New UK subsidy control regime revealed

United KingdomScotland

The UK Government has today introduced the Subsidy Control Bill to Parliament, kick starting the formal process of implementing the UK’s domestic regime on subsidy control following departure from the EU State aid rules.

The issue of State aid rules was one of the last major stumbling blocks in the Brexit trade deal negotiations at the end of last year, and saw the UK committing to establishing its own domestic regime in line with a set of agreed principles. The UK Government has made clear in its Press Release today that the new UK system will be ‘simple, nimble, and based on common-sense principles – free from excessive red tape’.

Key aspects

The detail of the new UK-wide regime is yet to take shape, but key aspects of it will include:

  • No presumption of illegality – unlike EU State aid rules, there will be no rule that aid is unlawful if above de minimis thresholds or otherwise does not fall within a prescribed block exemption or prior approved schemes;
  • UK-wide principles – granting authorities will instead need to self-assess subsidies applying a set of broad principles and guidance, with only a limited set of subsidies considered prohibited (including export subsidies and unlimited State guarantees);
  • Specific categories of subsidies recognised - the new system will introduce ‘Subsidies of Interest’ and ‘Subsidies of Particular Interest’ which granting authorities may undertake a more extensive analysis to assess their compliance with the principles.
  • Devolved administrations – subsidy rules remain a reserved matter, meaning that whilst devolved governments in Scotland, Wales and Northern Ireland will continue to be empowered to grant subsidies, they will have to follow these UK-wide principles.
  • Prohibition on displacement subsidies - the new system will prohibit using subsidies to lure businesses and jobs from one part of the UK to another (even within the same individual UK geography).
  • Independent authority – the Competition and Markets Authority (CMA) will be the designated independent body, with a new ‘Subsidy Advice Unit’ established within the CMA;
  • Enforcement - the Competition Appeal Tribunal (CAT) will have jurisdiction to judicially review the award of subsidies.
  • Transparency database – a national database will be maintained in which authorities must publish public information on the subsidies they have awarded, has been introduced and will be maintained by BEIS (can be viewed here).

Further Guidance for Public Authorities and Business

In addition to the Bill, BEIS has recently updated its Guidance Note to provide more details on what public authorities granting subsidies, and businesses receiving subsidies will have to consider.

Firstly, for businesses receiving subsidies, the ‘Small Amounts of Funding Exemption’ (referred to as ‘Minimal Financial Assistance’ within the Bill) appears to have been set at an amount of less 325,000 Special Drawing Rights (SDR) calculated in the elapsed part of the current financial year and the two financial years immediately proceeding the current financial year – which would be cumulative with any pre-Subsidy regime de-minimis State aid awards in that period. The guidance also applies the definition of SME from the Companies Act 2006, which is an important clarification for completing subsidy applications.

Now that the Transparency Database is live, public authorities must apply to BEIS to upload information on subsidies awarded within six months of the award being made. Whilst this could initially be delayed due to a backlog of grants not yet registered, the guidance now clarifies the thresholds for grants to be published on the database. Authorities must provide Transparency Database information for all grants made above the following thresholds:

  • ad hoc subsidies provided on an individual basis above £315,000, now known as the Small Amounts of Funding Exemption or de minimis State aid (as previously known under the EU rules)as set out above;
  • compensation above £14.5 million for services of public economic interest (SPEI) as set out above; and
  • each subsidy award of £500,000 or more that is provided under a scheme must be entered onto the database (a subsidy award of less than £500,000 under a ‘scheme’ must also be entered if it would cumulate with other awards for the same costs to an amount of £500,000 or over for a single recipient).

The guidance also includes the UK’s Assisted Areas map but clarifies that public authorities can provide subsidies to companies which are not located on this map. There is no equivalent of the assisted areas map as there is for EU Regional aid, and there are no set limits on the amount of subsidy which may be provided.

If public authorities or business are looking for much-needed certainty on receiving and awarding subsidies, then we might not be there yet – and it may take up to a year before key elements of the new system are in place. Whilst the UK Government’s domestic regime will offer more flexibility and should shorten the timescales for businesses receiving subsidies, it may not yet provide the same level of certainty that the subsidy is compliant that businesses and authorities are used to.

Please see here for the Subsidy Control Bill.