Subsidy Control: key lessons from a recent Competition Appeal Tribunal decision

The UK’s subsidy control regime aims to prevent public bodies giving financial assistance to private enterprises in a way that distorts usual competition. One example of this is when a public authority provides financial support to an enterprise that, under normal commercial circumstances, it would not be able to obtain. The key legislation is the Subsidy Control Act 2022, or SCA.

The SCA has been legally challenged a few times. The first of these was Durham County Council v The Durham Company Limited [2023] CAT 50, which we considered in a previous article. In that case, the Competition Appeal Tribunal found that there was no subsidy.

The most recent is The New Lottery Company Ltd and Others v The Gambling Commission and, again, the Tribunal reached the same decision. This has several useful lessons for both the givers and the receivers of such financial assistance.

What is a subsidy?

The SCA defines a subsidy as “financial assistance” which:

is given, directly or indirectly, from public resources by a public authority,
confers an economic advantage on one or more enterprises,
is specific, that is, is such that it benefits one or more enterprises over one or more other enterprises with respect to the production of goods or the provision of services, and
has, or is capable of having, an effect on (i) competition or investment within the United Kingdom, (ii) trade between the United Kingdom and a country or territory outside the United Kingdom, or (iii) investment as between the United Kingdom and a country or territory outside the United Kingdom.

Where a public authority intends to give financial assistance that meets this definition of a subsidy, that authority must first consider the subsidy control principles set out in the Act before it makes the award.

The facts of the case

On 19 July 2023, the Gambling Commission announced that it would grant around £70 million to Camelot UK Lotteries Limited and/or either Allwyn UK Holding B Ltd or Allwyn Entertainment Limited. This money was granted for the purpose of marketing and promoting the National Lottery, and would otherwise have been payable into the National Lottery Distribution Fund.

Three companies joined together to challenge this decision: New Lottery Company Limited, Northern & Shell PLC, and The Health Lottery Elm Limited.

The applicants’ argument was based on two views. That the award amounted to the grant of a subsidy, as defined in the SCA. And also, that, as a subsidy, the grant should have been subject to the SCA’s subsidy control principals but was not.

Judgment

In making its decision, the court looked to the definition of a subsidy set out above. Two points were accepted as fact by both sides: that the Gambling Commission is a public authority, and that Camelot UK Lotteries Limited is an enterprise.

The key question, then, was what would constitute an “economic advantage”. The Act itself provides some guidance on this point. It states: “Financial assistance is not to be treated as conferring an economic advantage on an enterprise unless the benefit to the enterprise is provided on terms that are more favourable to the enterprise than the terms that might reasonably have been expected to have been available on the market to the enterprise.”

This principle is referred to in the Department for Business and Trade Statutory Guidance for the UK Subsidy Control Regime as the commercial market operator principle or ‘CMO principle’. In its judgment, the Tribunal described it as “an objective test, with the burden placed on the Applicant to show clearly that the transaction would not have been entered into by any rational market operator.”

When considering this, the Tribunal found that the decision to invest in the marketing of the National Lottery had a “commercial character” – the kind of agreement that two trading parties may engage in to achieve a beneficial outcome, consistent with standard commercial dealings. In reaching this conclusion, the Tribunal took into account that the parties had extensively considered the possible return on investment as a result of the deal. It concluded that the deal had the purpose of ultimately resulting in a return through ticket sales to create net benefit to the National Lottery Distribution Fund.

On that basis, the Tribunal judged that the applicants had not proved that a “rational market operator” would not have entered into the same deal. No advantage had been conferred, and there was therefore no subsidy to be found.

What have we learned?

The Tribunal’s judgment provides some useful takeaways, and offers some clarity on how the SCA is to be understood in practice.

Most fundamentally, it is a reminder that it is for the applicant to prove that the financial assistance awarded is a subsidy.

Another key learning point concerns the timescales within which challenges can be brought. The SCA states that challenges must be lodged within a month of the “relevant date”, which is described as being either the “transparency date’’; or the date the requested information is provided. The Tribunal’s judgment confirmed that the transparency date is either the date on which the subsidy was entered into on the public subsidy database, or the date on which the applicants knew or should have known of the decision.

However, what if the public authority does not believe that any subsidy has been entered into, and so does not record their decision in the database? The SCA offers no guidance on this point, but it was considered by the Tribunal. It held the view that, in these circumstances, challenges should be undertaken within one month from the date the applicant was aware of the decision.

The judgment also provides further insight into how the Competition Appeal Tribunal might interpret and implement the tests to identify a subsidy, and what factors it will consider. It emphasises that public authorities have a wide margin of judgment available to them when they are assessing the benefit between the parties.

If you have any questions about the topics raised in this article, please contact a member of our Subsidy Control team.

This article was co-authored by Trainee Rachel Brown.

Contributors: