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What is Subsidy Control law?

  • Writer: Alexander Rose
    Alexander Rose
  • Apr 10, 2024
  • 3 min read

Updated: Jun 21, 2024

And why does it matter?

 

The UK's Subsidy Control laws regulate financial assistance awarded by public authorities to organisations engaged in economic activity. This area of competition law is a common concern for public authorities delivering regeneration projects as it materially changed in 2023 with the introduction of the Subsidy Control Act 2022 and associated Statutory Guidance.


1. What is Subsidy Control law?

The UK's Subsidy Control rules regulate financial assistance committed by the public sector (and on its behalf) to organisations engaged in economic activity.

There are two objectives to the rules, to ensure the UK is able to meet its international subsidy commitments and to regulate the impact of subsidies across the UK's internal market.

Public authorities are under a legal duty to consider the application of the relevant Subsidy Control rules when making awards. This requires a bespoke assessment of each measure against the relevant provisions within the:

  • the Subsidy Control Act 2022 ("SCA");

  • the Northern Ireland Protocol;

  • the Withdrawal Agreement;

  • the World Trade Organisation rules; and

  • other trade agreements to which the UK is a party.

The SCA obligations are clarified by the 260 page Statutory Guidance.

In most instances, only the SCA will be engaged. However in certain situations, such as measures involving financial assistance towards the production of goods in Northern Ireland or EU funds, other rules will apply.


2. What is a Subsidy?

Under Section 2(1) of the SCA a “subsidy” means any financial assistance with the following characteristics:

(a)   is given, directly or indirectly, from public resources by a public authority;

(b)   confers an economic advantage on one or more enterprises;

(c)    is specific, that is, is such that it benefits one or more enterprises over one or more other enterprises with respect to the production of goods or the provision of services; and

(d)   has, or is capable of having, an effect on:

(i)             competition or investment within the UK;

(ii)            trade between the UK and a country or territory outside the United Kingdom; or

(iii)           investment as between the UK and a country or territory outside the UK.

There are similarities in substance with the concept of a State aid under EU State aid law, but the final limb of the subsidy test is wider, encompassing situations where the impact is purely domestic in scope.

A subsidy may arise when public funds / assets are transferred (such as via a grant) but also when projects are varied or rights granted if the characteristics at Section 2(1) of the SCA are present.


3. What routes are there to lawfully award subsidies under the SCA?

Where a subsidy is present, the funding may still be lawfully awarded provided certain steps are taken. There are seven routes under which a subsidy may be awarded. These routes are:

  • the Minimal Financial Assistance route;

  • the Subsidy Control Principles;

  • a Subsidy Scheme made using the Principles;

  • Subsidy schemes which pre-date the SCA;

  • Services of Public Economic Interest Assistance;

  • Services of Public Economic Interest; and

  • Streamlined Subsidy Schemes.

Each exemption has its own requirements which must be met for the award to be lawful.


4. What are the most common routes to award subsidies under the SCA?

The two most common routes are the Minimal Financial Assistance route ("MFA") and the Subsidy Control Principles.

MFA allows an enterprise to receive up to £315,000 of lawful subsidy in the current financial year and two previous financial years. Certain steps must be satisfied for the award to be valid, including obtaining a MFA declaration prior to the award being committed.

The Principles requires the public authority to be satisfied that the measure satisfies seven Principles listed at Schedule 1 of the SCA.


5. What are the consequences of breaching Subsidy Control law?

The decision to award a subsidy may be challenged. If a breach is found then the value of the subsidy can be expected to be recovered from the beneficiary with compound interest.

Therefore although it is the public authority which assesses compliance with Subsidy Control law, but it is in the interests of the beneficiary to ensure that the measure is compliant.


All information provided in this article is valid at the point of publication, that is, April 2024.


Alexander Rose is one of the UK's leading Public Funding lawyers, with an international reputation for his expertise in Subsidy Control, EU State aid law and grant funding programmes.


If you have any questions on this topic, or would like support, please contact your Delivery Associate, or email DeliveryAssociatesNetwork@Arup.com


 


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