12 July 2021

This Bill was introduced on 30 June 2021, and may be subject to change during its passage through the Parliamentary process.

Following Brexit, the UK Government wishes to develop a new, less restrictive, approach to subsidy control than previously enforced under EU law. The Government’s goals are to ‘support the UK’s economic recovery’, provide ‘certainty and confidence to businesses investing in the UK’ and support the Government’s aim of ‘achieving net zero’.

The UK Government proposes that the Bill shall operate on a UK wide basis, despite subsidy control being a devolved matter. In its assessment of the earlier UK Internal Market White Paper, the Scottish Government criticised the plans to reserve subsidy control, stating that “there is no reason for the UK to have exclusive competence over subsidy control, especially as decisions on subsidies are very particular to local circumstances and industrial concerns..”. Nicola Sturgeon also described the plans as a “full scale assault on devolution”. The Scottish Government are yet to comment on the Bill. If enacted however, it will be important for public authorities and subsidy recipients to be aware of the new provisions and any changes to their obligations.

The following outlines some key provisions in the Bill as introduced: 

Subsidy control requirements

Public authorities shall be obliged to consider the ‘subsidy control principles’ and must be satisfied that the proposed subsidy is consistent with such principles (clause 12).

The Bill sets out the following 7 control principles - The subsidy should:

• confer a benefit to wider society;
• be proportionate and necessary;
• be designed to change the economic behaviour of the beneficiary;
• provide an effect or achieve an objective which would not otherwise be achieved in the absence of the subsidy;
• be designed to minimise any negative effects on competition or investment within the UK; and
• provide benefits which outweigh any material negative effect on competition or investment in the UK. (schedule 1).

Application of these principles may create uncertainty however the Bill proposes to empower to the Secretary of State to issue guidance on this. The Bill also sets out specific principles to which public authorities must adhere when providing specific types of energy and environmental subsidies (clause 13 and schedule 2).

Competition and Markets Authority (‘CMA’)

The Bill establishes the CMA which shall monitor and review the subsidy control scheme, producing a report every 5 years on its ‘effectiveness’ and ‘impact on competition and investment in the UK’ (clause 65). The CMA must also create a ‘Subsidy Advice Unit’ to which it may delegate statutory functions.

Mandatory referrals

Public authorities are obliged to make a referral to the CMA to obtain a report, before giving a subsidy or creating a subsidy scheme which is ‘of particular interest’. The Secretary of State may also instruct that such a referral is necessary (clause 52). Guidance on the meaning of ‘particular interest’ will be provided by way of regulation, however it is likely that consideration of the ‘value of the proposed subsidy’ and the sector to which the subsidy would apply, will be required (clause 11).

Enforcement: Competition Appeals Tribunal

Parties who may be affected by a subsidy or subsidy scheme (‘interested party’) may make an application to the Competition Appeals Tribunal to have the decision reviewed (clause 70). The Tribunal may then grant an order to recover the funds from the beneficiary (clause 74). Decisions taken by the Tribunal may be appealed to the Court of Session in Scotland (clause 75). An interested party may request information regarding a subsidy or subsidy scheme from the relevant public authority before raising an action with the Tribunal. Such a request must be satisfied within 28 days of being received (clause 76). Public authorities also have a right to recover the subsidy where the beneficiary has failed to use it for the purpose for which it was given (clause 77).

Prohibitions on subsidies

Public authorities will continue to be prohibited from providing ‘local content’ subsidies, as set out in the World Trade Organisation’s (WTO) Agreement on Subsidies and Countervailing Measures (ASCM). Subsidies which offer an unlimited guarantee or require organisations to move their business to another part of the UK are also prohibited. Further, subsidies aimed at rescuing or restructuring insolvent organisations are generally prohibited unless specific conditions are met (clauses 19 and 20).

Finally, although the UK is no longer subject to EU law, control of subsidies is not completely unregulated internationally as the UK remains a member of the WTO therefore, if enacted, this legislation will be subject to the WTO ASCM.

Marion Davis, Senior Associate & Accredited Specialist in Charity Law: mda@bto.co.uk / 0141 221 8012

Emily Couchlin, Trainee Solicitor: eco@bto.co.uk / 0141 221 8012