The UK’s subsidy control regime has been subject to significant change in recent years. From 31st December 2020, the old EU state aid regime was disapplied in all but a minority of cases. Trade agreements such as the EU-UK Trade and Cooperation Agreement now set out the UK’s international commitments to subsidy control. Potentially the most significant development domestically has been the coming into force of the Subsidy Control Act 2022, which implements these commitments and sets out a new procedure for subsidy assessment. Going forward, public authorities and those in receipt of subsidies should ensure that they are familiar with the requirements of the new regime - failure to comply can result in recovery of both the subsidy and interest.
In order to avoid falling foul of the new regime, public authorities should identify whether a proposed transaction is likely to be considered a subsidy at an early a stage as possible. Broadly, a transaction will be a subsidy if it:
- is financial assistance from public resources that is given by a public authority (whether directly or indirectly);
- confers an economic advantage on one or more enterprises;
- is specific; and
- has or is capable of having either: (i) an affect on competition or investment in the United Kingdom; and/or (ii) an affect on trade or investment between the United Kingdom and other jurisdiction(s).
In practice, a wide variety of transactions can be classed as subsidies including grants, loans, use of facilities, tax reliefs, and even procurements and licences if not concluded on market rates.
Where a subsidy is identified, the public authority should identify a legal route to making the award, and ensure that it complies with the requirements of that particular route. Most commonly, this is likely to be done through the Minimal Financial Assistance route or the subsidy control principles. The Minimal Financial Assistance route will only be available where the beneficiary receives up to £315,000 in subsidies in the period comprising the then current financial year and the two previous financial years. Otherwise, public authorities are likely to rely on an assessment of the subsidy against the seven principles contained in Schedule 1 of the Subsidy Control Act 2022. This will essentially require public authorities to look at the potential benefit of the subsidy, and to test the subsidy for proportionality and effectiveness. While these are likely to be the two most common routes to awarding subsidies, other routes to compliance are also available. For example, public authorities may choose to use existing schemes, Streamlined Subsidy Schemes, or the Services of Public Economic Interest Assistance route. Regardless of the route that is chosen, however, a proper consideration of the subsidy against the requirements of the scheme will need to be conducted, and public authorities would be well-advised to evidence that assessment for use in the event of any challenge to the award. Where a route requires certain procedural steps such as the obtaining of declarations from beneficiaries, the public authority will be responsible for ensuring compliance.
Public authorities should be aware that certain types of subsidy are prohibited under the Subsidy Control Act 2022, and will need to carefully consider whether the subsidy they intend to award could be classed as a prohibited subsidy.
Public authorities should also remain mindful of their duty to notify. Where a proposed subsidy is classed as a Subsidy or Scheme of Particular Interest, the public authority will be required to refer the proposed subsidy to the Subsidy Advice Unit prior to the award being made. Where a proposed subsidy is classed as a Subsidy or Scheme of Interest, the public authority will be able to voluntarily refer the proposed subsidy to the Subsidy Advice Unit for review either before or after making the award.
In the interests of transparency, the new regime also requires public authorities to accurately enter details of subsidy awards and subsidy schemes to a central database. Database entries must be updated in the event that the subsidy is modified.
Public authorities should remember that a subsidy can be challenged before the Competition Appeals Tribunal by anybody whose interests may be affected by the awarding of the subsidy. Such persons can request relevant information from public authorities for the purpose of deciding whether or not to appeal the subsidy, with the public authority having a 28 day period in which to furnish the requested information.
At Thorntons, we have experience advising in relation to subsidy control compliance, and will be happy to assist you in navigating the new framework as it applies to your activities.
