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UK Government launches consultation on new Subsidy Control rules

04 February 2021

The UK Government has launched a public consultation to consider and inform the further development of its ambitious new Subsidy Control regime.

The consultation is open from 3 February until the end of March 2021 and seeks the views of stakeholders from across the United Kingdom in order to create a new framework of rules to ensure subsidies most effectively support UK priorities now the UK has left the European Union, and now that the previous EU State aid regime is for the most part no longer applicable.

Introduction

The Department for Business, Energy and Industrial Strategy (DBEIS) has launched theSubsidy Control consultation which seeks views from across the United Kingdom to shape the design of the UK's domestic Subsidy Control regime.

The UK removed the direct effect of EU State aid law at 11pm 31 December 2020 1.  The interim Subsidy Control regime was set up at short notice and is a "bare bones" regime.  This involves public bodies making assessments of the compliance of subsidies they award against five criteria, these being the UK commitments set out within:

  • Part Two, Title XI, Chapter 3 of the EU - UK Trade & Cooperation Agreement  ("TCA");
  • Article 10 of the Northern Ireland Protocol;
  • the Withdrawal Agreement;
  • WTO rules2; and 
  • other non-EU trade deals3.

The TCA contains the primary elements of the new Subsidy Control regime.  This covers such issues as to what sort of public interventions qualify as a subsidy, and how these should be evaluated by awarding authorities in order to be considered lawful.

Awards of subsidy may be challenged through judicial review in the national court if, in particular, they fail to show due consideration of six Common Principles for subsidy compliance agreed within the TCA.  The TCA does not provide for a regulator to replace the role previously performed by the European Commission in the EU State aid regime, in terms of adjudicating what subsidies may be deemed in compliance, and conveying exemptions to subsidies examined by it, either individually following notifications of proposed awards, or by reference to specific categories of limited interventions that may be deemed automatically exempted (ie. the previous so-called "block exemptions" or "safe harbours" under which the vast majority of awards of State aid under the previous regime were granted).

The new regime is more permissive and seeks to be less bureaucratic than the EU State aid regime, however for many public bodies the interim Subsidy Control regime has created greater administration and increased uncertainty.  This should not need to be the case however, indeed with some relatively straight forward adjustments, it is fely by many that the new regime could work better than the previous regime.  The new consultation affords an opportunity for all stakeholders to input into the further development of a new improved system.  It will therefore no doubt be welcomed across the UK, both by public bodies administering funding and businesses seeking awards. 

The Subsidy Control Consultation

The consultation features 43 questions on a wide range of subjects including the responsibilities of an independent authority which will oversee the new system of Subsidy Control and which kinds of subsidy should be considered at high-risk of causing harmful distortion to the UK internal market.  

The consultation is split into three chapters.  The first is an introduction which makes the case for Subsidy Control rules.  In doing so, the consultation notes that it is advantageous to have rules which prevent subsidies which are wasteful or have a negative impact upon the economy. Likewise, well targeted subisides can help achieve positive outcomes such as helping drive greater investment in R&D or contributing to achieving the UK's net zero objectives.  That the UK is committed to a Subsidy Control regime is in any event assured, not least by the TCA, but it is helpful to be mindful of the founding principles of why this matters.

The second chapter focusses on the objectives of the new regime. The Government lists these as:

  • Facilitating interventions to deliver on the UK’s strategic interests 
  • Maintaining a competitive and dynamic market economy 
  • Protecting the UK internal market 
  • Acting as a responsible trade partner 
These are all important and emphasise how an effective Subsidy Control regime can not only help to stimulate and maintain an effective and dynamic economy, but also to pursue specific policy objectives such as "levelling up" and assisting disadvantaged regions. 

The third chapter focusses upon the detail of the new regime and contains most of the questions. The chapter is prefaced by a statement that the "the UK has the freedom to design a domestic subsidy control regime that works for the specific needs of the UK economy while meeting our international commitments."  Therefore although there are significant opportunities, the new regime will need to take account of the existing commitments. 

The consultation proposes an additional potential Common Principle by which compliance might be judged alongside the other six set out in the TCA. This is that "Public authorities should seek to minimise any harmful or distortive effects on competition within the UK internal market that may arise from a subsidy".  There is little explanation as to how such a rule would apply and what kind of measure it would catch.  For example, would it make awarding a subsidy in Berwick upon Tweed (ie. a location near a border between one of the four countries within the UK) more difficult than in Brighton?

Conclusion

The launch of the consultation is to be welcomed as it gives all stakeholders within the United Kingdom the opportunity to help shape a better, more efficient Subsidy Control regime.  It is in everybody's interest to have a faster, clearer system which directs public funding to economic priorities.  Although the Government is naturally eager to distance itself from the EU system, it may be better to take ideas from that system which have worked well (for example safe harbours to incentivise investment into disadvantaged areas and generous intervention rates for R&D) and to make new, better rules for elements which have been problematic and perhaps overly rigid (eg. the undertaking in difficulty test).  This is a new era and the UK needs to make the most of the opportunities available.

 

Subsidy Control Consultation questions
Question 1: What type of subsidies are beneficial to the UK economy? 

Question 2: What type of subsidies are potentially most harmful and distortive? 

Question 3: Do you agree with the Government’s objectives for a future subsidy control regime? Are there any other objectives that the Government should consider? 

Question 4: We invite respondents’ thoughts on further sources of evidence that would help to strengthen our analysis of policy impacts. In particular: 

• Additional datasets (other than the European Commission’s Transparency Award Module) on local or regional subsidy awards (e.g. by value, sector or category) 

• Research and evaluation projects that have been conducted on the impacts of different types of subsidy awards on domestic competition and trade (e.g. by value, sector or category) 

Question 5: We invite respondents' views on whether our proposed subsidy control regime, including the way it functions, may have any potential impact on people who share a protected characteristic (age, disability, gender re-assignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex (gender) or sexual orientation), in different ways from people who don’t share them. Please provide any evidence that may be useful to assist with our analysis of policy impacts. 

Question 6: Do you agree with the four key characteristics used to describe a support measure that would be considered a subsidy? If not, why? 

Question 7: Should there be a designated list of bodies that are subject to the new subsidy control regime. If so, how could that list be constructed to ensure that it covers all financial assistance originating from public resources?

Question 8: Do you think agricultural subsidies in scope of the AoA and fisheries subsidies should be subject to the proposed domestic arrangements? If so, what obligations should apply? 

Question 9: Do you think audio-visual subsidies should be subject to the domestic regime? Please provide a rationale for your answer. 

Question 10: Do you agree with the inclusion of an additional principle focused on protecting the UK internal market by minimising the distortive effects on competition?

Question 11: Do you think there should be any additional principles? 

Question 12: What level of guidance or information would be helpful for public authorities to assist with their compliance with the principles? 

Question 13: Should the threshold for the exemption for small amounts of financial assistance to a single recipient replicate the threshold in the UK-EU Trade and Cooperation Agreement at 325,000 Special Drawing Rights over a three-year period? If not, what lower threshold would you suggest and why? 

Question 14: If you consider the small amounts of financial assistance threshold should replicate the UK-EU Trade and Cooperation Agreement, should it be fixed at an amount of pound sterling (GBP)?

Question 15: Do you agree that subsidies under the proposed small amounts of financial assistance threshold be exempt from all obligations under the domestic regime, except for the WTO prohibitions? If not, why? 

Question 16: Should relief for exceptional occurrences be exempted from obligations regarding principles, prohibitions and conditions in the subsidy control regime? 

Question 17: Should subsidies granted temporarily to address a national or global economic emergency be exempted from the rules on prohibited subsidies and any additional rules set out below? 

Question 18: Should the threshold for the exemptions for Services of Public Economic Interest replicate the relevant thresholds in the UK-EU Trade and Cooperation Agreement at 750,000 Special Drawing Rights over a three-year period, and for transparency obligations at 15 million Special Drawing Rights per task? If not, what lower threshold would you suggest and why?

Question 19: If you consider the SPEI thresholds should replicate the UK-EU Trade and Cooperation Agreement, should they be fixed at an amount of pound sterling (GBP)? 

Question 20: Do you agree with the Government’s approach to prohibitions and conditions? Should any types of subsidy be added to either category? If so, why? 

Question 21: Would more detailed definitions of any of the terms set out in this section, including the definition of “ailing or insolvent enterprises” be useful to ensure a consistent and proportionate? approach to compliance? If so, what should these be?

Question 22: Should the Government consider any additional ways to protect the UK internal market, over and above the inclusion of a specific principle to minimise negative impacts? If so, what? 

Question 23: Would an additional process for subsidies considered at high-risk of causing harmful distortion to the UK internal market add value to the proposed
principles? If so, how should it be designed and what criteria should be used to determine if the subsidy is at high-risk of causing distortion?

Question 24: Should public authorities be obliged to make competition impact reviews public? If not, why? 

Question 25: Should public authorities be permitted to override competition impact review e.g. in the case of emergencies? If so, why?

Question 26: Should there be additional measures to prevent subsidies that encourage uneconomic migration of jobs between the four nations? 

Question 27: Could additional measures help ensure that lower risk subsidies are able to proceed with maximum legal certainty and minimum bureaucracy? What should be included within the definition of ‘low-risk’ subsidies? 

Question 28: What guidance or information would be helpful for public authorities to assist on lower risk subsidies? 

Question 29: Should the specific rules on energy and environment subsidies apply only in so far as they are necessary to comply with trade agreements? Or should they apply under the domestic regime more generally? 

Question 30: Which sectors or particular categories of subsidy (such as for disadvantaged areas, R&D, transport, skills etc) would benefit from tailored provisions or specific guidance on subsidy control? If so, why, and what should the nature, extent and form of the provisions be? 

Question 31: Do you agree with the proposed rules on transparency? If not, why?

Question 32: Do you agree that the thresholds for the obligation on public authorities to submit information on the transparency database should replicate the thresholds set for small amounts of financial assistance given to a single enterprise over a three-year period and for transparency for SPEI? 

Question 33: If not, should the threshold be lowered to £175,000 over a three-year period to cover all reporting obligations for Free Trade Agreements, enabling all of the UK’s international subsidy transparency obligations to be met through one database? 

Question 34: Should there be a minimum threshold of £50,000 below which no subsidies have to be reported? 

Question 35: Do you agree that the obligation should be to upload information within six months of the commitment to award a subsidy?

Question 36: What should the functions of the independent body be? Should it be responsible for any of the following:

• information and enquiries;
• review and evaluations;
• subsidy development advice;
• post-award review; and/or,
• enforcement.

Question 37: Should any review of a subsidy by the independent body consider all the principles, and the interaction between them, or only some principles, and if so which ones? 

Question 38: What role, if any, should the independent body play in advising public authorities and reviewing subsidies before they have been awarded? 

Question 39: If the independent body is responsible for post-award review, what types of complaints should it be able to receive and from whom? 

Question 40: Which, if any, enforcement powers should the independent be given? In what circumstances could the body deploy them? What would be the routes of appeal and the interaction with judicial enforcement? 

Question 41: How should the independent body be established in order to best guarantee its independence and impartiality when exercising its operational functions? 

Question 42: In addition to the application of time limits, are there any other considerations for implementation of the recovery power? 

Question 43: Should a specialist judicial forum such as the Competition Appeals Tribunal hear challenges to subsidy schemes and awards? If not, why?
 
1. State Aid (Revocations and Amendments) (EU Exit) Regulations 2020
2. Including the Agreement on Subsidies and Countervailing Measures, the Agreement on Trade Related Investment Measures, the General Agreement on Trade in Services and the Agreement on Agriculture. 
3. The guidance refers to Canada, Japan, Israel, Jordan, Kosovo, Morocco, Palestine, Tunisia, Ukraine and Georgia
 

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