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The Department for Business & Trade has recently published two short guides to the application of the principles of subsidy control assessment for: (i) Subsidies or Schemes of Interest (SSoI) and Subsidies or Schemes of Particular Interest (SSoPI); and (ii) other subsidies.
We have covered the full statutory guidance in a previous article: UK Subsidy Control Essentials: What you need to know – Michelmores, which sets out the elements of the UK’s new subsidy control regime in detail. These two new mini-guides focus on the key components of the required assessment and on ensuring that these are appropriately documented.
Although this is not stated, it looks like the guides are essentially designed to help ensure subsidy givers go through the appropriate steps to avoid successful legal challenges of their subsidy grants. We suspect that this may be in the light of a growing number of CMA Subsidy Control Unit assessments of SSoIs and SSoPIs, under voluntary and mandatory referrals respectively, highlighting substantial gaps in granting authorities’ assessments. Although critical Subsidy Control Unit assessments do not prevent the granting of subsidies, they might nevertheless form the basis for a successful challenge from an aggrieved party.
For example, both guides emphasise the need for an appropriate review of evidence, including contradictory or inconsistent evidence, and how that has been analysed as well as the need for documenting the rationale for decision making.
SSoI and SSoPI guide
The guides break the seven analytical principles down into a four step assessment process:
Step 1: Policy Objective – either the market failure and/or inequality that the subsidy seeks to address needs to be specified in detail as well as how the subsidy will address that, including in what timeframe this is expected. Also, it is necessary to justify why a subsidy is better than an alternative approach (e.g. regulation, direct provision, investment on commercial terms).
Step 2: Creating the Right Incentives – identify what would happen in the absence of the subsidy and details of how the subsidy is expected to change the economic behaviour of the beneficiary.
Step 3: Minimise Distortive Effects – how has the subsidy been set to minimise its distortive effects? This must include identifying the relevant market(s) and considering market concentration, barriers to entry, expansion and exit and the state of market growth. This is akin to a competition law or merger control assessment.
Step 4: Balancing – detail the anticipated negative effects of the subsidy so they can be set off against the perceived positive effects with reference to the relevant likelihood of each materialising to ensure the positive effects outweigh the negative.
While there is considerable overlap between these steps, they will provide a useful benchmark to refer to when considering whether
Other subsidies guide
The other subsidies guide, which covers smaller subsidies below the SSoI and SSoPI levels, is essentially the same except that it does not include the same relevant market assessment.
Conclusion
These new guides highlight the differences between the new Subsidy Control regime and the previous EU State Aid rules. In particular, they emphasise that the new regime requires much more policy and economic analysis from public authorities, which places a higher burden on them, and potentially those seeking subsidies.
Particularly in relation to SSoI and SSoPI, public authorities may need to gather a wide range of information, not just from potential subsidy recipients but also from others operating in relevant markets, including suppliers and customers, to understand the likely distortionary effects of the subsidies they are considering granting. The market analysis at Step 3 of the SSoI and SSoPI assessment is similar to the kind of analysis that is carried out in merger control or competition law investigations.
We have provided advice to public authorities, recipients and potential challengers in relation to subsidies and subsidy schemes of various sorts. Building on our extensive merger control and competition law experience, as well as working with public authorities on policy development and impact assessments generally, we are well placed to provide practical advice on these potentially complex issues.
If you would like any further information on this topic, please contact Noel Beale or Ian Holyoak.
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