Securing the right Subsidy Control advice protects public funding from recovery. That is why it is so important to select Subsidy Control advisers with genuine expertise and experience in this area of law.
Our expert team has been trusted to advise on the Subsidy Control compliance of some of the UK's most high profile public funded projects. We have advised upon public sector projects such as the construction of gigafactories, stadiums and spaceports as well as the delivery of national funding programmes. Our clients include central and local government bodies, third sector organisations and businesses looking to safely secure public funding. As a result, we are equipped to provide top quality advice on all types of funding proposal having been involved in the full breadth of projects and programmes.
We are right at the forefront this developing area of law, as demonstrated by our Subsidy Control lawyers being extensively quoted in the recent House of Commons briefing on the Subsidy Control Bill and appearing as part of the Select Committee process. Getting advice from those who are shaping the laws helps you to stay ahead of the competition.
We can use our expertise to help your proposal to not only comply with the law. As a result, our lawyers have a level of insight into Subsidy Control that other law firms do not have.
We are the leading legal business for Subsidy Control advice. We have four specialist Subsidy Control lawyers who advise on Subsidy Control matters on a daily basis and together have over 50 years of experience in advising on this area of law and our expertise is recognised in the Legal 500 and Chambers Directory.
In helping you, we will draw upon our experience of advising upon hundreds of projects. We will also draw upon our team's extensive experience of working within Central Government, Local Authorities and the European Commission. This means we not only know how to design interventions within the rules, but also understand how decisions are made.
Here's how we can help you:
- Provide expert legal opinions, explaining in clear terms how a funding proposal can comply with the Subsidy Control law requirements and therefore avoid the risk of clawback
- Support on the drafting of Subsidy Principles assessments
- Design contractual conditions to ensure legal obligations are met
- Provide litigation support for those looking to challenge or defend awards of public funding
- Help public bodies put in place appropriate checks for funding programmes
- Provide Subsidy Control litigation support when awards of funding are challenged
- Help organisations monitor the compliance of awards
- Provide expert training on how to comply with Subsidy Control law, including equipping staff (such as public sector lawyers) with the skills to correctly check Subsidy Control compliance within applications for funding
What is Subsidy Control?
The Subsidy Control rules apply to awards of financial assistance made by public authorities to businesses and other organisations engaged in economic activity. Public bodies are obliged to carry out Subsidy Control checks and awards may be subject to recovery if these are found to be deficient.
What is the Subsidy Control Act 2022?
The Subsidy Control Act 2022 creates a statutory UK State aid regime, regulating certain awards of financial assistance made by public authorities. The Subsidy Control Act 2022 received Royal Assent on 28th April 2022.
When do public authorities need to apply Subsidy Control rules?
Public bodies are under a duty to consider the application of Subsidy Control rules each time they award financial assistance. Many public bodies make applicants for public funding set out how their project will comply with the Subsidy Control rules in force at the time of award.
Why does the UK have Subsidy Control rules?
The objective of the Subsidy Control rules is to ensure that financial assistance provided to economic entities through public funds and resources is awarded within a framework which achieves value for money and minimises distortion within the market. The rules are also designed to align with the UK's international commitments as set out in the EU-UK Trade and Cooperation Agreement ("TCA") and other trade agreements.
How is Subsidy Control compliance assessed?
There are six core considerations that a public body must take into account in order to satisfy the Subsidy Control rules, these being:
- the Subsidy Control Act 2022;
- the EU/UK Trade And Cooperation Agreement of 24 December 2020 ("TCA");
- the Northern Ireland Protocol;
- the (EU/UK) Withdrawal Agreement;
- the WTO rules; and
- other trade agreements which the UK has entered into.
It is in the interests of both the funder and the applicant to ensure that the legal requirements are correctly satisfied. Failure to do so may result in the funding being recovered following a legal challenge.
What is a Subsidy?
A subsidy is financial assistance from the public sector which falls within the definition at Section 2 of the Subsidy Control Act 2022. Examples of subsidies include grants, loans at less than market rates of interest, tax rebates as well as the sale or lease of assets at less than market rate. In the UK, the Subsidy Control rules regulate subsidies. In the EU, the State aid rules regulate subsidies.
What happens if a subsidy is present under the Subsidy Control rules?
Where the EU-UK Trade and Cooperation Agreement applies and a 'subsidy' is present, it is necessary to take certain steps prior to award in order to award the funding lawfully. These steps include meeting the legal requirements of the Minimal Financial Assistance provision, the Common Principles or the Services of Public Economic Interest requirements.
What is the Minimal Financial Assistance threshold?
The threshold for Minimal Financial Assistance will be £315,000 under the Subsidy Control Act 2022. It is currently set at 325,000 special drawing rights of subsidy to an 'economic actor' in a three year period.
What are the Subsidy Control principles?
The Subsidy Control Common Principles are six criteria that can be used as a basis to lawfully award public funding under the new Subsidy Control rules.
Also known as the 'Common Principles', the rules listed at Article 366 of the EU-UK Trade and Cooperation Agreement are a basis upon which subsidies may be justified (and provided other administrative requirements are also satisfied, lawfully awarded).
The Subsidy Principles are that:
- subsidies should pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (“the objective”)
- subsidies should be proportionate and limited to what is necessary to achieve the objective;
- subsidies should be designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided;
- subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy;
- subsidies should be an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means; and
- subsidies’ positive contributions to achieving the objective should outweigh any negative effects, in particular the negative effects on trade or investment between the Parties.
Many organisations have difficulty in preparing a clear and robust case justifying why the subsidy is lawful. Subsidy Control legal challenges are likely to focus upon the Common Principles having not been met, therefore expert advice is often required to ensure that the public funding is not at risk of clawback.
How do I demonstrate that a subsidy is proportionate and necessary to achieve the objective?
The requirement to demonstrate that a subsidy is proportionate and necessary to the objective requires that the objective has been clearly defined at the outset. It also requires the funder to accurately identify the value of the subsidy and make a clear case that this is not excessive. This involves creating an audit trail to show that the specific level of financial assistance is limited only to what is required to deliver the policy objective and does not go beyond what is necessary, taking account of the wider impact. Typically (but not exclusively) this is addressed by reference to viability gaps as against minimum expected levels of return required before an investment commitment can be made.
What categories of subsidy are prohibited?
Article 367 of the EU – UK Trade and Cooperation Agreement prohibits:
- subsidies in the form of unlimited guarantees;
- subsidies in the form of a guarantee of debts or liabilities of an economic actor without any limitation as to the amount of those debts and liabilities or the duration of that guarantee;
- subsidies for restructuring an "ailing or insolvent economic actor" without the economic actor having prepared a credible restructuring plan;
- other than in exceptional circumstances, subsidies for the rescue and restructuring of insolvent or ailing economic actors should only be allowed if they contribute to an objective of public interest by avoiding social hardship or preventing a severe market failure;
- subsidies to restructure banks, credit institutions and insurance companies without a credible restructuring plan that restores long-term viability;
- subsidies that are contingent upon export performance relating to goods or services (with exceptions); and
- subsidies contingent upon the use of domestic over imported goods or services.
Checks need to be taken against each of the requirements prior to public funding being awarded.
What are the Subsidy Control Transparency Requirements?
The UK's new Subsidy Control rules include an obligation for the funder to publish information online. Failure to publish the correct information online within six months of the award has potentially negative implications for both the funder and the recipient.
The information on subsidies that must be published within six months includes:
- the legal basis and policy objective or purpose of the subsidy;
- the name of the recipient of the subsidy, when available;
- the date of the grant of the subsidy, the duration of the subsidy and any other time limits attached to the subsidy; and
- the amount of the subsidy or the amount budgeted for the subsidy.
The transparency provisions are important because they start the challenge period under which an interested party may bring a judicial review action against an unlawfully awarded subsidy.
How can a subsidy be challenged under the Subsidy Control rules?
A subsidy may be challenged by the European Commission through inter-governmental mechanisms established under the TCA, or in the (UK) national court by an "interested party" through a judicial review action.
An interested party under the TCA is defined at Article 369(6) as "any natural or legal person, economic actor or association of economic actors whose interest might be affected by the granting of a subsidy, in particular the beneficiary, economic actors competing with the beneficiary or relevant trade associations". The purpose of the transparency obligations is to enable interested parties to make an "informed decision" as to whether to bring a challenge.
Any subsidy granted in the UK may also be capable of being examined under other international frameworks such as the WTO and through other bilateral trade deals as the UK may enjoy with other third countries, albeit the main risk to guard against will normally be a domestic challenge in the national court.
When does EU State aid law continue to apply in the UK?
The new Subsidy Control rules largely disapply EU State aid law. However EU State aid law continues to apply to situations caught by the Northern Ireland Protocol and the Withdrawal Agreement. The EU is currently legislating on a EU Foreign Subsidies Regulation, which should be taken into account by recipients of funding trading in the EU, once the relevant Regulation has come into force.
What is the role of the Competition and Markets Authority under the Subsidy Control Bill?
The Competition and Markets Authority will be the UK's independent authority overseeing the UK Subsidy Control regime. This includes investigating and providing reports on proposed subsidies following a mandatory or voluntary referral. The Competition and Markets Authority will have the power to look into past subsidies with a view to making a report on the same, which can include directions for future awards.
What is the Subsidy Advice unit?
The Subsidy Advice Unit is a branch of the Competition and Markets Authority that is tasked with providing independent non-binding advisory reports regarding certain subsidies that are referred by public authorities and to periodically monitor and review the operation of the subsidy control regime.
Which subsidies need to be sent to the Subsidy Advice Unit / CMA for review?
Subsidies of Interest are subject to a voluntary review process. Subsidies of Particular Interest are subject to a mandatory review process. The Government will soon define both categories in the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022.
Where can I get subsidy advice?
DWF is the leading UK law firm for Subsidy Control advice, providing expert advice to over 150 public sector bodies and international businesses looking to safely secure public funding.
DWF has offices across the UK including in Belfast, Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Liverpool, London, Manchester and Newcastle. We also have a strong international network of offices including across Europe, Asia and North America.
Where can I get subsidy control training?
DWF regularly provides training on Subsidy Control compliance, including workshops working through particular areas of the Subsidy Control rules.