Navigating the Subsidy Control Act 2022

By applying a comprehensive understanding of each party’s objectives and requirements at each stage of the process of delivering and accessing public funding for projects, we guide clients through the financial assistance framework.

 Introducing the Act

Establishing a new legal framework for assessing financial assistance made by public authorities from public resources to enterprises, the Subsidy Control Act 2022 (the Act) came into force on 4 January 2023, replacing the State Aid regime following the UK’s exit from the European Union.

The Act provides the rules for UK public authorities to follow when making decisions to give subsidies. Subsidies given in the UK are also subject to controls under the UK-EU Trade and Co-operation Agreement, Article 10 of the Windsor Framework, UK Free Trade Agreements, and the World Trade Organisation Agreement on Subsidies and Countervailing Measures.

Assessing against the requirements of the Act

To provide financial assistance, public authorities must comply with the Act, assessing:

• Is the support a subsidy? To determine whether financial assistance is a subsidy it must meet limbs (a) to (d) of the subsidy test in the Act. A subsidy exists where there is financial assistance which is (a) given from public resources by a public authority, (b) which confers an economic advantage on one or more enterprises, (c) that is specific such that it benefits one or more enterprises over others, and (d) has or is capable of having an effect on competition or investment in the UK and/or on international trade or investment. Financial assistance can take various forms including grants, loans, tax reliefs and guarantees.
• Do any prohibitions or conditions apply? The Act prohibits subsidies in the form of unlimited guarantees, subsidies contingent on export performance, and subsidies contingent on the use of domestic goods or services. Certain other categories of subsidy are prohibited unless specific conditions are satisfied, including relocation subsidies, rescue or restructuring subsidies, subsidies for insurers that provide export credit insurance and subsidies for air carriers for the operation of routes. Services of Public Economic Interest (SPEI), which are forms of support that the public sector wants to provide for the benefit of the general public which are not already adequately provided by the market (e.g. essential services including types of hospital care, childcare, postal services, social housing, and certain transport networks), are subject to certain procedural and assessment requirements. Subsidies or Schemes of Particular Interest (SSoPI), are subject to mandatory referral to the Subsidy Advice Unit (SAU).
• Establish a route to compliance: Provided the proposed financial assistance is not prohibited, the public authority must assess how it can be given in a compliant way, using one of the routes under the Act, including:
  • Using an exemption, such as Minimal Finance Assistance (MFA) (an enterprise can receive up to total of £315,000 in the current financial year and two previous financial years provided certain steps are followed) or Services of Public Economic Interest Assistance (SPEIA) (SPEI that are equal to or less than £725,000 in a three-year period may be delivered via the SPEIA route, provided that certain steps are followed).
  • Making an assessment against the Subsidy Control Principles and, to the extent relevant, the Energy and Environment Principles.
  • Using a Streamlined Route. To date, three have been published: the Energy Usage Streamlined Route; the Local Growth Streamlined Route; the Research, Development and Innovation Streamlined Route.
  • Granting the subsidy under an existing scheme, including a ‘legacy scheme’.
  • Redesigning the measure so there is no subsidy – i.e. by giving any financial assistance in line with the CMO (Commercial Market Operator) Principle, such that it would not meet limb (b) of the subsidy test.
• Is a referral to the SAU required? The public authority will be required to make a referral to the SAU to obtain a non-binding advisory report if the measure is a SSoPI. Subsidies given outside of sensitive sectors are SSoPI if they are over £10 million or if they are over £1 million and they cumulate to more than £10 million with other related subsidies given over the previous 3 financial years. Subsidies granted in sensitive sectors will be SSoPI if they are over £5 million or if they are over £1 million and they cumulate to more than £5 million with other related subsidies given over the previous 3 financial years. Other subsidies of between £5 million to £10 million (individually or cumulatively) that do not meet the SSoPI criteria will be a Subsidy or Scheme of Interest (SSoI). SSoI are eligible for voluntary referral to the SAU. The public authority may consider a voluntary referral for a report if the measure is a SSoI. Subsidies between £5 million and £10 million that do not meet the criteria for SSoPI are classified as SSoI.
• Comply with the transparency obligations – The public authority must upload certain information about the subsidy or subsidy scheme on the UK’s subsidy database. Subsidies of £100,000 or less that are given as MFA, SPEIA or under a subsidy scheme are exempt from the upload requirements. The information must be uploaded within 3 months of the public authority’s confirmation of its decision to give the subsidy or make the subsidy scheme (and specific rules apply to tax subsidies).

Enforcement and Risk of Challenge

Subsidy challenges can be made to the Competition Appeal Tribunal (CAT) by an ‘interested party’ for a review of a subsidy decision under section 70 of the Act. Challenges can be made within 1 calendar month of the upload of the relevant subsidy decision to the subsidy database. If a decision is successfully challenged in the CAT, the value of the subsidy can be recovered from the beneficiary with compound interest.

There has been one fully heard claim in the CAT since the new subsidy control regime came into force with the case of Durham Company Limited (trading as Max Recycle) v Durham County Council [2023] CAT 50, which was successfully defended by Durham County Council. Max Recycle alleged that Durham County Council had taken a decision to subsidise its own commercial waste collections by allowing that part of its operations to use the employees and assets of its household waste collections at below market price, with the CAT ultimately finding that there was no subsidy given. A second claim has recently been brought in the CAT by property developer Aubrey Weis against a decision of Greater Manchester Combined Authority to make loans to two special purpose vehicles – Trinity Developments (Manchester) Limited and New Jackson (Contour) Investments Limited – as part of the Greater Manchester Housing Investment Loan Fund, with the notice of appeal registered on 7 June 2024.

Public authorities and businesses requiring subsidy control advice can get in touch with Stacey Gray, Senior Associate at stacey.gray@squareonelaw.com