Business Minister Dean Russell has announced that all elements of the Competition Law regime set out in the Subsidy Control Act 2022 ("the Act") will come into force on 4 January 2023. The Act received Royal Assent on 28 April 2022, with some elements, including a new definition of 'Subsidy' coming into force on that date. All levels of government and many businesses applying for grants have been eagerly awaiting news of when the further elements of the Act will enter into force.
This is particularly acute for those contemplating certain larger subsidies, given the Act's requirements to refer to the Competition & Markets Authority (CMA) in advance of being able to award. This is important especially for many local authorities hoping for allocations from Round 2 of the Levelling Up Fund.
The Government will also make three Streamlined Routes available when the Subsidy Control Act fully enters into force. These are subsidy schemes that will be open to all public authorities, who can use them to give certain types of subsidies even more quickly and easily, and without the need to assess them against the subsidy control regime’s principles.
Where can I get training on the requirements of the Subsidy Control Act 2022?
DWF's Competition Law team is hosting online training on the legal requirements arising from the new regime. There are limited spaces, but you can register for this webinar at 11am on 22 November 2022 here.
In addition, the Department for Business, Energy and Industrial Strategy is holding events in Belfast (9 November), Glasgow (16 November), Cardiff (21 November) and Manchester (23 November). Online events will also be scheduled.
Headline changes public bodies can expect from 4th January 2023
The Act will place the new UK Subsidy Control regime on a primary statutory footing as against the current regime which is based effectively on the subsidy provisions of the EU/UK Trade & Cooperation Agreement of 24 December 2020 as formed the basis for the new EU/UK trade relationship post-Brexit. This new regime has operated, subject to some limited exceptions, for subsidies awarded in the UK from 11 pm on 31 December 2020.
The main changes public bodies will see with effect from 4th January 2023 (via the Act) are:
- larger subsidies will need to be referred to the CMA's Subsidy Advice Unit for approval, prior to being legally committed. In most cases the notification threshold will be £10m, taking account of any related subsidy awarded to the same enterprise in the current financial year and two previous financial years.
- smaller subsidies will no longer proceed on the basis of the current Small Amounts of Financial Assistance route with a threshold of 325,000 Special Drawing Rights (c.£408,721 at 20 October 2022). Instead a new Minimal Financial Assistance route will apply a fixed threshold of £315,000 but otherwise work in similar ways.
- public authorities awarding subsidies on the basis of the Subsidy Control Principles (at Schedule 1 of the Act), will also need to address a further additional principle and thus demonstrate how the measure has been "designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom".
- the government has said it will publish three Streamlined Routes, these being categories of subsidy which may be lawfully awarded without requiring individual analysis against the seven Subsidy Control Principles. Provided the conditions of the relevant Streamlined Route are strictly adhered to, the measure will be compliant with Subsidy Control law. Therefore this route will in some ways be similar to an EU Block Exemption Regulation. Awards via a Streamlined Subsidy Scheme will also avoid any need to be notified to the CMA (if they would otherwise qualify).
- all awards over £100,000 will need to be posted on the national transparency database within 3 months (NB. previously those awarded via the Small Amounts of Financial Assistance route did not require this).
- challenges will be brought by way of Judicial Review, by any "interested party" and heard by the Competition Appeal Tribunal (rather than simply the High Court).
In terms of timing what this means is that subsidies awarded from that date (4 January 2023) will be subject to the full force of the new rules set out in the Act. Any subsidies awarded between now and that date will remain subject to the current regime primarily based around the TCA but already including the new definition of subsidy from the Act.
In due course we expect further publication of government guidance for working with the Act, following publication by DBEIS of draft guidance on 1 July 2022.
Observations on the Subsidy Control Act
The ability of the UK to mastermind its own State aid regime was presented as one of the best opportunities of Brexit. Astutely targeted State subsidies can dramatically improve economies, nurturing the businesses of tomorrow and creating new jobs. Provided certain rules are applied, this can be achieved without having an unduly negative effect on competition.
In comparison with the EU State aid regime, the Subsidy Control Act creates a system where it should be easier and faster to fund the largest projects which would otherwise have required notification to the European Commission for individual assessment, a process which could take a notoriously long time to see through to conclusion – indeed notifications often run to years, not just months.
The new procedures for notifying the CMA in some cases will create an additional burden that has not been present for most of the last two years, but the CMA procedure is not expected to entail anything like the same time as previous European Commission notifications.
The Government has chosen not to recreate the European Commission's role in a domestic context and instead to keep the CMA in an advisory role, while otherwise entrusting the national courts to deliver relevant enforcement judgments to keep the system working well. Obviously in time to come the regime may evolve further still but for the time being the builds a comprehensive regime and it is significant to note that the regime goes significantly further (in solidifying a domestic competition regime) than it was required to do under the UK's commitments to the EU in the TCA. This shows the UK as eager to have an effective competition regime in place for its own sake and not merely to fulfil international commitments.
The Act involves some additional administration for some smaller, regular awards. This is because unless these fall within the Minimal Financial Assistance route, a case needs to be developed against the Subsidy Control Principles which requires the funder to have the capacity and capability to undertake detailed assessment. One way to mitigate this would be to introduce a reasonably extensive array of Streamlined Subsidy Schemes, but the Government seems intent on only using that route sparingly. One would hope that the Government will involve experts from the public and private sector in the design of such Streamlined Subsidy Schemes, given their importance to the new regime.
Fundamentally the Subsidy Control Act enhances a regime which relies upon the organisations administering public funding acting as responsible custodians of public finances, in particular making the appropriate enquiries to ensure that they are only ever providing the proportionate and minimum subsidy necessary for each case. All of the Subsidy Control Principles are difficult to argue with as sensible and best practice around grant giving, but recording the necessary evidence for compliance to be relied upon represents a new way of doing things and definitely a new challenge. Undoubtedly this new regime will grow and develop from the discomfort of public bodies which fail to properly adapt to the new rules and therefore fall prey to Judicial Review challenge. In doing so, the system will gradually become more certain (particularly for standards of evidence relied upon for due satisfaction of the Subsidy Control Principles), both for the body administering the awards as well as subsidy recipients.
The 4th January 2023 will see a new UK Subsidy Control regime come into force. This will require public bodies to adapt and update their approaches to meet the new rules. Although presented as a simplification, the new rules require additional rules to be observed as against the current regime and many of the rules are highly technical and therefore the training on offer will assist with the adaptation process.
DWF Law LLP is an international law firm with an exceptional reputation for advising on matters involving public funding. This includes advising Central Government on large capital projects and Local Government on how to deliver public funding programmes. Please free to get in touch with our Subsidy Control lawyers if it would be useful to discuss any of the issues raised in this article or other matters related to public funding. Our UK offices are Belfast, Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Liverpool, London, Manchester and Newcastle.