The UK Subsidy Control Act 2022 – New UK Subsidy Control Regime Enters the Statute Book

On 28 April 2022, the UK's Subsidy Control Bill received Royal Assent, becoming the Subsidy Control Act 2022 (the "Act").

Although the UK's domestic subsidy control regime now has a statutory footing, most of the Act has not yet entered into force, meaning that the interim regime based on the UK-EU Trade and Cooperation Agreement ("TCA") remains applicable. However, change is coming, and the new regime is expected to become operational during autumn 2022, once the relevant secondary legislation and guidelines completing the new framework are adopted.

While key elements in relation to the operation of the new regime are still to be defined, the new regime appears significantly less 'light-touch' than initially anticipated. Public authorities may be required to undertake complex legal and economic assessments before granting subsidies, with scrutiny by the Competition and Markets Authority ("CMA") of even relatively low value subsidies. There is also the potential for significant litigation which may lead to recovery of any subsidy found to have been granted unlawfully. Public authorities and subsidy recipients will need to ensure that they devote sufficient resources and time to subsidy control compliance in order to mitigate the risks posed by the new framework.

Overview of the new UK subsidy control regime

We provided a detailed overview of the new UK regime in an earlier blog post. In terms of the key features:

• Definition of a "subsidy" and consistency with "subsidy control requirements": The basic assessment framework provided for in the Act comprises two stages: (i) definition of a "subsidy", which sets the boundaries of the new regime; and (ii) assessment of consistency with the "subsidy control requirements", which are intended to ensure that the overall impact of the subsidy is positive and any distortions are limited.
• Self-assessment: There is no generally applicable "standstill obligation" and requirement for "pre-approval" of subsidies under the Act. Instead, public authorities are to self-assess the compliance of their proposed subsidies with the subsidy control requirements, which may involve complex legal and economic assessments.
• Streamlined subsidy schemes: The Government will create schemes for certain categories of subsidies that it considers are at low risk of causing market distortions. If a subsidy meets the specific criteria set out in the streamlined scheme, it will be considered as consistent with the subsidy control requirements, without the need for any further assessment.
• Advice from the CMA: Certain categories of subsidies are to be referred to the CMA for non-binding advice on their consistency with the subsidy control requirements – so-called "subsidies of interest" ("SOI") and "subsidies of particular interest" ("SOPI"), which are meant to represent the most potentially distortive subsidies and which are subject to voluntary referral and mandatory referral respectively.
• Private enforcement in the CAT: Legal challenges to subsidy decisions are to be brought before the CAT, which will have the power to order public authorities to recover subsidies that have been granted unlawfully.
• Transparency: The Act aims to facilitate private enforcement of the subsidy control rules through strict transparency requirements, which oblige public authorities to publish subsidy information on a central transparency database and to provide pre-action information to complainants on their assessment of compliance with the subsidy control requirements.

Amendments since the Bill was first introduced

The Subsidy Control Bill was subject only to limited amendments on its passage through Parliament. In terms of the most significant changes:

• Greater emphasis on subsidies to remedy socio-economic disadvantage: The Act now specifies 'addressing local or regional disadvantage' as a ground that would justify a subsidy under the subsidy control requirements. The Act also permits the granting of subsidies that lead to the relocation of existing economic activities within different parts of the UK, where, among other things, such relocation has the effect of reducing social or economic disadvantage in a particular area. In the Bill's original form, such relocation subsidies were prohibited altogether.
• Control by Parliament over streamlined subsidy schemes: The Act introduces further control by Parliament over the Government's creation of streamlined subsidy schemes and, in particular, provides for either House of Parliament to annul a streamlined subsidy scheme after it is made. This is in line with other amendments in the Act that constrain the Government's ability to make changes to the new regime.
• Tightening of the transparency requirements: Under the Act, the subsidy value threshold for publishing subsidy information has been reduced from £500,000 to £100,000, while the deadline for publication has been reduced from six months of the decision to grant a subsidy to three months. As a result, information will have to be published in relation to more subsidies and with greater expedition. This may have the effect of stimulating more private litigation by complainants who rely on the publication of subsidy information.
• Limitation of the exemptions for nuclear energy: Under the Bill, subsidies in relation to nuclear energy were to be exempted both from the CMA referral process and from the additional subsidy control requirements applicable to energy subsidies. Under the Act, while the exemption from the additional subsidy control requirements has been maintained, the exemption from the CMA referral process has been removed. Given the financial value of such subsidies and the sensitivity of the energy sector, it is expected that the great majority of such subsidies will need to be referred to the CMA.

Next steps

Although the Act has now received Royal Assent, most of the Act has not yet entered into force, meaning that the interim regime based on the UK-EU TCA remains applicable. The Government has indicated that the new domestic regime will become operational during autumn 2022, once the relevant legislation and guidelines completing the new framework are adopted. These include, notably:

• Guidance on the application of the subsidy control requirements: It is expected that the Government will issue extensive guidance on the application of the subsidy control requirements, in order better to enable public authorities to self-assess compliance of their proposed subsidies with the new regime and to prepare referrals to the CMA.
• Definition of SOI and SOPI that are to be referred to the CMA: The Government is consulting in relation to the categories of subsidies that are to be referred to the CMA and will adopt regulations defining them. As we explained in an earlier blog post, the Government has proposed defining these categories based primarily on subsidy value thresholds, which would be set at relatively low levels: for SOPI which are subject to mandatory referral, the general threshold would be £10 million, with a lower threshold of only £5 million in certain sensitive sectors.
• Guidance on public authorities' duty to provide pre-action information: It is expected that the Government will issue guidance setting out further details in relation to the content of the pre-action information that public authorities are required to provide complainants upon request. The composition of this pre-action information will be fundamental to effective private enforcement, as it will effectively represent the "decision" that would be challenged. It may also inform the extent to which public authorities seek to evidence and substantiate their decision-making in relation to granting subsidies, i.e. with a view to producing pre-action information if requested.

It remains to be seen how the new regime will operate in practice, but it appears less 'light-touch' than initially anticipated

While the grant of Royal Assent to the Act represents an important landmark in the establishment of the UK's new subsidy control regime, key elements remain as yet undefined and will be clarified only in the coming months.

Chief among them is the definition of the categories of subsidies that are to be referred to the CMA for evaluation. While the CMA’s evaluation report is formally to be advisory only and non-binding, it is possible that the referral procedure may become akin to an ex ante pre-approval process, as the grant of subsidies in deviation from the CMA’s findings would leave those subsidies vulnerable to being overturned in the event of an appeal brought by complainants.

The scope of the CMA referral jurisdiction may also have an impact on the shape and nature of litigation under the new regime as, in practice, it will be considerably more challenging to overturn a subsidy decision that is supported by a positive CMA evaluation. Indeed, it seems that the Government may envisage using the additional scrutiny and evaluation of the CMA referral process as a shield against possible complaints, including those that may be raised by other countries at the international level, where subsidies have been a major source of international trade disputes.

One thing that does appear likely however, is that the new regime will be significantly less 'light-touch' than initially anticipated. Public authorities may be required to undertake complex legal and economic assessments before granting subsidies in order to demonstrate consistency with the subsidy control requirements, with further evaluation by the CMA even in the case of relatively low value subsidies, along with the potential for significant litigation and possible recovery should a subsidy be found to have been granted unlawfully. The new subsidy control regime looks set to become a key part of the regulatory framework in the UK and a major consideration in many transactions and other commercial arrangements involving public authorities.