Subsidy Control

May 10th, 2022

Public funding/support given in the UK since 1 January 2021 has no longer been subject to EU State Aid Law. Compliance has since then been required with the Trade and Co-Operation Agreement between the UK and the EU (the TCA), incorporated into domestic law by Section 29 of the EU (Future Relationships) Act 2020.  Now the Subsidy Control Act 2022 (the Act) has been enacted, and Regulations are to be made, and Guidance provided thereunder, including with respect to “Subsidies of Particular Interest” and “Subsidies of Interest”, under Section 11 of the Act. Main purposes of the Act are to provide detail on the implementation of the TCA and to define “subsidy”.

The relevant public bodies are (1) subsidy granting public authorities, defined by Section 6 as legal persons who “exercise functions of a public nature”, (2) the Competition and Markets Authority (the CMA), and the Competition Appeal Tribunal (CAT), parts 4-6 inclusive of the Act, and (3) the Secretary of State, who has important powers.

Part 1 of the Act sets out the key definitions, including, in Sections 2-5 inclusive, of “subsidy”, and identifies the subsidy control and energy and environmental principles: Section 9 and Schedules 1 and 2.

Part 2 contains subsidy control requirements. Chapter 1 relates to the Principles. Chapter 2 contains prohibitions. Chapter 3 relates to transparency.  An authority is under a duty to consider both sets of Principles when making decisions whether to grant a subsidy or to adopt a subsidy scheme, and act consistently with the Principles.

Part 3 contains exemptions, including (1) in the cases of minimal financial assistance to (2) assistance to services of public economic interest, and (3) emergencies, such as natural disasters and natural or global economic emergencies.

Part 6 contains miscellaneous provisions, including in relation to guidance, disclosure, regulations, directions, interpretation and commencement.

The Act, in Section 2 and following, adopts a definition of “subsidy” that closely follows the TCA definition, which, in turn, with different wording, adopted substantially similar criteria as under EU State Aid Law. “Subsidy” means FINANCIAL ASSISTANCE which satisfies all of four conditions:-

(1) It is given, directly or indirectly, FROM public resources BY a public authority: NB, rather than THROUGH State resources;

(2) It confers an ECONOMIC ADVANTAGE on one or more “enterprises”;

(3) It is “specific” : it benefits one or more enterprises over one or more other enterprises; AND

(4) It 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
      • investment as between the UK and such a country or territory.

The General Principles are that subsidies should (A) pursue a specific policy objective in order to remedy an identified market failure or address an equity rationale (such as local or regional disadvantage), (B) be both proportionate to their specific policy objective and limited to what is necessary to achieve it, (C) be designed to bring about a change of economic behaviour of the beneficiaries, (D) not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy, (E) be the least distortive means of achieving the policy objective, (F) be designed to achieve their specific policy objective while minimising any negative effects on competition or investment in the UK, and (G) have beneficial effects which outweigh negative effects.

The Energy and Environment Principles include (1) to increase the level of protection, (2) not relieve polluters from their liabilities, (3) promote renewable energy, cogeneration, and decarbonisation, (4) improve energy efficiency, and (5) reduce energy consumption.

Ultimately it is for granting authorities to decide, on balance whether the potential risks of providing a subsidy or scheme is outweighed by the public policy benefits, and to notify subsidies to a public subsidy database.  BUT CMA has independent functions in relation to subsidy control, offering expertise, and there is a process of subsidy referrals, mandatory and voluntary.  CMA will have a Subsidy Advice Unit and a role in maintaining and reporting on the general functioning of the regime and gathering information.  CMA will have a limited advisory role, publishing non-binding Reports on individual cases that are potentially the most harmful or distortive.  BUT complaints will be for the CAT, not the CMA.

Sections 52-64 set out the architecture of the referrals functions for subsidies and subsidy schemes. There is MANDATORY REFERRAL, for subsidies and schemes of PARTICULAR INTEREST, before giving a subsidy.  The SoS may give a call-in direction.  There is VOLUNTARY REFERRAL, for schemes of interest. The SoS may make a referral post-award.

Sections 70-77 provide for he CAT to hear challenges to the granting of subsidies.  The CAT will have same powers as the High Court.  A challenge can be by any “interested party”.  There is a one month time limit. The CAT has a Judicial Review jurisdiction.

Part 1 of the Act and the powers to make Regulations have come into force. The rest of the Act will come into force on days to be appointed.

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