On 7 April 2025 the government announced that in response to consultation feedback, it plans to lift the mandatory referral threshold from £10m to £25m. In this article, Subsidy Control experts Jonathan Branton and Alexander Rose consider the implications of this announcement and the further news that two new Streamlined Routes will also be created.
Introduction
The UK's Subsidy Control regime largely replaced EU State aid law with effect from 4 January 2023 and aims to minimise the distortive impact of subsidies by regulating when these can be awarded.
The regime is primarily based upon the Subsidy Control Act 2022 (the "Act") which defines what constitutes a subsidy and sets out exemptions which can be followed in order to lawfully award subsidies. Failure to properly follow these requirements can be challenged in the Competition Appeal Tribunal, which has the power to order recovery of the subsidy.
Section 52(1)(a) of the Subsidy Control Act 2022 (the "Act") sets out that a public authority must request a report from the CMA's Subsidy Advice Unit ("SAU") prior to legally committing a subsidy of particular interest ("SoPI") or creating a scheme which may allow for the award of SoPIs in the future.
What constitutes a SoPI is prescribed in The Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022 ("SoPI Regulations"). It currently includes:
- any proposed subsidy with a value over £10m or subsidy scheme which provides for such awards;
- any proposed subsidy with a value of over £5m that benefits an enterprise engaged in a sensitive sector (the sensitive sectors are listed in the Schedule of the SoPI Regulations) or subsidy scheme that provides for such awards;
- any proposed subsidy over £1m which falls within Section 18 (Relocation of activities) of the Act or subsidy scheme that provides for such awards; and
- any proposed restructuring subsidy (as defined at Section 20 and 21 of the Act) or subsidy scheme that provides for such awards.
In addition, any award of subsidy above £1m will constitute a SoPI if the cumulative value of 'related subsidies' that have been legally committed within the current and two previous financial years (running from 1 April to 31 March) exceeds £10m / exceeds £5m for a sensitive sector (the "Cumulation Test"). Ten types of subsidy set out at Section 64 of the Act (including subsidies committed under the cover of legacy schemes and Streamlined Routes) fall outside the scope of the related subsidy assessment.
Plans to change the referral threshold in due course
On 7 April 2025, the government announced that it had taken account of responses to the November 2024 consultation and decided to update the SoPI thresholds so that "The £10 million threshold for mandatory referral in non-sensitive sectors will be increased to £25 million. The threshold for mandatory referral in sensitive sectors will be maintained at £5 million and the list of sensitive sectors will remain the same". No date is given as to when this change will be made other than "revised Regulations will be laid before Parliament during the second half of 2025", hence it must be assumed it will be some months from now before this change would become effective.
Rationale for the change
The government has referred to the consultation responses for its reasoning including that "inflation, rising construction costs and increased government focus on infrastructure development" justifies a change in the threshold.
Inflation is a reality but in our view the strongest reason for a change is probably a recognition that the SAU is handling more referrals than anticipated and is therefore under pressure for resource, possibly allied to broader government desire to maximise opportunity and remove perceived barriers to growth. In March 2022 the government's Impact Assessment estimated that each year "the independent body will provide advice on 10 Subsidies of Interest and 10 Subsidies of Particular Interest as a central estimate, with 5 and 20 each for sensitivities". Since 4 January 2023 there have been over 85 referrals made, thus demonstrating a much higher level of subsidy referral than was expected.
Analysis
There is logic to the proposal, but it also creates uncertainty, at least for the time being. This is because no precise date has been set for when it will take effect. As a result, those authorities contemplating subsidies of £10m to £25m (or schemes for subsidies in that range) will be left wondering whether to wait for an uncertain moment in the hope of avoiding a referral, or push ahead now with one. In all such cases it is worth remembering that the analysis reviewed by the CMA in a referral is the same analysis the authorities should be conducting anyway even if that referral obligation did not exist.
It seems likely that some such measures will consider being delayed in order to avoid the referral requirement. Such delays may impact delivery and therefore the ability of such projects to contribute to the UK's economic growth.
The change also raises a question about whether the SAU process will change in response, becoming more thorough for those measures that are referred, or simply continuing as is buit for a lower volume of referrals. The announcement hints at this stating that the change will equip the "CMA with additional capacity to focus on the referrals of the largest subsidies with the most potential for harm". Only time will tell what difference to referral decisions the raising of the threshold makes.
One possible surprise is that the government has not chosen to create a different referral process for schemes. Subsidy schemes have been flagged as an area where large sums are being awarded (for example the Department for Energy, Security and Net Zero has created subsidy schemes covering over £120bn of spend) but where there are problems. This includes schemes being created without clear criteria, but also very long durations (the transparency database lists 5 schemes with durations of over 7,900 years and 49 with unlimited duration).
The referral of a scheme to the CMA allows it to be enacted later to cover multiple individual subsidies in excess of the referral threshold that do not then need to be referred themselves on an individual basis later. We anticipate that this route will therefore continue to be of interest to public authorities administering high value programmes of subsidy in particular.
New Streamlined Routes
The government has announced that it "will proceed with 2 new Streamlined Routes – focusing on arts and culture, and community regeneration".
Streamlined Routes (also called Streamlined Subsidy Schemes) are Subsidy Control exemptions for specific situations, written into law, which can be used by public authorities to make compliant awards of subsidies when the relevant conditions are satisfied. They are often seen as an equivalent of EU Block Exemption Regulations in UK law, in that a public authority is able to provide a subsidy with legal certainty provided it can be sure it complies with all relevant conditions set out in the Streamlined Route relied upon. To date minimal use has been made of this.
Section 10 of the Subsidy Control Act 2022 sets out that Streamlined Routes can be created by a Minister of the Crown and must be laid before Parliament. However, there is significant work which must be undertaken prior to that stage, because officials will need to build up a coherent case that it is appropriate to "enable more subsidies to be granted using a lighter-touch compliance process" having determined that the identified areas of exemption are of "low risk of causing negative effects on competition and investment within the UK, or on international trade" and that such a measure is "consistent with the subsidy control principles".
We argued for new streamlined routes in our opinion article (the UK’s Subsidy Control Regime can be improved through more, better targeted Streamlined Routes) in November 2024, pointing out that:
"the streamlined Routes published so far have been used under 400 times since the UK Subsidy Control regime was established, with the national transparency database recording that the:
- Local Growth Streamlined Route has been used 3 times;
- Research, Development and Innovation Streamlined Route has been used 391 times; and
- Energy Usage Streamlined Route does not appear to have been used.
This is c. 2.15% of the 18,257 subsidies listed so far on the national transparency database.
Therefore, the usage of the Streamlined Routes has been low, particularly as compared to EU State aid law where in 2019, around 95% of EU State aid law measures proceeded under the cover of block exemption such as the GBER."
The two new Streamlined Routes that have been announced are for arts and culture, and for community regeneration. It remains to be seen what these two will mean and what precisely they will cover in practice (NB. the response to the consultation says they will be "explored further"), but in principle both of these initiatives are to be welcomed.
Particularly in arts and culture, it has long been noted that the sector went from generous allowances under State aid law via Article 53 of the General Block Exemption Regulation (GBER) to having to analyse individually a wide series of measures that were previously exempt. For this sector to have more certainty, even if at a relatively modest level, will ease compliance concerns across the board and especially at more local levels of assistance provided.
On community regeneration the big questions are what will this cover in value and scope, and to what extent will it replace and overlap with the existing "Local Growth" streamlined route which has thus far proved not especially useful. Something sensible to address local infrastructure, perhaps designed in similar vein to MHCLG's English Investment Zones Subsidy Scheme, would be useful.
Again, there is no indication when the new Streamlined Routes will be published or the process which will be used to design and refine the same.
Conclusion
News that the government plans to increase the threshold for referrals will be welcomed by many public authorities as it reduces the administrative burden, but it means fewer large measures will be subject to outside scrutiny.
Those more naturally against the provision of subsidy and in favour of letting the market decide will likely conclude that the change is all on the side of making it easier to intervene in the market by providing subsidies, and less protective of competition. The UK Subsidy Control regime is supposed to be striking a balance between these two objectives and how well that balance is struck will continue to be the subject of much analysis.
We anticipate that further changes will be made in the coming months to other parts of the regime, including transparency arrangements. The announcement of two new Streamlined Routes is also to be welcomed, but again the first question will be when will these come into effect, and unlike the issue of CMA referral threshold (which is at least clear), the questions of what exactly those streamlined routes will allow and to what value are as yet unanswered.
Our webinar on how to make successful CMA referrals under the Subsidy Control Act 2022 can be found here.
Our webinar on effective use of subsidy schemes and related CMA referrals can be found here.
