Goodbye state aid. Hello to a streamlined new world

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The UK government has announced new laws to replace EU rules on public-funded subsidies to private and third sector entities.

When the UK left the European Union following the end of the Transitional Period in December 2020, we were left with no composite state aid regime to govern taxpayer-funded business support.

This isn’t to say that the granting of aid wasn’t regulated following the end of the transition period. But we were left with a fragmented set of obligations in various international treaties with various countries, including our obligations in the World Trade Organisation’s Government Procurement Agreement (GPA) and the EU-UK Trade and Co-operation Agreement (TCA).

We needed a clearer set of rules and regulations to make sure that markets weren’t distorted by the unfair selective provision of aid to selected organisations without due cause. The Government has set out a framework which it says is more streamlined and will remove much of the red tape around the granting of such subsidies going forward.

Following a consultation which ended in March this year, the new Subsidy Control Bill was laid before Parliament this week, and the Government issued associated guidance to accompany the bill, explaining in easy to understand terms how the new subsidy control system will work.

The basic regime

The first thing to note is that we have a change of terminology. Now when we talk about granting financial support using public resources; we refer to “subsidies” rather than “state aid”.

And, for the first time, devolved administrations and local authorities will have the power to decide if they can issue subsidies by following UK-wide principles.

If a public authority wants to issue a subsidy grant, they’ll have to assess it against the government’s seven main principles. And, there’ll be a streamlined approach for the most straightforward of subsidies, allowing a quick self-assessment before it’s granted.

For more complex subsidies there’ll be an ability (for Subsidies of Interest) and in some cases a mandatory requirement (for Subsidies of Particular Interest) to refer the proposed subsidy to a new body, the Subsidy Advice Unit (set up within the CMA) to determine whether it can be awarded.

Note that a public authority will be able to create a subsidy scheme, which, if it passes the tests laid out in the legislation, will allow subsidies to be granted under that scheme without any further assessment of compliance.

Enforcement

The regime will be enforced through the Competition Appeal Tribunal. Appeals will be on the same basis as a current judicial review claims and the tribunal will apply the same principles as a court would for judicial review.  Remedies will be the same as for judicial review, and there’ll be a discretion to recover the subsidy where it’s found to have been made unlawfully.

Transparency

The Bill will require transparency on all subsides awarded. Public authorities will have to record on a transparent database what is being spent, the recipient and the purpose of the subsidy. This will allow businesses to see details of subsides that may affect them.

There is a de minimis requirement which states that subsidies below £315,000 do not need to be recorded on the transparency database; this level increases to £14.5 million where the subsidies are for “Services of Public Economic Interest”.

The future

Much of the detail around the new subsidy regime will be published at a later date in Regulations to be made by the Secretary of State.  What we have at present is the framework for a regime that does appear to be more straight forward and streamlined than the previous EU system.

For further information please contact Alison Walton on 0191 211 7850 or email [email protected]