In a previous blog we noted that the UK Government was consulting on potential changes to improve the operation of the UK subsidy control regime. That consultation concluded on 21 January and the Government has now issued its response.

The consultation

The Subsidy Control Act 2022 (the "Act") replaced the previous EU State aid system with a domestic UK subsidy control regime, in order to comply with the UK's obligations under the post-Brexit Trade and Cooperation Agreement with the EU. The consultation focused on potential reforms to two specific aspects of the Act:

  • The threshold for referring subsidies to the Subsidy Advice Unit ("SAU")

The Act provides for two types of subsidy to be referred to the SAU (a specialist unit within the Competition and Markets Authority): subsidies or schemes of interest (''SSoI'') and subsidies or schemes of particular interest (''SSoPI''). SSoPIs must be referred to the SAU before they can be given, whereas SSoIs may be, but this is at the discretion of the public authority giving the subsidy. If a subsidy is referred, the SAU's report on it is not binding on the public body making the referral, but it will have to consider the report – see for example our previous blogs on reports to Birmingham City Council, the Department for Business and Trade, and Transport Scotland.

It is also at the discretion of the SAU whether to accepta voluntary referral of an SSoI, and several public bodies who have tried to make use of this function have found the SAU rejecting their referral due to a lack of capacity to consider it.

The consultation sought feedback from public bodies and other stakeholders on whether the thresholds had been set at the right level, or whether too many (or not enough) subsidies were being caught by the existing thresholds.

  • The creation of additional Streamlined Routes

The Act allows ministers to create "Streamlined Routes". These are a class of subsidy scheme made by the UK Government, which act as a sort of block exemption for subsidies that meet certain conditions. Subsidies which are eligible to be given using a streamline route do not need to be the subject of a principles assessment by the public body, thus fast tracking the process for providing routine and low risk subsidies. The consultation sought feedback on how these streamlined routes are operating and whether they can be expanded into other sectors.

The government's response and intended next steps

A range of responses were received from public authorities, law firms and other organisations including the CMA itself. Most sought increases to the SSoPI and SSoI thresholds and the expansion of streamlined routes.

In its response to the consultation the Government has announced its plans to make the following amendments to the subsidy control regime:

  • The mandatory referral threshold for subsidies or schemes of particular interest in non-sensitive sectors will be increased from £10 million to £25 million

The aim behind this change is ostensibly to ease the burden on the CMA, allowing it to focus on higher value subsidies, and reduce the administrative burden on public authorities when awarding lower value subsidies. However, other features of the referral regime will remain the same – including the list of sensitive sectors, the threshold for sensitive sectors, and the existing definition of SSoIs.

As a reform this is underwhelming even in the context of what the government could have done without primary legislation. It would have been possible, for example, to introduce a separate category of sectors or geographic regions that benefited from even higher thresholds. At the same time, while in theory the focus on higher value subsidies might allow the CMA more capacity to accept voluntary referrals of subsidies that might actually benefit from their analysis, the odds of that seem slim in light of mooted job cuts at the CMA.

  • The government plans to introduce two new Streamline Routes, one with a focus on arts and culture and one with a focus on community regeneration.

The government identified these areas as ones where public authorities will regularly look to award low-risk subsidies, and the introduction of a Streamline Route could greatly facilitate this process. In time they may also be expanded to include natural heritage (within arts and culture) and local infrastructure (within community regeneration). The devil will of course be in the detail, and we await publication of drafts of these.

It is interesting to note the government's statement that "generally, responses viewed Streamlined Routes as an effective policy instrument". More consistent with our experience was the fact that a majority of respondents described the process as bureaucratic and restrictive, especially as regards the R&D and local growth routes (the latter of which seems largely pointless). Nothing in the response suggests that the government will take steps to remedy the issues with those routes – in particular the low value and aid intensity limits.

These changes are intended to ease some of the administrative and procedural burdens which have so far been affecting the operation of the subsidy control regime.

The changes that the government proposes can all be made by secondary legislation and the response indicates that regulations will be laid before Parliament in the second half of 2025. Further updates to the statutory guidance may also be considered in light of some of the responses to the consultation.

Unfortunately we will have to wait for 2026 for the CMA's first report on the effectiveness of the subsidy control regime. Genuine reform to the regime will almost certainly not be forthcoming before then.

If you would like to discuss any of the matters discussed in this post, please do not hesitate to get in touch with Jamie Dunne, Charles Livingstone or your usual Brodies contact.

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Jamie Dunne

Legal Director

Charles Livingstone

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Sara Malekianpour