Subsidy Control – The same but different?

 

At long last, the Government has published its Subsidy Control Bill (“the Bill”) in order to establish a new subsidy control regime. This follows the post-Brexit period within which we have had the uneasy situation of following certain “general principles” from the UK Trade & Co-operation Agreement (“TCA”) but have lacked the granularity that we lawyers love!

 What is the same?

As might be expected, the Bill continues to follow much of what was defined within the TCA. It defines a “Subsidy” to include, interestingly, anything which can have an effect on competition or investment within the UK, between the UK and another country, or investment within the UK and another country. This is interesting, because historically, it was possible to claim that something was lawful State Aid where it could be demonstrated as not having an effect between European countries. We are now looking at a situation where effects felt in the UK’s own internal market will be relevant. Anyone who has been involved in scenarios where, say, the Scottish Government and an English Local Authority have been “bidding subsidies” against each other to obtain that new factory will find this usefulThe same basic subsidy control principles are provided as previously, ie:

1. subsidies should pursue a specific public policy objective, eg market failure;

2. subsidies should be proportionate to their policy objective and what is necessary to achieve it;

3. subsidies should be designed to bring about a change in economic behaviour;

4. subsidies should not compensate for the cost the beneficiary would have funded in the absence of a subsidy;

5. subsidies should be an appropriate policy instrument;

6. subsidies should achieve their objectives without minimising negative effects on competition or investment within the UK; and

7. subsidies’ beneficial effects should outweigh negative effects including on international or domestic competition.

Interestingly, there is a specific prohibition on subsidies granted on the condition that a beneficiary relocates from one area of the UK to another. 

New provision – categories of subsidy

There is some guidance here in terms of what is going to attract the interest of the Competition and Markets Authority (“CMA”). Subsidies are categorised as:

• Low Risk Subsidies - where public authorities will only need to demonstrate that the subsidy meets specific compliance criteria for the scheme, but not against the 7 subsidy control principles.

• The “baseline route” - where public authorities will be required to self-assess compliance.

• Subsidies of Interest – these will be defined further by secondary legislation but are “more likely” to affect competition, trade or investment and enable a voluntary referral for non-binding advice from the CMA’s New Subsidy Advice Unit.

• Subsidies of Particular Interest – these are likely to be at the highest risk of having an effect on competition, trade or investment and will be subject to a mandatory referral to the CMA. Authorities will not be able to award these subsidies until they have received advice from the CMA, which at least clarifies what Authorities need to do, rather than making a judgement call. The CMA’s assessment period will be set to 30 days but, subject to having received all the information necessary to conduct a review, the period may be extended in practice

• Excluded Subsidies – this includes those which are de minimis with a value of less than £315,000, those in response to a natural disaster or national security, or subsidies related to services in the “general economic interest” (ie what used to be called SGEI) of less than £725,000 in value over a 3 year period.

 Legal challenges

Going forward, legal challenges are subject to a referral to the Competition Appeal Tribunal where a challenge may be brought on judicial review principles by any person whose interest is affected. This should provide a quicker and simpler solution than the previous route.

Other interesting aspects

It has been commented that:

• The government will have an ability to call in subsidies, meaning that government policy will move more centre stage. The Minister has repeatedly stated that this does not indicate a return to the “bad old days” where the Government bailed out unsuccessful companies in the 1970s. Somewhat predictably, the Scottish Government have complained about the fact that these powers will not be granted to devolved legislatures.

• The notification requirement on a mandatory basis to the CMA will possibly produce a “safety first” approach and we wonder how the CMA will deal with what are likely to be an increased amount of notifications than under the old EU “negative clearance” regime, which was heavily discredited due to the amount of time taken to obtain an opinion from the European Commission.

• Under the new regime, where there is a voluntary referral, it is possible for the public authority to grant the subsidy before it receives a report from the CMA. This may require some careful drafting by lawyers, as of course if a subsidy is found to be unlawful, clawback is going to be an issue.

• The need for self-assessment by Authorities will continue to replace the old, lengthy but extensive “Block Exemptions” under the EU regime, which at least provided lawyers with the opportunity to give comprehensive advice. We are told there will be further statutory instruments defining things such as “Subsidies of a Particular Interest” and “Subsidies of Interest” and offering guidance in relation to applicable principles and requirements. This, we feel, is going to be necessary.

 Conclusion

The Bill helps to fill in some of the “grey” areas that have been apparent over the last few months. Ironically, if the CMA do their job properly, this could mean that Subsidy Control is enforced more effectively than under the old “State Aid” Regime, where in reality in many cases, the chances of detection and action being taken were quite low. We are promised that the CMA are going to be resourced in order to run the regime properly and, as ever, the devil on this will be in the detail.As always, if you would like to discuss your particular subsidy control issue, please speak to Stephen Pearson, Andrew Maxwell or Nathan Holden

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