What is subsidy control?
The terms of the UK’s exit from, and ongoing arrangements with, the European Union were formalised by way of the EU/UK Trade and Co-Operation Agreement (“TCA”). Article 3 of the TCA sets out the rules for the granting of subsidies, previously known as State aid.
Under the TCA a subsidy is defined as:
“financial assistance which:
(i) arises from the resources of the Parties, including:
(A) a direct or contingent transfer of funds such as direct grants, loans or loan guarantees;
(B) the forgoing of revenue that is otherwise due; or (C) the provision of goods or
services, or the purchase of goods or services;
(ii) confers an economic advantage on one or more economic actors;
(iii) is specific insofar as it benefits, as a matter of law or fact, certain economic actors over others in relation to the production of certain goods or services; and
(iv) has, or could have, an effect on trade or investment between the Parties”.
Are there any exemptions?
The TCA sets out a number of exemptions in respect of some subsidies, these include subsidies to:
- compensate for natural disasters subsidies;
- for agriculture and subsidies for audio visual;
- subject to article 3.3 TCA - “Services of public economic interest”;
- subsidies below the value of 325,000 Special Drawing Rights per beneficiary over a three-year period. Special Drawing Rights are an IMF unit and is calculated using the Special Drawing Right calculator (https://coinmill.com/SDR_calculator.html) on the date of awarding.
The Department for Business, Energy and Industrial Strategy’s guidance states that public authorities should take a proportion of view considering whether a subsidy could trigger action and that subsidies to very “local” companies as well as small sums to small companies are unlikely to be caught as they are unlikely to affect international trade.
Are there any subsidies specifically prohibited?
Yes, the TCA sets out a number subsidies that are prohibited, some examples that may be relevant to the Council are:
- Unlimited subsidies un the form of guarantees for debts or liabilities;
- Subsidies to ailing or insolvent economic entities without a credible restructuring plan;
- Subsidies related to the restructure of banks, credit institutions or insurance companies without a credible restricting plan;
- Certain export subsidies;
- Energy and environmental subsidies impacting pollution responsibilities.
What are the rules for subsidies not fitting into one of the above exemptions?
The TCA also sets out principles which all subsidies of more than 325,000 Special Drawing Rights, given to a single beneficiary over three years, must meet.
These “principles” are set out below:
i. Should pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (“the objective”);
ii. Should be proportionate and limited to what is necessary to achieve the objective;
iii. Should be designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided;
iv. Should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy;
v. Should be an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means;
vi. Positive contributions to achieving the objective should outweigh any negative effects, in particular the negative effects on trade or investment between the Parties.
Any subsidy meeting all the above principles should be lawful under the TCA.
Transparency of Subsidies Awarded by Local Authorities
The TCA contains a transparency obligation in accordance with which certain details on each subsidy must be published within six months of the subsidy being granted. This provision, combined with the rights of any interested party to challenge subsidies in court, is aimed at ensuring compliance.
The Council will therefore publish details of all subsidies that it awards on its website as well as on the UK Government’s Subsidy database - GOV.UK - Public user search page (beis.gov.uk).
Challenge to subsidy awards
Pursuant to the TCA the Competition and Markets Authority (“CMA”) is the body responsible for oversight of subsidy control in the UK. A challenger may also bring a claim for Judicial Review in respect of a subsidy granted.
Future of Subsidy Control in the UK
The UK Government has published the draft Subsidy Control Bill with a view to formalising the subsidy regime in the UK to formally replace the TCA subsidy provisions. This section will be updated as and when the Subsidy Control Bill is formally passed into law.