The UK Government has published a consultation on draft guidance to be issued under the Subsidy Control Act 2022, which received Royal Assent at the end of April. This guidance will be the latest building block in the UK's new regime for controlling how public bodies provide financial assistance to the private sector, alongside:

  • the Subsidy Control Act 2022 itself;
  • regulations setting out which subsidies and subsidy schemes will be "of interest and of particular interest" based on monetary thresholds (including lower thresholds for specified sectors);
  • regulations setting out what information should be submitted to the UK subsidy database;
  • regulations on the methodology for calculating the gross cash equivalent of subsidies;
  • regulations modifying the powers of the Competition and Markets Authority ("CMA") under the United Kingdom Internal Market Act 2020; and
  • provision for "oven ready" subsidy schemes known as "streamlined subsidy routes".

The passage of the 2022 Act was a significant milestone in the UK's transition to a post-Brexit regime of subsidy regulation, which was formerly governed by EU State aid law, and when it comes into force (anticipated to be later this year) this will take over from the directly applicable provisions of the Trade and Cooperation Agreement between the UK and the EU ("TCA"), which requires the UK to implement a system to control how public bodies grant subsidies.

While the new subsidy control regime has been presented as a post-Brexit opportunity for the UK to depart from EU law, it does not mark an especially significant shift from the approach taken by EU State aid law.

What does the 2022 Act do?

We previously wrote about the Act when the Bill was introduced, but the key takeaways can be summarised as:

  • Public bodies will need to apply new Subsidy Control Principles – once the Act is in force, public authorities giving subsidies will need to consider the "subsidy control principles", and must not give a subsidy unless they are of the view that the subsidy is consistent with those principles. Some of the subsidy control principles will require authorities to undertake a complex and nuanced analysis on a case-by-case basis, for example in order to consider the effect of a subsidy on competition and investment within the UK. Public bodies will have to self-certify compliance with these principles, reinforcing the importance of making sure any subsidy is compliant with the Act at an early stage.
  • Public bodies will need to comply with new transparency requirements – the Act requires public authorities to publish information on a central database about certain subsidies they have given and subsidy schemes they have made, where the value of the subsidy exceed £100,000.
  • There is a new de minimis threshold – the "minimal financial assistance" rule introduced by the Act is similar to the de minimis rules around State aid, and applies if the total amount of financial assistance given by the public authorities does not exceed £315,000 across a rolling three-year period (a decrease on the threshold under the TCA designed to future-proof against exchange rate fluctuations).
  • The Competition and Markets Authority ("CMA") will have a scrutiny role – the Act establishes a new Subsidy Advice Unit within the CMA to scrutinise subsidies designated as being "subsidies of interest" and "subsidies of particular interest". A "subsidy of particular interest" must be referred to the CMA before it is given, and cannot be given until the CMA has issued a report (or its period for doing so has expired). As noted above draft regulations have been published which indicate that those will be defined based on financial thresholds alone – a subsidy will be a "subsidy of particular interest" if it exceeds a figure proposed to be between £5million and £10million, and a subsidy will be a "subsidy of interest" if it exceeds a lower threshold (proposed to be between £1million and £5million).
  • But enforcement will be for the Competition Appeal Tribunal ("CAT") – a person whose interests are affected by the giving of a subsidy who objects to that subsidy can apply to the CAT, which has powers to determine if the decision to give a subsidy or create a scheme is lawful under the Act and, if not, to order recovery of the subsidy. This will be on a judicial review basis – so ultimately if a public body decides that a subsidy complies with the subsidy control principles noted above, the CAT will only be able to overrule that decision in quite narrow circumstances and not simply if it disagrees with the public body's decision. Subsidies given by devolved legislatures will be reviewable by the courts rather than the CAT.

While the CMA cannot prohibit public authorities from giving subsidies, if the CMA issues a report concluding that a particular subsidy is not consistent with the Act's requirements, it is significantly more likely to be challenged by way of judicial review proceedings in the CAT.

What does the draft guidance add?

The guidance should provide significant assistance to public bodies in applying the Act and complying with their duties under it, including:

  • Deciding whether support constitutes a subsidy (including what is the date on which the subsidy is given, and examples of what will not constitute a subsidy);
  • Deciding whether a subsidy complies with the subsidy control principles (and particularly in respect of subsidies or schemes of interest or of particular interest);
  • How to make use of the de minimis threshold to give "Minimal Financial Assistance", including how cumulation works;
  • Giving assistance for the provision of services of public economic interest (i.e. subsidising essential services to the public in cases of market failure) including how to make use of a special, higher de minimis threshold for these kinds of subsidy;
  • How to interpret the specific prohibitions on certain kinds of subsidy, including to ailing or insolvent businesses;
  • How referrals to the CMA's Subsidy Advice Unit will work;
  • How to comply with the transparency requirements, including for schemes and subsidies made under schemes;
  • How the provisions for challenging a subsidy or scheme will work (though the guidance is not, for the avoidance of doubt, binding on the CAT itself);
  • Recovering "misused" subsidies; and
  • How subsidies given in primary legislation will be dealt with – a matter of particular significance to devolved legislatures.

Time to move on

Since the end of the Brexit transition period, most public authorities have adopted a cautious approach of continuing to comply voluntarily with the more stringent State aid requirements, on the basis that doing so was likely to ensure compliance with the more permissive TCA regime.

The usefulness of that approach is about to expire. While the main provisions of the Act are not in force (yet), as the UK Government confirms more of the detail of how the new regime will work, public authorities can begin to prepare the changes to their own procedures to reflect the new world in which they will be working. This draft guidance fills in most of the remaining gaps in understanding how that will be different from the State aid regime – so, while applying State aid practices was a prudent approach while the new regime took shape given the high level nature of the TCA, it's now time to get ready for subsidy control, UK-style.

The consultation is open until 10 August 2022.

Contributor

Jamie Dunne

Senior Associate