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.


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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:


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.


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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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EU/UK WTO dispute over green energy subsidies settled

On 1 July, the European Commission announced that the WTO dispute announced by the EU in March 2022 has been resolved. The dispute concerned criteria in the UK’s Contracts for Differences (“CfD”) sheme, which the EU was concerned required tenderers to commit to levles of local content. The Commission states that the “UK has now clarified that CfD beneficiaries do not need to achieve any particular level of UK content to receive payments. The UK has also published additional guidance to ensure that this is fully understood by the industry.”

In a letter to the Commission, the Secretary of State for International Trade explains that questions in application forms to be completed by tenderers that asked for an account of UK content were for information purposes only and that suppliers would not be scored on the answer or held to it. She set out ways in which that position would be made clearer.

George Peretz QC

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The Subsidy Control Act 2022 – legislation to create a UK Statutory State Aid regime receives Royal Assent

By Jonathan Branton, Alexander Rose and Alex Eaton, DWF Law LLP

The long awaited Subsidy Control Bill has been awarded Royal Assent, thereby putting into law a statutory UK State aid regime.  This will develop, change and build upon the interim Subsidy Control regime which has been in place within the UK since 11pm on 31 December 2020 (which came directly from the subsidy provisions of the EU/UK Trade & Cooperation Agreement (TCA) of December 2020). The main elements of the new Subsidy Control Act 2022 are expected to come into force in Autumn 2022. 

What is the Subsidy Control Act?

The Subsidy Control Act regulates the award of financial assistance, as subsidy, by public authorities and their agents to organisations which are engaged in economic activities.  In order to be lawfully awarded, a subsidy will need to satisfy the relevant requirements set out in the Subsidy Control Act 2022 and be checked to ensure that there is no “appreciable risk” of triggering a dispute under any other applicable rules, such as those emanating from the UK’s now independent membership of the WTO.   The Subsidy Control Act 2022 has progressed from an initial Subsidy Control Bill, through amendments via the House of Lords and on to the final Act (for which we await confirmation of final version).

When does the Subsidy Control Act come into force?

Some elements, such as the ability for the Secretary of State to make Regulations to flesh out the new regime (for example, specifying which subsidies must go for review by the Competition and Markets Authority) come into effect immediately, however the main elements of the new Subsidy Control Act regime are expected to come into force in Autumn 2022.  The precise date will be set out in Regulations issued by the Secretary of State in due course.

What are the main elements of the Subsidy Control Act 2022 regime?

  1. The definition of “Subsidy” is amended, so that it differs in substance from that of a “State aid”. 

Under the Subsidy Control Act 2022, a “Subsidy” means any financial assistance given directly or indirectly through public resources by a public authority that confers a specific economic advantage on one or more enterprises, with respect to the production of goods or the provision of services, and which is capable of having, an effect on competition or investment within the United Kingdom or trade or investment between the United Kingdom and another country.

This makes it very plain that the UK law is there to regulate competition on a domestic as well as an international level.  Therefore the arguments which were sometimes used in EU State aid law matters to claim that there could be no State aid through lack of potential effects on trade between Member States (often very optimistically given the European Commission’s statement at paragraph 191 of the Notion of State aid) appear to fall away under the new regime, which focusses not only on the relationship with the European Union, but also upon the UK’s internal market.

  • Minimal Financial Assistance

The ‘Minimial Financial Assistance’ route is a Subsidy Control exemption that allows up to £315,000 of subsidies to be awarded to an enterprise within a three year period.  In many ways this exemption mirrors the De Minimis Regulation route under EU State aid law.  However the £315,000threshold for the Minimal Financial Assistance route is more generous than the €200,000 threshold for De Minimis.  

  • Service of Public Economic Interest

The ‘Service of Public Economic Interest’ route is a Subsidy Control exemption that allows the State to entrust a third party to deliver tasks “in the public interest (including public service obligations)” on its behalf.  The rules ensure that the funding is limited to what is necessary to deliver the service and a reasonable profit, as identified in a transparent manner in advance.  The Service of Public Economic Interest route is likely to be used for subsidies such as a local authority setting up a social housing association, or the commissioning of transport services to remote areas that would not otherwise pay for themselves.  This largely mirrors the comparable provisions for services of general economic interest at EU level.

  • The Subsidy Control Principles

The “Subsidy Control Principles” listed at Schedule 1 of the Subsidy Control Act 2022 are:

Common interest

  1. Subsidies should pursue a specific policy objective in order to— (a) remedy an identified market failure, or (b) address an equity rationale (such as local or regional disadvantage, social difficulties or distributional concerns).

Proportionate and necessary

  • Subsidies should be proportionate to their specific policy objective and limited to what is necessary to achieve it.

Design to change economic behaviour of beneficiary

  • (1) Subsidies should be designed to bring about a change of economic behaviour of the beneficiary.

(2) That change, in relation to a subsidy, should be:

(a) conducive to achieving its specific policy objective, and

(b) something that would not happen without the subsidy.

Costs that would be funded anyway

  • Subsidies should not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy.

Least distortive means of achieving policy objective

  • Subsidies should be an appropriate policy instrument for achieving their specific policy objective and that objective cannot be achieved through other, less distortive, means.

Competition and investment within the United Kingdom

  • Subsidies should be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom.

Beneficial effects to outweigh negative effects

  • Subsidies’ beneficial effects (in terms of achieving their specific policy objective) should outweigh any negative effects, including in particular negative effects on— (a) competition or investment within the United Kingdom; (b) international trade or investment.

This adds a seventh principle (F, above) to those already in place via the TCA, while clarifying the wording slightly.  These Subsidy Control Principles are likely to be used for many awards and therefore it is important that there is a clear and consistent understanding of each, and what reasonable evidence is required to be obtained in order to suitably satisfied of each.  Draft illustrative guidance has been published by the Department for Business, Energy and Industrial Strategy with this intention. 

It should be noted that in the event of a Subsidy Control challenge that a Court would methodically work through each Subsidy Control Principle, assessing the arguments and evidence for each addressed against standards of reasonable decision making under UK public law .  Therefore whilst there may be a temptation to fall back on stock statements or upon economic theory, we would recommend that the emphasis is upon always having in place a robust record as to how each individual Subsidy Control Principle has been met for every case. 

  • The Subsidy Advice Unit

The Subsidy Advice Unit is part of the Competition and Markets Authority which will be tasked under the Subsidy Control Act 2022 with reviewing Subsidies of Interest (SoI) as may be notiofied to it for an individual opinion prior to award, and Subsidies of Particular Interest (SoPI) as must be notified to it prior to award. 

What precisely will constitute SoIs and SoPIs is currently the subject of a public consultation due to close on 6 May 2022.  This will be particularly important and will build in further procedural scrutiny for larger subsidies deemed more likely to have a potential to distort competition. 

For example, the consultation currently contemplates all subsidies to individual enterprises of a value in excess of £10m will become SoPIs subject to this additional requirement, whilst also anticipating smaller value subsidies in certain pre-definned sensitive sectors such as automotive production to be similarly affected.  Once notified the CMA will be responsible for issuing an advisory report which takes account of the effects of the proposed subsidy or scheme on UK competition and investment, and may include recommendations for alteration or further enquiry.

      6)  Subsidy Control Enforcement

Under the Subsidy Control Act 2022, the Competition Appeal Tribunal (rather than simply the High Court) will review subsidy decisions. Challenges may be brought by way of Judicial Review, by any “interested party”. 

An “interested party” for the purposes of Subsidy Control is any person whose interests may be affected by the giving of the subsidy or the making of the subsidy scheme.   The Secretary of State always has standing as an interested party.

      7)  Streamlined Subsidy Schemes

The Subsidy Control Act introduces a mechanism for government to adopt Streamlined Subsidy Schemes to operate as conditional exemptions under the Subsidy Control regime.  Provided the funder is able to satisfy the relevant requirements of the Streamlined Subsidy Scheme, it is understood that such awards will be regarded as having complied with the Subsidy Control regime without requiring an individual assessment under the Common Principles as described above.  A Streamlined Subsidy Scheme is therefore understood to operate much like a block exemption Regulation at EU level.  It is therefore understood that measures brought forward under Streamlined Subsidy Schemes will also automatically be excluded therefore from qualifying as a SoPI and requiring notification to the CMA.

One of the weaknesses of the new Subsidy Control regime is that it can create greater administration for some lower value awards than under EU State aid rules.  This is because over 95% of State aid awards proceeded on the basis of well used block exemptions, such as the GBER. 

The Government is eager to encourage greater innovation in the award of subsidies, which it hopes to ensure by limiting the creation of Streamlined Subsidy Schemes, at the same time as seeking to ensure funders to do subject more “routine” and uncontroversial interventions to any more administrative burden and/or legal uncertainty than is necessary.  Indeed the Government’s Press Release refers to very specific activities being the subject of future Streamlined Subsidy Schemes, including funding towards national security and tackling floods.

Observations on the Subsidy Control Act

The ability of the UK to mastermind its own State aid regime was presented as one of the best opportunities of Brexit and with good reason.  Astutely targeted State subsidies can dramatically improve economies, nurturing the businesses of tomorrow and creating new jobs.  Provided certain rules are applied, this can be achieved without having an unduly negative effect on competition. 

In comparison with the EU State aid regime, the Subsidy Control Act creates a system where it should be easier and faster to fund the largest projects, which would otherwise have required notification to the European Commission for individual assessment, a process which could take a notoriously long time to see through to conclusion – indeed notifications often runn to years, not just months. 

The Government has chosen not to recreate the European Commission’s role in a domestic context and instead to keep the Competition and Markets Authority in an advisory role, while otherwise entrusting the national courts to deliver relevant enforcement judgments to keep the system working well.  Obviously in time to come the regime may evolve further still but for the time being the Subsidy Control Act builds a comprehensive regime and it is signfiicant to note that the regime goes further (in solidifying a domestic competition regime) than it was simply required to do under the UK’s free trade commitments to the EU in the TCA.  This shows the UK as eager to have an effective competition regime in place for its own sake and not merely to fulfil international commitments.

The Subsidy Control Act regime involves some additional administration for some smaller, regular awards.  This is because, unless these fall within the Minimal Financial Assistance route, a case needs to be developed against the Subsidy Control Principles which requires the funder to have the capacity and capability to undertake a detailed Subsidy Control assessment.   An easy route to solve this would be to introduce Streamlined Subsidy Schemes, but the Government seems intent on only using that route sparingly.  One would hope that the Government will involve experts from the public and private sector in the design of such Streamlined Subsidy Schemes, given their importance to the new regime. 

Fundamentally the Subsidy Control Act regime relies upon the organisations administering public funding acting as responsible custodians of public finances, in particular making the appropriate enquiries to ensure that they are only ever providing the proportionate and minimum subsidy necessary for each case.  All of the Subsidy Control Principles are clearly sensible and represent best practice around grant giving, but recording the necessary evidence for compliance to be relied upon represents a new way of doing things.  Undoubtedly this new regime will grow and develop from the discomfort of public bodies which fail to properly adapt to the new rules and therefore fall prey to Judicial Review challenge.  In doing so, the system will gradually become more certain for the body administering the award, as well as the subsidy recipient.

Jonathan Branton, Alexander Rose and Alex Eaton, DWF Law LLP

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Subsidy Control Bill: BEIS consults on what subsidies can be, or must be, referred to the CMA

On 25 March, BEIS issued a consultation on the regulations that will define what subsidies have to be referred to the CMA before implementation (“subsidies of particular interest”) and what subsidies can be referred, either by the granting authority or by the Secretary of State (“subsidies of particular interest”). The Bill leaves the power to define those classes to the Secretary of State.

The consultation paper discusses general thresholds set by reference to the size of the subsidy, as well as additional criteria based on the economic sector (eg cars, steel, shipbuilding, and aircraft) or type of subsidy (eg rescue and restructuring subsidies).

The closing date for responses is 6 May.

If anyone would be interested in contributing to the response of the Joint Working Party of the UK Bars and Law Societies on Competition Law to this consultation, please let me know (gperetz@monckton.com).


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Subsidy Control Bill – Illustrative Guidance and Regulations (by Angelica Hymers and Alex Kynoch of Browne Jacobson)

It has been a turbulent couple of years for those involved in subsidy control, and 2022 will be equally challenging. The Subsidy Control Bill (Bill) will take effect in 2022. It will form the backbone of the UK’s new subsidy control regime, but many commentators have raised questions over the transparency and efficacy of the new approach. Early drafts of illustrative guidance, illustrative regulations, policy statements and illustrative examples have just been published by the Government to show how three key areas of the new subsidy control regime will operate:

The Subsidy Control Principles (Principles);

Streamlined routes; and

Subsidies or schemes of interest/particular interest.

Subsidy Control Principles

The Principles are broadly drafted, and our experience with the current interim regime has been that they can be difficult to interpret and apply, particularly at a sub-central level where the granting authority may not have sufficient oversight to determine what standard of evidence is required in order to demonstrate the subsidy’s compliance with the Principles. Clear guidance which directs a granting authority as to the evidence required to demonstrate compliance with the Principles would be extremely helpful here. This will be vital for smaller authorities which do not have the same resources to undertake economic appraisals as larger authorities, or government departments.

The Illustrative Guidance (Guidance) published by the Government is intended to give a sense of what the final guidance on the practical application of the Principles will be like, and it should be noted that it is subject to change.

The Guidance sets out a four-part framework (essentially a grouping of the Principles) for public authorities to use to ensure that a subsidy is consistent with the Principles. It confirms that the depth of analysis needs to be proportionate to the size and potential distortive impact of the subsidy or scheme in question. Where the subsidy is relatively lower in value or has very few potentially distortive features, it will require a less detailed analysis, whereas, more extensive analysis will be required for novel and contentious subsidies, and those with more distortive design features. This will be the case for Subsidies/Schemes of Interest or Subsidies/Schemes of Particular Interest for which there will be a separate Annex to the Guidance for granting authorities to consider – although this is not yet available. This approach is as anticipated, but the Guidance appears to require a detailed analysis even in the case of low value subsidies. It may be that this process is ‘short circuited’ for low value/less distortive subsidies by the establishment of streamlined subsidy schemes (see below).

The draft Guidance is currently incomplete, but it is clear that a significant effort will be required from public authorities applying the Principles. Much of this should be done as part of the granting authority’s business case in respect of a particular action in any event. However, the Guidance appears to require significant analysis of certain economic matters which are unlikely to be within easy reach of many sub-central authorities without seeking external support. Therefore, it appears that there is a risk that under the new UK regime, subsidies can be granted by authorities with imperfect information which may have distortive effects which were not anticipated, or which were disregarded in the pursuance of a particular objective.

How rigorously will the Principles be applied?

Public authorities have, of course, been used to applying the State aid rules, which give a fairly prescriptive route to determining whether a State aid exists and whether it can be granted lawfully or not. This was often a question for lawyers. However, as well as ensuring compliance with the legal process, public authorities now need to undertake a level of economic, policy and commercial analysis which was not previously required. While clearly some level of analysis in these areas has always been necessary for robust decision making, the Guidance appears to require a far higher standard of assessment. Although these are not questions of law, the involvement of legal teams may provide a stronger and more consistent approach. If decisions on compliance with the Principles are taken without legal support, there is a danger that wider issues (for example, relating to prohibited subsidies) and/or the Principles will be misinterpreted or not properly applied, and in these circumstances an authority may grant a subsidy unknowingly.

A less than rigorous approach can soon become institutionalised, and because the Competitions and Markets Authority (CMA) does not currently appear to be able to instigate an investigation into a subsidy on its own initiative, there is a risk that this type of issue goes undiscovered. This is compounded by the fact that subsidies which are given ‘unknowingly’ will not find their way onto the transparency database, and therefore, cannot be subject to scrutiny in that manner either.

Although significant discretion is afforded to granting authorities, the decision-making process must not become a ‘tick box exercise’, undermining the effectiveness and reliability of the new regime and putting authorities at risk of successful challenge.

Streamlined Subsidy Schemes/Streamlined Routes

Clause 10 of the Bill provides a power for ministers to make ‘streamlined subsidy schemes’. The Policy Statement issued by the Government on Streamlined Routes (or Streamlined Subsidy Schemes as they are referred to in the Bill) provides that these are routes for public authorities to grant subsidies more quickly, where the subsidy is routine and low risk or aligned to UK priorities. These Streamlined Routes will be designed by the Department for Business, Energy & Industrial Strategy (BEIS), and some illustrative examples have been published for Heat Networks (Clean Heat) and Research, Development and Innovation (RD&I), although the Policy Statement suggests that other ‘clean heat’ and RD&I projects may be captured by these routes in future.

Subsidies awarded under a Streamlined Route will be exempt from referral to the CMA and cannot be subject to call-in – although they are still open to challenge by way of judicial review. However, the intention is that these subsidies have been pre-assessed as being compliant with the Subsidy Control regime, and so the risk of challenge may be lower (although that will of course depend on whether the Streamlined Route is properly designed and applied).

The Streamlined Routes appear to work in a manner similar to the General Block Exemption Regulation (GBER), in that there are specific parameters within which a subsidy may be granted. However, both illustrative schemes published appear to require further development before they could be used effectively.

If the Streamlined Route approach is delivered effectively, it would provide much needed certainty for granting authorities, enabling them to make subsidies quickly and efficiently within certain parameters. This assumes the conditions imposed are sufficiently user-friendly to enable sub-central authorities to confidently apply them. Care will be needed to ensure any conditions do not require granting authorities to undertake a disproportionate level of assessment, otherwise the streamlined subsidies may be no quicker than applying the Principles.

Subsidies/Subsidy Schemes of Interest and of Particular Interest

The Policy Note on Subsidies and Schemes of Interest and Particular Interest provides that granting authorities intending to grant subsidies or schemes of interest will have the option to make a voluntary referral to the CMA for assessment of their subsidy prior to award. Whether a subsidy will be a subsidy of interest will be defined by regulation, but the recently published policy notes provide that subsidies over a certain value threshold, or with certain design features (not yet confirmed), or subsidies for rescuing an ailing or insolvent enterprise (or certain other subsidies of a similar nature which are subject to restrictions under the Bill) will fall into this category.

If the criteria for a subsidy to be a subsidy of interest are not clearly defined and limited, there is a risk that the CMA may become overly burdened by public authorities seeking the CMA’s views. Legal certainty is very important to public authorities and many funding recipients, and in the absence of clear rules and guidance, there is a real risk that referrals to the CMA will become a matter of course when granting a subsidy which falls within this category. Clear guidance for application of the new regime has been promised but is still clearly a work in progress.

Some subsidies (those ‘of particular interest’) must be subject to scrutiny by the CMA before they are made. A subsidy of particular interest will be defined by regulations, but the policy note says that these will be subsidies concerning a ‘sensitive sector’ in excess of a particular value threshold, all subsidies (regardless of sector) over a certain value threshold, and all subsidies for restructuring ailing or insolvent enterprises, which are subject to additional requirements in the Bill. These subsidies are subject to mandatory referral to the CMA because they are more likely to pose a substantial risk of negative effects on domestic competition and investment or international trade.

The approach taken in the Bill and the regulations made under it may have a significant impact on the way that the subsidy regime works. If a risk-averse approach is taken, then a significant number of subsidies may require prior consideration by the CMA before they can be granted. On one hand, this may diminish the perceived flexibilities gained by allowing public bodies to take their own decision as to whether a subsidy complies with the new regime and slow down the granting of subsidies, but conversely, it may offer authorities the certainty they are looking for when granting higher risk subsidies.

Final comments

A recurring theme for subsidy control is balancing flexibility with certainty. Given the Government’s stated desire to maintain a level playing field and the need to comply with international subsidy commitments, subsidies must be justifiable and balanced against any negative consequences. Government will need to ensure its expectations for the level of analysis required by public authorities are proportionate and realistic, otherwise it may find many authorities relying on streamlined subsidy schemes rather than taking advantage of the flexibility offered under the new regime. The extent to which this is a problem will depend on the breadth and depth of the streamlined subsidy schemes of course.

The illustrative documents published by the Government are still in very early form, and in many cases will require significant development before they can be used by granting authorities. It is clear that the Government is seeking to provide clarity, but much of the essential detail is still missing from the published documents, and it remains to be seen whether the right balance is struck between giving much desired legal certainty, and ensuring that authorities have the confidence and flexibility to take full advantage of the new regime.

While the early publication of draft indicative guidance and regulations is welcomed, there is still a lot of work to be done in ensuring that these provide the clarity and certainty needed for public authorities to confidently provide subsidies in accordance with the new regime.


Angelica Hymers | angelica.hymers@brownejacobson.com

Senior Associate, Angelica works across Browne Jacobson’s Government & Infrastructure practice. Angelica specialises in subsidy control, state aid and public procurements.

Alex Kynoch | alex.kynoch@brownejacobson.com

Legal Director, Alex heads up the subsidy control team which is part of the firm’s Government & Infrastructure practice. Alex specialises in public procurement, subsidy control and complex public sector commercial projects, with a particular interest in regeneration and energy projects. He regularly provides training sessions to local and central government departments and speaks at seminars on subsidy control and public procurement.

This was first published on Local Gov on 8th March 2022.

Posted in Legislation, New UK subsidy control regime | Comments Off on Subsidy Control Bill – Illustrative Guidance and Regulations (by Angelica Hymers and Alex Kynoch of Browne Jacobson)

Sweet failure: British Sugar fails to persuade the High Court that the sugar advance tariff quota breaches Article 10 of the Protocol or the subsidy control provisions of the TCA

The judgment of Foxton J in R(British Sugar) v Secretary of State for International Trade[2022] EWHC 393 (Admin) is the first judicial consideration of

  • the impact of Article 10 of the Ireland/Northern Ireland Protocol, which (as discussed here) applies EU State aid law to all UK measures that affect trade in goods or electricity between Northern Ireland and the EU; and
  • the post-Brexit UK subsidy control regime (at least in its transitional phase pending enactment of the Subsidy Control Bill, which consists of applying the subsidy control principles of the UK/EU Trade and Cooperation Agreement (“TCA”) as domestic law by virtue of section 29 of the EU (Future Relationship) Act 2020).

Being the first judgment does not necessarily make it interesting: but in this case not only does the judgment throw light on how the UK courts may approach future litigation under those regimes, but it also contributes to the wider issue of selectivity (or “specificity” in TCA jargon), namely the controlling principle of both the EU State aid and the TCA subsidy control regimes that ensures that those regimes apply only to measures that in effect target particular businesses or classes of businesses for favourable treatment and do not apply to general measures such as low general corporation tax rates. 

The measure complained of was an autonomous tariff quota (ATQ) applicable to imports of raw cane sugar into the UK after the end of the transition period.  The effect of the ATQ was to allow 260,000 tonnes of raw cane sugar to be imported duty free into the UK (in addition to duty-free imports from certain African, Caribbean and Pacific countries and from the EU) on a first-come first-served basis: tariffs after exhaustion of the quota were £28/100kg, save where free trade agreements applied (so tariffs were zero on imports with EU origin). 

An ATQ open to anyone might not look at first blush like a promising candidate to be counted as a State aid or a subsidy: it looks like a general tax measure.  Indeed, there is no EU case in which an ATQ has been said to involve State aid – though, as the judgment points out, that could also stem from the fact that in the EU such decisions are for the EU, and EU measures do not fall under the State aid rules.

The argument that this ATQ was selective/specific turned on the fact that the UK market for refined white sugar (the stuff that you put in your tea or sponge cakes) has certain peculiarities.  That market has two main players: British Sugar (which uses UK-grown sugar beet) (“BS”) and Tate & Lyle (“T&L”) (which uses raw cane sugar imported from countries with warmer climates than the UK’s).  (Some other refined white sugar is imported from the EU.)  That fundamental difference between BS’s and T&L’s business models explains the very different views those businesses have historically taken on such issues as sugar tariffs and subsidies for domestic raw sugar production – differences of view that have frequently profited lawyers and generated a certain amount of case-law before the EU courts.  It also helps explain T&L’s public position as one of the few large UK businesses to support Brexit.

The essence of BS’s complaint was that the ATQ would – as a matter of undisputed economic reality – benefit T&L almost exclusively.  There just are no other significant UK importers of raw cane sugar, and nor are there likely to be.  Moreover, BS was able to point to a volume of evidence that showed that the UK government was well aware of that fact, had extensively engaged with T&L, and had T&L’s position very much in mind when formulating the ATQ.  Those familiar with the current UK government’s attitude to business will not be astonished to read in the judgment accounts of internal civil service e-mails expressing the need to protect a “national icon” that was “pro-Brexit” and concerns about a “Ministerial backlash” if T&L was not protected, due to its “lobbying reach”.  However, subsequent e-mails noted that it was “best to put [those concerns] to one side”, and other e-mails recorded concerns about the impact of not having an ATQ for jobs at T&L and on competition in the UK refined sugar market, and that the effect of not allowing an ATQ would be to increase sugar imports from the EU.

State aid and Article 10 of the Protocol


The problem with BS’s argument in relation to State aid (as applicable under Article 10 of the Protocol) was, however, that it was unable to say that a zero tariff on all sugar imports would have been selective.  That led it into a logical quagmire, since it followed that an ATQ set way above T&L’s possible imports would also not have been selective (as the effect would have been precisely the same as a zero-tariff regime).  In the end, BS was driven to rely on the intention of the measure (referring to the material discussed above) rather than on any aspect of its design as such.  But at that point its case crashed against the principle that the selectivity of a measure is to be ascertained by objective features (such as its design) and not by reference to underlying intent: thus, the court rejected its attempt to rely on the principle on Joined Cases C-106/09P and C-107/09P Commission v Gibraltar and UKthat a measure whose design reveals it to be selective (in that case by introducing a corporation tax based in part on size of premises so as to produce the result that offshore companies with no premises were exempt – a result that could be deduced from the objective facts of the scheme) on the basis that, here, there was nothing in the objective structure of the scheme that led to the conclusion of selectivity.  Further, applying the well-known three stage test set out in Joined Cases C-20/15P and C-21/15P World Duty Free, BS was unable to show that there was a difference in treatment of undertakings in a comparable legal and factual position: BS was not in a comparable position to T&L because it did not import raw sugar, and any other importer of raw sugar would face the same regime as did T&L. 

The court therefore held that Article 10 did not apply to the ATQ because there was no selectivity and it was not State aid. 

Effect on trade

That conclusion makes the next part of its judgment – on the application of the “affect trade” test in Article 10 – obiter.  There, the court held that that test had to be applied differently to the “effect on trade” test in Article 107(1) TFEU. It based itself on the point that the EU unilateral declaration referred to the need for there to be a “genuine and direct” link between the measure at issue and an effect on trade in goods or electricity between Northern Ireland and the EU did represent a meaningful qualification of the Article 107(1) approach when applied to Article 10. 

Its reasoning is, however, highly questionable. 

  • First, as I argued in detail here, it is doubtful that the words “genuine and direct” amounted to any meaningful qualification to the Article 107(1) approach: a qualification is not meaningful if the contrary proposition would never be relied on, and since no Commission decision or court judgment applying Article 107(1) would ever expressly rely on an effect that was “pretend” or “indirect”, it is hard to see what the qualification adds. 
  • Second, the court was wrong to regard the statement by the Commission (in its notice to stakeholders, which I discussed here) to the effect that the EU declaration added nothing to the established Article 107(1) test as inadmissible: that approach ignores the fact that (as I also discussed) Article 12 of the Protocol gives the Commission (and the Court of Justice of the EU: “CJEU”) the same position in relation to Article 10 as they have in EU Member States under EU law – and given the Commission’s role in the enforcement of the State aid rules, it is simply wrong to regard its official statements on matters of interpretation of the law as inadmissible (which is not to say that they are binding). 
  • Finally – precisely because its judgment on the point was obiter – the court was able to avoid putting any flesh on the bones of what a qualified approach to the test meant in practice: and it specifically refused to rule on the UK government’s attempt to get it to endorse the UK government’s theory that Article 10 applies only where the measure has a “first order” effect in Northern Ireland or where its “secondary effects” are likely to be “channeled” towards identifiable undertakings in Northern Ireland.  The fact that the court appears to have realised that articulating and applying, in the context of Article 10, any meaningfully different “affect trade” trade test to that used in Article 107(1) is likely to be treacherous ground is itself a warning against any attempting to build on its obiter holding on the point, not least because the ultimate authority on the interpretation of Article 10 is (under Article 12) the CJEU (a point the High Court, interestingly, fails to refer to). 

Subsidy control provisions of the TCA

In relation to the subsidy control provisions of the TCA, BS suffered similarly difficulties in relation to “specificity” as it did in relation to “selectivity” under State aid rules – though, notably, the High Court looked only at WTO, and not EU, authority in discussing that issue.  The court noted that different treatment between comparable importers could be a subsidy but also that a general system of preferences would not (see the Panel report in Canada – measures affecting the Automotive Industry at §10.162) and that tariff quotas are an established feature of the WTO framework.  In the end, however, as with its discussion of selectivity, the decisive points against specificity were that BS, as a non-importer, was not in any comparable position to T&L, and T&L was not treated any differently to any actual importer (see §146 of the judgment). 


The facts in British Sugar are unusual and the case is unlikely (whichever way any appeal might go) to generate many further challenges to tariff quotas (particularly not in the EU system, where tariffs are an EU competence not subject to the State aid rules).    However, the court’s robust approach to the question of intent and insistence on looking at the question of “design” and hence selectivity/specificity in an objective way and without focus on detailed internal evidence of exactly what ministers intended to achieve is likely to point against too great a reliance on internal evidence of intent as opposed to a more objective analysis of the scheme at issue in its context.  The judgment is also a sign of the willingness of the UK courts to engage with WTO authority in the subsidy context.  As for the court’s analysis of “affect trade” in Article 10 of the Protocol, for the reasons above its judgment should, in my view, be approached with caution, and with the awareness that (as I pointed out here) any serious dispute about the application of that test in a case where it was the decisive issue would be likely to end up, one way of another, in the CJEU.


22 March 2022

Posted in Brexit issues, EU/UK Trade and Cooperation Agreement, Free Trade Agreements, Ireland/Northern Ireland Protocol, New UK subsidy control regime, UK case, WTO anti-subsidy rules | Comments Off on Sweet failure: British Sugar fails to persuade the High Court that the sugar advance tariff quota breaches Article 10 of the Protocol or the subsidy control provisions of the TCA