Subsidy control obligations from January 2023

Authors Tiffany Cloynes & Clare Hardy

The UK’s subsidy control regime will come fully into force from 4 January 2023, when the operative parts of the UK Subsidy Control Act 2022 come into effect. It is important for public authorities to be aware of their obligations under the Act and associated legislation.

The UK regime replaces the law relating to assistance from public resources for economic enterprises that applied under European Union law on State aid when the United Kingdom was a member of the EU. It is important to note that the World Trade Organisation agreement and other free trade agreements will continue to apply beyond 4 January 2023, alongside the UK subsidy control regime.

The UK regime takes a much more positive approach to the provision of subsidies than applied under EU State aid law. The starting position for any subsidy is a presumption that subsidies are permitted if they are in line with certain subsidy control principles set out in the Subsidy Control Act 2022 and are not expressly prohibited or made subject to conditions by that Act. The subsidy control principles are:

  • Principle A: common interest. Subsidies should pursue a specific policy objective to remedy an identified market failure or address an equity rationale.
  • Principle B: proportionate and necessary. Subsidies should be proportionate to their specific policy objective and limited to what is necessary to achieve it.
  • Principle C: design to change economic behaviour of beneficiary. Subsidies should be designed to bring about a change of economic behaviour of the beneficiary. That change should be conducive to achieving its specific policy objective and something that would not happen without the subsidy.
  • Principle D: 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.
  • Principle E: 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.
  • Principle F: competition and investment within the UK. Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the UK.
  • Principle G: 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 competition or investment within the UK, international trade or investment.

Public authorities will be required to self-assess their subsidies, and if they are satisfied that the subsidies are compliant with the principles then they can award the subsidy. Statutory guidance published by the UK government sets out a four-step approach to reviewing subsidies against the principles. This involves (1) identifying the public policy objective; (2) ensuring that the subsidy is designed to create the right incentives for the beneficiary; (3) considering any distortive impacts that the subsidy may have; and (4) carrying out a balancing exercise to ensure that the beneficial effects of the subsidy outweigh any negative effects.

It is important for public authorities to be aware of the transparency obligations that apply when they award subsidies. Details of subsidies must be uploaded to the UK Government’s subsidy database within 3 months of the conclusion of the agreement with the subsidy recipient. This requirement will apply to all standalone subsidies, subsidies awarded under schemes that are greater than £100,000 in value, and subsidies of public economic interest and minimal financial assistance subsidies with a value over £100,000. Notification of a subsidy on the subsidy database will trigger the limitation period, within which a potential challenger may bring a claim of an unlawful grant of a subsidy; therefore, it is in a public authority’s interest to carry out its transparency obligations as soon as possible. Subsidies of particular interest must be referred to the Competition and Market Authority’s Subsidy Advice Unit for a report and public authorities or the Secretary of State may refer other subsidies to the Unit. Authorities should therefore consider whether any subsidy that they make should be the subject of a mandatory or voluntary referral.
The new UK regime puts public authorities in a good position to make effective use of subsidies but it is important that they comply with any obligations regarding the award and reporting of subsidies.

Geldards has experienced advisers who are happy to assist with any queries and concerns that you may have in relation to subsidy control and your obligations in complying with this.

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