On 28 April 2022, the Subsidy Control Bill (the “Bill”) received Royal Assent, becoming the Subsidy Control Act 2022 (the “Act”).  The Act lays the basic framework for the new UK-wide subsidy control regime, which is now expected to come into force in Autumn 2022.  Although the Act primarily addresses UK public authorities and their legal obligations relating to the awarding of domestic subsidies, the new regime will be of particular interest to companies wishing to benefit from the more flexible post-Brexit subsidy regime moving forward.

The three most important things for you to know about the Subsidy Control Act:

  • public authorities will need to self-assess a proposed subsidy or subsidy scheme for compliance against the subsidy control principles. This self-assessment must take place prior to award.  Interested parties can apply to the Competition Appeal Tribunal (“CAT”) to challenge any subsidy award on judicial review grounds;
  • the Government has issued guidance on categories of subsidies that will be eligible for swifter, streamlined assessment routes or those that require a more thorough assessment; and
  • many of the principles and basic tenets of the new UK regime align with the EU State aid rules. However, there are notable procedural differences mainly because there is no need for pre-approval from a central enforcement authority.

Key aspects – self-assessment, no need for pre-authorisation

The regime is a decentralised framework granting public authorities the right to self-assess their proposed subsidy or subsidy scheme’s compliance with a set of “subsidy control principles”. These principles are largely derived from the EU-UK Trade and Cooperation Agreement (“TCA”)  and in-line with basic EU State aid principles. Certain types of subsidies are prohibited (e.g. unlimited debt guarantees, export performance subsidies) or subject to conditions (e.g. rescuing or restructuring subsidies, services of public economic interest), while others are excluded outright or exempt from the regime’s more stringent requirements (e.g. subsidies that respond to natural disasters or exceptional circumstances, de minimis assistance).

Public authorities must self-assess compliance of the subsidies against the subsidy control principles prior to award.  Although no pre-authorization is required, the new Subsidy Advice Unit (“SAU”) established within the Competition and Markets Authority (“CMA”) will retain an oversight and advisory role.  Public authorities can seek voluntary non-binding guidance from the SAU for certain types of subsidies or must do so for certain others (see “Guidance, policy statements, and consultation” section below). The Government can also issue a “call-in direction”, i.e. require the public authority to refer a subsidy to the SAU for a non-binding review, pre- or post-award.

Any interested party will be able to challenge a public authority’s subsidy award by applying to the Competition Appeal Tribunal (“CAT”) within a short (often 30-day) window from publication of the award on the central subsidy database.  The CAT will consider the case on judicial review principles, meaning the award can only be overturned on illegality, procedural unfairness or irrationality – e.g. if the process involved in making the decision was improper, or the correct procedures were not followed.  The CAT will have in its arsenal the right to grant relief (including recovery).

Guidance, policy statements and consultation on the upcoming regime

In recent months, the Government has been giving glimpses of what to expect, issuing “illustrative guidance” on how public authorities should comply with the subsidy control principles and policy statements on “Streamlined Routes” and “Subsidies or Schemes of (Particular) Interest”, as well as launching a consultation on draft regulations for establishing the latter.

Streamlined Routes (“SRs”) are voluntary, swifter routes for public authorities to demonstrate compliance with the subsidy control principles for subsidies that are at low risk of causing market distortions.  SRs will be established by the UK Government and laid before Parliament, for subsidies relating to certain activities, e.g. Research, Development & Innovation.  Subsidies that are assessed via the SR will not need to be referred to the SAU nor be subject to the Government’s call-in powers.

Subsidies or Schemes of Interest or Particular Interest (“SSoI” and “SSoPI”) attract greater scrutiny by virtue of their value, sector, or design features. Authorities will be able to voluntarily request the SAU to review SSoIs for compliance, whereas SAU referral will be mandatory for SSoPIs.

Main differences to EU State aid – Enforcement of subsidy control principles

Although many aspects of the forthcoming UK regime borrow from the EU State aid framework, the two systems have significant procedural differences.

  • First, there is no pre-authorization requirement as there is under EU State aid rules. This reflects the UK Government’s post-Brexit vision of introducing a “more agile and more flexible”, “less bureaucratic” subsidy control regime.  It is uncertain whether the self-assessment model will necessarily result in more timely and/or better outcomes than the more centralised EU model.
  • Second, although the SAU provides a means to review the lawfulness of any subsidy, there is no requirement to seek SAU guidance and it is, in any event, non-binding. This arguably increases the pressure on interested parties to monitor closely any subsidy granted and, where there is an appropriate level of concern as to the compliance of any such subsidy with the Act, to issue a judicial review challenge to the CAT as soon as practicable following grant of the subsidy.  It remains to be seen whether such reliance on judicial reviews as the sole enforcement mechanism will be sufficient to ensure compliance, especially in light of the short challenge window.

Background to the Subsidy Control Act

The content of the Act has not seen significant changes on its way through Parliament (read our blog highlighting the content of the draft Bill here), though most notably, the threshold for application of the transparency requirements has been lowered and deadline shortened. The Government will be introducing further secondary legislation to provide more flesh to the bones of the framework, but the passing of the Act is a long-anticipated crucial first step towards establishing a statutory system that builds on the current patchwork regime based on World Trade Organisation (“WTO”), Free Trade Agreement (“FTA”), and EU-UK TCA commitments.

 

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Photo of James Marshall James Marshall

James Marshall advises on all aspects of competition law and sector regulation and regularly counsels clients on merger control, investigations and enforcement, commercial deals, abuse of dominance, sector regulation, and compliance. Earlier in his career, Mr. Marshall worked with the UK Competition and…

James Marshall advises on all aspects of competition law and sector regulation and regularly counsels clients on merger control, investigations and enforcement, commercial deals, abuse of dominance, sector regulation, and compliance. Earlier in his career, Mr. Marshall worked with the UK Competition and Markets Authority (CMA), where he helped develop the UK’s antitrust and regulated sector enforcement regimes. Clients turn to Mr. Marshall to help them find innovative solutions to complex antitrust enforcement, merger and counselling matters, particularly in regulated sectors.

Mr. Marshall represents clients before UK, EU, and global regulators across a number of industries and has particular expertise in the infrastructure, energy, transport and utilities sectors. He has also advised on numerous complex global financial services cases, and has strong experience advising in the consumer, digital, communications, and sports sectors.

Mr. Marshall practiced for several years in the Asia-Pacific region. He has experience advising on competition, regulatory, and public policy issues in Asia and the Middle East.

Photo of Sophie Bertin Sophie Bertin

Sophie Bertin is a senior advisor to Covington in their Financial Services and Antitrust practice. Her current focus is on financial services topics, ranging from State aid, implementation of regulations, interplay between various regulations, including the new data protection rules; as well as…

Sophie Bertin is a senior advisor to Covington in their Financial Services and Antitrust practice. Her current focus is on financial services topics, ranging from State aid, implementation of regulations, interplay between various regulations, including the new data protection rules; as well as the impact of new technologies (like Blockchain) on the financial services business models and resulting competition challenges.

Sophie has over 20 years of professional experience and she has broad experience helping banking clients on their strategy, restructuring, reorganization, risk management, regulatory and compliance, back-office operations and automation, as well as, advising on various issues around banking regulation and competition law (most notably State aid).

Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics has developed a cutting-edge expertise in State aid law, regulation of network industries and public contracts (including subsidies, public procurement, concessions, and management contracts) with the Belgian and European authorities.

Carole has a proven track record of advising public and private…

Carole Maczkovics has developed a cutting-edge expertise in State aid law, regulation of network industries and public contracts (including subsidies, public procurement, concessions, and management contracts) with the Belgian and European authorities.

Carole has a proven track record of advising public and private entities, which she successfully represents in administrative and judicial proceedings on complex state aid, public procurement and regulatory issues before the European Commission as well as before the Belgian and European courts.

She has published many articles on State aid law and on network industries, and contributes to conferences and seminars on a regular basis.