Subsidy Control – Reflections on the first year of the new UK regime

Introduction

The UK's new subsidy control regime came into force on 4 January 2023 with the Subsidy Control Act 2022 and associated regulations. At its core, the new regime is designed to be self-regulating – i.e., the public authority intending to grant a subsidy is responsible for self-assessing it at the proposal stage to ensure it is compliant with the regime’s requirements.

With that said, the regime is underpinned by a new Subsidy Advice Unit (SAU) within the Competition and Markets Authority, from whom public authorities can (and in some cases must) seek advice pre-award. And while deliberately restrained in its character, a pathway to private redress does exist, with interested parties having recourse to challenge awarded subsidies in the Competition Appeal Tribunal (CAT).

This article takes a closer look at the extent to which the SAU and the CAT have actually played a part in the operation of the new regime over the past year. As we shall see, the assessment is mixed but the potential is real.

Advice reports from the SAU

Since the new regime came into force in January 2023, there have been 29 requests for advice reports from the SAU relating to subsidies or subsidy schemes of particular interest across a range of sectors. At the time of writing, 21 of these have concluded and eight remain open. It is apparent from the concluded reports that the SAU will not hold back from indicating ways in which the public authority could strengthen its assessment of whether or not the subsidy or scheme in question complies with the subsidy control principles. Examples of suggested ways in which assessments could be improved include:

• Demonstrating more consideration of the potential for alternatives to the subsidy to deliver the stated policy objective and undertaking a more robust counterfactual analysis to ensure that the 'do nothing scenario' does not disregard other commercial incentives.[1]
• Structuring the assessment to reflect the Subsidy Control Guidance more directly to correspond with the Subsidy Control Principles, as well as providing more evidence to support assertions and being careful to reference such evidence clearly.[2] 
• Providing more detail and supporting evidence which shows that the size of the subsidy has been assessed to be the minimum amount necessary to achieve the specific policy objectives.[3]
• Being careful to ensure that all parts of the proposed subsidy were valued and included within the assessment.[4]
• Going to greater effort to quantify and weigh up the benefits of the subsidy or subsidy scheme against its negative impacts.[5]
• Giving more careful consideration to any negative effects on international trade and investment.[6]

Yet, however pointed the criticisms, the advice reports are non-binding,[7] even in the case of the SAU's assessment of subsidies and subsidy schemes of particular interest which public authorities are mandatorily required to refer to it (and which, in effect, amount to the primary source of work for the SAU, since it does not have the power to investigate subsidies of its own initiative).[8] As a consequence, even if the SAU does level criticism towards a public authority's subsidy control assessment, it ultimately remains the decision of the public authority itself as to whether or not it proceeds with award after a five-day cooling-off period.[9]

And while each advice report suggests (some more so than others) ways in which the respective referring public authority's subsidy control assessment could have been improved, a more than significant number see the SAU expressly stating that it has not gone so far as to exercise the power granted to it under Section 59(3) of the Act, namely to provide advice about how the proposed scheme or subsidy itself could be modified to ensure compliance with the subsidy control requirements.

Arguably, the weight of an SAU report cannot be completely discounted. In at least one known instance over the past year, the criticism contained within a report was sufficient to see the referring public authority ultimately decide not to proceed with the proposed subsidy because it was concerned that the SAU report might form a basis for a successful challenge in the CAT by an interested party if the subsidy went ahead.[10] There is more than a theoretical risk that the details contained within an SAU report might encourage an aggrieved interested party to pursue an application for review in the CAT. And yet, the non-binding nature of an SAU report cannot be disputed, and it is a basic tenet of the new UK subsidy control regime that the only real means of redress available is private enforcement.[11]

Using the CAT to bring a challenge

With few, albeit important, exceptions[12] an interested party with the standing to ask the CAT to review a subsidy decision taken by a public authority will nearly always be a private entity – most typically a competitor of the recipient of the subsidy. Enforcement is therefore dependent upon private entities taking the risk of bringing a challenge. It is most likely a range of variables hinging off this central factor which explains why only one application to the CAT for a review of a subsidy control decision by a public authority has been made since the new regime came into force, namely Durham Company Limited v Durham County Council [2023] CAT 50 ("Durham Case") – see this link to our previous blog post.

Any private entity considering an application for the review of a subsidy control decision is clearly going to be alive to the fact that the new regime remains relatively nascent. Bringing a challenge therefore still requires a more than insignificant degree of raising a head above the parapet. And while the parameters of each case will be distinct, the fact that the Durham Case went against the applicant might well have had its own 'dampening' effect.

Furthermore, while the CAT initially imposed a cost-cap in the Durham Case, the County Council, as the Respondent, successfully appealed the cost cap order in the Court of Appeal on the basis that the CAT lacked jurisdiction to set the cost-cap in the particular way that it did. It will therefore take an applicant with enough financial clout to run the gauntlet of making a future cost-cap application in the CAT in the hope that this issue will be re-addressed. In the meantime, there remains sufficient uncertainty such that potentially interested parties with restricted budgets might understandably be deterred from seeking a review. 

The brief limitation period within which an application for the review of a subsidy decision can be made must also be taken into account. An interested party generally only has one calendar month to apply for a review from the point that the subsidy decision has been uploaded on to the Subsidy Control Database (albeit an interested party does not need to wait for the subsidy or scheme to be uploaded before making an application to the CAT if it has sufficient knowledge beforehand).[13] This narrow window need not in itself have a stifling effect. For example, comparable short limitation deadlines also apply in public procurement cases. However, in combination with other factors, it will have some constraining influence, particularly since many prospective applicants might not themselves have the time to monitor and navigate the Subsidy Control Database, thereby potentially resulting in them not becoming aware of the basis for a review application until it is too late.

Conclusion

It is hard not to conclude that the first year of the new subsidy control regime reveals that at least one objective of the post-Brexit legacy is arguably being met – namely keeping the UK within the confines of its Trade and Cooperation Agreement commitments in as light-touch a manner as possible.

Mandatory referrals have been forthcoming to the SAU and advice reports produced. Yet, while it is impossible properly to assess without consulting each awarding public authority, it is not unrealistic to assume that, in all but one instance, the impact of those advice reports was somewhat neutered by their non-binding status. The SAU's focus on criticism (albeit constructive), rather than making more effective use of its reports to provide advice about how proposals could be modified to ensure compliance (a power afforded to it under Section 59(3) of the Act), is also disappointing.

At the same time, this deficiency surely presents an achievable improvement goal for the SAU going forward. Furthermore, Warrington Borough Council's decision to not proceed with its proposed subsidy to Warrington LiveWire in the aftermath of the SAU's criticism cannot go unnoticed and must be chalked down as a win for the regulator notwithstanding the fact that its advice reports lack legal effect. Neither can, nor should, the CAT's role be discounted. There are clearly hurdles for an interested party in bringing an application for review in the first place, even before getting to the challenges of seeing that review through to the successful overturning of a decision. Yet, the fact that the CAT has only heard a single application for a review of a subsidy control decision in the first year of what is an entirely new regime (which itself has somewhat been designed to curtail litigation), is not entirely unsurprising. As more subsidy decisions are made and more errors arise, combined with a SAU which is prepared to produce advice reports which are perhaps less cautious, there is no reason not to assume that future applications to the CAT will be more forthcoming and that the bringing of one will only make the emergence of the next more likely.