Subsidies in Space

In January, the Competition and Markets Authority’s Subsidy Advice Unit published their report assessing the UK Space Agency’s plans for a subsidy scheme that will help firms based in Great Britain to develop their satellite communications capabilities.

14 March 2024

On 19 January 2024, the United Kingdom Competition and Markets Authority’s Subsidy Advice Unit (SAU) took one small step for a regulatory advisory body and published a report providing advice to the UK Space Agency’s (UKSA) on their proposed subsidy scheme, the Connectivity in Low Earth Orbit (C-LEO) Programme. The C-LEO Subsidy Scheme is set to boost the UK’s space industry by providing up to £93.75 million of grant funding to encourage investment by enterprises in research and development in satellite communication technology in Great Britain. This article examines the SAU’s advice and whether it represents a giant leap for the UK’s space industry.

The UKSA is not alone in seeking to grant funding to space enterprises through subsidies – e.g., the German Space Agency has an equivalent programme, the National Programme for Space and Innovation (Nationales Programm für Weltraum und Innovation), and EU Member States subsidise ArianeGroup. Space is an ultra-hazardous domain, and enterprises operating within it face severe challenges, including economic risk. However, it is the task of regulators and agencies to reconcile the principles of competition and cooperation between public and private interests.

The UKSA mandatorily referred its C-LEO Scheme to the SAU because it is expected that the scheme will provide a subsidy greater than £10 million to a single enterprise. Due to the high value of subsidy grants, the C-LEO Scheme is considered a Subsidy Scheme of Particular Interest (SSoPI). 

The report sets out the SAU’s opinion on the UKSA’s application of the subsidy control principles in the development of the C-LEO Scheme. 

As a reminder, the subsidy control principles provide that subsidies should: 

  • Pursue a specific policy objective; 
  • Be proportionate; 
  • Change the beneficiary’s economic behaviour by design; not compensate for costs that would otherwise be funded; represent the least distortive means of achieving the objective and; 
  • Minimise the negative effects on competition in the UK; and have benefits that outweigh any negative effects.

The report is clear that the UKSA has effectively considered the objective of the subsidy in curing a market failure and whether there are any alternative means to encourage investment in the sector. However, there are a number of recommended steps that the report outlines that would improve the assessment:

  1. The UKSA detailed the difficulties in coordinating effective research within the satellite communications network and therefore, why subsidies were required. However, the SAU suggested that the UKSA could have incorporated more evidence detailing the spillover effects that those subsidies could have in other industries.

  2. The SAU’s advice also provides that the UKSA’s scheme could be further improved by explaining why the subsidy grant evaluation framework that they have selected was appropriate in the circumstances.

  3. The SAU’s report states that the UKSA’s principle assessment could be improved by more closely following the approach set out in the Statutory Guidance. This would better demonstrate how the total subsidy scheme was assessed to be proportionate to the overall objective. It was also suggested that the UKSA could better explain how the C-LEO Scheme will help small but innovative enterprises.

  4. The SAU report also added that the potential for negative impacts of the C-LEO Scheme on international trade and investment could be further examined. This is due to the international nature of the satellite communications industry.

The SAU’s report draws attention to the burgeoning space industry in the UK. It is hoped that the advice provided and the positive views expressed in the report will allow the C-LEO Scheme to lift off smoothly and help the UK space industry to boldly go and invest where no investment has gone before.

Our regulatory risk and compliance team can provide expert knowledge, guidance and support to both recipients and granters of subsidies to ensure that they remain aware of the requirements of subsidy control and can arrive at practical and commercial solutions to any issues faced.