Subsidy Control Act 2022

Policy background

2. A subsidy is where a public authority – for example central, regional or local government – provides support to a business, or other organisation, that gives them an advantage over competitors.
3. This can take the form of a grant, a tax break, a loan or guarantee on favourable terms, or the use of facilities below market price.
4. Having left the European Union, the UK is no longer subject to EU State aid rules (the EU’s particular approach to subsidy control). In September 2020, the Government announced its intent to design a new domestic subsidy control regime that best suited the needs of the UK, representing value for money to the UK taxpayer, and complying with international obligations.
5. The Government ran a consultation between 3 February and 31 March 2021, inviting views from a wide range of stakeholders on how best to design a domestic approach to subsidy control. The Government launched a second consultation on 25 March 2022 , inviting views on proposed regulations under the Subsidy Control Bill that define criteria for potentially distortive categories of subsidies, and views more generally on the categories. The consultation will close on 6 May 2022.
6. The Government aims to deliver a regime that:
   1. Empowers local authorities, public bodies, the UK Government and the devolved administrations to design subsidies that deliver strong benefits for the UK taxpayer.
   2. Enables public authorities to deliver strategic interventions to support the UK’s economic recovery and deliver priorities such as levelling up and achieving net zero.
   3. Provides certainty and confidence to businesses investing in the UK, by protecting against subsidies that risk causing distortive or harmful economic impacts, including to the UK internal market.
   4. Contributes to meeting the UK’s international commitments on subsidy control, including its international commitments under the World Trade Organization Agreement on Subsidies and Countervailing Measures (ASCM), the Trade and Co-operation Agreement with the EU (TCA) and other free trade agreements.
7. The key provisions of the Act involve:
   1. Setting out the subsidy control requirements that public authorities are subject to when giving subsidies or making subsidy schemes:
      1. The Act sets out seven principles that public authorities must assess their proposed subsidies or schemes against. The Act defines these as the subsidy control principles. Additional principles apply to subsidies in relation to energy and the environment.
      2. The Act prohibits certain subsidies and requires that certain subsidies can only be granted where specified requirements are met.
      3. The Act requires subsidies to be published on a database.
   2. Exempting certain subsidies from some or all of these requirements.
   3. The establishment of a new Subsidy Advice Unit in the Competition and Markets Authority (CMA), which will monitor and report on the regime and report on certain subsidies and schemes before and after they are given or made.
   4. Making provision for the Competition Appeal Tribunal (CAT) to hear applications to review subsidy decisions and to impose relevant remedies, including recovery of the subsidy as appropriate; imposing a duty on public authorities to provide pre-action information at the request of an interested party; and conferring a right on public authorities to recover subsidies which are misused.
8. The Act provides for measures which will support the UK to remain compliant with its international obligations under the ASCM, the TCA, and other free trade agreements.
9. On 21 July 2021, the Government published a White Paper titled "Northern Ireland Protocol: the way forward", establishing its intent to renegotiate Article 10 of the Northern Ireland Protocol. The White Paper noted that the "UK’s Subsidy Control Bill … provide(s) a more than sufficient basis to guarantee that there will be no significant distortion to goods trade between the UK and EU, whether from Great Britain or Northern Ireland, thus making the existing provisions in Article 10 redundant in their current form." 1

Subsidy control definitions and requirements

10. Part 1 of the Act sets out the key definitions that are used in the rest of the Act (section 89 also provides an interpretation of defined terms within the Act).
11. Part 2 of the Act sets out requirements that are defined as the subsidy control requirements Chapter 1 of Part 2 sets out the principles that underpin the subsidy control regime, including seven main subsidy control principles and nine additional energy and environment principles. It also places a duty on a public authority to consider the subsidy control principles, when taking a decision whether to give a subsidy, or make a subsidy scheme. Public authorities have a duty to consider the energy and environment principles in addition to the subsidy control principles if they are making a scheme or giving a subsidy in relation to energy and environment. The public authority must not give the subsidy, or make the subsidy scheme, unless the public authority considers that doing so is consistent with the principles.  
12. The Act also provides powers for the Secretary of State to issue guidance on, amongst other things, how public authorities should comply with their duty to consider the principles. 
13. Chapter 2 of Part 2 sets out the prohibitions and other requirements public authorities must comply with when giving certain subsidies.
14. Chapter 3 of Part 2 sets out the transparency duties in relation to subsidies and schemes.

Exemptions

15. Part 3 of the Act sets out certain types of subsidies that are exempt from the subsidy control requirements in Part 2. Chapter 2 of Part 3 sets out that subsidies given as minimal financial assistance (subsidies of less than £315,000 over three years, per recipient) and as services of public economic interest assistance (subsidies of less than £725,000 over three years, per recipient and meeting other specific conditions) are exempt from the subsidy control requirements, except transparency requirements apply where a subsidy award given under this exemption exceeds £100,000. This Part also contains procedural requirements related to the award of these subsidies.
16. Chapter 3 of Part 3 contains exemptions from the subsidy control requirements for subsidies given to address different emergencies. Subsidies given to compensate for natural disasters or other exceptional occurrences are exempt from all the subsidy control requirements apart from the transparency obligations. Subsidies given in response to a national or global economic emergency are exempt from complying with prohibitions and requirements imposed by sections 15 to 29 in Chapter 2 of Part 2.
17. Chapter 4 of Part 3 sets out further exemptions from the subsidy control requirements for subsidies given for the purpose of national security, those given as part of the Bank of England’s monetary policy activity, financial stability directions, large cross-border or international projects, legacy and withdrawal agreement subsidies and certain tax measures.

CMA: Referrals and functions

18. Part 4 of the Act provides for the functions of the CMA under this Act. Chapter 3 of Part 4 requires the CMA to establish a body called the Subsidy Advice Unit for the purposes of carrying out those functions.
19. Chapter 1 of Part 4 requires that certain subsidies and schemes must be referred by public authorities to the CMA before they may be given or made (a ‘mandatory pre-award referral’). Public authorities must wait for the CMA to publish its report, and for a cooling-off period to elapse following the publication of that report, before giving or making those subsidies or schemes. Public authorities may also voluntarily refer certain other subsidies or schemes to the CMA before they are given or made (a ‘voluntary pre-award referral’). The CMA’s report further to a mandatory or voluntary pre-award referral will include an evaluation of the public authority’s assessment as to whether the subsidy or scheme would be consistent with the subsidy control requirements in Chapters 1 and 2 of Part 2.
20. The Secretary of State may also refer a subsidy or scheme to the CMA after it has been given or made (a ‘post-award referral’). The CMA is required to publish a post-award report on the subsidy or scheme, which must include an evaluation of any assessment that was carried out by the public authority as to why the subsidy or scheme would be consistent with the subsidy control principles, prohibitions and requirements (or stating that no such assessment was provided).
21. Chapter 2 of Part 4 makes provision for the CMA to produce a report on the effectiveness of the operation of this Act and its impacts on competition and investment in the UK; this report will be produced after three years, six years, and every five subsequent years from the date the Act comes into force. The CMA will also need to include in its annual report the number and types of subsidies or schemes in respect of which it has prepared a report under Chapter 1 of Part 4.

Enforcement

22. Part 5 of the Act contains provisions relating to the enforcement of the subsidy control requirements. Interested parties will be able to apply to the CAT to review a decision to give a subsidy or make a subsidy scheme (a ‘subsidy decision’). The CAT will apply the same principles when hearing an application for review as would be applied by the High Court on application for judicial review and will be able to grant the same types of relief as are available in such proceedings. In addition, the CAT will be able to make a recovery order if a subsidy control decision is found to have breached the subsidy control requirements in Chapters 1 and 2 of Part 2. The Act also amends the Tribunal Procedure Rules to make provision as to the time limits within which a claim needs to be made and the forum for appealing points of law arising from a decision of the CAT.
23. Part 5 also imposes a duty on public authorities to provide certain information to interested parties about a subsidy or subsidy scheme. An interested party may request the information for the purpose of deciding whether to apply to the CAT for a review of a subsidy or scheme on the grounds that it failed to comply with the relevant subsidy control requirements. Part 5 also gives public authorities a right to recover subsidies that are misused by a beneficiary of the subsidy.