Briefings
Subsidy Control Bill 2021: UK announces post-Brexit state subsidy regime
On 30 June 2021, the UK Government published the Subsidy Control Bill 2021 (the Bill) and the Department for Business, Energy and Industrial Strategy (BEIS) published the outcomes of the February 2021 subsidy control consultation paper.1
In a press release, UK Business Minister Paul Scully commented “The UK’s new bespoke subsidy system will be simple, nimble, and based on common-sense principles – free from excessive red tape.”2 In this article, we analyse the Bill’s key provisions and consider what impact the UK Government’s new approach to state subsidies will have on businesses.
The application of the EU State aid rules in Great Britain (England, Scotland and Wales) was revoked by the UK Government at the end of the Brexit transition period in December 2020, leaving the UK to devise its own subsidy regime for Great Britain. The Bill establishes a system for state subsidies based on principles that is intended to grant the UK Government and public authorities more flexibility than under the old EU regime. The application of the EU State aid rules in Northern Ireland is more complex. Under the Northern Ireland Protocol to the EU Withdrawal Agreement, the EU State aid rules could continue to apply not only to subsidies on trade in goods between Northern Ireland and the EU (including Ireland) or which have a clear direct effect in Northern Ireland, but also (at least in the view of the European Commission) to subsidies to any company which trades with Northern Ireland in goods or supplies services to customers in Northern Ireland. Below, we set out the key elements and considerations that businesses should be aware of.
Which subsidies the Bill covers
The Bill sets out a detailed definition of ‘subsidy’, meaning financial assistance that:
- Is given directly or indirectly from public resources by a public authority;
- Confers an economic advantage on one or more enterprises;
- Is specific, benefitting certain enterprises over others;
- Has or is capable of having an effect on competition or investment within the UK, trade between the UK and another country, or investment between the UK and another country.
Notably, the last part of the definition is modified for air carriers to cover subsidies to air carriers that have or may have an effect on competition in “air transport services” within the UK or between the UK and other countries.
Several subsidy types are exempt from the subsidy control requirements set out in the Bill. Subsidies for less than £315,000 given as minimal financial assistance are exempt, as are subsidies for less than £725,000 given as services of public economic interest assistance. There are also exemptions relating to subsidies given in emergency situations, although national or global economic emergencies are not covered by these exemptions.
A principles-based approach: baseline and streamlined routes
The Bill empowers public authorities to grant subsidies and create their own subsidy schemes. Subsidy schemes allow multiple subsidies to be granted under a framework devised by a public authority. Under the ‘baseline route’ to granting subsidies and subsidy schemes, public authorities must undertake a review and consider a number of principles set out in Schedules 1 (the subsidy control principles) and 2 (the energy and environment principles). A public authority must not grant a subsidy unless it is satisfied that the subsidy is consistent with the principles. For subsidies granted under subsidy schemes the public authority will need to consider the principles at the outset before creating the scheme itself.
The seven subsidy control principles reflect broad principles including common interest, proportionality and necessity. Further, the principles provide for subsidies that achieve a specific policy objective that cannot be achieved through less distortive means, that minimise any negative effects on competition or investment in the UK and also ensure that the subsidies’ beneficial effects outweigh any negative effects on competition in the UK or international trade. When considering granting a subsidy for energy and environment, a public authority must also consider the energy and environment principles. These nine additional principles consider subsidies aimed at increasing environmental protection, energy generation and energy transition.
The Bill imposes prohibitions on giving certain subsidies, including unlimited guarantees of debts and liabilities for a company or subsidies for rescuing or restructuring ailing or insolvent companies unless certain conditions are satisfied (such as the subsidy contributing to an objective of public interest or being justified under exceptional circumstances). Subsidies contingent on export performance or relocation of business activities are also prohibited.
In addition, the Government will publish criteria for ‘streamlined routes’ for subsidies considered to be low risk. The public authority would in these cases only need to demonstrate that the proposed subsidy falls within the particular route’s criteria to demonstrate compliance with the Bill. There would be no need for a further principles-based assessment for such subsidies. The Government has yet to announce or clarify what type of subsidies may be subject to streamlined routes.
Oversight and Enforcement
The Bill has removed the mandatory notification procedure under the EU State aid rules and envisages that public authorities will assess the suitability of subsidies with the assistance of the Competition and Markets Authority ( CMA). A new UK Subsidy Advice Unit (SAU) will be established within the CMA to act as an independent body overseeing the UK’s new subsidy control regime. The SAU will have a monitoring and oversight as well as an advisory function, where public authorities can request advice on certain subsidies.
The SAU’s level of involvement will depend on the risk factor attributed to the particular subsidy or subsidy scheme. The Bill makes particular provisions for subsidies and subsidy schemes categorised as “of interest” and “of particular interest”. A public authority assessing a subsidy “of interest” can make a voluntary referral to the SAU, which will provide non-binding advice on how the authority’s assessment can be improved and how the subsidy can be modified to ensure compliance with the Bill. A subsidy “of interest” may also be subject to Government call-in powers, where the Secretary of State directs the public authority to request advice from the SAU. A subsidy “of particular interest” will be subject to a mandatory referral to the SAU. A five day cooling-off period will also apply from when the SAU has published its advice, after which the public authority can grant the subsidy. Notably, the SAU’s advice will remain non-binding even in cases of mandatory referrals. Further, the Bill contains several provisions requiring SAU advice to be published in a timely manner and usually within five working days from receiving a public authority’s request for advice. This will be of comfort to businesses seeking subsidies that could be considered at higher risk of distorting competition, trade or investment.
What constitutes a subsidy “of interest” or “of particular interest” remains to be seen as these definitions are subject to Government regulations that are yet to be published. BEIS has however stated that it anticipates only a very small number of subsidies will fall into these two categories. 3 On this basis, we see a clear policy shift away from all subsidies being subject to centralised prior approvals.
Reflecting the policy aims of creating a subsidy control regime that is simple and nimble, the Bill provides limited options for challenges and appeals. Interested parties can apply to the Competition Appeal Tribunal ( CAT) to review a public authority’s subsidy decision. An application to the CAT must be made within one month of the date of the decision. The review process will be similar to that of judicial review, with the CAT applying the same principles and being able to award the same type of remedies as in a judicial review. BEIS has clarified that this means that “the CAT will not be reviewing whether the public authority made the ‘correct’ decision, but whether it was within its powers, procedurally fair, and rational”.4 In addition, the CAT can make recovery orders for subsidies found to be in contravention of the Bill’s requirements.
Application of the Northern Ireland Protocol
Where a subsidy could affect trade in goods between Northern Ireland and the EU (including Ireland) under Article 10 of the Northern Ireland Protocol to the EU Withdrawal Agreement dated October 2019 5 it will still be required to be notified and cleared by the European Commission under the EU’s State aid rules (unless otherwise permitted under those rules). This could potentially catch a large number of proposed subsidies and impact the scope of the Bill. Guidance issued by the Government accepts that the Northern Ireland Protocol will apply to subsidies granted in Great Britain that have a genuine, direct link to Northern Ireland (eg. subsidies granted to companies located in Northern Ireland).6 Conversely, guidance issued by the European Commission indicates that the Northern Ireland Protocol could have a wider scope and apply to any company which trades with Northern Ireland in goods or which supplies services to customers in Northern Ireland (eg. subsidies granted to a manufacturer whose goods are available for sale in Northern Ireland).7 This is a complex area in which public authorities and companies should seek further clarification from BEIS. New process maps published by the UK Government to show the operation of the Bill advise that public authorities should get in touch with the BEIS Subsidy Control Team if a subsidy or scheme falls within the scope of the Northern Ireland Protocol.8
Conclusion and next steps
The Bill will now proceed through the legislative process in the Houses of Parliament and is subject to amendments. Public authorities and businesses will await more detailed guidance and clarification from the Government on how to apply the subsidy control principles and what will constitute subsidies “of interest” or “of particular interest”.
Businesses should already familiarise themselves with the key provisions of the Bill and assess its impact as the UK seeks to move away from the EU State aid rules into a regime aiming to be more flexible and user-friendly.
For more information please contact:
Anthony Woolich
Partner, London
T +44 (0)20 7264 8033
E anthony.woolich@hfw.com
Assistance provided by Johanna Ohlman, Trainee Solicitor.
Footnotes
- https://www.gov.uk/government/collections/subsidy-control-bill
- https://www.gov.uk/government/news/new-subsidy-system-to-support-uk-jobs-and-businesses-boost-the-economy-and-strengthen-the-union
- https://www.gov.uk/government/publications/subsidy-control-bill-policy-papers/overview-of-the-subsidy-control-regime-a-flexible-principles-based-approach-for-the-uk
- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998078/subsidy-control-government-response.pdf (page 12)
- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/840230/Revised_Protocol_to_the_Withdrawal_Agreement.pdf
- https://www.gov.uk/government/publications/complying-with-the-uks-international-obligations-on-subsidy-control-guidance-for-public-authorities/technical-guidance-on-the-uks-international-subsidy-control-commitments#section-6
- https://ec.europa.eu/info/sites/default/files/notice-stakeholders-brexit-state-aid_en.pdf
- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/998016/subsidy-control-regime-process-map.pdf (page 3)
