The new Subsidy Control Act – your FAQs answered

Lindsay Draffan and Suhan Rajkumar are here to untangle the new Subsidy Control Act and explain what it could mean for your organisation.

What is the Subsidy Control Act (or SCA)? Sounds ominous.

This is new legislation which effectively replaces the EU State Aid regime in the UK. The simple answer is that SCA controls the giving of subsidies out of public resources. That means Government, local authorities and other public body grants, loans, guarantees, and goods or services. It can also capture things like repayment terms where these are not in line with market ‘norms’.

That sounds like State Aid – did we not already get rid of that post Brexit?

Yes. Once Brexit took effect State Aid law ceased to apply in the UK (mostly – there are some exceptions). The UK and the EU however agreed that we would devise a UK subsidy control regime to regulate subsidies in the UK and to ensure these did not adversely affect trade and investment between us and other countries. An interim subsidy control framework took effect by way of the UK and the EU’s free trade agreement entered into on Brexit, and has been in place since then – the SCA fleshes out that new subsidy control regime.

One significant difference between the new SCA and the old State Aid law is that subsidies under the new SCA include subsidies which could have an effect of trade within the UK, rather than just those which could affect trade between EU Member States (as under the old State Aid law).

Who must comply with it?

Public authorities but, in reality, any ‘enterprise’ hoping to receive a potential subsidy is likely to need to engage with and confirm to that authority that it is in compliance with SCA. ‘Enterprise’ in this context can mean anyone involved in the ‘economic activity’ of offering goods and services on a market. Don’t be fooled through – this can include charities, social enterprises and not-for-profits as well as companies and partnerships.

What do we have to do?

Public authorities will need to assess certain subsidy control principles before granting a subsidy, unless an exemption applies (see below). A public authority cannot give a subsidy unless it believes the subsidy complies with those principles. Recipients might need to engage with public authorities throughout the assessment process (and possibly earlier) to maximise successful outcomes – as with the State Aid regime, public authorities are likely to seek to place reliance on recipients’ own analyses.

Public authorities will also need to comply with transparency obligations, notifying certain subsidies to a register operated by BEIS.

How can we help with the self-assessment process? We’re not lawyers.

The Government will be issuing guidance in the coming months to assist with self-assessment. In addition, and depending on the size (value) and type of subsidy and which sector it is intended for, public authorities can make voluntary submissions to the Subsidy Advice Unit (part of the Competition & Markets Authority). In some sensitive sectors, and for all subsidies over a certain size (£10 million), submissions to the SAU are mandatory. The SAU will then report to Government once it has completed its assessment.

Are there any exemptions?

Yes – many.

Minimal financial assistance of £315,000 over (roughly) a 3 year period is permitted without an assessment (a slightly higher limit that under State Aid law). Services of public economic interest (or SPEI) of £725,000 or less are treated in the same way.

Subsidies for enterprises in financial difficulty can be given provided certain cumulative conditions are met such as the existence of a credible restructuring plan and a public interest objective in providing the subsidy. SMEs are given special status.

There will also be special ‘streamlined’ subsidy schemes which will effectively fall outside the assessment requirements of the SCA. The illustrative examples used by the Government in its current guidance are for clean heat subsidies and research, development and innovation subsidies, but we await final legislation and guidance.

What happens if we don’t comply?

If a public authority is not comfortable that a subsidy is permissible within the rules, it will not grant the subsidy.

Where subsidies are granted, any interested party can appeal a subsidy decision to the Competition Appeal Tribunal (CAT). The CAT can then make various legal orders preventing the subsidy from being given (or ordering a paid subsidy to be recovered).

When does it come into force?

Currently, the SCA will enter into force in Autumn 2022. This should allow for the publication of Government guidance to assist public authorities and enterprises in working with the new regime. In the meantime, the interim subsidy control regime as implemented by the UK and the EU’s free trade agreement continues to apply.

It’s still sounding a bit uncertain and complicated! How do we get help?

Get in touch with Lindsay Draffan or Suhan Rajkumar or your usual Bates Wells contact.