The Subsidy Control Regime

This note discusses the UK’s subsidy control regime and how The Barrister Group (“TBG”) may be able to assist public authorities, businesses and other clients in relation to subsidy control matters.

Background

The Subsidy Control Act 2022 (“the Act”) came fully into force just over a year ago, on 4 January 2023.

The Act put in place a domestic legislative subsidy control regime, following the UK’s exit from the EU. This is the framework for UK public authorities, including central government departments, devolved administrations and local authorities, to provide subsidies to enterprises (i.e. entities engaged in economic activity).

The purpose of the subsidy control regime is to prevent public authorities from giving financial advantages to enterprises in a way that could create excessive competition and investment distortions, whilst at the same time allowing financial assistance to be provided by public authorities to enable strategic interventions to support the UK’s economic growth and to meet specific public policy priorities.

It should be noted that the UK continues to be bound by its international subsidy control obligations, specifically those set out in the EU-UK Trade and Cooperation Agreement (“the TCA”), Article 10 of the Windsor Framework, the WTO Agreement on Subsidies and Countervailing Measures, and relevant provisions contained in free trade agreements (“FTAs”).

When does subsidy control apply?

The subsidy control rules apply to financial assistance granted by public authorities to enterprises, with public authorities being required to ensure that any subsidy they award complies with the Act and the UK’s international law obligations.

In most cases, an assessment against the obligations in the Act will be all that is required. This is because the Act was drafted, in part, to implement the UK's subsidy control commitments under the TCA, and many of the TCA’s subsidy control commitments overlap with those under the WTO and in other FTAs.

However, compliance with the UK’s international law obligations will need to be assessed by public authorities on a case-by-case basis. For example, a public authority will need to consider whether a specific subsidy could fall within the scope of Article 10 of the Windsor Framework. By virtue of Article 10, the EU State aid rules continue to apply in respect of subsidies that could affect trade in goods and wholesale electricity between the EU and Northern Ireland.

Why is it important that the subsidy control rules are complied with?

Where a subsidy award is challenged, this can lead to the subsidy being found to be unlawful and could also result in the value of the subsidy being recovered from the beneficiary, with interest. A successful challenge thus risks the policy objective(s) of the measure being undermined, giving rise to adverse legal, policy and reputational consequences for the granting authority, as well as financial risks for beneficiaries.

Assessment framework under the Act

Before granting financial assistance to an enterprise, public authorities need to assess the measure to ensure that it complies with the Act.

Step 1: Whether the measure amounts to a subsidy

The first step is to assess whether the grant of the proposed financial assistance amounts to a subsidy. Under section 2(1) of the Act, a “subsidy” is financial assistance which:

• is given directly or indirectly from public resources by a public authority;
• confers an economic advantage to one or more enterprises (note that financial assistance will not confer an economic advantage if it could reasonably be considered to have been given on the same terms on the market, under the Commercial Market Operator (“CMO”) Principle);
• is specific insofar as it benefits one or more enterprises over other enterprises in respect of goods or services; and
• has, or is capable of having, an effect on:
  • competition or investment within the UK;
  • trade between the UK and a country or territory outside the UK; or
  • both of the above
    (note that, in order to constitute a subsidy, the financial assistance must be capable of having a genuine, adverse effect which is more than incidental or hypothetical).

Each of the four limbs must be met for a subsidy to be present.

Step 2: Whether the subsidy is prohibited or subject to any other requirements

If a public authority considers that the grant of specific financial assistance would amount to a subsidy, it will need to consider whether the subsidy is prohibited or subject to any other requirements under Chapter 2 of Part 2 of the Act.

Step 3: Routes to compliance

To the extent that the proposed measure is not prohibited, the public authority must assess how it can be provided in a compliant way under the Act.

There are various routes to compliance under the Act, including:

• redesigning the measure so that it does not give rise to a subsidy in the first place – i.e. by granting any financial assistance in accordance with the CMO Principle;
• relying on one of the exemptions in the Act, for example, Minimal Financial Assistance (“MFA”) or Services of Public Economic Interest Assistance (“SPEIA”);
• undertaking an assessment of the proposed subsidy against the Subsidy Control Principles (and the energy and environment principles, to the extent they apply);
• granting the subsidy under an existing scheme; or
• ensuring the subsidy complies with one of the Streamlined Routes.

Step 4: Whether a referral to the Subsidy Advice Unit is required

Public authorities need to consider whether a referral to the Competition and Markets Authority's Subsidy Advice Unit (“the SAU”) is required, or whether such a referral should otherwise be made on a voluntary basis.

The SAU’s role is to evaluate public authorities’ assessments against the requirements of the Act and to provide independent non-binding reports on those assessments.

Subsidies or Schemes of Particular Interest must be referred to the SAU, whereas Subsidies or Schemes of Interest (which have lower thresholds) may be referred to the SAU for review. The thresholds for both categories are out in Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022.

Step 5: Publishing the subsidy

The Act requires public authorities to include certain information about a subsidy or a subsidy scheme (i.e. a scheme put in place by a public authority under which subsidies are granted) on the UK’s subsidy control database within three months of the confirmation of the decision to grant the subsidy or to make the subsidy scheme (with different rules applying to tax measures). It should be noted that subsidy awards of £100,000 or less that are given as MFA, SPEIA, or under a subsidy scheme are exempted from the transparency rules.

The information that must be uploaded to the transparency database includes:

• the power under which the subsidy is given;
• the policy objective of the subsidy or scheme;
• the name of the beneficiary to which the subsidy is given;
• the date the public authority confirms the decision to give the subsidy; and
• the duration of the subsidy or scheme.

Challenges to subsidy awards

Under the Act, an interested party aggrieved by the making of a subsidy decision may apply to the Competition Appeal Tribunal (“the CAT”) for a review of the decision (i) to give a subsidy, or (ii) to make a subsidy scheme. For these purposes, an interested party is a person whose interests may be affected by the giving or the subsidy or the making of the subsidy scheme, or the Secretary of State for Business and Trade.

The CAT can review whether the public authority carried out its duties under the Act lawfully when awarding the subsidy; most importantly, it can consider whether the subsidy was granted in a way that was consistent with the Subsidy Control Principles. It can also review whether the subsidy falls within the scope of one of the prohibitions or was granted in breach of Article 10 of the Windsor Framework.

The standard of review in proceedings before the CAT is judicial review, with the CAT being able to review decisions (including those relating to the grant of MFA or SPEIA) on general public law grounds.

There has only been only challenge brought under the Act to date, namely The Durham Company Limited v Durham County Council [2023] CAT 50.

How The Barrister Group can assist you

Subsidy control is a complex area of law and, as such, seeking expert advice can help:

• public authorities to mitigate against the risk of breach of the subsidy control requirements; and
• businesses to understand their rights and obligations in respect of a proposed measure.

Barristers at TBG accept instructions (including on a public access basis) from public authorities, businesses and other clients on a wide range of subsidy control matters and are able to:

• provide subsidy control advice to public authorities on how public authorities can ensure compliance with the Act and the UK’s international law obligations (including Article 10 of the Windsor Framework);
• assist with the preparation and drafting of assessments under the Subsidy Control Principles and advise on what is required to ensure a proper audit trail of the decision-making has been retained;
• assist public authorities with referrals to the SAU, or act for interested third parties that may wish to make representations in respect of such referrals;
• act for clients in subsidy control challenges brought under the Act;
• assist businesses with applications for grant funding;
• assist public authorities with the preparation and drafting of grant funding agreements and other relevant documentation, including information to be uploaded to the subsidy control database; and
• provide training to public authorities on subsidy control matters.

Should you wish to instruct me or another barrister at TBG to assist you on a subsidy control matter, please contact my clerks, Everton Wedderburn or Kevin Morrow.

Resources

You may find the following resources useful:

• Subsidy Control Act 2022
• Statutory Guidance for the United Kingdom Subsidy Control Regime
• Guidance on the UK’s international subsidy control commitments
• Subsidy Control Act 2022: Streamlined Routes
• Regulations made under the Subsidy Control Act 2022