What is Subsidy Control?
Rules for subsidies granted from 4 January 2023 are now subject to the Subsidy Control Act 2022 (“SCA 2022”) and supporting regulations. Under the SCA 2022 any assistance is classed as a subsidy where it meets certain criteria, those criteria are set out below.
A subsidy is:
- Any financial assistance – This can include a direct transfer of funds, contingent transfer of funds such as a guarantee, provision of goods or services, forgoing of revenue that is otherwise due, the purchase of goods or services;
- Given directly or indirectly through public resources by a public authority – The council is a public authority so any financial assistance measures it takes will likely satisfy this criteria;
- That confers a specific economic advantage on one or more enterprises with respect to the production of goods or the provision of services – This would generally mean that the assistance being granted is selective i.e. only made available to one, or limited enterprises. An “Enterprise” is an entity engaged in economic activity offering goods or services on the market.
- Which is capable of having, an effect on competition or investment within the United Kingdom or trade or investment between the United Kingdom and another country – The starting point is to consider whether there is a market for the goods or services that the beneficiary is operating.
Under the SCA 2022 where all the above criteria are met the proposal is a subsidy and, subject to whether it is a specifically exempt subsidy, will require assessment against the Subsidy Control Principles set out at SCA 2022 Schedule 1 (“the Principles”).
Are there any exemptions?
The SCA 2022 sets out a number of exemptions in respect of subsidy measures that are potentially permitted. The specifically exempt subsidies are:
- subsidies below £100k are permitted and do not need to be published;
- minimal financial assistance (“MFA”) – assistance of up to £315k over a rolling 3 year period is permitted subject to details of the subsidy being published,
- services of Public Economic Interest (“SPEI”) – These are subsidies for essential services provided to the public that would otherwise not be supplied in an appropriate way or may not be supplied at all by the market. This would allow a subsidies to be granted for up £725k, over a three year period.
- funding for natural disasters;
- funding in respect of national or economic emergencies;
- national security reasons;
- other exceptional occurrences.
Are there any subsidies that are specifically prohibited?
The SCA 2022 specifically prohibits the below subsidies:
- unlimited guarantees;
- export performance guarantees;
- subsidies contingent on the use of domestic goods or services over imported goods or services;
- relocation subsidies;
- subsidies granted to “ailing or insolvent” enterprises (although subsidies in this circumstance are permitted in very limited circumstances);
- subsidies in respect of export credit insurance;
- subsidies for air carriers for the operation of routes.
What are the rules for potential subsidies that are not subject to an exemption?
Where a proposed measure to be taken by the council meets the criteria of being a subsidy and is not either specifically permitted or exempt, the council will only be able to proceed with the measure in the event that the Principles are satisfied.
The Principles are:
- common interest – Subsidies should pursue a specific policy objective in order to (a) remedy an identified market failure; or (b) address an equity rationale (such as local or regional disadvantage, social difficulties or distributional concerns).
- proportionate and necessary - Subsidies should be proportionate to their specific policy objective and limited to what is necessary to achieve it.
- design to change economic behaviour of beneficiary - Subsidies should be designed to bring about a change of economic behaviour of the beneficiary. That change, in relation to a subsidy, should be conducive to achieving its specific policy objective, and something that would not happen without the subsidy.
- costs that would be funded anyway - Subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy.
- least distortive means of achieving policy objective - Subsidies should be an appropriate policy instrument for achieving their specific policy objective and that objective cannot be achieved through other, less distortive, means.
- competition and investment within the United Kingdom - Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.
- beneficial effects to outweigh negative effects - Subsidies’ beneficial effects (in terms of achieving their specific policy objective) should outweigh any negative effects, including in particular negative effects on (a) competition or investment within the United Kingdom; or (b) international trade or investment.
A subsidy satisfying all of the above criteria is likely to be lawful.
Transparency of subsidies awarded
Under the SCA 2022 all subsidy awards of over £100k must be published on the Government’s subsidy portal. Once the Principles have been satisfied, the council must therefore publish details of the subsidy on the subsidy database.
As well as publishing the award, certain subsidies may be specifically referred to the Competition and Markets Authority (“CMA”).
Subsidies of Particular Interest (“SoPI”)
A SoPI must be referred to the CMA and includes:-
- all subsidies that concern a sensitive sector in excess of £5m per enterprise;
- all subsidies regardless of sector in excess of £10m per enterprise;
- all subsidies for restructuring ailing or insolvent enterprises.
Subsidies of Interest (“SoI”)
A SoI may be voluntarily referred to the CMA and includes:
- all subsidies between over £5m which do not fall within the SoPI definition;
The CMA reporting process will take around 35 working days (five working days to inspect the request and thirty working days to produce a report) and the council will then have to wait for the cooling period of five working days after receipt of the CMA’s report to expire before proceeding with the proposed subsidy.
Once a report has been received from the CMA, or if no CMA referral is required, the council must publish details of the subsidy of the Government’s subsidy database. This will start the clock on a 30 day challenge period, during which any “interested party” may challenge the award of the subsidy.
Subsidies awarded prior to 4 January 2023
Subsidies awarded before this date were subject to the EU/UK Trade and Co-Operation Agreement (“TCA”) which set out the terms of the UK’s exit from the European Union, specifically by way of the Article 3 of the TCA which set out the rules for the granting of subsidies, previously known as State aid.
Register of subsidies awarded by the council
The council has made the following subsidies to date: