January 2025 saw revised statutory guidance published under the Subsidy Control Act 2022 (the "Act") with some helpful new guidance for public bodies (and recipients of financial assistance from public bodies) that find themselves engaging with the UK subsidy control regime (the "Revised Guidance").

Subsidies from public bodies have been governed by the Act since January 2023. The Act defines what constitutes a subsidy, prohibits certain types of subsidy, and outlines the lawful routes for awarding subsidies. Public authorities are legally required (by section 79(6) of the Act) to "have regard to" the Revised Guidance when giving a subsidy or making a subsidy scheme. While the Revised Guidance does not bind public authorities (or any court reviewing their decisions) as to what the Act does and does not require, it provides useful elaboration on the intended scope of the regime and examples of how it is intended to operate in practice.

The main changes are summarised below:

  • Definition of an "enterprise" carrying on "economic activity" – the Revised Guidance clarifies that:

"where an entity is operating pursuant to a public function in relation to activities where there is no market present, the purpose will not be economic in nature. However, the mere fact of operating with the intent of providing some benefit to the public does not automatically mean an entity is not engaged in an economic activity."

That is not quite what the Competition Appeal Tribunal appeared to suggest (in a passing observation) in Durham Company v Durham County Council based on its interpretation of the words "if it is carried out for a purpose that is not economic" in section 7(2) of the Act. Elsewhere the Revised Guidance has been updated to remove references to recipients offering goods or services for free, presumably on the basis that this was creating confusion about whether free goods or services were by definition incapable of being provided on a market (they are not).

  • Coordination failure as a type of market failure – the Revised Guidance adds a new category of market failure where state intervention is required to remove "first mover risk" – giving the example of electric cars where motorway service stations are waiting for drivers to invest in electric cars, and drivers are waiting for motorway services to invest in charging points.
  • Confirmation that a scheme is "made" for the purposes of the Act when its rules are formally confirmed and put into operation.
  • New guidance on "ringfencing" – the Revised Guidance gives more examples of how the terms and conditions of a subsidy can apply ringfencing provisions to align it with the subsidy control principles (in particular proportionality and minimising competitive distortion). This might include requiring the recipient to set up separate legal entities or implement arm's length accounts, or to set up separate internal governance or management structures, or conditions regarding the permitted use of the funding provided.
  • New hypothetical case studies illustrating more clearly how Minimal Financial Assistance (de minimis) subsidies aggregate with subsidies for Services of Public Economic Interest to a combined aggregate cap of £725,000 in any three year period.
  • More guidance on what to do during the "cooling off period" after a mandatory referral to the Subsidy Advice Unit, including how to properly document the authority's own assessment and analysis of the SAU's feedback and its conclusions on what to do next and why those actions are appropriate in the circumstances.
  • More practical guidance on using the subsidy database, including the use of links to external websites and the precise information to be uploaded including in relation to any referrals to the SAU.

The Revised Guidance continues to develop on some already quite useful statutory guidance on how public bodies should interpret and apply the Act, although in the absence of any court decisions beyond that in the Durham case mentioned above, a number of provisions of the Act remain open to interpretation and therefore present a risk to public bodies providing financial assistance.

SAU reports continue to repeat the same (constructive) criticism of subsidy control principles assessments – suggesting that public bodies are not reading these or are struggling with understanding concepts like market failure and social equity – but more importantly do not even have the ability to engage with the question of whether something should or should not have been approached as a subsidy in the first place.

It remains to be seen how the government will respond to representations made in response to its recent consultation on "Refining the UK subsidy control regime" – but this limited update to statutory guidance suggests that it may be optimistic to expect much.

If you are a public body or commercial organisation looking for advice on how to navigate the UK subsidy control regime, please get in touch with Jamie Dunne or Charles Livingstone.

Contributors

Jamie Dunne

Legal Director

Charles Livingstone

Partner

Flora Henry -
Flora Henry