Following the UK’s departure from the EU, and the end of the Transition Period on 31 December 2020, the EU State aid rules largely no longer apply to subsidies granted in the UK. The UK is, however, still bound by its international commitments on subsidy control, including those agreed through free-trade agreements.
As a result of the Trade and Co-operation Agreement (“TCA”) made between the UK and EU, there are various subsidy control measures (the “TCA Subsidy Control Measures”) that must be followed. The UK is also a party to the World Trade Organisation’s Agreement on Subsidies and Countervailing Measures, however these measures only apply in limited circumstances.
This article focuses on the current subsidy control regime under the TCA Subsidy Control Measures, and the proposed changes to subsidy control in the UK.
The TCA Subsidy Control Measures are currently in force in the UK, and aim to prevent market distortion through the granting of an unfair economic advantage. They come into play whenever a public body seeks to grant financial assistance (such as a grant or loan) to an economic actor. An economic actor is any entity which trades goods or services on a given market, regardless of its legal status. If a form of financial assistance meets the definition of a subsidy under the TCA, the six Principles set out in Article 366 must be applied on a case-by-case basis to establish whether the subsidy has been awarded in compliance with the terms of the TCA. It is essential that the body awarding the subsidy can demonstrate that the subsidy meets the Principles, as evidence of compliance can be requested by the UK and the EU where a subsidy could have a negative effect on trade or investment between the UK and EU.
There are prohibited subsidies under the TCA (for example, subsidies in the form of an unlimited guarantee), and also exceptions to the TCA Subsidy Control Measures, including (but not limited to) subsidies related to the audio and visual sector, and subsidies where the total amount granted to a single economic actor is below 325 000 Special Drawing Rights over any period of three fiscal years (akin to the previous De Minimis rule).
Unlike the State aid regime which had specific provisions for the recovery of illegal subsidies, under the TCA, if a party wishes to challenge an award of a subsidy, interested parties can do this by way of judicial review. Any challenge must be bought within one month of the subsidy information being made public on the transparency database.
The Government introduced the Subsidy Control Bill in June 2021, and this is currently at Committee Stage in the House of Commons. If approved, this will provide a legal framework for public authorities to award subsidies in line with the UK’s subsidy control principles. The Government’s aim is to make the new regime more flexible and less bureaucratic.
Under the new regime, public authorities will be required to undertake an assessment to establish whether the subsidy complies with seven main principles which largely mirror those under the TCA. A subsidy should not be awarded unless the principles are complied with.
Key features of the new proposed regime include:
The State aid rules have long been a contentious subject for public authorities and UK businesses alike, with many feeling that the “red tape” of the EU hindered investment in UK businesses, and made access to crucial grants and other funding much more difficult. The proposed Subsidy Control Bill indicates a slightly less restrictive approach than the former State aid regulations, combining key protections to safeguard against market distortion with a streamlined assessment process for low risk subsidies so that access to funding is not hindered by excessive assessments and regulations. In theory, the proposed Bill should help more businesses access state funding however whether it will achieve this practice (if enacted) remains to be seen.
Ashfords' Public Sector team regularly advise on compliance with the current subsidy control measures, and can assist with applications for grant funding from Government schemes. For further details on the Subsidy Control Bill, or any assistance with Subsidy Control Measures and applications for grant funding, or any other public sector or procurement queries, please contact our Public Sector team who will be more than happy to assist you.