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.
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”).
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.
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.
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:
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:
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:
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.
Subsidy control is a complex area of law and, as such, seeking expert advice can help:
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:
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.
You may find the following resources useful: