What are the common issues arising from Subsidy Advice Unit referrals?

Scheme or Subsidies of Particular Interest (SSoPI) are those subsidies granted over £5 million in sensitive sectors, or over £10 million outside sensitive sectors (individually or cumulatively). Sensitive sectors includes producing metals, electricity, vehicles, air craft, space craft, ships and floating structures.

SSoPIs are considered to carry a higher risk of distorting competition, and are therefore subject to mandatory referrals to the Subsidy Advice Unit under the Subsidy Control Act 2022 (the Act). Referrals help ensure that there is a higher level of scrutiny on subsidies which could distort national and international competition and investment. In making the referral, the Subsidy Advice Unit is tasked with reviewing a public authority’s assessment of the subsidy against the subsidy control principles set out in Schedule 1 of the Act, and, where applicable, the energy and environment principles in Schedule 2.

Following mandatory referrals, the Subsidy Control Unit publishes advisory reports setting out key findings and areas for improvement in the public authority’s assessment. The reports are non-binding, and do not confirm whether the SSoPI is lawful. Public bodies are not obliged to amend their subsidy control assessments in light of the reports. 

Since the Act came into force on 4 January 2023, there have been nine reports published by the Subsidy Advice Unit, with another three to be published in the coming weeks. The Subsidy Advice Unit’s reports, whilst advisory in nature only,  provide useful insights for public bodies preparing future subsidy control assessments.

Some of the areas identified for improvement in the reports include:

• focusing on specific policy objectives not high level strategies, exploring market failures to support the policy objective and linking the policy objectives to the aims of the subsidy (Principle A);
• evidencing how the level of subsidy was determined and modelling the impacts of different levels of support, and linking the proportionality and necessity analysis to the policy objectives (Principle B);
• assessing what would happen in the absence of the subsidy to help identify the changes in economic behaviour and the impacts on competition and investment (Principle C);
• ensuring the subsidy would not subsidise costs that would have been funded in any event, and not using the subsidy to cover day-to-day operational expenses (Principle D);
• reviewing alternative policy tools and considering alternative ways of achieving the policy objectives (Principle E);
• reviewing, in detail, the positive and negative impacts on competition and investment and potential distortions, and assessing the activities/services individually (Principle F); and
• systematically assessing the positive and negative effects of a subsidy, explaining the balancing exercise and the conclusion that the overall balance is positive (Principle G).

More general points for improvement include following the statutory guidance more closely, and ensuring conclusions are clearly reasoned and supported by up to date evidence. 

Whilst the reports are non-binding, it is important to remember that a thorough evidential based subsidy control assessment, may reduce the likelihood of a SSoPI being legally challenged. 

If you would have any queries about subsidy control assessments, or would like further information on subsidy control please contact our Public Sector team. More details on subsidy control can also be found in our bitesize series.