Subsidy Control – the new state aid

By Paul McDermott and Victoria Thornton and Julian Jarrett | 01 February 2021

From 1 January 2021 state aid law no longer applies in Great Britain to aid/support given by the public sector. However, state aid's demise has not relieved local authorities from the need to comply with new ‘Subsidy Control’ requirements. These may be conceptually similar to state aid, though not identical to it.

Subsidy Control is no longer an exclusive EU/UK relationship. The new system requires public bodies to satisfy themselves that support they give does not contravene World Trade Organisation prohibitions (which is unlikely for councils) and to check (and comply) with any subsidy requirements in the UK's Free Trade Agreements (FTAs).

The government will shortly consult on the appointment of an independent subsidy ‘monitor’ and possibly about new UK subsidy rules. In the meantime The European Union (Future Relationship) Act (EUFRA) effectively incorporates the subsidy provisions of the EU/UK Trade and Cooperation Agreement (TCA) into UK law.

We have set out a brief overview of navigating the new subsidy landscape to assist councils comply with the new system. In practice the EU/UK TCA is more likely to impact at the local/regional level than other FTAs. 

The TCA obliges the EU and UK to operate their own subsidy control systems based on TCA subsidy principles and requirements. This obligation applies mutually -  permitting the EU to retain state aid law and the UK to develop its own rules. Until the government produces UK rules (if it does) this mutual aspect of the TCA will enable councils to evidence compliance with EUFRA/TCA obligations by citing compliance with state aid rules (though in the longer term the UK's system is likely to be less extensive and possibly less onerous). Importantly until such rules are introduced where applicable, councils must comply with the TCA principles have regard to BEIS Subsidy Control guidance.  

To audit Subsidy Control compliance it will be necessary to reference: EUFRA, BEIS guidance and the relevant principles for awarding Subsidy under the TCA (or less often in other FTAs).

‘Subsidy’ under the TCA is very similar though not identical to ‘state aid’. Subsidy (in any form) is defined as such if it benefits one/some organisations over others and also could affect trade or investment between the UK and the EU.

All Subsidies under the TCA (whatever the purpose or objective) must comply with its’"Subsidy Principles’ (not yet detailed by guidance/case law). These are broad (and unsurprising) focused on subsidy being policy-driven, proportionate, and necessary, designed to incentivise policy-conducive economic behaviour.

An easy to grant 'De Minimis' higher subsidy allowance is established (circa. £350,000 per three years per organisation compared to the previous circa £180,000 sum).

Services of Public Economic Interest (SPEIs) are regulated as a separate sub-category of subsidy and are broadly comparative to the previous ‘services in the general economic interest’ which covered care and social/affordable housing. The TCA adopts similar though not identical SPEI requirements. 

Local authorities should keep a record of subsidies granted as they will need to upload these when the new UK portal is operational. ‘Interested Parties’ may challenge Subsidy awards which presently would be in the courts; though we expect that the independent body/regulator (when established) may also have rights to make similar decisions. TCA remedies include repay as with state aid.

BEIS technical guidance is available here.

BEIS technical guidance is relevant to any subsidies to granted from 1 January 2021 onwards and advises authorities to follow a 'five step' process:

  1. Is it a subsidy and what international obligations apply? – determine which (if any) of the WTO, FTAs (notably the TCA) applies (Annex 1 to the Guidance lists these).
  2. Is it a prohibited subsidy? –under the WTO, the TCA or other FTAs – as these prohibit subsidies in certain circumstances, i.e. subsidies dependent on using domestic goods and unlimited guarantees.
  3. If the TCA applies does the subsidy comply with the principles referred to (above) – authorities are advised to use the template in Annex 2 to the Guidance to record and retain how they have complied with the principles.
  4. Is the subsidy likely to trigger a dispute under the WTO ASCM or other FTAs? – this is required by the guidance even if the proposed subsidy is compliant with the TCA. Authorities are advised to undertake a risk assessment using the BEIS guidance's checklist.
  5. Record the award of the subsidy – information on subsidies must be disclosed in accordance with the TCA requirements outlined (above).

There is a lot of detail which councils need to become familiar with. More information can be found here 

Paul McDermott, Victoria Thornton and Julian Jarrett are lawyers in Trowers & Hamlins' Public Funding and State Aid Group 

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