The Government has issued a press release in advance of the Subsidy Control Bill to be presented to Parliament later today (with the law expected to come into force in 2022). 

Key messages 

The new domestic regime is intended to be quicker and more flexible.  The Government is clearly seeking to depart from the previous EU State Aid regime (which required all state aid to be notified to, and cleared by, the European Commission unless it fell within the ambit of rules-based block exemptions). 

The regime will aim to ensure a consistent approach across the UK.  Subsidy control is a matter reserved for the UK Parliament (under the UK Internal Market Act); however, the devolved administrations will be able to decide if they can issue subsidies (following the same UK-wide principles). The new system will prohibit subsidies that would result in relocation of economic activity within the UK ('subsidy races') so 'displacement' will need to be considered in each case and may constitute a ground for blocking a subsidy, separate from other grounds which may be set out in the Bill.  

The Competition and Markets Authority (CMA) will have a key role. A new Subsidy Advice Unit will be established within the CMA although it is not yet clear whether the CMA will have a role that is purely advisory or will have power to make certain decisions.  We have yet to see whether the Bill will grant powers to establish more detailed rules (such as safe harbours/block exemptions) and whether these will take the form of guidance from the CMA or secondary legislation (statutory instruments). 

Enforcement of the new regime will be through the UK courts and judicial reviews on the award of subsidies will be heard by the Competition Appeals Tribunal (the CAT). 

The regime will introduce two categories of subsidy (i) Subsidies of Interest and (ii) Subsidies of Particular Interest.  Whilst we have yet to see any detail on this distinction, we understand the latter will be subject to more extensive analysis to assess compliance with the regime. 

There will be exemptions for a limited set of subsidies such as those required for safeguarding national security and subsidies granted temporarily to address emergencies such as flooding.

Comment

We welcome the announcement of the Bill and look forward to understanding the Government's proposals.  As we set out in our response to the Government's public consultation, the approach typically taken by grant awarding bodies, recipients and their respective advisers since January 2021 has been to fall back on the EU State Aid regime, missing out on potential benefits of leaving the EU State Aid regime. 

The Government is seeking a clean break from the old regime and the notification/standstill process which incentivised projects to be designed to fall within a limited number of block exemptions.  The Government is rightly alive to the risks of subsidy races and inconsistent application of the rules across the UK. 

It is not yet clear if block exemptions will form part of the new regime. Many local projects will be unlikely to engage the subsidy control rules; we would like to see that recognised in the new regime.  We look forward to seeing how the two types of subsidy (Subsidies of Interest and Subsidies of Particular Interest) are defined and how each will be analysed. 

We welcome confirmation that the CMA will be the body responsible for ensuring that a consistent approach is adopted. The CMA is well-placed to do so as a functionally independent regulator and we believe that its track record on competition matters gives it authority and credibility as an apolitical body. The role of the Competition Appeals Tribunal is also welcomed: the CAT is well placed to fulfil its role, drawing on its experience in matters of competition law and economic regulation. 

Clarity is needed regarding the application of the Northern Ireland Protocol, particularly with regard to when the granting of aid will be held to affect trade between Northern Ireland and the EU and the extent to which the 'servitisation' of goods is caught (i.e. where a company transforms its proposition from a solely product focus to a wider service, part of which involves the use of the products). Both of these are live issues on a number of large matters on which we are currently engaged and they are leading to unnecessarily prudent outcomes, in our view. 

Authorities will, of course, need to be aware that under the Northern Ireland Protocol, EU State Aid rules may be required to be followed and we would hope that the CMA will provide guidance on how authorities should approach these issues.  Particular confusion remains as to the practical steps required where the EU and UK regimes both apply to the same measures.