State Aid & Subsidy Control Act 2022 – What to expect from the incoming legislative overhaul
10th August, 2022
The Subsidy Control Act 2022 is expected to come into force in the Autumn of 2022.
The Act marks a decisive shift in the treatment of subsidy as distinct from the EU system of State aid. This article considers what these changes will mean for granting bodies and how they will be required to adapt their compliance strategies to the new Subsidy Control Act.
How does the current system work?
Under the EU system State aid is illegal unless it is approved in advance by the European Commission or an exemption applies. The approach of granting bodies under this system (in the UK) was very much to push the assessment of State aid compatibility onto the recipient and require them to obtain legal advice. As such the role of the granting body was usually to review this advice and ensure that it was comfortable with it. This approach very much has persisted during the interim period since Brexit with many applying the subsidy control principles under the EU/UK Trade and Cooperation Agreement (TCA) using EU law by analogy.
Changes that the Subsidy Control Act brings
Under the Subsidy Control Act the requirement shifts from being essentially substantive (ie is the measure State aid and if so does an exemption apply?) to being essentially procedural. A granting body will need to establish that it has considered the application of the seven principles embodied in the test of permissibility under the Act and concluded that the relevant subsidy complies with those principles. This will involve assessing the measure and generating an audit trail with respect to the principles.
Draft guidance has been published to assist granting bodies. This has largely dispelled hopes that the UK regime would represent a “light touch” regime as compared to the EU rules. The guidance describes asking and answering numerous detailed and complex questions in respect of the proposed measure and the application of the principles to it. This includes some economic questions which are likely to require expert economic input. Granting bodies are likely to require significant support (legal, accountancy, economic) in complying with these requirements in respect of individual subsidies and the creation of schemes under which subsidy will be granted.
The key changes to be aware of
Further features of the regime which granting bodies should particularly note include:
- The role of the CMA in providing advice on potential subsidies. Under the EU system it was possible to notify intended Subsidy to the European Commission for approval. This process was handled by central Government and in practice it happened rarely in the UK. Under the Act some subsidies and schemes will be subject to mandatory consultation with the CMA and others will be subject to voluntary consultation. It is likely that notification will be an intense process and involve subsequent “back and forth” with the CMA
- The transparency of subsidy. Under the new Subsidy Control Act any subsidy valued at above £100,000 will need to be disclosed on a public register. This brings an increased level of scrutiny on subsidy decisions. The implications of this could be both legal (direct challenges – discussed further below) and political – with granting bodies facing pressure from press, public, rival politicians etc over decisions which hitherto were not in the public gaze
- The method and process of objecting to/challenging subsidy. Under the EU system the first port of call was the Commission (which, unlike the CMA, has direct enforcement powers). Under the Act the method of objection is judicial review. Whilst the timescale for bringing a judicial review is shorter than the current limitation period for State aid (one month rather than 10 years) increased transparency and the familiarity of the judicial review system are likely to mean significant levels of challenges
- The requirement, in the event of a challenge, to provide significant information and documents to the complainant with regard to the granting body’s decision making process in respect of the subsidy. This will necessitate the creation of the audit trail material mentioned above and careful consideration in relation to its disclosure
How can we assist you?
As a new regulatory regime comes into place, our specialists also advise on Subsidy Control issues, working alongside accountants and economic advisers to put in place appropriate training and systems for grantors of subsidies, acting on their behalf during the award of the subsidy, or acting for aggrieved third parties
If you wish to discuss the issues raised in this article please contact Dean Murray, a Partner in our commercial team specialising in subsidy control.
This is the first step in our commitment to assist you through the transition process from State aid to Subsidy Control. We understand that this is an extensive and complicated overhaul to the current system, with many of the finer points still to be decided.
Please fill out the form below if you’d like to be kept updated with any developments to the incoming Subsidy Control Act, as and when they happen.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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