It has now been over two months since the Subsidy Control Act 2022 (“Act”) received Royal Assent. The Act is not due to come into force until the autumn, but Government earlier this week issued draft guidance for consultation on the practical application of the regime. Below we set out the main issues that both grantors and recipients of subsidies need to be aware of under the new regime.
What does the Act do?
A subsidy may arise where a public body provides financial assistance (e.g. a grant, loan, tax-break, guarantee or investment) to an enterprise that gives the entity an advantage over its competitors.
Previously, subsidies were governed by EU State Aid rules. Brexit led to the disapplication of EU State Aid law in the UK, except in regard to subsidies which could affect trade between Northern Ireland and the EU (in line with Article 10 of the Northern Ireland Protocol). Consequently, the UK has the flexibility to design its own bespoke subsidy control regime tailored to its strategic interests.
The key points of note are:
Greater flexibility: The Act creates a new UK-wide subsidy regime which will enable public authorities to grant subsidies and create subsidy schemes by self-assessing proposed subsidies and schemes against a set of prescribed Subsidy Control Principles to satisfy themselves that the subsidies are compliant with the Act. In contrast to the position under EU State Aid law, the authority does not need to obtain permission from a regulator (e.g. the European Commission) before granting the subsidy. However, subsides which pose a higher risk of adversely impacting domestic or international competition and investment – labelled in the Act as “Subsidies of Interest” and “Subsidies of Particular Interest” - are subject to an enhanced level of scrutiny from the newly formed Subsidy Advice Unit in the Competition and Markets Authority.
Transparency: Public authorities will be required to disclose certain information regarding subsidies granted and subsidy schemes created on the Government’s Subsidy Control Database. Authorities will also be under a duty to provide “pre-action information” where this is requested by third parties to demonstrate the lawfulness of the subsidy.
Minimal Financial Assistance: Similar to the de minimis exemption under the State Aid rules, the above requirement to assess against the Subsidy Control Principles and the transparency obligation do not apply where the subsidies to an enterprise do not exceed £315,000 over a rolling three year period.
Enforcement: In the first instance, interested parties can apply to the Competition Appeal Tribunal (CAT) for a review of a subsidy decision. Appeals to a CAT ruling can be made to the Court of Appeal for awards in England, Wales and Northern Ireland and the Court of Session for awards in Scotland (provided permission to appeal has been granted by the CAT or the relevant appellate court).
The Draft Guidance
The aim of the guidance is to provide a framework for designing and awarding subsidies in a way that is consistent with the provisions of the Act. At 192 pages it is a lengthy document. However, as public authorities have a legal obligation to consider the guidance when granting subsidies, the document will become a constant companion for those involved in assessing subsidies.
The guidance contains some helpful clarifications of the law set out in the Act. For example, it has been made clear that section 2(2) of the Act, which lists measures qualifying as financial assistance from public resources, is not exhaustive. Financial assistance captures any provision of funds, goods or services, regardless of whether anything is received in return and also includes a commitment to provide those things in the future.
Chapter 2 and Annex 1 of the guidance provides detailed notes on each of the four limbs of the subsidy definition. This includes practical examples where assistance would fall outside of the limbs.
Many of the principles and concepts espoused will be familiar to those that have assessed projects under the old State Aid rules. The Market Economy Operator Principle – used to determine whether the financial assistance provides an economic advantage to the recipient over and above that provided in the normal market – is still present in all but name. It has been rebranded as the Commercial Market Operator (CMO) principle.
The guidance also includes more detail on how to apply the Minimum Financial Assistance exemption, including template wording that authorities can use to confirm to a recipient that the subsidy is being given under the exemption (see Chapter 4).
The chapter that is likely to receive the most attention during the consultation is Chapter 3, which sets out how authorities should undertake an assessment against the Subsidy Control Principles. It follows the four-part framework promoted by Government in its illustrative guidance issued in January 2022.
Those interested in subsidy control compliance can provide their comments on the draft guidance by responding to the Government consultation. The deadline for responses is 11:59pm on 10 August 2022.