The Subsidy Control Act 2022 received Royal Assent nearly two years ago and provides UK public authorities with a faster and more permissive regime under which to award subsidies than existed under EU State aid rules. This article considers whether Parliament should act now to amend the regime, updating the rules to prioritise value for money considerations.
Does the UK’s Subsidy Control Regime Work Better than the EU State Aid Rules?
Parts of the Subsidy Control Act 2022 came into effect upon the granting of Royal Assent (28 April 2022) with the remainder, including the routes to award compliant subsidies, coming into force on 4 January 2023. Therefore, over 550 public authorities have been using the new Subsidy Control regime for over a year.
What we have seen so far is that for the largest subsidies, making awards is easier than under EU State aid rules, because there is no notification requirement. Although there is a duty upon public authorities to refer the largest awards to the Competition and Markets Authority’s Subsidy Advice Unit, the reports that are published are only advisory and created within short statutory timeframes. As such, the largest awards seem to proceed more quickly under the UK’s Subsidy Control regime, although this may be a result of being subject to reduced levels of scrutiny.
For smaller subsidies, the EU State aid regime seems to have the upper hand. That is because around 97% of subsidies under the EU State aid regime are awarded under block exemptions.[1] Lower value subsidies, in particular those awarded by local government, are now often subject to greater administration than was previously the case. Many awards that would previously have been made under block exemptions now involve the additional administrative burden which comes with applying the seven Subsidy Control Principles. Indeed, a £100 subsidy to a business that has no remaining threshold under the Minimal Financial Assistance route might have to be evaluated against the Subsidy Control Principles.
The Subsidy Control Act 2022 does allow for block exemptions (called Streamlined Routes) to be created under Section 10. However, whereas the EU regime has passed legislation to create over 80 block exemptions, the UK regime has three Streamlined Routes, which are rarely used because the conditions do not lend themselves to the issues most commonly faced by local government. This is understood to be a policy decision, aimed at ensuring public authorities become used to applying the seven Subsidy Control Principles.
Is the Subsidy Control Act 2022 Now Out of Kilter with Public Opinion?
The two politicians at the forefront of the design of the Subsidy Control Act 2022 were Boris Johnson and Kwasi Kwarteng. These politicians prioritised a more permissive regime, taking the view that removing bureaucracy and allowing subsidies to be awarded more quickly would deliver economic benefits.
The reality, so far, seems rather different. In November 2023, the Economist ran an article, based upon a report by Shearman & Sterling, which concluded that the amount spent upon subsidies has nearly tripled since the UK left the European Union.[2] At this time it is hard to see the extra returns which have been generated by this significant increase in subsidies, although perhaps the benefits of increased public funding will take years to materialise.
This raises the question of whether the Subsidy Control regime could be improved so it delivers greater value for money. It also raises questions about whether the regime could be updated to contribute towards other political priorities. For example, perhaps it is time to revisit whether public authorities should have to consider the environmental impact of proposed subsidies in all instances, rather than the limited situations which fall under the Energy and Environmental Principles set out at Schedule 2 of the Subsidy Control Act 2022?
Does the UK’s Subsidy Control Regime Have a Transparency Problem?
This edition of Subsidy Control Insider contains two articles about transparency. In one, Alex Kynoch and Angelica Hymers discuss the Department for Business and Trade’s evaluation of the interim regime, noting that this articulates concerns around whether public authorities are properly engaging with the transparency requirements and the impact this has upon the functioning of the regime. In the other, Sattam Al-Mugheiry looks at the Subsidy Control database, putting forward ideas about how to improve its functionality. Taking forward the recommendations would have an immediate and positive impact upon the running of the Subsidy Control regime.
In addition, the transparency requirements around subsidy schemes need to be strengthened. Interested parties are only entitled to challenge a subsidy scheme for a short period, which runs from the point that information about the subsidy scheme being established is placed upon the Subsidy Control database (rather than when subsequent awards are made). This approach relies upon the public authority always setting out sufficient information for a challenger to assess whether to bring an action through the courts, which in practice is likely to be informed by whether a rival will benefit from a subsidy. At the moment, many schemes on the Subsidy Control database are vague about potential beneficiaries, thereby denying interested parties the opportunity to make an informed decision as to whether to bring a challenge.
Can These Issues Be Addressed Without the Need for New Legislation?
Yes, in many cases the issues can be addressed without the need for Parliament to intervene.
For instance, the Department for Business and Trade could update the Subsidy Control database so that it is fully searchable, the entries quickly appear on search engines and email notifications are delivered when a subsidy or scheme for a particular sector is posted online. Likewise, the Statutory Guidance could be updated so that there is a sanction for a failure to post accurate information on the Subsidy Control database. Likewise, training could be provided to public authorities so they fully understand their obligations under the regime.
A Minister of the Crown could make additional Streamlined Routes. Although these must be laid in Parliament, these would thereafter enter into law unless Parliament resolved to modify or otherwise decided not to approve the scheme.
When it comes to generating greater value for money or environmental impact, such changes are likely to require amendments to the legislation. In this regard, it might be more sensible to wait until more information is available about the day-to-day running of the regime. The Competition and Markets Authority has published its first report upon the effectiveness of the operation of the Subsidy Control Act 2022.
Conclusion
Many of the problems which affect the day-to-day running of the UK’s Subsidy Control regime can be fixed without the need for the Subsidy Control Act 2022 to be revised by Parliament. This includes issues affecting the Subsidy Control database and Streamlined Routes. However, changes to the Subsidy Control Principles, for example to ensure public authorities always consider the environmental impact, would require Parliament to amend the Subsidy Control Act 2022.