In a significant judgment handed down on 27 July the Competition Appeal Tribunal (CAT), dismissing the first challenge to a subsidy under the Subsidy Control Act 2022, has found that a public authority (in this case Durham County Council) cannot give a subsidy to itself.
That marks the first decisive shift in the way that the courts interpret the definition of a "subsidy" under the 2022 Act compared to how "State aid" was defined under the old EU-derived rules.
Under State aid law, a public body giving financial assistance could simultaneously be an "undertaking" receiving it when it was carrying out activities on a market (for example, providing leisure services). Under the 2022 Act, the word "undertaking" has been replaced by the concept of an "enterprise", though an "enterprise" is still defined as a "person who is engaged in an economic activity that entails offering goods or services on a market".
The CAT concluded that "the natural reading of the definitions of “public authority” and “enterprise” mean that when a person has been designated a “public authority” that person cannot also be an enterprise in relation to the advantage under consideration." It will still be possible for a public authority to give a subsidy to another public authority.
In other words because a subsidy must be "given...from public resources by a public authority" it cannot also be received by the same entity. That is notwithstanding that the test is almost identical to that under State aid law ("granted...through State resources") and appears to run against the statutory guidance (paragraph 15.14 of which notes that "Some persons may be considered both ‘public authorities’ and ‘enterprises’ with respect of different functions").
The CAT's decision appears to have been strongly influenced by the removal of the word "undertaking" (a term with "a very particular meaning in EU law") and the insertion of the word "person" in the definition of "enterprise". Arguably the decision seeks to prioritise making UK subsidy control rules consistent with other UK legal concepts, including a broader approach to legal personality, over making them consistent with the EU's approach to the same subsidy issues.
It remains to be seen whether the CAT's decision will be appealed. No doubt it will also be looked at closely for its compatibility with the UK's obligations under the Trade and Cooperation Agreement with the EU, which sets subsidy control rules that the 2022 Act is meant to implement.
In the meantime, though, this judgment will be significant for any public bodies (perhaps most particularly local authorities) that deliver "market" activities, from leisure centres to housebuilding programmes. If nothing else, doing so will become markedly simpler without any need for an assessment against subsidy control principles. There may be more surprises to come as other new definitions come before the courts for consideration.
If you would like to discuss this or any other UK subsidy control issue please contact Jamie Dunne, Charles Livingstone or your usual Brodies contact.
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