Under Section 52(1) of the Subsidy Control Act 2022, there is a duty upon public authorities to refer certain subsidies or subsidy schemes, including those which involve the award of a subsidy with a value of over £10m, to the Competition and Markets Authority's Subsidy Advice Unit (the "SAU"). The SAU evaluates the assessment made by the public authority, and any supporting information, before issuing a public report which gives its views as to whether the evaluation adequately meets the requirements of Chapters 1 and 2 of Part 2 of the Act and the effect of the award upon competition and investment within the United Kingdom.
In practice, many public authorities have concerns about the additional work required in making such a referral and, as this must be made prior to legally committing the subsidy, the impact that this additional step has upon delivery timescales. Therefore, it is useful to learn from the SAU's reviews of other measures to help structure referrals which pass through the assessment process quickly and with the minimum of criticism.
What is the Energy Bills Discount Scheme for Energy and Trade Intensive Industries?
The Energy Bills Discount Scheme for Energy and Trade Intensive Industries (the "Scheme") is a £5.5bn initiative designed to replace and refine the Energy Bill Relief Scheme which came to an end on 31 March 2023.
The aim is to provide financial assistance to businesses operating in sectors with high energy costs, such as the manufacture of electronic components, ceramics, glass and plastics as well as those involved in the processing of nuclear fuel and operating breweries, zoos and museums. The Scheme is intended to will provide a subsidy by way of a per-unit discount to their energy bills above a specified threshold, subject to a maximum discount. It will run in parallel with the Energy Bills Discount Scheme ("EBDS"), which provides a lower level of support to a wider range of beneficiaries.
What can we learn from the SAU Report?
Overall, the report strikes a helpful tone, with the SAU being clear from the outset that its role is to provide non-binding advice which can be incorporated into the decision made by the public authority whether to proceed with the subsidy, or in this case, the setting up of the Scheme.
There is a general steer throughout the report that it is better for public authorities to work through the requirements of the Subsidy Control Act in a methodical manner, with reference to the relevant parts of the 207 page Statutory Guidance, the Guidance on the Operation of the subsidy control functions of the Subsidy Advice Unit and the relevant sections of the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022.
In respect of the examination of the Principles, the main recommendations were:
- the assessment can be made stronger by the Department for Energy Security and Net Zero setting out its reasoning for taking particular positions more clearly and systematically;
- the assessment of Principle A (which looks at the public policy objective of the intervention and the reasoning behind this) can be improved by moving away from "high level" and "strategic" objectives and instead focussing upon the specific intervention, grounding this in a specific identified market failure or equity rationale;
- the assessment of Principle B (which aims to ensure the subsidy is limited to what is proportionate and necessary to achieve the objective), can be improved through more detail, particularly in respect of how the features of the scheme have been designed to ensure the subsidy is limited to the minimum necessary;
- the assessment of Principle C (which aims to demonstrate how the behaviour of the beneficiary is changed as a result of the subsidy) can be improved by developing a more granular counterfactual analysis (ie. what would happen absent the subsidy), which is supported by adequate evidence;
- the assessment of Principle D (which aims to ensure the subsidy is not going towards activity which would be funded in any event),could be improved by information showing how the eligibility criteria avoid the subsidy being used towards costs that are likely to be funded anyway;
- the assessment of Principle E (demonstrating that other options to achieve the objective have been properly considered) could have been more thorough and therefore might be improved by producing a more detailed review of alternative policy tools;
- the assessment of Principle F (assessment of the impact upon competition and investment in the UK) may be improved by undertaking a more detailed review of the Scheme's impact upon competitors, particularly those which compete in the same or similar markets, but which are not eligible; and
- the assessment of Principle G (requiring the proper consideration of whether the benefits of the measure outweigh the negatives) could be improved by providing a more thorough assessment, including setting out "in sufficient detail how the intended benefits of the scheme outweigh the negative effects on competition and investment within the UK".
The Department for Energy Security and Net Zero can now reflect upon this report and use the recommendations to improve its records, so that they demonstrate how each of the Subsidy Control Act 2022 requirements are met prior to finally enacting the Scheme should it choose to do so.
It is to be remembered in this respect that what the SAU reviews and what is the final subsidy or scheme adopted may vary, especially in the sense of a public authority undertaking further study to refine and provide a better evidence base before adopting the subsidy or subsidy scheme. It is the final subsidy or subsidy scheme adopted (which must then be published on the transparency register as appropriate) which would be the subject of any formal challenge, rather than the proposed subsidy or subsidy scheme as notified to the SAU.
This is the second report from the SAU* and provides useful insight for public authorities considering referring a project to the CMA's Subsidy Advice Unit. In particular, public authorities should not underestimate the importance of properly preparing for the referral process, including ensuring that the reports take account of the relevant guidance and points made are properly supported by relevant evidence. While it is often said that what is considered by the SAU is the work that a public authority should be doing anyway (in order to meet the relevant tests and in particular the Subsidy Control Principles at Schedule 1 of the Act), it is of course another thing to have that work publicly scrutinised by a specialist competition authority such as the SAU.
DWF is a global legal services provider with an exceptional reputation for advising upon public funding matters, including advising upon complex Subsidy Control matters and making referrals to the Subsidy Advice Unit. Please feel free to contact us, if it would be helpful to discuss the issues raised in this article.
* The first related to the Department for Business and Trade's Contracts for Difference Scheme