Subsidy Control Act 2022: another new regime

The Subsidy Control Act 2022 ("The Act") seeks to be permissive rather than restrictive, starting from the point that subsidies are permitted if they comply with specified subsidy control principles. 

New definitions of “subsidy”

The Act’s definition of “subsidy” mirrors the EU State Aid rules definition, but with the addition of domestic effects on competition, as well as trade between the UK and a territory outside the UK.

Subsidy control principles

The Act sets out seven subsidy control principles which, if a subsidy is consistent with, will ordinarily be permitted. Again, there is focus on effects within the UK as well as international trade. The principles are:

• Subsidies should pursue a specific policy objective in order to remedy an identified market failure or address an equity rationale (such as local or regional disadvantage, social difficulties or distributional concerns)
• Subsidies should be proportionate to their specific policy objective and limited to what is necessary to achieve it
• Subsidies should be designed to bring about a change of economic behaviour of the beneficiary. That change, in relation to a subsidy, should be conducive to achieving its specific policy objective and something that would not happen without the subsidy.
• Subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy
• Subsidies should be an appropriate policy instrument for achieving their specific policy objective and that objective cannot be achieved through other, less distortive, means
• Subsidies should be designed to achieve their specific policy objectives while minimising any negative effects on competition or investment within the United Kingdom
• Subsidies’ beneficial effects (in terms of achieving their specific policy objective) should outweigh any negative effects, including, in particular, negative effects on competition or investment within the United Kingdom and / or international trade investment

Streamlined routes

The Act sets out the framework for “streamlined routes” for certain categories of subsidies that pose a low risk to distorting competition. A useful illustrative example of the operation of a “streamlined route” was published by the government in January 2022 and can be found here. We look forward to definitive routes in the future. 

Subsidies and Schemes of Interest

On 1 December 2022, the government published a statutory instrument accompanied by an explanatory memorandum setting out definitions of “subsidies or schemes of interest” and “subsidies or schemes of particular interest”. The former are subsidies which are identified as having potential of leading to undue distortion and/or a negative impact on domestic competition or investment and/or international trade, and may be referred to the SAU (see below) for its advice. The latter have been identified as having a higher potential of leading to the same impacts and must be referred to the SAU for its advice.

Minimal financial assistance exemption

The Act permits public authorities to award low level financial assistance. To rely on the minimal financial assistance exemption, no recipient may receive more than £325,000 over a rolling three-year period. Similar rules apply to services of public economic interest, but the recipient may receive up to £725,000 and still rely on the minimal financial assistance exemption.

Subsidy Advice Unit

The Act establishes a Subsidy Advice Unit (“SAU”) within the Competition and Markets Authority (“CMA”) which will monitor and report on the regime and advice on certain subsidies before and after they are made. The SAU will not have powers to investigate of its own initiative, but will instead provide non-binding advice in the form of reports to public authorities following either mandatory or voluntary referrals.

The SAU will not have the power to approve or prohibit subsidies. It will always be the public authority’s decision to award a subsidy or not. 

Appeals

Appeals must be brought within the Competition Appeal Tribunal following judicial review principles.  The CAT will have the power to order any subsidy to be recovered (in addition to other judicial review remedies).