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Subsidy Control Act 2022

Contents

Commentary on provisions of the Act

Part 1: Overview and key interpretation

Section 1: Overview and application of Act

  1. This section sets out what the different Parts of the Act cover.
    1. This Part (Part 1) sets out definitions of key terms used in the Act.
    2. Part 2 sets out the subsidy control requirements: the principles, prohibitions and requirements, and transparency requirements that apply to the giving of subsidies.
    3. Part 3 sets out subsidies that are exempt from some or all of the subsidy control requirements.
    4. Part 4 sets out the CMA’s functions in relation to subsidy control.
    5. Part 5 sets out the enforcement provisions.
    6. Part 6 includes miscellaneous and final provisions.
  2. Subsections (6) and (7) specify that if a subsidy is given (or scheme created) under powers in primary or secondary legislation then the subsidy control requirements will apply unless an Act of Parliament specifies otherwise.

Section 2: "Subsidy"

  1. This section defines a subsidy for the purposes of the Act. It is a four-limbed test, which has been designed in such a way to allow the UK to meet national policy objectives and international obligations. Where each limb is met the financial assistance given by a public authority to an enterprise will be a subsidy. This definition applies to both the production of goods and the provision of services.
  2. Subsection (1) sets out the four limbs.
  3. Subsection (2) provides examples of the way in which financial assistance may be given.
  4. Subsection (3) and (4) explain that financial assistance that is given by a person who is not a public authority will still constitute a subsidy where certain conditions are met. These conditions relate to the origin of the funds used to pay the financial assistance, and the control exercised by a public authority over the decision to give financial assistance.
  5. Subsection (5) explains the point in time at which a subsidy is considered to have been given to the enterprise.
  6. Subsection (6) highlights other interpretive provisions relevant to this section.

Section 3: Financial assistance which confers an economic advantage

  1. This section confirms that financial assistance is not considered to confer an economic advantage if it could reasonably be considered to have been provided on the same terms on the market. For example, a loan would not be considered to confer an economic advantage to an enterprise if that loan might have been provided by a bank on the same terms.

Section 4: Financial assistance which is specific

  1. This section elaborates on where financial assistance is not considered to be specific.
  2. Subsection (2) confirms that financial assistance is not considered specific if different enterprises are treated differently in a way that can be justified by reasons that are inherent to the assistance arrangements. For example, in the case of a special levy for environmental purposes, a differentiated treatment for certain good or services can be justified by the objective pursued by the levy.
  3. Subsections (3) to (7) set out further considerations relevant to whether a taxation measure or levy should be considered specific. Subsection (4) sets out examples of the reasons for which tax measures may treat enterprises differently without being considered specific by reference to the normal taxation regime. For example, a tax relief measure by a local authority that advantages one or more enterprises over another in its area is likely to be specific but it will not be specific if all enterprises in its area benefit and the local authority is acting autonomously in relation to that measure. Subsection (5) makes provision for identifying the normal taxation regime by reference to the internal objective and features of the regime and the level of autonomy of the public authority in the design of the regime. Subsections (6) and (7) confirm that a levy with a non-economic public policy objective would not be specific if any difference in treatment of enterprises could be justified by objective criteria; and nor would any carve-out (‘forgoing of an amount’) from that levy if the same conditions applied.

Section 5: Section 2: modification for air carriers

  1. This section specifies that the second limb of the test to define a subsidy to air carriers is that the measure could have an effect on competition between UK air carriers and air carriers in other countries, in the provision of air transport services. This replaces the test for other subsidies that consider effect on international trade, international investment and UK competition and investment that is found in section 2.

Section 6: "Public authority"

  1. This section contains a broad definition of public authority by reference to a person who exercises functions of a public nature. This definition does not include either House of Parliament or the three devolved legislatures (Senedd Cymru, the Scottish Parliament and the Northern Ireland Assembly). Provisions relating to the devolved legislatures are covered separately under section 78 and Schedule 3.

Section 7: "Enterprise"

  1. This section sets out the definition of enterprise as a person, or group of persons under common control (see below), engaged in an economic activity.
  2. This section also explains the circumstances when an activity is not to be considered to be economic activity, or when a person or group of persons is not to be considered an enterprise.

Section 8: Persons under common control

  1. This section elaborates on what it means for a group of persons to be under common control. This includes circumstances in which a person or group of persons can control or materially influence, directly or indirectly, the group, even if they do not have a controlling interest.

Section 9: The subsidy control principles and the energy and environment principles

  1. Section 9 points to Schedule 1 as the location of the subsidy control principles, and to Schedule 2 as the location of specific principles relating to energy and the environment (the energy and environment principles).

Section 10: Subsidy schemes and streamlined subsidy schemes

  1. Subsections (1) to (3) define what a ‘subsidy scheme’ is.
  2. Public authorities may carry out a single assessment of the subsidy control requirements for a subsidy scheme with defined parameters and conditions, and thereby award a number of subsidies to different enterprises. This is as opposed to standalone subsidies, where the assessment of the subsidy control requirements must be made on a case-by-case basis.
  3. The eligibility and delivery of subsidies under schemes will differ. For example, a scheme may invite bids for grants from interested parties that will be assessed on the basis of the strength of their application against set criteria, or it may grant tax incentives to all businesses who meet set eligibility criteria. Examples of schemes include the Covid Financing Scheme or the Retail Grant Scheme. Sections 12 and 13 set out the duties on public authorities to consider the subsidy control principles and the energy and environment principles when establishing a scheme. Schemes may be made for the public authority to grant subsidies itself, or for a primary public authority to facilitate the granting of subsidies by other public authorities. A ‘primary public authority’ is defined as the UK Government, a devolved administration, or any other public authority that makes schemes for the giving of subsidies by other public authorities.
  4. Subsections (4) to (10) define what a ‘streamlined subsidy scheme’ is (referred to as a ‘streamlined route’ in policy documents). This is a particular kind of subsidy scheme which can be used by any public authority that complies with its parameters. A streamlined subsidy scheme can only be made by the UK Government and must be laid before Parliament after it has been made (or modified). The policy is that streamlined subsidy schemes are intended to allow the UK Government to make provisions to allow lower-risk subsidies to be given by public authorities more quickly and easily, without their needing to assess compliance with the principles or other subsidy control requirements.
  5. Streamlined subsidy schemes are subject to the negative resolution procedure for a period of 40 days after a new or modified scheme is laid in Parliament. This means that a streamlined subsidy scheme can be annulled by either House of Parliament which resolves not to approve it. In such a case, the scheme no longer has effect from the end of the day on which the resolution is passed.
  6. Public authorities making subsidy schemes and streamlined subsidy schemes will be able to define the value of subsidies awarded under them by reference to their gross cash amount or gross cash equivalent, as defined in regulations made under section 82
  7. The difference in effect between an ‘ordinary’ scheme and a streamlined subsidy scheme is that under section 63, a streamlined subsidy scheme cannot be the subject of a voluntary or a mandatory pre-award referral to the CMA.

Section 11: Subsidies and schemes of interest or particular interest

  1. This section makes provision as to the meaning of a Subsidy or Scheme of Interest, and a Subsidy or Scheme of Particular Interest. Both will be defined in regulations made by the Secretary of State. It is envisaged that regulations made under this section will capture a relatively small number of subsidies and schemes that are more likely to be inconsistent with the subsidy control requirements, or have distortive effects on competition and investment within the UK. The list in subsection (2) of what may be referred to in regulations made under subsection 11(1) is intended to be non-exhaustive.
  2. Regulations made under subsection 11(1) to define subsidies and schemes of interest or subsidies and schemes of particular interest can make reference to their gross cash amount or the gross cash equivalent, as determined in accordance with regulations made under section 82.
  3. Chapter 1 of Part 4 makes provision as to the referral of these subsidies or schemes to the CMA. Subsidies or Schemes of Particular Interest must be referred to the CMA before they may be given or made. A failure to refer these subsidies or schemes, or to follow the mandatory referral process through to its conclusion once a referral has been made, will result in the subsidy or scheme being treated as a prohibited subsidy or scheme (see section 31). Public authorities may also voluntarily refer Subsidies or Schemes of Interest to the CMA but there is no requirement to do so (see section 56).

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