The Department for Business and Trade has launched two new streamlined routes for subsidies: one for Arts and Culture, and one for Community and Regeneration.
These routes are designed to help public authorities to award specific kinds of subsidies at a significantly reduced administrative burden and legal risk, but they can only be used where certain conditions are met. Below, we consider how the new routes work, their potential uses and their key limitations.
The routes are currently before Parliament but have come into immediate effect subject to any vote to reject them. They can be used immediately but if either route is voted down it will be treated as never having been in place, with potential repercussions for any subsidy given under it before then.
The concept of a “streamlined route”
Under the Subsidy Control Act 2022 (“SCA”), a public authority is permitted to grant a subsidy (unless it is a prohibited subsidy) but can generally only do so if it is satisfied that the subsidy is consistent with the seven subsidy control principles listed in the SCA. This will normally require the public authority to conduct an appropriate assessment of the subsidy’s purpose and conditions, though some lower value subsidies can be given without. Establishing that a subsidy is consistent with the principles in an assessment can require complex and nuanced analysis to understand the full effect that the subsidy will have (both positive and negative) on the recipient and the broader market.
Some categories of subsidies that are deemed to be at particularly high risk of distorting a market are also subject to mandatory referral to the Competition and Markets Authority (“CMA”).
Just as those high risk categories attract additional scrutiny, the SCA also provides for the creation of what are formally named ‘streamlined subsidy schemes’ by the UK Government to remove the burden of a case-by-case assessment for subsidies that are deemed to be lower risk. These schemes, more commonly called streamlined “routes”, are not mandatory regimes but provide public authorities with an alternative mechanism for lawfully providing those kinds of subsidies.
Provided a subsidy is awarded in accordance with the terms and limitations of a streamlined route, it will be deemed compliant with the subsidy control regime and cannot be challenged under the SCA. Public authorities are not required to conduct a subsidy control principles assessment or to submit the subsidy to the CMA for review. While general public law grounds of challenge may remain available, the routes therefore enable public bodies to award subsidies more quickly, more easily, and with less legal risk.
Arts and Culture
The new Arts and Culture Streamlined Subsidy Scheme is designed to enable public authorities to sustain and support the development of arts and cultural activities and make culture more affordable and accessible. Subsidies may support activities across three categories:
- Arts, Creativity and Culture: traditional and contemporary art forms, including visual arts, music, theatre, dance, literature, linguistic/cultural expression, and combined arts;
- Screen: film, television, digital media and video sharing, extended reality (XR), and video games; and
- Cultural Heritage: museums, archives, historic sites, libraries, collections, and intangible heritage (including folklore and linguistic culture).
Within each of these categories, subsidies can be put towards revenue costs, capital expenditure costs, and project costs.
Given the above, the scope of the scheme is potentially very broad. It is, however, subject to a series of conditions designed to ensure that the distortive effects of subsidies provided under it are limited. Eligible costs are limited to those strictly necessary for the project or activity to proceed. The general prohibitions outlined in sections 15 to 29 of the SCA also continue to apply: subsidies cannot, for example, be used to restructure an ailing or insolvent enterprise.
In addition, there are limits on the amount which can be awarded (ranging from £6 to £15 million in any period of three financial years depending on the category of the award and the size of the receiving enterprise) and on the maximum subsidy ratio for the award (the proportion of the total cost covered by the subsidy). In any event, a public authority giving a subsidy under the streamlined route must give the lowest amount required to achieve the objective of the funding.
Community and Regeneration
The Community and Regeneration Streamlined Subsidy Scheme provides a means for public authorities to promote local communities and drive economic growth across two distinct ‘strands’:
- Community: subsidies to support the acquisition, renovation, creation and operation of “community infrastructure” (facilities and spaces that provide services and resources to local communities); and
- Regeneration: subsidies to regenerate brownfield land and underused buildings, including acquisition, remediation and some development costs.
This goes some way beyond the previous (and still existing) “local growth” streamlined route which did not provide an effective means of giving subsidies for regeneration purposes.
As with the scheme for arts and culture, each of the above strands are subject to restrictions, including on the purposes to which the subsidy may be put and the associated amounts. The funding limits reflect that the Community strand is aimed at supporting small-to-medium projects (with total funding capped at £3 million) and the Regeneration strand at larger projects (with total funding capped at £12 million per project). There is no maximum subsidy ratio prescribed for the Regeneration strand, but the subsidy amount given may not exceed the project’s determined “viability gap”. More broadly, all eligible costs must be limited to those strictly necessary, and the general prohibitions from the SCA continue to apply.
Implications
Public authorities enjoy significantly more leeway to give subsidies under the SCA than under the previous EU State aid regime, in particular because they can decide for themselves whether and when a subsidy is justified., The administrative challenges of providing subsidies in compliance with the SCA, however, continues to discourage public authorities from making as much use of that freedom as successive UK Governments have hoped.
The aim of these new streamlined routes is to provide public authorities with an easier means of granting subsidies which have the potential to boost growth and local regeneration across the UK without significantly distorting competition or investment. The new routes are significantly more relevant to most local authorities than the existing options and should be strongly considered for any project which involves funding cultural or regeneration projects. They are, however, subject to strict conditions and limits. Any purported use of a streamlined route in respect of a subsidy which does not meet the criteria would be at risk of legal challenge (which may ultimately see the recipient ordered by a court to return all of the money it had received).
While granting a subsidy under a streamlined route may require less work than a full subsidy control principles assessment, a public authority seeking to use such a route should nonetheless carefully consider whether the proposed route properly applies to the subsidy it wishes to give.
If you would like to discuss how your organisation could use the new streamlined routes, or the effect of the Subsidy Control Act 2022 more generally, please contact Jamie Dunne, Charles Livingstone, or your usual Brodies contact.
