On 4 January 2023, the UK's Subsidy Control Act entered into full force, introducing the UK's post-Brexit subsidy control regime.
To help public and private sector entities explore how this affects them, Gowling WLG partner Samuel Beighton discusses the Act. He will outline the requirements of the new regime, and consider what these mean in practice for parties that give or receive financial support from public resources.
Transcript
Sam Beighton: Good morning and welcome to this session covering subsidy control in the UK. I am Sam Beighton, I am a partner in the EU, Trade & Competition here at Gowling WLG and what I will be covering today is an overview of the subsidy control regime.
Thinking about post-Brexit. Where are we now? How do things stand in terms of a legal landscape? And then really spending some time on the new act, the Subsidy Control Act 2022. Thinking about some of the overarching themes that emerge from the Act and the accompanying regulations and guidance. Focussing on what is a subsidy. Thinking about when a subsidy can actually be awarded. Touching upon the transparency obligations that arise under the Act and then thinking about how can a decision be challenged in the context of the Act? And I wanted to then just wrap up with some key takeaways.
In terms of timing, one thing that I find in terms of bringing us together is there is actually a lot of content and I will cover in some more detail but a lot of content. I have got an hour for this session. I am aiming to leave some time at the end for some questions if there are any. I think my challenge is going to be covering content and making sure I am giving you a broad overview within the time available.
So without further ado as I touched upon, this session is intended to provide an overview. This is an expansive area, there are lots of issues, lots of moving parts to all of this. Please do raise questions in the Q&A as we are going through the session. If I do not answer them, I have not had time to answer them now in the session I will pick up by email in response so please do leave your contact details or feel free to get in touch after the session. If there are any burning questions, burning issues that has prompt any thoughts we would love to hear from you on that point.
Another note of caution in terms of housekeeping, legal concepts will be addressed during this session, so if that is a cause for concern or an issue, please do switch off. We have tried to make this as practical as possible but I am afraid with a new regime, inevitably there does come a degree of focus upon concepts and technicality.
So post-Brexit, where are we as we stand here today? Pre-Brexit, a very, very clear focus upon the EU state aid regime, and under that regime, as I think we will all be aware, subject to exemptions a member state could not grant state aid without notifying the condition and obtaining approval in advance. However, there were lots and lots of exemptions, so by July 2021 more than 96% of new state aid measures were being exempted, there were not requiring this notification process.
When we had the end of the Brexit transition period on 31 December 2020 we had a situation whereby EU state aid as a regime ceased to apply across the UK. However, this was subject to significant exceptions which are still being worked through today in the context, for example, the Northern Ireland protocol. So when we had the end of the Brexit transition period, what we had is a situation where international obligations apply. So the subsidy control provisions within, for example, the TCA, the EU-UK Trade and Cooperation Agreement and other free trade agreements applied, as did obligations as a UK country under the WTO Agreement on Subsidies and Countervailing Measures.
The international variations apply but there was no UK specific regime that exists at the end of the Brexit transition period, so end of 31 December 2020 there is nothing focussed upon domestic subsidy control, and that essentially is the gap where the Act seeks to fill. So the Subsidy Control Act was stamped on 28 April 2022, we then had a short prime period before it is implemented in full, it is now in full force, entered into full force at the start of this year. And the whole purpose of this is to give UK authorities, designed specifically for UK authorities to give them the freedom to deliver funding to businesses in what has been described as a quicker, fairer and simpler way without being bogged down in the long winded and unnecessary approval processes. This is meant to mark a very clear see change from the old EU state aid regime with the new Subsidy Control Act.
So we only have to worry about the Act, well that is great, that is very easy. Well that is not quite the full picture. So the Act does not apply to subsidies that are in the scope of the Northern Ireland Protocol and/or withdrawal agreement. So for those specific subsidies, then the EU state aid regime is going to still apply to these, and the Act was developed to support compliance with international obligations, so for example, the TCA, the World Trade Organisation rules. But those international obligations, they still remain in addition to the Act. So the Act is an additional piece of legislation, it sits there, for most subsidies that are granted in the UK I anticipate the Act will be what we are focussing upon. However, we must not forget that these other regimes can and do apply, so EU state aid as well as international obligations, and they remain in force in addition to the Act. And necessarily this is going to require case by case assessment.
So against that backdrop, if we think now about the Act, and what I want to do here is take bit of a whistle stop talk, I am not going to cover everything because there is not the time, I am just picking out some of the key themes, some of the key issues to be a light at the moment.
So thinking about overarching themes. I think the first thing I would say, and it is something I have certainly have to grapple with is, you know, this is a new regime under the Act, so we cannot simply rely upon our old EU state aid thinking. So if you have been in this area for quite some time and may be five or six years ago a certain transaction was done in a certain way, do not rely upon that because it may well have changed under the new regime that we have in force. That is intended to provide greater flexibility regarding the award of subsidies. The emphasis has now shifted, so the shift is to the public authority, and it is the public authority that is going to need to self-assess the award of subsidiary, and in that context I think public authorities will inevitably have to work closely with the beneficiary when they are assessing specific aspects of that subsidy and we can again look at that in more detail in the session a bit later on.
We have a new review function under the Act, and what this requires is that for certain subsidies, so subsidies or schemes of particular interest, they must be referred by public authorities through a subsidy advice unit which has been set up in the Competition and Markets Authority, but other types of subsidies, which are known as subsidies or schemes of interest, these may be referred voluntarily be public authorities to the SAU. And in terms of the SAU, its role is effectively to assess the public authority self-assessment and then report back upon that, and those reports will be published. The reports are not binding but as we will see they may be expected to have consequences, and what we see underpinning this new regime is a requirement for transparency in relation to the award of subsidies and that transparency obligation is there to enable interested parties to become aware of what has been awarded and then to potentially challenge those awards before the Competition Appeal Tribunal or the CAT. But if a CAT scrutiny of a public authority self-assessment is on a judicial review, so it is on a JR basis, and it is going to be in the interest of both the public authority and the beneficiary to ensure that whatever self-assessment has been taken by the public authority, this has been done appropriately and I think really critically, and we will see this as a theme throughout this session, that whatever has been done it can be evidenced. So it is no good if there has been some excellent thinking analysis done but there is no documentation, there needs to be a clear audit trail evidencing what has gone before in terms of that assessment process.
I think another thing just to flag at this juncture as well as we obviously have a new regime, it is all tremendously exciting, there is lots and lots of guidance notes to read and secondary legislation to get your head around but this is yet to be scrutinised in any courts, so we do not have that body of pace but what we did have under the old EU state aid regime which means that while we have some starting points, the application of this Act is likely to involve, as with any, so this is a bit of a moving feast in terms of where we want to end up, but on this journey in our brave new world.
So to begin at the beginning, what is a subsidy? So under the Act a subsidy means financial assistance which is given from public resources by public authority, it confers an economic advantage on one or more enterprises. It is specific, in that it benefits one or more enterprises over others and has, or is capable of having, an effect on competition or investment in the UK, trade in the UK and a country or territory outside the UK, or investment that is in the UK and a country or territory outside of the UK. Now I am not going to go through all of those limbs but I think it is important to flag that all four limbs of the definition need to be satisfied further to be a subsidy. I will pick out a couple that I think are of interest though.
So financial assistance. I think it is really really important to flag this is a broad concept. It deliberately includes lots and lots of different things. It could be a grant, it could be a loan, it could be a guarantee, so a contingent transfer of funds, it could be foregoing revenue otherwise due, providing goods or services, purchase of goods or services. A broad range of things coverage in this concept of financial assistance. I think what is a really important aspect of the definition though is this idea of conferring economic advantage on one or more enterprises, and why that is important is because this aspect breaks down to two elements. So we have first this idea of an enterprise. Now an enterprise for the purposes of the Act is a person or a group of persons under common control, so a corporate group for example, that is engaged in economic activity and that sits in with the EU approach to economic activity bears the offering of good and/or services on a marketplace. So if there is no enterprise receiving an economic advantage, for example, if funding is being provided to an organisation that is not active and offering goods or service on the market, it may be set up as a HS body which is just focussed upon public service would not be an enterprise therefore this then would not satisfy so there has to be this transfer of an advantage on one or more enterprises, and then the idea of conferring an economic advantage, that exists if financial assistance is provided on terms that are more favourable and might be reasonably available on the marketplace. It does not mean that they have to be available on the marketplace, they might reasonably be available on the marketplace, and there will obviously be no economic advantage if the terms might reasonably be expected to be available on the market and this is known as the Commercial Market Operator principle, the CMO principle. This in effect is aligning with notions under EU state aid rule but has been redefined as CMO principle. So to see the CMO principle in operation, if you had a public authority that was purchasing services, it has undertaken a competitive procurement process which has enabled there to be an equal and non-discriminative treatment of all bidders which can open a transparent process and it has been carried out in a proportionate manner, that is something which you would say well actually look it is a really really clear cut argument here to say that was done on a commercial basis, the CMO principle applies, there is no conferring of economic advantage or paying the market price for those services. Similarly, the public authority is providing a loan on terms that could reasonably be provided by a private investor. So if there is perhaps a benchmarking exercise and you can point to the fact that in the open market private investors with similar risk look at the moment it has been made, again thinking about the risk of that loan, they will be making it on comparable terms and his benchmark analysis and this loan sits within that range of what is reasonably available in the marketplace. As I mentioned previously, the evidential burden is going to be upon the authorities so if they are looking to rely upon the application as principle to say whatever we are awarding is not a subsidy because it falls in the CMO principle that will be for the public authority to evidence the application of that principle.
Another aspect which I think again is worth bringing to mind is this notion that is subsequently needs to have an effect on competition where investment within the UK and when we are thinking here about this effect, what we have from the guidance is that the financial assistance must be capable of having a genuine adverse effect that is more than incidental. So it must be foreseeable that the financial assistance will or is capable of producing that relevant effect and this will require an assessment of the market or markets in which the beneficiaries acted and the nature of competition and investment flows. I think what we have learned from the guidance, and I think this is really quite key for us all to start thinking about is that this means a measure who would have a relevant effect, even if the market covers a very small geographic area or the amount of financial assistance is actually comparatively quite low and there is an example in the guidance where a local council is giving a grant to a newsagent which competes with another newsagent and they are both in the same remote village, and that is flagged as something that could have a relevant effect upon competition investment in the UK, in the context of that grant being a subsidy. I think from my position, for my perspective, as an advisor on state aid for a number of years, I am well used to state aid regime focussing upon cross border effective on trade and where you can perhaps get comfortable where money is being given, it is for perhaps a swimming pool or a leisure facility which has a commercial operation, well actually the only people who would ever use the facility are within a very, very small locality, they are all within one country, you can rule out the possible effect on trading, get comfortable with the provision of that funding.
The specific focus of the Act upon effective competition or investment within the UK allows for a much broader application of the Act. We are not thinking about cross border effect, we are thinking about this could actually be a very small geographic area and that is something which enables this Act to apply in a way that is broader when we think about EU state aid regimes, and that is just an instance there where under EU state aid thinking we could perhaps all get comfortable that certain local issues would be problematic but we do not have that under the Act anymore, we need to start thinking more about it could be in the same vicinity, it could be affecting a small local area, these are things that could fall within the definition of a subsidy.
One thing to flag is that the Act also enables the creation of subsidy schemes, and a subsidy scheme effectively sets out rules of eligibility, terms conditions, under which possible subsidies can be awarded in the context of that scheme is generally not a binding commitment unlike the award of a subsidy, and public authorities I suspect are going to want to retain discretions to determine which subsidies are in fact awarded under the scheme.
So let us assume we have intended financial assistance and this satisfies the definition of a subsidy. The first question to ask is, is that subsidy generally prohibited by the Act, because if a prohibited subsidy is identified then it goes without saying that it is going to need to be redesigned and re-thought, so examples of generally prohibited subsidies include unlimited guarantees, where the subsidy is contingent on expert performance, so this is tied to actual or anticipated exportation or export earnings, it is contingent on the use of domestic goods or services over imports, there is an express exclusion there for the audio visual sector but otherwise this applies where the requirement is for domestic services used rather than imports. Other examples include where the subsidy is contingent upon relocation, so the enterprise is required to relocate all or part of its economic activity from one area of the UK to another. There is a carve out there where this is for the purposes of addressing social economic disadvantage but that requires further assessment in the context of that carve out.
Another example of prohibited subsidy would be where the subsidy is to rescue or restructure an ailing or insolvent enterprise, and again unless there are specific requirements that are satisfied in connection with that subsidy but as a general prohibition upon the rescue or restructuring subsidies and in addition and we will touch upon this, a public authority cannot award a subsidy of particular interest without having first referred that to the SAU and the cooling off period following the SAU's report having expired. So we are not prohibited. So we have still got a subsidy. I think this perhaps will be awarded as minimum financial assistance or as a service of public economic interest systems. So thinking about minimum financial assistance, I think again, the thing is to try and align this with the old EU regime, we would be thinking this is a kind of a de minimis type exception here so the thing about minimum financial assistance ("MFA"), the threshold is a value of up to £315,000 received over the applicable period, and the applicable period is the last part of the current financial year, so that is from 1 April onwards, and the two financial years immediately preceding, so 1 April, 31 March, the previous two financial years. Now there are accumulation rules that apply in the context of MFA and that means authorities will need to factor in any other low value support that has been received by the beneficiary prior to the act entering into force or any other MFA awards have been made under the Act. And MFA awards, where these are over 100,000 for each award those are subject to transparency obligations which we will touch upon later in the session.
Now in the context of making a subsidy award as an MFA, there are a number of procedural requirements that need to be satisfied, those include those requirements of the public authority to obtain written confirmation from the enterprise that the MFA threshold will not be exceeded on the award of the subsidy, and in this context, as with all of the acts, when we are thinking about enterprise we are thinking about both persons but also a group of persons under common control, and that you can see how that could present perhaps some questions about we have got a big corporate group, say an activity has been carried out by different enterprises, so different companies within that group fall in the same enterprise, how do you get that confirmation, how do you understand what has happened and agreed, that is going to rely upon the beneficiaries internal processes in terms of how they are accounting for their assessment of MFA awards.
The MFA award can only be made once confirmation has been received from the enterprise but a threshold will not be exceeded, and when awarding an MFA subsidy the public authority must provide the enterprise with written confirmation that this is being given as MFA and state the date on which the subsidy is given and the gross value amount of that subsidy, and then the enterprise needs to keep a record of that for three years. They need to record the amount of the MFA subsidy and the dates on which it was received, and this again going to the whole point about accumulation. So it is the case you have got MFA, as obviously it has been awarded, those need to be logged, documented, the public authority want to be doing that, the beneficiary will want to be doing that, just there again it is like a clear paper trail and everyone knows where they stand when it comes to totting up these values and working out whatever there may be for future awards or subsidies if you are looking to do it under the MFA.
So touching up on SPEIA, Services of Public Economic Interest. These are services that provide some benefit for the public. These are services which would not be provided or will not be provided on the terms required under normal market conditions by an enterprise. Now there are specific requirements under the Act which need to be met to provide a subsidy for services of public economic interest. I am afraid that we do not have time in this session to cover those. What I wanted to touch upon was this threshold or services of public economic interest assistance which is up to £725,000 being received over the applicable period, it is the same concept with an applicable period in terms of elapsed part of current financial year and the two financial years immediately preceding. The same rules and procedures apply to this assistance as to MFA, including the accumulation awards that apply but that is another means by which an authority could, if it meets the relevant criteria, make an award using that threshold.
But let us say we are not prohibited but unfortunately MFA and SPEIA, they do not really help us either, the next question is could this subsidy perhaps fall within an available exemption? Now there are a number of exemptions under the Act, I have just picked out a few here, but these will include things like compensation for damage caused by natural disaster or other exceptional circumstances, perhaps a major pandemic, but the exemption only applies if it has been declared to apply by the Secretary of State publishing a notice and the transparency obligations will still be applicable. It will also apply to subsidies that are awarded to safeguard national security, but if we are thinking about those we also need to bear in mind that UK's international commitments will still apply to the award of those subsidies.
Another exemption will be for subsidies awarded by and on behalf of Bank of England in pursuit of monetary policy activities. So there are exemptions under the Act, however they are quite closely and tightly defined as you would expect. So for the vast majority of cases I do not think the exemptions will provide much assistance when we are thinking about awarding subsidies.
However, what may be more useful is streamlined routes. Now streamlined routes have been created by the UK Government to provide greater certainty for public authorities making awards. Within each industry it sets out effectively the terms and conditions of use. So it sets out the rules of use for the written question and where an individual subsidy is awarded under a streamline route in accordance with those terms and conditions it cannot be challenged on subsidy control grounds.
There is a slight caveat to that, it can still be challenged on general public law grounds – for example before a High Court, but what this does to you is it does give that certainty that if you can get yourself within the parameters of a streamline route then you do have that additional comfort that this is something that cannot be challenged from a subsidy control perspective.
There are three streamline routes currently available; they were published, I think, the first week of January shortly after the Act came to full force and they are respectively focused upon promoting local growth within the UK; increased investment in research development and innovation; and supporting the transition to net carbon emissions... sorry to net zero carbon emissions. And each of these represents a streamline route with different approaches, for example things like aid intensity that apply under the route in question, but again setting out those parameters whereby if you can satisfy the conditions or the terms then this is something which falls within what appears to be a proposed safe harbour. Any awards that are over £100,000 in value will be subject again to the transparency obligations.
Streamline routes are being kept under review and the Government has been really clear about this. They are being kept under review and it may be the case in the future that the Government decides to create additional routes, to create additional spaces within which public authorities have that greater certainty when it comes to making awards in the context of certain focussed areas of the UK economy.
Okay. Now let us just say that streamline routes, although they look great; we have done some thinking around them and actually they do not help us either. So we have got a subsidy; it is not prohibited; it is not MFA; it is not within an exemption; and it is not within the streamline route. Okay, so where do we go now? Well the subsidy that needs to be assessed by the authority is the Applicable Subsidy Control Principles and it cannot be awarded by the authority unless the authority is of the view that the subsidy is consistent within those principles.
And the assessment to be undertaken by the authority should be proportionate to the size and potential impact of the subsidy – it is a low value, limited impact subsidy; perhaps you have got a really clear track record of this type of subsidy; not really given rise to concerns around competition and investments etc. but then I think you can get comfortable and say that "unless you get an assessment" may be the way forward on this one.
If the subsidy is novel and potentially contentious then you lean to a more detailed assessment being appropriate. If the subsidy is of interest or of particular interest then more extensive assessments should be undertaken in accordance with the statutory guidance.
Now this different proportionality sounds very reasonable and very sensible. I think having looked at this and having thought about companies thresholds I think, from my perspective, the relatively low thresholds for subsidies of interest and subsidies of particular interest, I suspect a significant number of subsidies are likely to require this more extensive assessment, so I think we need to give some thought to that and I will touch briefly upon that in this session.
Before we have an overview, the seven general subsidy control principles:
Principle A – the subsidy needs to pursue a specific policy objective and that is to remedy identified market failure or address an equity rationale. So there needs to be that specific policy objective. The subsidy should be proportionate to that policy objective and be limited to what is necessary to achieve it. Subsidies should be designed to bring about a change in economic behaviour and beneficiary. So if the beneficiary was going to do "whatever it was going to do anyway" without the subsidy, that subsidy is not going to be an effective subsidy. The whole point of a subsidy is to bring about this change in economic behaviour of the beneficiary and subsidies should not normally compensate for the costs that the beneficiary will have funded in any event.
Principle E – subsidies should be an appropriate policy insurance for achieving the policy objective and it should not be the case that that objective that has been defined could be achieved through less distortive means.
Principle F – subsidies should be designed to achieve the policy objective while minimising any negative external competition and investment in the UK and Principle G, which is the current balancing approach whereby the benefits that affect the subsidy should outweigh the negative effects and that includes, in particular – and again I underline this – negative effects on competition and investment within the UK as well as international trading investment.
In addition there are specific energy and environment principles that need to be considered where subsidies and schemes relate to energy and the environment. Just picking up on a couple of those points though. The statutory guidance provides a general framework for assessment and in that general framework it takes those seven principles and it kind of groups them together into four different steps. Looking together, I think there is a risk that if you pick a grouped approach, you perhaps risk not addressing each of those particular principles. I think when you are bearing in mind the possibility of a future challenge I think it is really sensible for a public authority to ensure that it documents the evidence, analysis and conclusion it reaches in relation to each principles so that if push came to shove you could demonstrate as a public authority how you satisfied yourself with regard to Principle C, Principle D, Principle E, rather than there being sort of a stepped approach which perhaps risks inadvertently missing out or making an assumption around a particular principle without actually addressing it.
I think also there is a really clear role here in my mind for the beneficiary to seek to assist and when we think about the evidence that the authority is going to have to consider some of this will not be in the authority's gift. There will be things the beneficiary that acting in certain markets they will have a much clearer handle on than the authority and I think there is a role there for the beneficiary to assist whether that is providing third party reporting, third party data, market service and undertaking, that needs all good helpful staffing in the context of some of the analysis that is required.
And I think, as I mentioned before, when we are thinking about subsidies of interest and subsidies of particular interest they are subject to more extensive assessment and I think just touching upon the guidance there, I picked up Principles F and G, this focus upon negative effects on competition. The guidance provides when we are thinking about competition the public authority should identify key markets that a subsidy might affect and that in doing so they may have regard to things such as markets addressed in merger and competition law cases. I have just quoted here from the guidance that a carefree, delineated market should comprise the most important competitive alternatives to each of the recipient's products and services that are affected by the subsidy. Now this all sounds really simple written down. When you start to think about how that analysis works and you are required for these particular principles in the context of subsidy interest and particular interest to engage in market sensitive assessment and that includes thinking about market definition and work out what that market looks like or the parameters of competition that market are and how the subsidy may affect that competition in that marketplace. That can become quite difficult and there is not unfortunately a one size fits all approach to market definition because there are different products and services that may have perhaps a regional reach, could have a local reach, could have a national reach, there are lots of questions arising in that context. So I think it may well be the case authorities find themselves needing that additional input, whether that is from third parties, from economists, from lawyers, from beneficiaries just to assist them in identifying, you know, what do these markets look like and what are the negative effects likely to be in relation to competition.
So I have referred on a number of occasions to subsidies of interest and of particular interest. I want just to drill down a little bit more into what those are and how they work. So subsidies of interest are considered to have potential risk of negative effects on competition or investment in the UK or trade or investment in the UK and a territory outside the UK. A public authority intends to grant a subsidy or interest can voluntarily refer this to the SAU for review and the SAU has a discretion to accept a voluntary reference. A subsidy of particular interest is considered to have a higher potential risk of negative effects and the public authority is under an obligation to refer that to the SAU for review and, in that context, the SAU must review any and all subsidies of particular interest that are referred.
So thinking about subsidies of particular interest and the thresholds applicable to those, where a subsidy affects what is known as a sensitive sector under the Act, it will be a subsidy of particular interest if it is over £5million in value or it is over £1 million and accumulates over £5 million when other related subsidies are taken into account over the applicable period and it is the same applicable period to have elapsed past the current financial year and the two financial years immediately preceding. So think about those numbers – quite low numbers there and sensitive sectors in the context or subsidies of particular interest, they would be subsidies where the activities falling under the following codes would be impacted. I think here if we think about, for example, fourth bullet point down, manufacture of motor vehicles, thinking how important to the UK economy automotive sector is, you can see how subsidies in the context of the automotive sector, automotive manufacturers in the UK, this can quickly become something that would be a subsidy of particular interest requiring that more detailed assessment and notification to the SAU.
Outside of sensitive sectors, a subsidy will be of particular interest if it is over £10 million in value or over £1 million in value but again it accumulates to over £10 million when taking into account with other related subsidies over the same applicable period we have touched on before.
In addition to these general thresholds, a subsidy will also be of particular interest if it is granted for restructuring ailing or insolvent enterprises or going back to thinking about relocation subsidies, it is a relocation subsidy valued at over £1 million.
So thinking about subsidies of interest. So a subsidy will be a subsidy of interest if it is over £5 million and up to £10 million. Again that is individually or cumulatively over the applicable period and it does not satisfy any of the thresholds that apply to a subsidy of particular interest. So a bit of a catch-all there in terms of subsidies of interest. And thinking about accumulation, so a subsidy needs to be accumulated in the context of particular interest and interest subsidies if it is awarded to the same enterprise – and again, we are thinking about the corporate group potentially, rather than to an individual company – and the award is for the same or substantially the same project, costs or activities, it is for the same policy objective or substantially the same policy objective under Principle A, and it falls within our applicable period we are thinking about.
So confirming the position in relation to accumulation I think is really relevant to assessing whether this is going to be a particular interest or of interest. If we think about those value thresholds outside of sensitive sectors these accumulation rules, well we can actually say well look that subsidy was given to the enterprise but it was actually for a different policy objective and therefore it falls outside the accumulation rules. That may mean we get to position where we are not needing to make a mandatory referral to the SAU. We may wish to make a voluntary referral but we will not potentially have to make a mandatory referral. So in getting to the bottom of accumulation early I think is important in that context.
So I touched quite a bit on referring things to the SAU. I think just to outline a little bit of process in relation to that. So where the SAU receives and accepts a referral, it will then publish a report which evaluates the authority's assessment of the relevant principles and that will include addressing any effects upon competition or investment in the UK, and the report the SAU publishes may also include non-binding advice upon how the assessment might be improved or the subsidy modified to ensure compliance with the law. Now this is non-binding, the authority remains ultimately responsible for deciding whether or not to grant the subsidy or to proceed with the scheme but I think it is important to flag that the report may well be expected to impact upon an authority's decision-making, particularly if there is a heightened risk of challenge. If the report identifies various concerns about the assessment undertaken, indicates that the subsidy is unlikely to be compliant, then I think it is going to be very unlikely an authority would ignore that report, say it is non-binding and proceed to grant the award of the subsidy. So it is non-binding but I think that wording perhaps downplays the role these reports may well have in the future of the Act and as it is applied in the UK.
And then thinking through some of the practical aspects of the SAU. So we have got guidance to the SAU, we have had one case referred to so far. In terms of actual application processes, what we are seeing is the SAU is very much encouraging authorities to engage in pre-referral discussions and in part that is to consider the information that the SAU is going to need to receive in the context of a referral. So the requirements of a referral and the information provided are set out, they are stated, there is a lot of content in there and I think it is really important to ensure that these discussions do take place particularly at this early stage of a regime where everyone is kind of feeling their way a little bit but how this operates on the ground. Where the conversations have taken place, where discussions have been undertaken, the whole point is to make sure that the referral when it is made can be accepted as complete so you are not losing time with the authority having had something in which raises perhaps more questions than it answers, the authority and the SAU as an inclination backwards and forwards with information being requested and provided. You know, that potentially could be wrapped up to a greater or lesser degree by engaging these pre-referral discussions.
The preparation of a referral is likely to be, and this is quoted from the guidance, a significant task. So I think everyone is acknowledging this is not necessarily a walk in the park, there is a lot of work to be done with owner referral and in that context I think it is important for authorities to ensure that sufficient time is allowed for meaningful pre-referral discussions to take place. So the context of UK merge control, you know, it is not uncommon for there to be discussions pre-notification with the CMA that lasts for, you know, six to eight weeks. So I think when we are thinking about time for pre-referral discussions to take place we are again thinking about weeks rather than days and the fact that pre-referral discussions are taking place will generally not be publicised by the SAU.
Then once a public authority submits a referral the SAU has five working days to confirm whether this is accepted or not. So it may not be accepted if it is incomplete. Again if a party has not availed itself or discussions in advance, has submitted what it thinks it needs to be submitted. It may well find that comes back quite quickly saying it is incomplete and this is the information we require for this to be reviewed again. However, if it is accepted as complete and the SAU has an additional 30 working days to evaluate the public authority's assessment by reference to the principles and publish its report, that time period is not set in stone, so it is capable of extensions for the authority and the SAU could agree, for example to extend that time period. If the subsidy in question is of a particular interest then it may not be granted until the expiry of a five working day cooling off period from the publication of the SAU's report. Again that is capable of extension in certain limited circumstances. However, if it is only a subsidy of interest that has been referred then it is possible for the authority to grant that during the process of the referral. If it is granted while the SAU is still looking at this then the SAU have the discretion to decide not to proceed to publish a report to conserve its resources, discard the report and to not carry on down that route.
I mentioned previously that the transparency obligations I did not really underpin the scrutiny of awards and the context of the act and just to touch then upon those in the time available. So BEIS maintains a database that public authorities must use to satisfy their transparency obligations under the Act and ultimately public authorities, while BEIS maintains a database, they are responsible for the accuracy of the information that they upload on this. All standalone subsidies need to be uploaded subject to certain exceptions. So if we have SPEI subsidies, MFA SPEI subsidies awards under the streamline routes, they do not have to be uploaded because they do not exceed £100,000 in value and subsidies under a scheme do not have to be uploaded, again if they do not exceed £100,000 in value. All subsidy awards that are to be uploaded must be uploaded within three months of the decision to award the subsidy, so that is not the award of the subsidy, that is the decision to award the subsidy. So it may be the authority have decided to award that, they have informed the beneficiary, they have made that decision. They can then put that onto the database before they have even awarded the subsidy in certain circumstances. So it is not the date of the actual award of the subsidy, it is the decision to award which gives authorities a bit more flexibility in terms of when they decide to make that decision and then get things onto that database. There is a reason why they want to do that which we will touch upon. The only exception to that is awards before tax measures, they need to be get uploaded within one year of the date of the relevant tax declaration.
Now, I said transparency underpins the possibility of scrutiny that proves to be a challenge, worth I think us just touching upon that. How do you challenge? How do you challenge the award of subsidy? So interested parties, I think we will be thinking primarily here, I suspect that could be I want to say competitors, may apply to the CAT to review decisions. Now certain types of decisions can be reviewed by the CAT. That is a decision to award a subsidy, so a subsidy not awarded under a subsidy scheme or a streamline route or a standard subsidy or a decision to make a subsidy scheme including its streamline route. So that can be those types of decisions. That can determine whether a public authority has complied with its duties under the Act and it will be reviewing decisions on general public law grounds. The CAT is also able to determine whether a measure was in fact subject to the EU state aid rules, for example by virtue of the Northern Ireland protocol and whether it is in breach of those very same rules.
When reviewing subsidy decisions the CAT is going to apply judicial review principles. The CAT binds the decision has not been made lawfully in compliance of the Act, it has a range or remedies that it can order. Those include for example a prohibition order, a quashing order. The authority has to set aside the decision and is required to reconsider and re-make the decision, and in the context of the specific subsidy control decisions the CAT has the power to order recovery, so the authority can be directed to recover the subsidy from the beneficiary.
I touched before on getting something on the database sooner rather than later may be in the authority's interest. The reason for that is because this challenge window in part runs based upon uploads to the database. So once a relevant subsidy decision is uploaded to the BEIS database an interested party generally has one calendar month to apply to the CAT for a review of that decision. However, and there is a specific process to be followed in this context, if an interested party makes a pre-action information request to the public authority within one month the decision being uploaded then the authority is required to respond to that request within 28 days and confirm to the party it has done so by giving notice to the party and the party then has a further calendar month from receiving notice from the public authority to apply to the CAT for review. So this process around the pre-action information request effectively enables an interested party to elongate that challenge window. So they can approach the authority, as long as they tick the boxes, as long they are hitting those requirements, then they can effectively extend for one calendar month plus the time they have available to apply to the CAT for review. So I suspect given that this is not something that is particularly difficult or costly to do, we will see lots of interested parties if they are looking to make challenges making a pre-action information request so then have the benefit of additional time in the context of preparing and putting together their challenge before the CAT.
So touching upon some of the key takeaways, some of the key themes, we have seen going through this session. I think at the outset what I would suggest is that careful consideration should always be given to whether a measure is in fact a subsidy. I think it can be really tempting sometimes inadvertently to go with live thought where there is almost an assumption that the measure has to be a subsidy and then when that measure is perhaps looked at and perhaps unpicked and you start to think about applying that definition and, is it going to an enterprise?, what activities are they engaged in?, is this actually being done in a way that's actually thought in the CMO principle? You may well find that the measure that at first blush appear to be a subsidy may not be the case, this is not actually a subsidy at all and therefore we have not got to worry about that subsidy control. That can just fall by the waste line.
If it is the case that there is a subsidy, and again this will be a case by case and I suspect that the majority of measures would fall within the act but I think we do have to have in mind at all times there is this possibility of other subsidy control regimes apply. So for example, we have touched upon this a number of times, but under the Northern Ireland protocol for example we have the application of the EU state aid rules. So depending upon what is being awarded and how we could potentially have a situation whereby the Act applies but in addition to that we also have the application of the EU state aid rules and that could give rise to a whole host of complexities and issues. If they identify early on in a process then they can be factored in, time could be dedicated, they can be managed, they can be smoothed, that can all still work. If they are discovered at the eleventh hour that you have a due application of the Act plus EU state aid that could give rise to whole host of issues, unwelcomed distractions, particularly if things are moving quite quickly at that stage, it feels like a massive spanner in the works that could be avoided.
Where the Act applies I will, I keep telling myself this, and if as much as anyone else, do not rely upon old EU state aid thinking. I think that what we have seen so far from the guidance is I think a quite clear attempt to break with some of the older EU state aid thinking to re-position the subsidy control regime in the UK as the Act. This being a domestic UK focussed piece of legislation which should be by a standalone basis without reverting back to thinking about EU state aid principles.
The devil is certainly in the details of the Act and the accompanying guidance. There is a lot of guidance. There is a lot of detail in the Act. There are various cases of secondary legislation. They have been published at different times. They have different in some respects look feel formats. We have got guidance being issued by the SAU in addition. There is a raft of detail out there and I think it is really important when people are engaging with the regime, given how new it all is, to really think about those details and to know that this is something that does need thought, it does need questions, it is not necessarily a quick fix so dedicate time to this, and that I think needs working methodically when you have got a subsidy in your hands, there are various means by which that can be granted under the Act and keeping that clear audit trail in relation to any decision making. And then when assessing a subsidy against the relevant principles, as I mentioned before, it may well be the case that additional input would be helpful particularly when thinking about a more detailed assessment in the context of subsidies of particular interest and subsidies of interest. So if it is the case that we are thinking about negative affect upon competition, that point about market definition, I think that over time authorities are going to have to grapple with that at some point. It may well be if people are lucky, there is a recent CMA manager case for example that touches upon the same goods or services which sets out quite clearly what their competitive alternatives are, the geographical area in which they compete, those alternatives, and that could be a very nice thing to have fall into your lap. It may be the case there is very little thinking around the services in question, or the products in question, or the geographic area in question, and that means that will need to be built up by the authority working with the beneficiary, potentially clients, potentially lawyers, just to work out what would be something that will be a defendable position to take it in terms of our market definition. What evidence can we show we have actually thought this through? How will we engage with this? How people like to go into a package whereby if we are sending this to the SAU, they are going to look at this and that is going to be credible and that is going to result in a report which says "yes we have given this due consideration".
As I mentioned before, I think it is really important whatever we are thinking about here when we have got the principles in play and that assessment of the principles is required, that each relevant principle is assessed by itself so it is not lumped together with others. There is a clear line of sight whereby the authority can point to the assessment undertaking for each relevant principle that is clearly documented, that includes the evidence that has been considered, the analysis undertaken and the conclusion reached by reference to that principle. And it is a real piece here about being proactive in engaging with the SAU and I think it is not possible to underestimate the time that will be required to engage in meaningful discussions. So I think people need to be, if they are on their radar that ok we perhaps need to think about SAU because we might have a subsidy of particular interest on our hands here, so whatever you are looking to do in terms of key milestones you are building in plenty of time along that journey of the award to allow for there to be appropriate engagement with the SAU in good time.
I think for a lot of authorities if they are awarding a subsidy then their preference would be to open that challenge window as early as possible so that this expires sooner rather than later and I think once that has expired there is a degree of certainty you then have, well ok this cannot then be challenged under the subsidy control arguments.
Another fusser within this new landscape is the SAU and the reports that it publishes. I think it is worth public authorities as well as interested third parties and potential beneficiaries, I think keeping a watching brief on these reports and I think in this context there is a role for the SAU to play in ensuring that their reports actually give some guidance, they are providing guidance that may assist future assessments. This should build up a body of decisional practice reporting whereby you have decisioned the SAU to say we assessed this, we were comfortable of this assessment on this basis, the authority did this well, this was best practice, or we have clear concerns because this is where they fell short of this particular requirement. I think having that guidance from the reporting will be invaluable to all interested parties where they are thinking about future assessments of subsidies.
I think the last point I would say is that as I found at the beginning this is all new, this is all new, the Act is yet to receive judicial scrutiny and that means although we do have these tramlines, we know where this is heading, but the application of this I think it likely to evolve, so the more we have things done for the courts, the more we have judgments ruling upon the application of the Act, the more we will have that firm ground of application in terms of where the pitfalls are, where the safe harbours are. That will, it has already been laid out, but we will have I think greater certainty going forward about how this all applies which will just take time to build up that body of case law.
So I am conscious I have covered quite a lot of ground in quite a short period of time so thank you for bearing with me as I have run through that. I think we have got perhaps a few minutes for questions. If you do have any questions which you have not yet sent in the Q&A please do feel free to send those. I am just going to pick out a couple now in the time that we have.
A question here about SAU. If the SAU is asked to publish a report and they do not do that in the time period, what happens?
OK, so if you have SAU they have not published a report, it is for a subsidy of particular interest which before assuming they were going to publish a report you would have to wait for the expiry of the cooling off period before you could grant the financial assistance. If the report has not been published then you can proceed on the basis that there has not been a report published, there is no cooling off period, the time period has elapsed for the report to be published, the report has not been published therefore you may proceed to grant the award if you so choose. For a subsidy of interest, as touched upon in the session, you do not have that compulsion not to grant the award, you would still be able to award in any event.
OK, so streamline routes. Streamline routes sound very similar to block exemptions of the old EU regime, where can we find this?
OK, so streamline routes. I agree. I think for all intents and purposes you could think of a streamline as being, you know very very similar to the old block exemptions that we had under the EU state aid regime. The guidance that accompanies the streamline routes is at pains to make clear that these are not the equivalent of block exemptions, this is something completely different, but I think in terms of perhaps application you would definitely see very very strong echoes of that block exemption concept whereby you are creating the safe harbour, if you come to pull yourself into that safe harbour and draft your grant in such a way that you are satisfied with its conditions then you do have that comfort of effectively safety from challenge on subsidy control grounds.
In terms of where you can find them, I think what I will do, I can send links when sending the slides round. The website from my personal experience is not the easiest to navigate and there are some things tucked away in there which are very useful, things like streamline routes and there is a whole page dedicated to them. There are three routes set out and then the guidance notes. I will put a link to that in the email which attaches the slides.
I think I have got time for one more question.
OK, value and subsidies. So value in a subsidy, how do you value a subsidy if it is not a grant?
That is a really good question. So obviously some subsidies would be things like foregoing a value that is due, may be things that are guarantees. There is a regulation, and again I can put a link to this in the email sending the slides, which sets out specific means by which those sort of non-mandatory values are to be calculated in the context of subsidy control issue. So there is a regulation, it does cover that, but it is a really good point because again so many people will need to be thinking about it, valuing things that perhaps are not for example a grant or a loan.
I am mindful of time. I will pick up questions that I have not picked up during the course of the session and will pick these up by email. In the meantime thank you very much for joining me today. I do hope that has been of interest and hopefully of use and look forward to seeing you in the future ThinkHouse event.
Thank you
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