On 4 January 2023, the UK’s new subsidy control regime came into force, implementing a new subsidy regulation framework designed for the post-Brexit era.  Underpinned by the Subsidy Control Act 2022 (the “Act”), related statutory instruments and government guidance, the new regime aims to grant public authorities the power to design and award subsidies in an agile way while complying with the UK’s international commitments on subsidy control.   Key things you need to know:

• The UK’s new subsidy control regime seeks to provide a framework that allows public authorities to award subsidies efficiently, while ensuring that such subsidies do not distort the domestic market or fall foul of the UK’s international commitments on subsidy control.
• Public authorities are responsible for self-assessing a proposed subsidy or scheme’s compliance with the regime’s requirements.
• Proposed Subsidies and Schemes of Interest (“SSoIs”) and Particular Interest (“SSoPIs”), i.e. subsidies above certain thresholds or of certain importance, are subject to referral – voluntary (for SSoIs) and mandatory (for SSoPIs) – to the Competition and Market Authority’s Subsidy Advice Unit (“SAU”), which will provide non-binding advice regarding the proposed subsidy. The Government can exercise a “call-in” referral power, i.e. refer a subsidy or scheme to the SAU for review.
• Subsidies that qualify for assessment under a “Streamlined Route” (“SR”), i.e. subsidies that are less likely to cause distortions on the market and meet the relevant criteria set out by legislation, will not be subject to referral or the Government’s call-in powers.
• An awarded subsidy can be challenged in court, though during a relatively short (in many cases 30-day) window. A range of remedies are available to challenging parties, including prohibition, injunctions and recovery orders.

Self-assessment

Public authorities are not required to obtain approval from a centralised authority before awarding a subsidy as was previously the case under EU State aid law. However, the new subsidy control regime aims not only to ensure authorities can award subsidies efficiently, but also to prevent the award of subsidies that could distort competition within the UK.  As such, public authorities will be expected to self-assess a proposed subsidy or subsidy scheme for compliance against the “subsidy control principles” provided for in the Act. These principles are derived from requirements set out in the EU-UK Trade and Cooperation Agreement (“TCA”) and generally align with basic EU State aid principles. In the lead-up to the regime coming into force, the Department of Business, Energy and Industrial Strategy (BEIS) published its statutory guidance to help public authorities design subsidies and schemes in compliance with the these principles. Authorities and beneficiaries should note that non-compliance can lead to challenges by interested parties, resulting in the subsidy having to be reimbursed by the beneficiary.

As under EU State aid law, the main consequences for granting subsidies that do not comply with the rules are borne by the beneficiaries, while authorities may face the administrative burden of legal challenges and ramifications of Court-awarded remedies, which in Scotland can even include liability for damages. Although UK public authorities are no longer subject to EU State aid rules, they nevertheless need to comply not only with the Act, but also the UK’s international commitments (chiefly, those set out in the TCA).  Failing to do so will leave public authorities and the UK Government open to challenge from foreign governments and interested parties, whether under agreed dispute resolution mechanisms set out in treaties or in relevant courts.

The CMA’s Subsidy Advice Unit and Subsidies and Schemes of (Particular) Interest

On the day the regime came into force, the CMA announced that its Subsidy Advice Unit (SAU) is open and ready to give advice. Under the new regime, the SAU is tasked with reviewing public authorities’ self-assessments referred by the authority itself or “called in” by the Secretary of State for BEIS.  Only certain types of subsidies and schemes — Subsidies and Schemes of Interest (SSoIs)/ Particular Interest (SSoPIs) — so called as they have greater potential to lead to distortive effects on the market — will be subject to voluntary (for SSoIs) or mandatory (for SSoPIs) referral to the SAU. The SAU’s referral reports will be published and available to those who wish to challenge the subsidy or scheme. Once the SAU has issued its report, authorities must not award the subsidy or establish the subsidy scheme until a “cooling-off period” (usually 5 working days) has passed.

The SAU’s other chief function is to monitor and report on the effectiveness of the new regime, and its impact on competition and investment within the UK. To facilitate this role, the SAU will hold certain information-gathering and enforcement powers, e.g. issue penalties such as administrative fines for non-compliance with information requests.

Streamlined routes

Also in the lead-up to the new regime coming into force, the Government published draft “Streamlined Routes” (“SRs”) which are swifter routes for public authorities to demonstrate compliance for subsidies that are at low risk of causing market distortions.  SRs are in essence subsidy schemes established by the Government, under which authorities can award subsidies which meet the SR’s criteria. The Government is currently preparing SRs for certain types of subsidies relating to (1) Research, Development & Innovation (“RDI”), (2) energy usage and (3) local growth. These SRs are not dissimilar to the block exemption regulations under the EU’s State aid regime whereby aid can be granted without prior notification and approval by the Commission if it fulfils all the conditions laid down in the block exemption regulations. For example, authorities wishing to award a subsidy under the RDI SR (as currently envisioned), would be able to do so for subsidies for (1) feasibility studies or (2) industrial research and experimental development projects that meet various conditions (e.g., the project has not yet started, only directly incurred costs are eligible, none of the prohibitions in sections 15-29 of the Act apply). Subsidies that are assessed via the SR do not need to be referred to the SAU and are not subject to the Government’s call-in powers.

Challenging a subsidy

Interested parties wishing to challenge an authority’s award of a subsidy or the establishment of a subsidy scheme will only be able to do so by bringing an appeal (on judicial review grounds) to the Competition Appeal Tribunal (“CAT”). Certain subsidies (those awarded under a scheme or an SR) will not be subject to review by the CAT but rather, by a separate court (the High Court in England) under the general judicial review regime which has different rules (e.g. time limits or no access to recovery as a remedy).  Alternatively, parties can request the CAT to consider whether a subsidy legitimately meets the requirements of a scheme or Streamlined Route. The window for challenge will be short (in many cases 30 days, e.g. from publication in the Government’s subsidy database), which will require consistent monitoring. Remedies available to the challenging parties include prohibition or suspension of a subsidy award, and even recovery (i.e. claiming the subsidy back from the beneficiary).  For cases involving Scottish public authorities’ decisions, the relevant court will have access to additional remedies (e.g., restitution and damages).