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Subsidy Control – what is it and what’s changing?

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 current position under the TCA

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.

What’s changing?

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:

  • Low Risk Subsidies: A streamlined route will be set up for low risk subsidies, with public authorities only needing to demonstrate that the subsidy meets the stated compliance criteria for that route.
  • Energy and Environment: Special categories of energy and environmental subsidies will be created which will have additional principles to comply with.
  • Subsides of Interest: If a subsidy is likely to have a higher likelihood of distortive effect on UK competition and investment and international trade, public authorities will be encouraged to carry out a more extensive compliance assessment of the subsidy and can request that the UK Subsidy Advice Unit reviews the assessment, and provides non-binding advice on compliance and how the design of the subsidy can be improved.
  • Subsidies of Particular Interest: If a subsidy has the highest likelihood of having distortive effects, the assessment of compliance must be reviewed by the UK Subsidy Advice Unit, and the public authority must wait 5 working days following the report by the Subsidy Advice Unit before the subsidy can be granted.
  • Subsidy Advice Unit: The Secretary of State can also require public authorities whose subsidies threaten to distort competition and investment within the UK to receive advice from the Subsidy Advice Unit. Again, 5 working days must pass following the report before the subsidy can be awarded. The Subsidy Advice Unit can also retrospectively review an assessment of compliance for a subsidy if required by the Secretary of State.
  • Exemptions: There will be exemptions to the regime, including a minimum financial assistance exemption of less than £315,00.00 over three years, a national/global emergency exemption, an exceptional circumstances and natural disasters exemptions, a safeguards defence/national security exemption and a services of Public Economic Interest (SPEI) valued at less than £725,000 over three years exemption.
  • Challenges and Remedies: Under the Subsidy Control Bill, interested parties will be able to challenge subsidy decisions by way of judicial review in the Competition Appeal Tribunal, which will be able to make a recovery order if a subsidy does not comply with the requirements in the Subsidy Control Bill. Challenges must be bought within one month of the subsidy decision being made public.

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.

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