New UK Subsidy Control regime takes full effect from 4 January 2023

United KingdomScotland

The Subsidy Control Act 2022 (the “Act”) comes fully into force on 4 January 2023. This follows a 12-month period in which the UK has been operating under a post-Brexit set of interim arrangements, the EU State aid rules no longer applying from 1 January 2021. The Act is a unique and highly complex piece of legislation. It is intended to control the giving of subsidies by public bodies across the UK. This is to prevent distortions of competition or investment within the four nations of the United Kingdom and also to ensure the UK complies with its international treaty commitments including those under the UK-EU Trade and Cooperation Agreement and the World Trade Organisation.

The new regime

Alongside the Act, a series of secondary legislation will also take effect from 4 January 2023, including:

  1. The Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022, which define and make detailed provision for inpidual subsidies and subsidy schemes; and
  2. The Subsidy Control (Gross Cash Amount and Equivalent) Regulations 2022, which sets out rules as to how authorities need to calculate the “gross cash equivalent” of a subsidy for the purposes of applying the new regime..

BEIS also recently issued the final UK subsidy control statutory guidance (the “Statutory Guidance”), which authorities will be expected to follow when applying the new regime. The final version Statutory Guidance largely follows the draft guidance, however, there are a few important changes such as the introduction of a definitions section for Subsidies or Schemes of Interest (“SSoIs”) and Subsidies or Schemes of Particular Interest (“SSoPIs”) following recent consultations. It provides helpful further instruction on the notification process for SSoIs and SSoPIs and the new monetary thresholds introduced. It also focuses on which subsidies and schemes the government wishes to encourage public authorities to notify in advance.

Alongside the Statutory Guidance, BEIS also published the Subsidy control rules: quick guide to key requirements for public authorities and the Subsidy control principles assessment template.

  • The quick guide on key requirements for public authorities is a short, simple summary version of the Statutory Guidance. The purpose is to offer a short reference document on the overall framework to aid public authorities, including key ‘Dos and Don’ts’ before granting a subsidy or developing a subsidy scheme. It explains in seven steps how the authorities should assess subsidies or subsidy schemes including: determine whether the support is a subsidy, check whether it warrants assessment against subsidy rules, ensure compliance with prohibitions and conditions, design subsidies in line with the principles, etc.
  • The subsidy assessment template is a two-page document also designed to assist public authorities in assessing the subsidies or schemes against the ‘Seven Principles’. The template outlines the main components of the assessment framework which public authorities should consider. It aims to provide an effective comparison tool for a proposed subsidy award framework against the principles. The template combines the Seven Principles into a four-step analysis: (1) policy objective and appropriateness, (2) counterfactual – sets out a future scenario in the absence of a subsidy, followed by the additionality assessment on how the subsidy will lead to change and achieve the policy objective, (3) proportionality and minimising distortions, and (4) a balancing exercise between the expected benefits of the subsidy vs its anticipated negative effects.

The Subsidy Advice Unit (“SAU”)

On the same day that BEIS published the Statutory Guidance and templates, the Competition and Markets Authority (the “CMA”) published its Guidance on the operation of the subsidy control functions of the Subsidy Advice Unit (the “SAU Guidance”). The SAU Guidance outlines the advisory, monitoring and reporting functions the SAU will perform, the procedural arrangements for public authorities and third parties to engage with the SAU, the analytical framework the SAU will adopt, and the prioritisation principles when considering a voluntary referral. Annex B of the SAU Guidance contains a useful flow diagram of the four-step analysis of the Seven Principles and the questions the SAU will consider under each principle.

Together with the SAU Guidance, the CMA published the outcome of its consultation on the Statement of Policy on the enforcement of the SAU’s information gathering powers. The SAU will formally commence its operations on 4 January 2022 and we expect them to publish a revised Statement of Policy before this date.

Guidance on agricultural and fisheries subsidies, and streamlined routes

BEIS is to issue separate guidance relating to subsidies in the agricultural and fisheries sectors. This should hopefully offer public authorities increased comfort and assurance when awarding subsidies in these sectors, although applicable relevant intervention rates - if included - may be potentially restrictive.

The UK Government has also indicated it is currently developing three “streamlined routes”, similar to “Block Exemptions” in pre-Brexit EU State-aid language. These are to cover: (i) Research Development and Innovation (RD&I) subsidies; (ii) Levelling Up programmes; and (3) Clean Energy.

As with the EU State aid Block Exemptions, the intention is to give public authorities the ability to quickly and effectively assess and approve certain categories of subsidies, subject to fulfilling certain criteria and with relevant intervention rate caps applied.

We will update you on these in our forthcoming Subsidy Control Law-Now series.