UK: new Subsidy Control Regime in full force

The new UK subsidy control regime is in full force. The Subsidy Control Act 2022 (the "Act"), which has been in force since 4 January 2023, replaces the EU State aid regime in the UK, as well as the interim arrangements based on the UK-EU Trade and Cooperation Agreement during the Brexit transition period.

The Department for Business and Trade ("DBT") (which, as the former Department for Business, Energy and Industrial Strategy, published the Statutory Guidance for the UK Subsidy Control Regime), has explained that the aim is to move away from the EU’s expansive regime to one that is less onerous and more flexible (while still retaining protections for UK competition and investment).

The Act provides public authorities with the power to grant subsidies that are tailored to local needs. Subsidies should be awarded in a way that minimises any negative impacts to competition and investment and in a way that promotes the effective and efficient use of public funds.

Main changes

New definition of ‘subsidy’

The definition in the Act now specifically caters for financial assistance which has, or is capable of having, an effect on competition or investment within the UK, trade between the UK and a country or territory outside the UK, or investment as between the UK and a country or territory outside the UK. The previous EU regime only referred to an effect between EU Member States. Otherwise, the definition of a subsidy is expected to be very similar to the definition of “aid” in the EU regime.

Self-assessment

There is no longer a requirement for public authorities to obtain approval from a centralised authority prior to awarding a subsidy, as was the case under the previous EU State aid regime. Instead, public authorities are required to self-assess proposed subsidies or subsidy schemes for compliance with the subsidy control principles specified in the Act.

New subsidy database

By virtue of Articles 32 and 33 of the Act, public authorities are required to establish a database of subsidies that they give, and subsidy schemes that they establish. Should the required reporting thresholds be met, any new subsidies or subsidy schemes awarded are to be published on this database.

This database is now in operation and provides a current list of active subsidy schemes and of all the businesses that have received subsidies under each scheme. The list can be found here.

New Subsidy Advice Unit

Article 68 of the Act requires the CMA to establish a Subsidy Advice Unit (“SAU”), which started operations on the day the new regime came into force. Through its review and monitoring functions, the SAU will support public authorities’ decision-making regarding the design and assessment of subsidies, to help ensure that they are based on a strong assessment of their compliance with the Subsidy Control Requirements. The SAU will provide advice in respect of certain subsidies or subsidy schemes (known as subsidies or schemes of interest (“SSoI”) and subsidies or subsidy schemes of particular interest (“SSoPI”)) referred to it by public authorities, evaluating their Assessment of Compliance with the requirements of the Act.

An authority proposing to grant a subsidy or scheme must refer it to the SAU if it is an SSoPI. A proposed subsidy or scheme will also be referred to the SAU if the Secretary of State directs it to be ‘called-in’; this is known as ‘mandatory referral’. Public authorities should refer to the Guidance in determining whether a subsidy is a SSoPI (or an SSoI). Public authorities are not required to refer SSoIs to the SAU, but they can choose to do so; this is known as ‘voluntary referral’.

Unlike European Commission State aid clearance decisions, the SAU’s advice to public authorities will be non-binding, with public authorities responsible for deciding whether to award a subsidy or make a scheme. The SAU will also monitor and report on the effectiveness of the operation of the Act, and its impact on competition and investment within the UK. The Guidance lists factors which indicate when it might be appropriate to refer an SSoI to the SAU.

The Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022 can be found here, and guidance on the operation of the subsidy control functions of the Subsidy Advice Unit can be found here.

Published awards and schemes can be challenged under the new Act

Article 70 of the Act provides that any interested party who is aggrieved by the making of a subsidy decision may apply to the Competition Appeal Tribunal for a review of the decision.

How does it work

The Act and the Statutory Guidance set out in detail how the new regime will function. There are two self-assessment routes that public authorities can use when granting subsidies or subsidy schemes (dependent on certain factors relating to the subsidy). These are:

• a baseline route, and
• a streamlined route.

When proposing to grant a subsidy or to make a subsidy scheme, public authorities will go through the following process (provided that it does not fall under the requirements for the streamlined route):

• If a public authority wants to grant a subsidy or scheme, first confirm whether it meets the definition of a subsidy.
• Confirm whether the subsidy or subsidy scheme falls within the scope of the NI Protocol or the Multiannual Financial Framework. If yes, the DBT subsidy control team should be approached. If not, proceed to the next step.
• Confirm whether the subsidy or scheme is exempted under the subsidy control regime. If yes, the subsidy should be awarded. If not, move on to the next step.
• Confirm whether the subsidy or scheme is subject to additional conditions, and whether the conditions can be met. If yes, proceed to award. If not, proceed to the next step.
• Confirm whether the subsidy or scheme meets the criteria for a streamlined route.
• Confirm whether the subsidy or scheme meets the criteria for a Subsidy of Interest or a Subsidy of Particular Interest. If yes, consider whether referral to the SAU is mandatory or voluntary. If not, move on to the next step.
• Undertake an assessment of compliance against the principles.

Once this last step is undertaken, provided the requirements are all met, a subsidy or subsidy scheme can then be awarded. Once it has been awarded, the required information should then be uploaded to the transparency database.

The DBT has indicated that the vast majority of subsidies can be granted as long as they can demonstrate compliance via one of two self-assessment routes: either by undertaking a proportionate assessment of compliance against the principles, or through streamlined routes. Streamlined subsidy schemes (or streamlined routes) are voluntary mechanisms that can be used by UK public authorities to give certain subsidies. There will be no need to assess subsidies given under a streamlined route against the subsidy control principles, provided they comply with conditions set out in the streamlined route. There are three streamlined routes, namely (i) for research, development and innovation, (ii) for energy usage and (iii) for local growth.

Who can enforce it

The Competition Appeal Tribunal (“CAT”) has the jurisdiction to review subsidy control decisions. These include decisions to give a subsidy (namely, a standalone subsidy not given out under a scheme or streamlined route), or decisions to make a subsidy scheme (including a streamlined route, for giving out multiple subsidies of a similar type). Amongst other things;

• The CAT can review whether the public authority carried out its duties that are specific to the subsidy control regime (the substantive subsidy control requirements) and can consider whether the subsidy was consistent with the subsidy control principles before deciding to give the subsidy.
• The CAT can also determine whether the subsidy contravened any of the listed prohibitions.

Subsidies and schemes made in devolved primary legislation (i.e. Acts of the Scottish, Welsh or Northern Ireland assemblies) may be reviewed by the relevant higher courts. Subsidies and schemes made in legislation of the UK parliament are not subject to review by the UK courts, but only to review under relevant international arrangements.

Conclusion

It is important to note that although public authorities in the UK are no longer subject to the EU State aid rules, they still need to comply with the Act, and with the UK’s international commitments. It remains to be seen whether the new regime will in fact be more flexible than the EU State aid regime, as promised.

The link to the Act can be found here, and the guidance to the Act can be found here.

For more information contact Peter Willis and Tenisha Burslem Rotheroe.

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