subsidy control governs the form and fairness of interventions within that volume. A permitted subsidy that breaches the fiscal rules remains unaffordable.

Because many markets and firms operate across the Scotland–rUK border, purely unilateral enforcement would be incomplete. Formal cooperation and information-sharing arrangements with the UK competition and subsidy authorities would be put in place to manage cases that affect both jurisdictions, reduce the risk of conflicting decisions, allow coordinated action against anti-competitive conduct that spans the border, and provide practical channels for resolving disagreements. These arrangements would respect the independence of each side’s regime while recognising economic interdependence. They form part of the wider practical partnership with the rest of the UK in economic management.

Because Scotland would not seek EU membership, it would not be subject to the EU state-aid regime. That removes a significant external constraint on subsidy policy and is one of the practical consequences of the non-membership decision. Scotland would still need to ensure that its subsidy practices are consistent with its WTO obligations and with any commitments made in future trade agreements. The domestic regime would be designed with those international constraints in mind, while retaining the greater room for manoeuvre that non-EU status provides. WTO rules on subsidies and countervailing measures set a floor, not a full industrial-policy code. Trade agreements may add commitments; under this framework those commitments are accepted only when they pass the net-benefit test already described for external deals.

Continuity Design

Continuity for firms and for public projects already in the pipeline is a design requirement. Transitional provisions in the independence legislation would carry forward familiar principles and provide interim legal certainty while the Scottish statute and authority bed in. Early appointment of the authority’s leadership, published interim guidelines and prioritisation of clear rules for energy-transition and regional schemes already under consideration would reduce the risk of a chill on legitimate activity. Early cooperation agreements with UK authorities would support continuity of cross-border case management so dual investigations and conflicting remedies do not proliferate during the transition.

Continuity of fiscal discipline is secured by keeping subsidy volume inside the same budget constraint and medium-term plan that govern the rest of public spending. Continuity of legal accountability is secured by independent enforcement and appeal routes from the outset. The design therefore treats institutional stand-up and transitional legal continuity as parallel to the continuity choices already made for currency, contracts, borders and regulatory stability in high-volume sectors.

Constraints and Trade-offs

Legal constraints

Statutes must define prohibitions, merger control, subsidy assessment criteria, enforcement powers and appeal routes with sufficient precision to be operable and to withstand challenge. Cooperation agreements with UK authorities require reciprocal commitments on information-sharing and case management. WTO obligations and any future trade-agreement commitments constrain subsidy practice; the domestic regime must remain consistent. Transitional provisions must bridge the gap between UK authority withdrawal and Scottish authority readiness without creating a period of unenforceable or uncertain rules.

Fiscal constraints

The authority’s budget and litigation costs are modest institutional costs relative to the programmes it polices. The programmes themselves — strategic industry support, regional measures, energy-transition interventions — are the large fiscal variable and remain subject to the fiscal rules and the medium-term plan. Who pays is the Scottish budget. Uncontrolled subsidy would collide with deficit reduction; that is why flexibility is defined and transparent, not open-ended. Under the opening fiscal position, the volume of permitted subsidy is constrained by arithmetic regardless of the legal room the regime provides.

Operational constraints

Building a credible independent authority takes time. Recruiting or transferring experienced staff, building case-handling systems, developing market-monitoring capacity, and producing guidelines and reasoned decisions cannot be done overnight. Full caseload maturity takes longer. Cross-border cooperation depends on operational channels with UK counterparts. Public bodies designing subsidy schemes need clear, timely guidance so that legitimate projects are not delayed by uncertainty. Operational sequencing — transitional provisions, early leadership appointment, interim guidelines, and prioritisation of high-stakes sectors — is required to maintain continuity and credibility.

Political constraints

Pressure to treat subsidy control as an obstacle to be minimised, or to announce large support packages without transparent criteria, must be resisted if the dual-purpose design is to hold. Independent enforcement will at times refuse or condition support; that outcome is intentional. Cross-border cooperation requires political investment in the partnership model of post-independence relations. Domestic political management must present flexibility and discipline as joint requirements, not as alternatives.

Time constraints

Transitional provisions and interim guidelines must be in place by Independence Day. The authority's leadership should be appointed early. Cooperation agreements with UK authorities should be advanced as part of the settlement and early post-independence work. Full operational maturity of the authority and a settled body of Scottish decisions will take years. Delay in stand-up creates uncertainty for mergers, subsidy schemes, and firms operating across the border.

Consistency with the Wider Framework

Competition and subsidy rules sit alongside the priority given to the rUK market and the pragmatic approach to regulatory alignment; the industrial and energy strategies that require targeted public support; the fiscal rules that limit the overall volume of public spending and subsidy; and the broader insistence on transparent, rules-based economic governance. Together they define a system that can police markets and still act deliberately to shape economic outcomes where the public interest justifies it.

They align with the just transition and renewables agenda, with regional policy, and with the refusal to re-enter EU state-aid constraints. They require institutional capacity consistent with day-one readiness. There is no licence here to ignore the opening deficit: flexibility to subsidise is not the same as capacity to afford unlimited subsidy. The regime is consistent with WTO obligations and with the net-benefit test applied to external trade agreements. It supports sterling continuity and contract continuity by providing a predictable legal environment for firms operating across the border. In every case, the dual-purpose design subordinates both market discipline and public intervention to clear principles, independent enforcement and fiscal reality.

Hardest Critiques and Direct Responses

Feasibility

Establishing a competition and subsidy authority is feasible for a high-income new state, drawing on existing UK case law experience, personnel who transfer or are recruited, and the practice of other small advanced economies. Full caseload maturity takes time. Day-one continuity can rest on transitional application of familiar principles while the Scottish statute and authority bed in. Feasibility falls only if the authority is left under-powered, if transitional provisions are neglected, or if cooperation channels with UK counterparts are left unbuilt.

Cost and fiscal burden

The authority’s budget is a modest institutional cost. The large fiscal variable is the volume of subsidy schemes, which remains subject to the fiscal rules and the medium-term plan. Flexibility is not a blank cheque. Uncontrolled subsidy would collide with deficit reduction and with the credibility of the fiscal framework. The design keeps subsidy inside the same budget constraint as every other programme. The Scottish budget pays; transparency and independent enforcement police the form and fairness of interventions within that constraint.

Dependence on agreement

Dependence on the United Kingdom is moderate for cross-border case cooperation and information-sharing. It is low for the legal power to set and enforce Scottish rules. If UK cooperation is weak, Scotland can still enforce on its territory; cross-border cases become harder and dual processes more likely. Formal cooperation agreements are therefore a settlement and post-settlement priority. Contingency planning accepts higher friction in cross-border cases if cooperation fails, while preserving unilateral enforcement capacity.

Transition risk

Uncertainty about which rules apply to mergers or subsidies spanning Independence Day, a gap between UK authority withdrawal and Scottish authority readiness, and a chill on legitimate public projects while officials wait for guidance are material risks. Mitigation includes transitional provisions in the independence legislation, early appointment of the authority’s leadership, published interim guidelines, and prioritising clear rules for energy-transition and regional schemes already in the pipeline. Residual uncertainty during the bedding-in period cannot be eliminated; early stand-up and clear interim guidance manage it.

Alternatives (status quo and previous proposals)

Remaining under UK competition and subsidy rules after independence is incompatible with sovereignty and is rejected. Importing the full EU state-aid regime without membership is unnecessary and conflicts with the non-membership decision; it is rejected. A regime with no subsidy discipline would waste scarce fiscal resources and invite challenge under WTO rules; a regime with no flexibility would block industrial and just-transition policy. Both extremes are rejected. The dual-purpose, independently enforced model is the coherent middle path: discipline against abuse and distortion, and defined space for transparent, proportionate public support.

Political and public credibility

The claim most likely to be called unrealistic is that Scotland can subsidise strategically without either fiscal blow-out or endless legal dispute, or that independence from EU state-aid rules means “anything goes.” The precise answer is that fiscal rules still bind total spending; subsidy control governs form and distortion, not the existence of a budget constraint; and transparency plus independent enforcement limit abuse. Credibility comes from reasoned decisions, published subsidy criteria, and a track record of support being both given and refused—not announcements of funds without a rulebook. Readers who prefer unconstrained subsidy, or permanent subordination to UK or EU regimes, are invited to evaluate the framework on the dual-purpose design and the fiscal arithmetic that still applies.

Position Summarised

Scotland would set its own competition law and subsidy control regime. The system would prevent anti-competitive behaviour and unfair subsidies while leaving defined space for the government to support strategic industries, regional development and the energy transition. Rules would be transparent and independently enforced. Close cooperation with UK authorities would manage cross-border market issues.

The regime balances discipline and flexibility: markets are protected from abuse; legitimate public purpose retains the means to act. Control of these rules is a practical instrument of economic sovereignty, exercised with clear principles and an open process. Subsidy volume remains subject to the fiscal rules; non-membership of the EU removes EU state-aid constraints while WTO and trade-agreement obligations still apply. Transitional provisions, early institutional stand-up and formal cooperation arrangements support continuity for firms and for public projects already in the pipeline.

Conclusion

Who would set competition and state-aid rules? Scotland would — by statute, with independent enforcement, transparent criteria and formal cooperation with UK authorities on cross-border cases. The regime would discipline abuse while still allowing proportionate support for strategic industry, regional development, and the energy transition.

That design meets the continuity test through transitional provisions and early institutional stand-up. It meets the fiscal test by keeping subsidy inside the same budget constraint as every other programme. The limit of the claim is clear: flexibility is not a blank cheque; independence from EU state-aid rules is not freedom from arithmetic or from WTO disciplines. The final section of this trade and economic part turns to how Scotland would attract and retain business and investment inside the overall framework of stability, sterling continuity, rUK market priority and predictable rules.

Series Footer

This analysis forms part of People’s Future Scotland: The Independence Debate, a non-party framework examining the practical design of independence. Each section is written to withstand professional scrutiny and to prioritise mechanism, constraint and continuity over aspiration