This article provides an overview of the key elements of the UK’s new subsidy control regime as we transition away from the previous EU state aid controls, against the background of wider international trade agreements (including the UK-EU Trade and Cooperation Agreement).
Broadly, subsidy control serves two purposes:
The first point to take away is that the new UK regime is much more principles based and less formalistic than the highly developed EU regime which had been in place for many years. On the one hand this means that there are fewer rules, on the other hand it means that there is more judgement and analysis required when applying those rules and hence more grey areas and more risk.
By way of a ‘health warning’/disclaimer, what follows is a high level outline. As a summary it should not be relied on as advice in relation to any particular subsidy as there may be particular features or details of the regime that are applicable in specific circumstances but which have been glossed over by this general introduction. Readers should be aware that there are specified circumstances where particular rules apply that are outside the scope of this general introduction.
A ‘subsidy’, for the purposes of the regime, is any direct or indirect financial assistance provided in whatever form (grant, tax break, loan, equity, guarantee, provision of goods/services, purchasing of goods/services, etc.).
There is a cumulative four part test:
In the only case to date (Max Recycle v Durham County Council), the Competition Appeal Tribunal (“CAT”) held that a public authority that shared its resources (vehicles and employees) between its household waste collection and its separate commercial waste collection operations was not giving a ‘subsidy’ to its commercial waste collection operation because (i) the commercial waste collection operation was not a separate entity from the public authority; and (ii) there was no financial assistance.
The regime covers both:
Also, there are the concepts of subsidies and schemes of ‘interest’ (“SSoI”) or ‘particular interest’ (“SSoPI”). Broadly speaking, SSoI are those where the value exceeds £5m, whereas SSoPI are those where the value exceeds £10m (or £5m in relation to a specified sensitive sector).
These concepts are significant as they identify the kinds of subsidies that may have a greater risk of distortionary effects on markets and so in relation to which public authorities, prior to giving a subsidy or making a subsidy scheme:
A public authority must not give a subsidy (or make a subsidy scheme) unless it has considered the subsidy control principles and is of the view that a subsidy (or the subsidies provided for by a subsidy scheme) is consistent with those principles.
There are seven general subsidy control principles. Broadly they can be boiled down to:
There are also principles specific to energy and environment related subsidies which essentially relate to improving the energy market and increasing levels of environmental protection.
The Subsidy Control Act imposes an obligation on public authorities to carry out a predictive economic assessment of the impact of the subsidy on the relevant market. While such analysis is normal in the context of merger control and competition law assessments it places a new burden on public authorities, who are required to ensure that the depth of their analysis is relative to the subsidy being granted and the market distortion likely to occur.
Certain types of subsidies and subsidy schemes are prohibited because they pose greater risks to market distortions, investment in the UK or international trade or investment. These include:
These include certain ‘de minimis’ levels:
Certain subsidies, including those given in various emergency circumstances, are also excluded.
The SAU has a role in scrutinising and reporting on:
Generally speaking, the SAU has 30 working days to prepare its report on a subsidy or scheme. However, this period can be extended in certain circumstances.
The SAU does not have the power to block subsidies or schemes. However, there is a ‘cooling off period’ of five working days following the publication of a report before a public authority can give a subsidy or make a subsidy scheme. This can be extended by the Secretary of State where the Secretary of State considers that the SAU report has identified that there are “serious deficiencies” in the public authority’s assessment of the subsidy or scheme.
Public authorities must provide details of subsidies and subsidy schemes on the government’s public subsidy database (other than subsidies under subsidy schemes of less than £100,000).
The published information must include, among other information:
In relation to subsidy schemes, the information must also include the categories of beneficiary eligible to receive subsidies under the scheme.
Awards of subsides and the making of schemes can be challenged at the CAT on a judicial review basis.
Potential challengers may request information from the public authority about the subsidy or scheme that they are considering applying for review of and the public authority must provide this information (potentially subject to restrictions) within 28 days. This is likely to prove a useful specific addition to the normal duty of candour generally required of public authorities in judicial review cases for potential challengers.
It also seems from the Max Recycle case referred to above that:
It will be apparent that the new UK Subsidy Control regime has quite a different approach to the previous EU State Aid controls.
This approach requires much more policy and economic analysis from public authorities, which places a higher burden on them, and potentially those seeking subsidies. 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 potential distortionary effects of the subsidies they are considering granting. This 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.
