Shepherd and Wedderburn LLP
  July 2, 2021 - Scotland

The UK Subsidy Control Bill

The announcement on 30 June that the Subsidy Control Bill has been introduced into the UK Parliament is a very welcome development for those who have been waiting for the legal 'gap' in this area to be plugged. This short article outlines the key elements of the proposed new regime.

The Bill is divided into five main parts: Part 1 provides an overview and deals with key interpretation, Part 2 deals with subsidy control requirements, Part 3 covers exemptions, Part 4 allocates functions to the Competition and Markets Authority (CMA) and Part 5 deals with the issue of enforcement.

It is important to note at the outset that the Bill does not have retroactive effect. Clause 48 provides that the new regime will not impose additional requirements in relation to subsidies granted under schemes made before the new Act comes into force.

Part 1: overview and key interpretation

Clause 2(1) defines “subsidy” to mean "financial assistance which:

  • (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 United Kingdom; 
    • (ii) trade between the United Kingdom and a country or territory outside the United Kingdom; or
    • (iii) investment as between the United Kingdom and a country or territory outside the United Kingdom".

The concept of "public authority" is defined in clause 6 to mean, "a person who exercises functions of a public nature" subject to a limited set of exceptions. Clause 2(3) also provides that: "Financial assistance given from the person’s resources by a person who is not a public authority is to be treated [...] as financial assistance given from public resources by a public authority if the involvement of a public authority in the decision to give financial assistance is such that the decision is, in substance, the decision of the public authority."

The concept of "economic advantage" is further explained in clause 3(2) which provides that: "Financial assistance is not to be treated as conferring an economic advantage on an enterprise unless the benefit to the enterprise is provided on terms that are more favourable to the enterprise than the terms that might reasonably have been expected to have been available on the market to the enterprise."

Clause 2(2) provides that, for the purposes of this Act, the means by which financial assistance may be given: "include:

  • (a) a direct transfer of funds (such as grants or loans);
  • (b) a contingent transfer of funds (such as guarantees);
  • (c) the forgoing of revenue that is otherwise due;
  • (d) the provision of goods or services; or
  • (e) the purchase of goods or services."

Clause 2(5) specifies that: "financial assistance is to be treated as given to an enterprise if the enterprise has an enforceable right to the financial assistance."

Part 2: subsidy control requirements

Clause 9 and Schedules 1 and 2 establish 'subsidy control principles', the first seven of which are of general application and a further nine are specific to energy and environmental subsidies. Looking at the seven general principles, these are as follows:

  • Principle A (common interest): Public authorities will need to consider, explain and assess the policy objective behind the subsidy to ensure there is a benefit to wider society in providing the subsidy. 
  • Principle B (proportionality): Subsidies should be both proportionate and limited to what is necessary to achieve the policy objective. 
  • Principle C (incentives and behaviour change): Subsidies must incentivise and lead to a change in the behaviour of the beneficiary. They must help to address the public policy objective being pursued. 
  • Principle D (additionality): Subsidies should be targeted to bring about an effect that is additional to any that would occur in the absence of the subsidy. They should not normally cover everyday business expenses. 
  • Principle E (alternatives): Alternative policy levers, that are likely to cause less distortion to competition and investment in the UK, or trade and investment internationally, should be considered before turning to subsidies. 
  • Principle F (minimal market impact): Public authorities should design the subsidy in a way that minimises the impact on competition and investment within the UK’s internal market. 
  • Principle G (net positive effect): Public authorities should assess the material effects on competition and investment in the UK, and international trade and investment, and decide whether the benefits of the subsidy are greater than the harmful impacts of providing the subsidy.

Clause 12 provides that public authorities:

  • (a) must consider the subsidy control principles before deciding to give a subsidy or set up a subsidy scheme; and
  • (b) must not give the subsidy (or set up the scheme) unless it is of the view that the subsidy (or subsidies provided for by the scheme) is consistent with those principles.

Chapter 2 of Part 2 lays down a series of prohibitions and other requirements (largely derived from the UK's obligations under, e.g., the UK/EU Trade and Cooperation Agreement) restricting the giving of (or the setting up subsidy schemes for) certain subsidies, including those:

  • in the form of unlimited guarantees;
  • contingent on export performance;
  • contingent on preferences for locally produced goods or services;
  • contingent on relocation from one part of the UK to another;
  • designed to rescue or restructure ailing or insolvent enterprises; and
  • supporting the provision of a Service of Public Economic Interest (SPEI).

In addition, clause 31 provides that, where a subsidy of subsidy scheme is subject to the mandatory referral regime in Part 4, the giving of the subsidy (or setting up of the scheme) in breach of the clearance mechanism under that regime is prohibited.

Part 3: exemptions

This part of the Bill provides for exemptions from the requirements of the new regime. Notably in relation to the following:

  • Minimal financial assistance - where the total amount of minimal and SPEI financial assistance received over a three financial year period is less than £315,000.
  • SPEI assistance - where total amount of minimal and SPEI financial assistance received over a three financial year period is less than £725,000.
  • Emergency assistance - in relation to natural disasters and other exceptional circumstances and national or global economic emergencies.

Part 4: functions of the CMA

Clause 52 requires public authorities to make a pre-award referral to the CMA (a mandatory referral) requesting a report before granting the subsidy or setting up the subsidy scheme in (a) such cases prescribed by regulations and (b) otherwise where directed by the Secretary of State. Clause 56 also provides for the making of voluntary pre-award referrals to the CMA.

The CMA must ordinarily provide its report on a mandatory referral within 30 working days (extendable by agreement or by the Secretary of State if requested by the CMA). The public authority is then subject to a 'cooling off period' of five working days (extendable by a further 30 working days by the Secretary of State where the CMA has identified 'serious deficiencies') before it may then grant the subsidy or set up the scheme.

Clause 60 provides that the Secretary of State may in certain circumstances make a post-award referral to the CMA after the subsidy has been granted or scheme made.

The powers of the CMA under Part 4 are to be delegated to a new Subsidy Advice Unit established pursuant to clause 68. Clause 69 envisages the Subsidy Advice Unit making references to specially established subsidy control groups which will carry out detailed examination of the cases referred to it.

Part 5: enforcement

Clause 70(1) provides that an interested party who is aggrieved by the making of a subsidy decision may apply to the Competition Appeal Tribunal (CAT) for a review of the decision (with the review being determined (pursuant to clause 70(5)) on judicial review grounds). Except so far as the CAT directs otherwise, the making of a review application does not have a suspensive effect on the subsidy decision.

According to clause 70(2), where such an application relates to a subsidy given under a subsidy scheme, it must be made for a review of the decision to make the subsidy scheme itself (and may not be made in respect of a decision to give a subsidy under that scheme).

The time limit for making a review application is, broadly speaking, one month from the date on which details of the subsidy / scheme were made public (clause 71).

In addition to powers to annul the subsidy decision, the CAT is empowered by clause 74 to make a recovery order which (a) confers a right on a public authority that has given the relevant subsidy to recover it from the beneficiary and (b) requires the public authority to exercise that right in accordance with the order.

Clause 77 also establishes that a public authority which has given a subsidy has the right to recover from the beneficiary the whole or part of its amount to the extent that the subsidy is used for a purpose other than the purpose for which it was given.

For more information, please contact Gordon Downie, Partner in our regulation and markets team, [email protected].




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