UK Subsidy Control Regime

Chambers and Partners’ new Principle Research Specialist for Competition law, Michael Foulkes, will be producing a series of articles over the coming months about market trends and other interesting topics in the jurisdiction being researched that month.  To tie in with the research into UK solicitors and UK barristers that is being carried out across January and February, the first article looks at the UK’s new Subsidy Control Regime

Published on 17 February 2023
Written by Michael Foulkes
Michael Foulkes

The start of the new UK Subsidy Control Regime

January 4th 2023 was a significant day.  Not simply because it was my birthday but because it marked the start of the new UK Subsidy Control Regime.

Following the UK’s departure from the European Union, the EU’s Treaty provisions and regulations on state aid were no longer applicable – with the exception of Northern Ireland where the Northern Ireland Protocol meant that EU state aid laws still apply to the trade in goods and electricity.  The EU regime was initially replaced by interim legislation under the Trade and Cooperation Agreement and this has now, largely, been replaced by the Subsidy Control Regime.

Obviously, the new Regime is still very much in its infancy and no cases have yet been brought to litigation (though the decision in the Bulb administration case towards the end of this month may act as the first case law in some respects), but what key points do companies and public bodies need to be aware of under the new regime?  To get some idea I spoke with Aidan Robertson KC of Brick Court Chambers, Kieron Beal KC of Blackstone Chambers and Alexander Rose of DWF.

The Political Background

The intention of the new regime is to be a more ‘light touch’ approach to subsidy control.  One of the key political tenets of Brexit was the desire to gain greater freedom and this can be seen in the tone of the new Subsidy Control Regime.  Whereas the EU legislation provides a general prohibition against state aid unless it falls under one of the exempt categories, the new UK regime places a greater emphasis on subsidies being legal unless they are challenged.

The regime was largely designed at a time when the government was heavily focused on its levelling up agenda.  It would in theory allow local authorities greater freedom to support local businesses in an attempt to help bridge the North-South divide.  However, unlike the EU state aid regulations, the Subsidy Control Act does not specifically encourage investment in particular areas, such as environmental protection, and it is left to the discretion of the individual public body.  Any investment into deprived areas or sources of renewable energy therefore, while possibly easier than previously, is not specified as a priority in the legislation.

The Westminster Parliament is not subject to the regime and any tax frameworks found in primary Westminster legislation are seemingly not subject to direct subsidy control.  However, the devolved governments are subject to the Subsidy Control Regime, which is one area that may well prove contentious in the future.  It is also worth noting that it could still be possible for the European Commission to bring a challenge for unfair state aid against the UK government under the Trade and Cooperation Agreement.

So, what’s new?

A major change is that under EU State Aid law, everything was overseen by the European Commission.  Subsidies had to be notified to the Commission by the UK government and the Commission then had to reach a decision on whether to approve the subsidy or not.  This led to a number of subsidies that should potentially have been notified not being notified because the government was logistically unable to notify everything.  Under the new Subsidy Regime, local authorities and other public bodies can now decide if they need to notify subsidies themselves directly, which will place greater responsibility on the local authorities than under previous regimes.

To help the local authorities with their new responsibilities there is some non-binding guidance provided, though this is still largely based on the previous EU State Aid regime.  As this is also only guidance, a potentially interesting question for the future is how far judges will depart from this in their interpretations.

In addition, unlike the EU State Aid regulations where everything was notified to the Commission, there is no single decision-making body under the new UK Subsidy Regime, which places the full emphasis on the public body to decide if the subsidy complies with the new regulations.  These decisions can then be challenged under a judicial review process at the Competition Authority Tribunal.

In a further departure from the EU regulations, the window for challenging a subsidy has been dramatically reduced.  Previously, the statue of limitations was ten years, now companies only have one month to register a complaint, which will obviously give much greater peace of mind to the recipients of subsidies. 

To help the public bodies decide if a subsidy is compliant, the Competition & Markets Authority has set up a subsidy advice unit that can provide a report on whether a subsidy complies with the new legislation.  Once the subsidy has been notified to the CMA it has thirty days to evaluate the subsidy and produce a report.  However, unlike the European Commission, which could definitively say whether a subsidy was legal or not, the CMA advisory unit is only able to provide advice, which the public body is free to ignore if it wishes – though ignoring advice that a subsidy was not compliant would doubtless leave the public body in a weak position if there was a subsequent judicial review.  The first referral was made to the advisory unit on January 13th, so it will be interesting to see what advice is returned on that.

The CMA does not have the power to enforce the recovery of a subsidy as its role is purely advisory.  Any attempts therefore to recover a non-compliant subsidy would have to be done by a company suing the local authority and the beneficiary.

Another major change is that the Regime will be interpreted based predominantly on international law, rather than European law.  From a lawyer’s perspective, this means that greater emphasis will now be placed on finding case law from the World Trade Organisation rather than from the European Commission.

What should clients be particularly aware of?

Let’s say you work for a public body and, hypothetically, want to subsidise a solar park in sunny Bedfordshire.  The main thing you’ll need to consider is whether it is compulsory for them to notify a subsidy to the CMA body or not.  Any subsidies of particular public interest, which tend to be subsidies of more than £10 million have to be reviewed by the advisory unit.  Neglect to do that and you’ll be in trouble faster than you can say ‘judicial review’.

But this is only a small solar park, so you won’t be splashing out quite that much, in which case the only compulsory requirement is to publish the subsidy on the online database to encourage greater transparency.  Again, there is a threshold here and very small subsidies do not need to be added to the database – so if you were just planning to give a local theatre company £2,000 there’s no need to worry.

Our hypothetical solar park subsidy falls somewhere in the middle – it has to be added to the database but doesn’t have to be looked over by the CMA.  However, given that (theoretically at least) having a positive report from the CMA should make the subsidy very difficult to challenge it is probably still worth while requesting a report from them.  Follow the process as closely as possible and you’ll have a strong audit trail as your defence in case of any challenges.

If you’re the company getting the subsidy to build this imaginary solar farm, do you need to do anything?  The main thing to be aware of seems to be that the month-long window for a challenge begins when the subsidy is notified on the transparency database and not from the date of the initial award.  This means that it is in your interest to get the local authority to add the details to the database as soon as possible.  That way you can minimise the time spent crossing your fingers and hoping to avoid being challenged.  No-one wants to build a solar farm and then five years later having the subsidy challenged because the local authority has only just got round to updating the database.

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