Public authorities are under a legal duty to consider the application of the relevant Subsidy Control rules when making awards.  This requires a bespoke assessment of each measure against the relevant provisions within the:

• the Subsidy Control Act 2022;
• the Northern Ireland Protocol;
• the Withdrawal Agreement;
• the World Trade Organisation rules; and
• other trade agreements to which the UK is a party.

The SCA obligations are clarified by the 243 page Statutory Guidance.  

In most instances, only the SCA will be engaged.  However in certain situations, such as measures involving financial assistance towards the production of goods in Northern Ireland or EU funds, other rules will apply.

Under Section 2(1) of the SCA a “subsidy” means any financial assistance with the following characteristics:

(a)        is given, directly or indirectly, from public resources by a public authority;

(b)        confers an economic advantage on one or more enterprises;

(c)        is specific, that is, is such that it benefits one or more enterprises over one or more other   enterprises with respect to the production of goods or the provision of services; and

(d)        has, or is capable of having, an effect on:

(i)         competition or investment within the UK;

(ii)         trade between the UK and a country or territory outside the United Kingdom; or

(iii)        investment as between the UK and a country or territory outside the UK.

Where a subsidy is present, the funding may still be lawfully awarded provided certain steps are taken.  There are six routes under which a subsidy may be awarded.  

These routes are:

• the Minimal Financial Assistance route;
• the Subsidy Control Principles;
• existing schemes;
• Services of Public Economic Interest Assistance;
• Services of Public Economic Interest; and
• Streamlined Subsidy Schemes.

Each exemption has its own requirements which must be met for the award to be lawful.

The two most common routes are the Minimal Financial Assistance route ("MFA") and the Subsidy Control Principles. 

MFA allows an enterprise to receive up to £315,000 of lawful subsidy in the current financial year and two previous financial years. Certain steps must be satisfied for the award to be valid, including obtaining a MFA declaration prior to the award being committed. 

The Subsidy Control Principles requires the public authority to be satisfied that the measure satisfies seven Principles listed at Schedule 1 of the SCA.

The decision to award a subsidy may be challenged.  If a breach is found then the value of the subsidy can be expected to be recovered from the beneficiary with compound interest. 

Therefore although it is the public authority which assesses compliance with Subsidy Control law, it is in the interests of the beneficiary to ensure that the measure is compliant. 

There is a legal duty under Section 52 to refer a Subsidy of Particular Interest ("SoPI") to the Competition and Markets Authority's Subsidy Advice Unit for review. 

SoPIs are defined within the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022 and include: 

• subsidy awards of £10m or above
• subsidy awards of £5m or above to sensitive sectors 
• subsidy awards for relocation activities of £1m or above 
• subsidy awards for rescue and restructuring activities of £1m or above

In addition, any award of £1m or above will be a SoPI if it means the subsidy awarded to the same enterprise for the same activity in the current and two previous financial years then exceeds £10m / exceeds £5m for a sensitive sector.  

The CMA scrutinises the proposals and publishes a public report working through the strengths and weaknesses of the documentation submitted against the SCA requirements.  

DWF has market leading expertise in CMA referrals, having advised on the first referral of a standalone subsidy. We can support you with the referral process.

Public authorities are under a duty to post information about certain awards on to the Transparency Database within 3 months of legally committing a subsidy / modifying a subsidy. 

The rules are different for tax measures, likewise awards of £100,000 or less which are made under MFA and SPEI  are exempt from the obligation to be put online (albeit they could still be challenged so these might be placed online in any event to start the judicial review challenge window).  The information which must be placed on the transparency database includes:

(a)        the power under which the subsidy is given;

(b)        the policy objective of the subsidy;

(c)        the name of the beneficiary to which the subsidy is given;

(d)        the date the public authority confirms the decision to give the subsidy

Under Section 70 of the Subsidy Control Act 2022 a competitor may petition the Competition Appeal Tribunal to review whether a funding decision is in breach of the SCA.  So far there has only been one case, The Durham Company Limited v Durham County Council heard by the Competition Appeal Tribunal.  DWF advised the successful party, Durham County Council in this litigation.

Services of Public Economic Interest are forms of support that the Public Sector wants to provide for the benefit of the general public which are not already adequately provided by the market.  This includes certain types of hospital care, childcare, support for access to the labour market, social housing and the social inclusion of vulnerable groups.  It can also cover air or maritime links to islands where the passenger numbers average less than 300,000 passengers annually, airports where the passenger numbers average less than 200,000 passengers annually and ports where the passenger numbers average less than 300,000 (demonstrated by reference to the two years preceding the giving of the subsidy). This list is not exhaustive and a check will always need to be made as to the type of activity.

The Subsidy Control Act 2022 includes lawful routes to award subsidies for SPEIs, provided certain procedural steps to avoid over-compensation are undertaken. This includes assigning the SPEI task to the beneficiary in advance and in a transparent manner. It is common to see Services of Public Economic Interest where the entrustment provisions have been incorrectly applied. 

Awards of subsidy to deliver SPEI that are equal or less than £725,000 in a three year period may be delivered under the cover of the Services of Public Economic Interest Assistance route.  

Other SPEI awards need to demonstrate compliance with the seven Subsidy Control Principles and satisfy the Prohibited Category checks.  Transparency requirements apply in respect of awards with a value of £100,000 or greater. 

In certain limited situations EU State aid law continues to apply to subsidy awards made in the United Kingdom.  

This is the case where a measure falls within the scope of the Northern Ireland Protocol ("the Protocol") as amended by the Windsor Framework.  Particular care needs to be taken to properly assess the application of the Protocol, taking account of the relevant case law and guidance.  EU State aid law also applies by way of the EU-UK Withdrawal Agreement, including in respect of projects funded through the European Regional Development Fund and the European Social Fund.  

In all other respects, the direct effect of EU State aid law ended at 11pm 31 December 2020 under the State Aid (Revocations and Amendments) (EU Exit) Regulations 2020.