Subsidy Control Bill becomes the Subsidy Control Act 2022

On 28 April 2022, the Subsidy Control Bill received Royal Assent and became the Subsidy Control Act 2022. This marks a significant stage in the development of a subsidy control regime specific to the United Kingdom, moving on from the European Union State aid regime which previously applied, whilst enabling the UK to comply with its commitments under international trade agreements.

Many of the provisions in the Act will require statutory instruments to bring them into force and are expected to come into force in Autumn 2022.

The definition of subsidy in the Act is that it is financial assistance which is given from public resources by a public authority. It confers an economic advantage on one or more enterprises and it is specific in that it benefits one or more enterprises over others. It also has or is capable of having an effect on competition or investment within the UK, trade between the UK or other countries, and investment between the UK or other countries.

This is similar to the definition that applies in the Trade and Co-operation Agreement between the United Kingdom and the European Union. However, the Act says that financial assistance is not to be treated as conferring an economic advantage on an enterprise – unless it is provided on terms that are more favourable to the enterprise than what they might reasonably have been expected to obtain on the market. This is a very practical measure as it will, in effect, create a presumption that a transaction on market terms will not involve the provision of a subsidy.

Some subsidies are prohibited by the Act and some have the benefit of exemptions. Otherwise, if a public authority proposes to award a subsidy, it will need to assess whether this complies with statutory subsidy control principles. These principles are aimed at ensuring that subsidies pursue public policy objectives and that they are only given when this is necessary and proportionate to the relevant objective. Additional principles apply when subsidies address environmental and energy objectives.

Transparency obligations will require public authorities to ensure that they comprehensively record details of subsidies and their decisions to award these, and that they provide them to a Government database.

The Competition and Markets Authority will have a role in enforcing the requirements of the Subsidy Control Act. A Subsidy Advice Unit (SAU) will be set up within the Competition and Markets Authority (CMA), with the functions of monitoring and oversight, and providing pre-award and post-award advice.

The Government’s transparency database will make people aware of decisions to award subsidies. An interested party, who may be affected by a decision to award a subsidy, may apply to the Competition Appeal Tribunal to review a public authority’s decision to award a subsidy. This could result in a requirement for the authority to reconsider its decision or an order requiring that the public authority claw back the subsidiary from the beneficiary.

Public authorities themselves will be obliged to refer some subsidies to the Competition and Markets Authority. The Secretary of State will, in secondary legislation, designate some types of subsidy as “subsidies of interest” or “subsidies of particular interest”. Public authorities can ask the SAU to provide advice on subsidies of interest (voluntary referral) and must ask the SAU to provide advice on subsidies of particular interest (mandatory referral).

The Act has a threshold of £315,000 given to an enterprise over three financial years, allowing public authorities to provide minimal financial assistance without triggering the application of the subsidy control regime. This is higher than the de minimis threshold which applied to the regulation of State aid before the United Kingdom withdrew from the European Union.

The new Act introduces a comprehensive regime to regulate subsidy control in the UK, which will give public authorities responsibility and discretion to assess the compliance of their subsidies – provided that these satisfy the principles and overall requirements set out in legislation.

Whilst public authorities will need to ensure that they devote sufficient resources to assessing, monitoring and recording compliance with subsidy control, the new regime will provide opportunities to use subsidies effectively to pursue important objectives, whilst ensuring that competition is maintained.