Subsidy Control Act 2022 – What are the new features of the Subsidy Control Regime?

An article from the regulation and markets team highlighting and discussing the new features of the UK’s Subsidy Control Regime.

23rd December 2022
stack of papers

Introduction

The Subsidy Control Act 2022 (“Act”) will come into full force and effect on 4 January 2023 and implement the UK’s reformed subsidy control regime.  The new rules on subsidy control have been brought in to replace the previously applicable EU State aid laws following Brexit.  Much of the law is similar however there are some key differences that both public bodies granting subsidies and competitors of those receiving subsidies should be aware of. 

Public authorities will need to consider a number of new factors to ensure their compliance with the changed law.The Department for Business, Energy and Industrial Strategy (BEIS) has published useful guidance providing an explanation of the Act.  The Scottish Government has also published guidance to help Scottish funding bodies understand their obligations. The focus of this note is to draw attention to the new features of the subsidy control regime and how they differ from EU State aid rules.

Definition of Subsidy

The definition of “subsidy” can be found at section 2(1) of the Act and largely follows the definition under EU State aid, however public bodies must now assess whether the financial assistance to be granted is capable of having an effect on “competition or investment within the United Kingdom”.  This is in contrast to the EU State aid definition which is concerned with the effect that financial assistance could have between Member States.

Subsidy Control Principles

The subsidy control principles are set out in Schedule 1 of the Act and are largely similar to the principles set out in the UK-EU Trade and Cooperation Agreement (TCA).  There are seven general principles that all subsidies must be assessed against before they are awarded and there are an additional nine principles that are applicable only to energy and environmental subsidies.

It is important to note that there is a new UK-focussed principle that states that “Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.”  This is another example of where the subsidy control regime diverges from the TCA and concentrates further on the effects of subsidies within the UK.

Subsidy Advice Unit

Section 52 of the Act outlines where a subsidy must be referred to the CMA’s Subsidy Advice Unit (SAU).  This referral system presents a procedural change that, while not a barrier to granting subsidies, should be factored in when assessing timelines.  Generally, any subsidy with a value of over £10m will need to be referred to the SAU, however in certain circumstances smaller subsidies must be referred, for example where the recipient is an ailing or insolvent enterprise and there is a need to restructure.  These are known as subsidies of particular interest – an SoPI.  A subsidy can also be referred voluntarily to the SAU under section 56 of the Act by the granting authority where it meets certain conditions for it to be considered a subsidy of interest – an SoI.  The SAU will provide an opinion on the validity of a subsidy within a period of 30 working days and a positive opinion would make that subsidy very difficult to challenge once granted.

Criteria to determine whether a subsidy can or must be referred to the SAU can be found in The Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022.  The UK government has also published guidance on the operation and functions of the SAU.

Transparency Database

Any awarded subsidy that has a value of over £100,000 must be entered into the subsidy transparency database, usually within three months of award, per section 33 of the Act. This includes subsidies classed as SPEI and minimal financial assistance which is discussed below.  Details of the information that is required to be published are set out in The Subsidy Control (Subsidy Database Information Requirements) Regulations 2022.

Minimal Financial Assistance

There is an exemption from the majority of the subsidy control requirements where the subsidy amount awarded is low.  Section 36 of the Act states that where subsidies awarded to a single enterprise total less than £315,000 over a period of three years, they are exempt from the subsidy control regime and are considered to be minimal financial assistance (MFA).

Similarly, section 38 of the Act states that subsidies granted for services of public economic interest (SPEI) over a period of three years and cumulatively totalling less than £725,000, will also be exempt from the majority of subsidy control requirements and are considered MFA.  SPEI are similar to services of general economic interest in EU State aid law and cover activities in the public interest such as public transport or postal services.

It should be noted that MFA subsidies remain subject to the transparency rules described above.

Streamlined Routes

Streamlined Routes are a new feature under the subsidy control regime, however they work similarly to the EU General Block Exemption Regulation in EU State aid law.  Streamlined Routes allow public authorities to provide subsidies without the need to assess those subsidies against the subsidy control principles.

As it stands, there will be Streamlined Routes for subsidies relating to:

  • research, development and innovation;
  • energy usage; or
  • local growth.

However, these may expand over time.

The UK Government has assessed that these areas are low risk and any subsidies granted in these areas are unlikely to cause market distortion where it is ensured that the subsidy satisfies the specific eligibility criteria, terms and conditions.

BEIS has published a number of draft documents to detail how subsidies may be awarded through the Streamlined Routes.  Subsidies granted under the approved streamlined routes also avoid the need to be reported to the SAU where they otherwise would be.

Challenges

Part 5 of the Act deals with the enforcement of the subsidy control regime and specifically section 70 details how a decision to grant a subsidy may be appealed.  Where an interested party wishes to challenge the decision to grant a subsidy they may apply to the Competition Appeal Tribunal (CAT) to review the decision.  Parties that wish to appeal must submit a notice of appeal to the CAT within one month of details of the award becoming public.  These ex-post challenges are in contrast with the ex-ante scrutiny of EU State aid law.  An appeal to the CAT in this context is in effect an application to judicially review the decision to award the subsidy as the tribunal must apply the principles of judicial review when considering the appeal.

The subsidy control regime may be viewed as relatively friendly to interested parties considering challenging a decision to grant a subsidy.  Section 76 of the Act allows an interested party to make an information request to a public authority about a subsidy or subsidy scheme that they have granted or created and will likely be used to probe contentious subsidies before a formal challenge is raised.

Conclusion

From 4 January 2023, UK public authorities will need to ensure compliance with the Act, and also the EU/UK Withdrawal Agreement where subsidies could have an impact on Northern Ireland.  It will likely take time for regulators and public bodies alike to become comfortable with the operation of the new regime and its differences from the previous EU State aid rules.  We will provide further updates as and when BEIS publish more detail on the implementation of the Act and will monitor how the Act is followed and enforced when it takes effect.