UKSALA News – moving on

When Kelyn Bacon (now Mrs Justice Bacon) and I set up the UK State Aid Law Association in 2012 we could not have anticipated that some 10 years later most of the United Kingdom would no longer be in the EU State aid regime (but that one part of the UK would still be partly in it) and that the UK would have developed its own novel system of subsidy control.

UKSALA has – by organising events and by providing a forum for articles – contributed first to the better understanding of State aid/subsidy control law and later to the development of the new UK regime. One important aspect of what we have done is that our work – both events and the blog – has always been available for free: a point that is particularly important for public sector lawyers given minimal budgets for subscriptions and conferences.

However, the new, free, Subsidy Control Insider newsletter, supported by Lexxion, effectively does what UKSALA has been doing for 10 years (and, indeed, those involved in running the UKSALA blog and recent events are also involved with that newsletter). There therefore now seems to be little point in maintaining this site for further articles or running a separate programme of events.

For the moment, I will keep the UKSALA site online, though there will be no further posts on it. But please sign up to the Subsidy Control Insider newsletter (following the link above) and – if you have thoughts or insights on the UK subsidy control regime that you would like to share – do contact the editors of the newsletter.

I and all those involved in UKSALA are grateful to everyone who has subscribed and contributed: and particular thanks go to Christopher Vajda KC, the last UK national judge at the Court of Justice of the EU, who has supported UKSALA as its president throughout, and to Kelyn Bacon, who has contributed so much time and enthusiasm both before and after her elevation to the Bench.

I hope that this post is not an “adieu”, but merely an “au revoir”, and that the UKSALA community regathers around the new Subsidy Control Insider newsletter.

Posted in UKSALA news | 1 Comment

CAT hands down first judgment under the Subsidy Control Act 2022

On 27 July, the Competition Appeal Tribunal handed down judgment in The Durham Company Limited v Durham County Council.

The Claimant’s case was in essence that the Council was subsidising its commercial waste operation (for which the Council was obliged by law to charge) by allowing it to use at an undervalue the equipment and infrastructure owned by the Council for the purpose of collecting domestic waste (a legal obligation on the Council, for which it could make no charge.)

The CAT dismissed that claim. It held – in distinction to State aid law – that the definition of “subsidy” in the 2022 Act covered only transfers of resources from a public authority to another legal person: it did not cover “transfers” to another part of the same person considered to be a functionally separate “undertaking”. Further, even if that was wrong, the putative transfer conferred no economic advantage on the recipient: if it passed on the “benefit” to customers, then they received the advantage, and if it did not the the recipient itself could not itself retain any “benefit”.

The CAT further held (in this respect agreeing with the Claimant) that the relevant decision on the use of resources took place in 2023 and would therefore have been subject to the 2022 Act had it been a subsidy decision.

Posted in New UK subsidy control regime, UK case | Comments Off on CAT hands down first judgment under the Subsidy Control Act 2022

New Subsidy Control Newsletter

The UK State Aid Law Association is working with Lexxion to produce a new free, bi-monthly newsletter focussing on the latest developments in Subsidy Control Law.

This newsletter is designed to be capable of being read during a commute into work – the articles will be clear and concise, focussing on the issues which are important.  The first edition will be published in September 2023.

We would benefit from your help in two ways.  Firstly, if you are interested in writing an article or have a topic you would like to see covered, then please contact us at: subsidycontrolnewsletter@dwf.law.  Secondly, if you would like to receive the newsletter then please sign up here: https://www.lexxion.eu/subsidy-control-newsletter

We want as many people to be regularly reading the newsletter as possible, so please let your contacts know about it.  Whether you are a judge, journalist, lawyer, civil servant, public servant, economist, accountant, academic or in any other role –  if you are interested in Subsidy Control then this newsletter will be of interest to you.

Posted in New UK subsidy control regime, UKSALA news | Comments Off on New Subsidy Control Newsletter

R (British Gas & Ors) v Secretary of State for Energy Security and Net Zero – the latest insight into the new subsidy control regime and a cautionary tale about limitation

We are grateful for the following blog by Joanne Clement KC and Barney McKay.

On Friday 31 March 2023, the Divisional Court dismissed three challenges to the Secretary of State’s consent to the transfer of Bulb to Octopus. The decisions under challenge were taken at the time before the Subsidy Control Act 2022 (“the SCA”) had come into force, and so were governed by the subsidy control principles set out in the Trade and Cooperation Agreement (“the TCA”), implemented in domestic law by section 29(1) of the EU (Future Relationship) Act 2020 (“the EUFRA”). However, the judgment also offers an insight into the Courts’ approach to reviewing the lawfulness of subsidy decisions more generally, and raises some important procedural questions about challenging subsidy control decisions in future under the SCA.

Background

In 2021, the retail energy supplier Bulb encountered financial difficulty. In November 2021, the High Court made an Energy Supply Company Administration (“ESCA”) order. Joint energy administrators (“JEAs”) were then appointed to administer Bulb. The JEAs carried out a sale process to sell Bulb’s business. By April 2022, the JEAs had received two indicative offers, but no offer from Octopus.

In May 2022, Octopus re-entered the sale process and subsequently submitted a bid, premised on significant financial support from the Government (“HMG”). In short, this support consisted of a wholesale pricing adjustment under the Wholesale Adjustment Mechanism Agreement, by which HMG was to loan to Bulb for onward payment to HiveCo money to purchase energy in the period up to 31 March 2023, at an estimated cost of £4.5 billion, with repayments limited to the amount of the price cap set by Ofgem. In essence, this involved HMG assuming the role of HiveCo’s hedge counterparty. The JEAs recommended Octopus’ bid to the Secretary of State, who commissioned an independent review of the JEAs’ recommendation and a subsidy control assessment by BEIS to ensure the terms of the bid did not contravene the subsidy control principles in the TCA.

On 28 October 2022, the Octopus transaction was concluded. On 29 October 2022, central government published a press release confirming the Secretary of State’s approval of the acquisition of Bulb by Octopus (“the Funding Decision”) and, on 7 November 2022, the Secretary of State granted approval for the transfer (“the Approval Decision”).

The JEAs applied for a court order fixing the effective date of transfer. A hearing took place on 11 November 2022 at which British Gas Trading (“BGT”) – which had submitted a bid in early 2022 – asked the court not to fix an effective of transfer so that it could bring a public law challenge to the Decisions. On 21 November, BGT sent a letter before action to the Secretary of State. On 23 November, a different energy retailer, Scottish Power, also sent a letter before action to the Secretary of State. BGT issued a judicial review claim form on 28 November. On the same date, each of the Claimants issued an application for urgent consideration, stating that it was first appreciated that an urgent application might be necessary on 24 November 2022 (an assertion that the Court described as “disingenuous”). The other claimants filed a claim form on 29 November 2022.

On 30 November 2022, Zacaroli J fixed the effective time of the ETS as 23.58 on 20 December 2022.  No applications were made for interim relief in the Administrative Court, and on the Effective Date of the ETS, the majority of Bulb’s assets were transferred to HiveCo, and the shares in HiveCo were transferred to Octopus BidCo. A “rolled up” judicial review hearing took place some two months later, between 28 February and 2 March 2023.

BGT and other rival retail energy suppliers (“the Claimants”) challenged the Decisions on various public law and subsidy control grounds. The central complaint was about the financial support from the Secretary of State for the transaction. In terms of the public law grounds, the Claimants contended (amongst other things) that the Secretary of State had misdirected himself that the M&A Process had been fair, open, non-discriminatory and competitive, had failed to act fairly, and had taken into account irrelevant considerations. In terms of the subsidy control grounds, the Claimants contended that the financial support provided by the Secretary of State (1) failed in various ways to satisfy the requirements of the subsidy control principles set out in Article 366(1) of the TCA; (2) was unlawful on the basis that the subsidy included an unlimited guarantee prohibited by Article 367(2) of the TCA; and (3) was unlawful under Article 367(3)-(4) of the TCA.

The Judgment 

The Divisional Court held that permission to apply for judicial review would be refused on the grounds of delay under section 31(6)(a) of the Senior Courts Act 1981. Section 31(6)(a) provides that “where the High Court considers that there has been undue delay in making an application for judicial review, the court may refuse to grant (a) leave for the making of the application; or (b) any relief sought on the application, if it considers that the granting of the relief sought would be likely to cause substantial hardship to, or substantially prejudice the rights of, any person or would be detrimental to good administration.”

The Court considered that the need for urgency in bringing the challenge was apparent by 11 November 2022, and that the Claimants were obliged, but failed, to move very speedily in bringing their challenge after that date. The Court therefore concluded that the Claimants’ application for permission should be refused on the basis of delay alone.

The Divisional Court nonetheless went on to consider the substantive arguments.  

  • The Court held that permission would have been refused on the public law grounds in any event, as the grounds were not arguable. The Court considered that a “light touch” standard of review was appropriate given the commercial context in which the Decisions were taken. Applying that standard, the Court found that the allegation of procedural unfairness was unarguable, as the Secretary of State had received advice that the process which had been conducted by the JEAs was a fair one, that the bid which emerged from it was a market bid, and the Secretary of State was reasonably entitled to accept that advice.  The remaining grounds received similarly short shrift.
  • The Court would have granted permission on the subsidy control grounds, but these grounds of claim would have failed on the merits. The Court considered that whilst the compatibility of the Decisions with the subsidy control principles in the TCA was subject to review by the Court, this did not mean that decision-making was transferred to the Court. It was appropriate to afford the executive a wide margin of appreciation or judgment. Against this background, the Court held that the Secretary of State had not failed to satisfy the requirements of the subsidy control principles in the TCA.

Comment

The Divisional Court’s judgment raises a number of interesting procedural and substantive questions about the Courts’ approach to reviewing subsidy control decisions.

Procedure

In terms of procedure, the Court’s conclusions on undue delay serve as a stark warning to challengers in future. The Court applied traditional judicial review principles in considering whether there had been “undue delay” in bringing the claim. This is because decisions of public bodies often affect not only the claimant, but third parties who have acted in the belief that the decision was valid, and public administration more generally. The more significant the decision, and the wider the impact, the more promptly claimants must act. The Court was concerned with when the claimants knew the “big picture” points they relied upon, and not the detail of matters which might enable them to support their grounds or disclosure of material to support them. Further, as is usually the case in very urgent challenges, the Court was not impressed by arguments that the Claimants had to write pre-action protocol letters. None of this is novel in a very urgent claim for judicial review (although there will be very few claims that require quite this degree of promptness).

What is perhaps of wider importance is the Divisional Court’s rejection of the submission that the relevant domestic time limits had to “give way” to Article 373 of the TCA, such that as long as the claim was brought within one month of the date on which the prescribed information was published or provided, no issue of delay can arise. Article 373(1) states that each party shall have in place an “effective mechanism of recovery” in respect of subsidies, but this is said to be without prejudice to other remedies that exist in that Party’s law. Article 373(2) of the TCA requires the UK to “ensure that, provided that the interested party… has challenged a decision to grant a subsidy before a court or a tribunal within the specified time period… recovery may be ordered if a court or tribunal makes a finding of a material error of law”. Article 373(4)(b) provides that for the UK, the “specified time period” shall be one month from the publication of the subsidy decision; and states that the time period may be “increased by legislation”.

The Court rejected this submission on the basis that Article 373(2) is expressed in “permissive terms”. In our view, the Court was correct to reject this submission. First, if it had any merit, it could only go to the remedy of recovery, and not the rest of the claim. But more importantly, the key word in Article 373(2) is that of “may”: i.e. recovery may be ordered. Article 372(2), therefore, did not prevent a court refusing such a remedy on discretionary grounds, such as delay, and these domestic procedural requirements as to undue delay are not incompatible with the requirements of the TCA. While there is a footnote to Article 373(1), acknowledging that a recovery order is a new remedy in judicial review claims for the United Kingdom and stating that “No beneficiary would be able to raise a legitimate expectation to resist recovery”, the Court considered that this did not purport in any way to require a change to the discretionary nature of judicial review remedies.

What are the implications of this decision for challenges to subsidy control decisions going forward?

  • First, challengers are likely to face difficulties in securing relief if there has been undue delay. The vast majority of challenges to subsidy control decisions under the SCA will take place before the Competition Appeal Tribunal (“the CAT”). There is no “filter” of a permission stage before the CAT, and so there will be no question of the CAT refusing to hear a claim because it has not been brought promptly/there has been undue delay. However, section 31(6)(a) of the Senior Courts Act 1981 is still central to the remedies regime under the SCA. This is because section 72(2) confers upon the CAT the power to grant the same kinds of relief as are available in a claim for judicial review; and section 72(6) expressly states that in deciding whether to grant such relief, the CAT must apply the principles that the High Court would apply in deciding whether to grant that relief on an application for judicial review. Section 72(8) reflects the wording of section 31(6)(a), confirming that the CAT may refuse to grant any relief if it considers (a) that there has been undue delay in making the application; or (b) that granting the relief sought would be likely to cause substantial hardship to, or substantially prejudice the rights of, any person or would be detrimental to good administration. The CAT has an additional power to make a recovery order, but this power may only be exercised if the CAT grants relief under section 72(2). So, regardless of whether an application has been made within the time limits laid down in section 71 of the SCA, if there has been undue delay as described in Bulb in making that application, a successful challenger may find that they have won only a Pyrrhic victory, and walk away without any relief. Claimants will need to be very alive to the need to act quickly when challenging subsidy control decisions before the CAT.
  • Secondly, although the Divisional Court was careful in applying section 31(6)(a) to the very specific facts of this case, there is a risk that the Court’s strict application of the “no undue delay” requirement will change parties’ approach to litigation in future. Faced with the risk that they may be denied a remedy if there has been “undue delay” in making an application, parties may decide to file protective proceedings, even before pre-action information requests have been answered, or answered in full.  As any public procurement practitioner will know, this may necessitate a greater number of applications to amend pleadings and further costs.  
  • Finally, the judgment illustrates that interim relief is going to be crucial under the new regime.  Would the Court’s conclusion on undue delay in Bulb have been different if interim relief had been obtained in November/early December so that the court would not have been faced with “total chaos” had it tried to unwind the transactions if the claim succeeded? As the Divisional Court noted, “the presence or absence of prejudice or detriment is likely to be a key consideration in determining whether an application has been made …with undue delay”. In future cases, can challengers avoid this prejudice/detriment by applying for interim relief and directions for a speedy trial? Of course, whether the CAT would be prepared to grant interim relief, given the modified American Cyanamid principles that apply in judicial review claims, is another question – perhaps one for another article. 

Substance

In terms of the substance of the challenges, the Court’s judgment raises interesting points about the standard of review that will be applied by the courts in determining whether public authorities have complied with the requirements of the SCA.

  • The Divisional Court concluded that the relevant standard of review of a subsidy control decision is that of proportionality, and not irrationality.  This was on the basis that Article 366 of the TCA sets out the subsidy control principles, and each Party must have in place an “effective system of subsidy control that ensures that the granting of a subsidy respects” those principles. One of those principles is that subsidies are proportionate and limited to what is necessary to achieve those objectives. Article 366(3) then states each party shall ensure that these obligations are implemented in its law in such a manner that the legality of an individual subsidy will be determined by the principles. The Divisional Court considered that this meant the principle of proportionality must be complied with.  We have considerable doubts about the correctness of this conclusion. Although it is a subsidy control principle that a subsidy should be proportionate, it does not follow from Article 366(3) that the courts must apply the principle of proportionality when “reviewing” whether that subsidy is lawful. All that Article 366(3) requires is for the “legality” of the subsidy to be assessed. Article 366(3) does not require the Court to determine for itself whether each “principle” has been complied with. However, in practical terms, very little turns on this distinction, even under the TCA regime. As the Divisional Court recognised, an enhanced margin of appreciation or judgment must be given by the courts when reviewing subsidy decisions, as they involve “polycentric” or expert/economic/predictive assessments.  Applying the approach in Drexler and JCWI, in practice, the outcome will not be “materially affected” by the distinction between the concept of rationality and proportionality.  The courts will apply a relatively “light touch” standard of review in this field. 
  • Does this mean that the CAT will apply proportionality as the standard of review under the SCA? In our view, the most likely answer is “No”. Bulb was concerned with interpreting the subsidy control provisions in the TCA itself, as the TCA was implemented in domestic law through section 29(1) of the EUFRA. Now that the SCA is in force, section 29(2) of the EUFRA confirms that section 29(1) does not apply (as the SCA is an “equivalent provision… which is for the purposes of  …implementing to any extent the TCA”.)  It is therefore for the courts to interpret the SCA in accordance with its terms (save that, as the SCA was implemented to give effect to the subsidy control provisions of the TCA, where there is an ambiguity in the SCA, it is likely that the domestic courts will seek to interpret it in light of the TCA).

There is no such ambiguity in the SCA.  The main application of the subsidy control principles comes in section 12 – a public authority (a) must consider the subsidy control principles; and (b) must not give the subsidy “unless it is of the view” the subsidy is consistent with those  principles. The CAT must “review” a subsidy decision, and must apply the same principles as would be applied by the High Court in determining proceedings on judicial review. In other words, the CAT is determining the lawfulness of the public authority’s judgement that the subsidy is consistent with the principles. The common law has not yet developed to the point where it recognises proportionality as a ground of judicial review. However, for the reasons given by the Divisional Court in this case, the distinction will make very little difference in practice. The margin of appreciation in subsidy control decisions is so wide that any proportionality analysis would collapse into rationality anyway. Any argument that the CAT, as a specialist tribunal, should apply a more intense standard of review is likely to fail in light of the Court of Appeal’s judgment in British Sky Broadcasting v The Competition Commission [2010] EWCA Civ 2.

  • The standard of review then essentially determined the outcome on each of the individual grounds of challenge.
  • The Divisional Court held that the Secretary of State was entitled to conclude that the process embarked upon by the expert advisors, JEAs and Lazard, was an open, competitive and non-discriminatory bidding process (and thus provided an evidential basis for the conclusion that the transaction either involved no subsidy, or that the subsidy was the minimum necessary and so compatible with the subsidy control principles). The Secretary of State was entitled to treat the only bid which emerged from the process as a fair reflection of the value which the market placed on Bulb’s business in the prevailing circumstances. There had been a detailed counterfactual and benchmarking analysis carried out, and E&Y had evaluated the overall process and had not identified any issues of concern.
  • It was a matter of judgment whether HMG support was proactively publicised to bidders at the outset or left to the bidders to formulate their requirements.
  • There was no unfairness because information provided to one bidder in the context of specific negotiations with that bidder was not automatically shared with other bidders. This was a matter of commercial judgment and it would not help to obtain the best price if negotiating positions had to be shared generally.
  • The Secretary of State had taken account of relevant considerations, and had not taken account of irrelevant ones.

We understand that two of the claimants are seeking permission to appeal, challenging the Divisional Court’s conclusions on delay and subsidy control (but not the conclusions on the public law grounds). It is a case of “watch this space” to see how matters progress. While an appeal may clarify the issues we have highlighted above, we find it hard to envisage how the appeal could result in any practical remedy for the Claimants. Counsel for BGT was recorded as suggesting as long ago as 11 November 2022 that reversing the transaction would create “total chaos”. It was always going to be difficult to obtain any relief once the Decisions had been implemented. The more time that passes, the more difficult it becomes.

If this judgment is upheld, then it will clearly have implications for challenges under the SCA. The Divisional Court’s decision on delay suggests that challengers must be alive to the need to act swiftly to avoid being denied any practical relief. The CAT will need to consider whether proportionality is a ground of review in challenges under the SCA. Even if it adopts the same approach as the Divisional Court, it is likely that the same “light touch” standard of review will be adopted. While the claims failed on the facts in Bulb, the “light touch” standard of review will not immunise decisions from challenge under the SCA. A public authority will still need to establish that it has asked the right questions, considered all relevant matters, obtained appropriate evidence (often requiring expert advice) and reached rational decisions on each of the subsidy control principles. 

Joanne Clement KC, 11KBW

Barney McCay, Landmark Chambers

Posted in EU/UK Trade and Cooperation Agreement, New UK subsidy control regime, UK case | Comments Off on R (British Gas & Ors) v Secretary of State for Energy Security and Net Zero – the latest insight into the new subsidy control regime and a cautionary tale about limitation

UKSALA event on 30 March on the Subsidy Control Act 2022: “Putting the UK’s new regime into practice – early insights and what we have learned so far”

March 30 @ 5:30 pm – 8:00 pm

Almost three months since the Subsidy Control Act 2022 came into force, it’s time to reconnect and reflect on how the new regime is working in practice and share early insights and lessons learned so far.

Join representatives from The UK State Aid Law Association for a panel discussion at Browne Jacobson’s central London office as they:
Share insights on identifying and addressing subsidies under the new regimeDiscuss referrals to the Competition & Markets Authority and challenges in the courts
Debate the extent to which the new regime strikes the right balance between flexibility and certainty
Places at this complimentary event are available on a first come, first served basis so fill out your information on this link to secure your ticket today

Chair: The Honourable Mrs Justice Kelyn Bacon DBESpeakers:
Totis Kotsonis – Pinsent Masons LLP
Alex Kynoch – Browne Jacobson LLP
George Peretz KC – Monckton Chambers
Alexander Rose – DWF Law LLP
Timings:
5.30pm – Registration, refreshments and networking
6-7pm – Panel discussion
7-7.30pm – Q&A
7.30-8pm – Refreshments and networking

Posted in New UK subsidy control regime, UKSALA news | Comments Off on UKSALA event on 30 March on the Subsidy Control Act 2022: “Putting the UK’s new regime into practice – early insights and what we have learned so far”

R(Good Law Project) v Secretary of State for Health and Social Care and Abingdon Health plc: State aid issues

The judgment of Waksman J in R(Good Law Project) v Secretary of State for Health and Social Care and Abingdon Health plc (“Abingdon“) has received a lot of coverage for its procurement law implications and for the future ability of bodies like the Good Law Project (“GLP”) to bring public law challenges to procurement decisions. However, it also has a State aid aspect, as the events all took place during the “transition period” in 2020, when the UK was still subject to EU State aid law.

In essence, the GLP claimed that the DHSC had overpaid for its procurement of lateral flow tests from Abingdon Health plc (“AH”).

It is trite State aid law that an overpayment (a payment more than any market operator making the same purchase would have made) for purchases by a public body is the granting of an “advantage” to the selling undertaking. Put another way, if a purchase by a public body does not comply with the “market economy operator principle” (“MEOP”) it is likely to be a State aid.

The bulk of the analysis conerns the detailed examination of whether GLP had shown that there was such an overpayment: the GLP’s difficulty being that in the absence of any actual market comparator to the procurement and in the extraordinary circumstances of the pandemic it was hard for it to jump the hurdle of showing that the MEOP did not apply. However, a couple of general points do arise.

First, at [420]-[426] the judge was sceptical of the GLP’s claim that the MEOP had to be applied at the time of the transaction (the putative aid) and that it was not possible to take into account a subsequent event (such as a later variation in the contractual arrangements in a way that favoured the public purchaser). He based that scepticism on his analysis of Case C-124/10P Commission v EDF, where the CJEU (at paragraphs 81-85) stated that a Member State could rely on economic analysis that it conducted prior to an investment to show that it made that investment as a market econcomy investor, but could not rely for that purpose on ex post facto analysis or on a stream of profits not predicted at the time.

The judge suggested that that analysis was irrelevant in a case where it was “obvious” that the DHSC was acting as an economic operator, since it was buying goods and services (as opposed to EDF where there was an issue as to whether the State was acting as a tax authority).

With respect, that is to misunderstand the issue. The whole point of the MEOP is that if a public body is shown to have paid more than a comparable market investor/purchaser would, then it is ipso facto no longer acting as an “economic operator”: and that was precisely the claim being made by the GLP. And it is well-established – see eg Case C-482/99 Stardust Marine at paragraphs 71-72 – that that assessment is done at the time of the transaction at issue and on the basis of what was available information and foreseeable at that time: indeed, that must be so, as the answer to the question “is this a State aid?” cannot coherently, or consistently with the principle of legal certainty, turn on whether you do the assessment at the time of the measure or some time after it. Nor (contrary to what the judge said at [425]) is the principle that the measure is looked at in the round of any assistance to his argument: that principle (as to which see eg Case T-525/08 Poste Italiane) does not go to the “time of assessment” point but to the question of what is assessed (so that, for example, in assessing whether aspect A of a package of measures conferred an advantage you also look at whether aspect B imposed a counterbalancing disadvantage).

Second, though, the judge is on stronger ground in making the point that issues such as urgency and uncertainty must play a part in the assessment of whether the MEOP applies: and of course, as he points out on various occasions, the assessment of what a market operator would have done in those circumstances is very problematic given the absence in fact of any plausible such comparator.

One final point is of considerable potential relevance to the new UK regime under the Subsidy Control Act 2022. Section 70(7) confines standing to challenge a subsidy decision before the CAT to the Secretary of State and to “a person whose interests may be affected by the giving of the subsidy”. That test of standing may be narrower than that usually applied in judicial review proceedings: but it is unlikely to be any wider. And as explained by Imogen Proud here, Abingdon imposes a significant hurdle to any “public interest” litigant such as the GLP in establishing standing to challenge a subsidy when neither the Secretary of State, any competitor, or local or devolved authority with any plausible claim of adverse effect in its area, is prepared to do so. That may have consequences for the “teeth” of the new regime.

GEORGE PERETZ KC

Posted in New UK subsidy control regime, UK case | Comments Off on R(Good Law Project) v Secretary of State for Health and Social Care and Abingdon Health plc: State aid issues

BEIS announces that the main parts of the Subsidy Control Act will come into force on 4 January 2023, and publishes the final versions of the regulations defining what subsidies are to be looked at by the CMA

BEIS announced yesterday, in an update to its website, that the substantive provisions of the Subsidy Control Act 2022 will come into force on 4 January 2023. Any subsidy given on or after that date will be subject to the duties and procedures set out in that Act.

BEIS also published the final versions of the regulations that define “subsidies of interest” and “subsidies of particular interest” (known as “SOIs” and “SOPIs”). SOPIs must be referred to the Competition and Markets Authority for advice before being given; SOIs may be referred either by the granting authority or by the Secretary of State. The regulations must be approved by both Houses of Parliament before becoming law, but that is likely to be a formality.

Under the final version of these regulations, SOPIs include

  • restructuring subsidies (but not rescue subsidies),
  • relocation subsidies (ie ones that require displacement of activity from elsewhere in the UK) exceeding £1m,
  • subsidies of over £1m that, together with related subsidies, result in a cumulative total of £10m to any one enterprise, and
  • subsidies of over £1m that are in a “sensitive sector” and together with related subsidies, result in a cumulative total of £5m to any one enterprise

SOIs include: –

  • all rescue subsidies, of whatever size
  • all tax measures and relocation subsidies that are not large enough to be SOPIs
  • any other subsidy of over £1m that, together with related subsidies, results in a cumulative total of £5m to any one enterprise

“Sensitive sectors” are listed in Schedule 1, and include sectors a particular trade policy sensitivity:

Table

SIC CodeDescription
24.10Manufacture of basic iron and steel and of ferro-alloys
24.42Aluminium production
24.44Copper production
29.10Manufacture of motor vehicles
30.11Building of ships and floating structures
30.91Manufacture of motorcycles
30.30Manufacture of air and spacecraft and related machinery
35.11Production of electricity

Because they will almost certainly be subsidies and “tax measures”, it would appear that any plans for “investment zones” with favourable tax rates will be SOIs or SOPIs. It will be interesting to see how the CMA approaches them.

The decision to make all rescue subsidies SOIs rather than SOPIs means that they will not automatically be looked at by the CMA, but will be examined only if the granting authority or Secretary of State wants the CMA to look at them. The rationale for that apparently odd result (given the economic implications of rescue subsidies) is that they are often too urgent for there to be time for a CMA review before grant: but granting authorities may well want the CMA to look at them if there is any possibility of a rescue subsidy being challenged by a competitor.

GEORGE PERETZ KC

Posted in Legislation, New UK subsidy control regime | Comments Off on BEIS announces that the main parts of the Subsidy Control Act will come into force on 4 January 2023, and publishes the final versions of the regulations defining what subsidies are to be looked at by the CMA

BEIS sets out final proposals on thresholds for subsidies of interest and subsidies of particular interest

On 24 August, BEIS announced the government’s final proposals on thesholds for subsidies of interest (“SoIs”) and subsidies of particular interest (“SoPIs”) under the Subsidy Control Act 2022. Those thresholds are set by regulations made by the Secretary of State.

Essentially, SoIs can be referred to the Subsidy Advice Unit (“SAU”) of the Competition and Markets Authority (either by the granting authority or by the Secreatry of State), and SoPIs must be referred to the SAU before they are granted. The SAU’s advice does not bind the granting authority’s assessment of whether the subsidy is consistent with the subsidy control principles, but the granting authority is likely to be well-advised to depart from it only with good reason, given the risk of judicial review in the Competition Appeal Tribunal.

The government’s position is summarised at paragraphs 123-126 of the response.

123. Having taken the consultation responses into account, the government’s revised policy position is set out below. The final regulations will reflect this position and set out the criteria and thresholds that will determine whether a subsidy or scheme is a SSoI or a SSoPI:
• Subsidies given outside of sensitive sectors are Subsidies of Particular Interest if they are over £10m, or cumulate above this threshold.
• All other subsidies of between £5 to £10m, or which cumulate to such a value, that do not meet the Subsidy of Particular Interest criteria are Subsidies of Interest.
• Subsidies given in sensitive sectors will be Subsidies of Particular Interest if they are over £5m, or cumulate above this threshold.
• Where subsidies cumulate above the SSoPI threshold, there will be a minimal value for referral of £1m. Public authorities will only be required to make a mandatory referral if the subsidy in question exceeds £1m.
• All restructuring subsidies will be Subsidies of Particular Interest.
• All rescue subsidies will be Subsidies of Interest.
• Subsidies that are explicitly conditional on relocation and meet the conditions set out for an exemption from the general prohibition in section 18 of the Act will be treated as Subsidies of Interest below a value of £1m, and Subsidies of Particular Interest above that value.

  1. Regarding subsidy schemes, if the parameters of a scheme allow a subsidy award to be given under that scheme that meets the definition of a Subsidy of Particular Interest, then that scheme will be defined as a Scheme of Particular Interest. Similarly, a scheme which would allow a subsidy award of a Subsidy of Interest is defined as a Scheme of Interest (unless it is already a Scheme of Particular Interest). Referral to the SAU will take place at scheme level, when the scheme is made.

  1. Subsidies given to the same recipient for the same purpose (which meet the definition of a “related subsidy”) within a defined period of three financial years (the “applicable period”) will count, or “cumulate”, together for the purposes of the monetary thresholds for SSoI and SSoPI. This will avoid cases in which an enterprise receives several similar subsidies that are just under the threshold for referral. We have added a minimum referral value of £1m to the cumulation mechanism so that public authorities will only be required to make a mandatory referral if the subsidy in question exceeds £1m.

  1. A distinct approach will apply to tax schemes. The GCE / A regulations will enable public authorities to use estimates to ascertain the maximum likely value of any award under a tax scheme for the purposes of determining whether the scheme is a Scheme of Particular Interest (i.e. because it would allow for subsidies which exceed the SSoPI threshold). Furthermore, the general cumulation rules will apply differently to subsidies given under tax schemes. Only subsidies given as part of the same tax measure within the applicable period will count towards the cumulative SSoPI thresholds. All tax schemes will be Schemes of Interest (and may be referred to the SAU but would not be required to do so) unless they would in themselves allow for the giving of subsidies which cumulate over the SSoPI thresholds within the applicable period (in which case they will be Schemes of Particular Interest). The government will set out in guidance that, where there is significant potential for cumulation with other subsidies given outside of a tax scheme for a similar purpose, this is a design feature which should generally result in a referral to the SAU.
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BEIS consults on draft statutory guidance on subsidy control

Section 79 of the Subsidy Control Act 2022 allows the Secretary of State to issue guidance on various matters arising under the Act, including on the definition of subsidy, and the practical application of the exemptions and of the subsidy control principles. Public authorities must have regard to such guidance (section 79(6)).

BEIS has now published draft guidance and a consultation paper (the questions in which amount to little more than an invitation to comment generally on the draft).

The draft guidance runs to 192 pages, so providing detailed comment on it by 10 August (the closing date) is going to be quite hard. However, I hope to arrange a response through the Joint Working Party of UK Bars and Law Societies on Competition Law – and anyone who has any thoughts they would like to pass on should feel free to send them to me (gperetz@monckton.com). If anyone has thoughts they would like to share with a wider audience, do comment on this post – or even write a stand-alone post!

George Peretz QC

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EU Foreign Subsidies legislation passes final hurdle

On 30 June 2022 the Council of the EU announced that agreement has been reached between Member States and the European Parliament on a text of the foreign subsidies regulation.

The final text does not appear yet to be publicly available, but the regulation will require, in the case of large mergers (€500m+ turnover) and large public procurement tenders (€250m+), prior authorisation from the Commission of transactions involving entities that have received significant subsidies from third countries. The Commission will also be given market investigation powers where distortion of the EU internal market may be occurring as the result of players in that market benefitting from foreign subsidies.

Failure to notify will carry significant fines (up to 10% of global turnover) and the Commission will also have powers to impose remedial measures, such as repayments, behavioural remedies, divestments, or requirements for firms to adapt their governance structure. It will also be able to order unwinding of a completed transaction, to prohibit a pending transaction, to reject public procurement bids if it finds a foreign subsidy to be distortive, or to impose a temporary obligation to inform the EC of all concentrations and tenders in which the company takes part.

Since very many UK businesses have received substantial subsidies over the pandemic years, the regulation is likely to catch a high proportion of UK acquisition and tendering activity in the EU once it comes into force some time in 2023.

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