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Subsidy Control: how do public authorities notify projects to the CMA's Subsidy Advice Unit?

09 August 2022

Under the Subsidy Control Act 2022, the Competition and Markets Authority will be responsible for providing non-binding advisory reports regarding subsidies referred by public authorities and monitoring the operation of the subsidy control regime.  

In this article, we consider the Competition and Market Authority's new role advising on subsidy control compliance and take account of what the draft guidance on the operation of the subsidy control functions of the Subsidy Advice Unit tells us.

What is the Subsidy Advice Unit?

The Subsidy Advice Unit is the branch of the Competition and Markets Authority ("CMA") responsible for conducting Subsidy Control reviews under Part 4 of the Subsidy Control Act 2022 (the "Act").   This includes a periodic review of the effectiveness of the regime, but most of its work will be carrying out reviews of whether public authorities have satisfied the Subsidy Control Principles in making awards of subsidies and setting up subsidy schemes. 

Why is the Subsidy Advice Unit required? 

Under State aid law, many awards were essentially procedural (working through whether the conditions of an exemption were met) but the Subsidy Control Act 2022 shifts the onus onto the public authority to substantiate that seven less precise Subsidy Control Principles are reasonably satisfied. The Subsidy Advice Unit provides a safeguard for larger awards, checking the public authority's assessment of compliance and providing comments in a report.

Will the CMA's Subsidy Control reports be published?

The CMA recently published draft guidance as to its procedures, this implies that the Subsidy Advice Unit's reports will be published and that there will be an opportunity for comments to be submitted by third parties within the appraisal process (NB. the opportunity for this will be signalled by the SAU's publication of a notice stating that they are investigating a particular proposed subsidy). 

What timescales apply to the CMA review process?

The CMA anticipates that a substantive assessment will be carried out within 30 working days of the relevant information being provided through the Public Authority Portal ("PAP").  What is unclear is how long will be required before the formal time limit commences.  This will naturally depend on completeness of notifications submitted given that the CMA cannot be expected to carry out a proper appraisal from inadequate material and data to begin with.

Which types of subsidy need to be referred to the CMA?

Under Section 52(1) of the Act, public authorities must refer a "Subsidy of Particular Interest" ("SoPI") to the CMA for review.

What is a Subsidy of Particular Interest?

A "Subsidy of Particular Interest" is an award of financial assistance that must be referred by the public authority making the award to the Competition and Markets Authority for review.   

What constitutes a SoPI has yet to be finalised, but the Government's draft Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022 defined awards of £10m and over in a three year period as being within scope, as well as awards of £5m for higher risk sectors  The Government's response to the consultation published on 24 August 2022, confirms that these thresholds will be used in the final version of the regulations.

A voluntary referral process will be put in place for a Subsidy of Interest, which will be defined in the same Regulations.

Conclusion

The Subsidy Advice Unit represents an important safeguard in the new Subsidy Control regime.  Although it does not hold as much power as the European Commission under the EU State aid regime (for example, its reports are non-binding and it cannot order recovery) approval by the CMA is likely to be of very significant assurance to the Competition Appeal Tribunal in the event of a challenge, and vice versa in the event of an authority not taking heed of any SAU recommendations.  Therefore it is worth understanding and following the procedural guidance.  

Further Reading