In this post, Anneli Howard of Monckton Chambers summarises the UK Government’s new consultation (3 February 2021) on a new, domestic subsidy control regime.
On 3 February 2021, BEIS issued a consultation on a new bespoke subsidy control regime that seeks to balance the specific needs of the UK economy (comprising all four countries within the UK’s internal market) with its international commitments under the UK-EU Trade and Cooperation Agreement (“the TCA”), the Northern Ireland Protocol, WTO/ACSM, and other FTAs including, possibly in future, accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTTP”). The new regime will apply prospectively and, in the interim, the UK will follow its international commitments.
The Government states that it wants to develop a flexible system that empowers public authorities to design and award subsidies which strike the right balance between allowing the benefits from subsidies while limiting the most harmful impacts. It highlights a number of “strategic objectives”, such as investment in research and development, levelling up prosperity across the UK and addressing regional imbalances. It hopes to replace bureaucratic EU rules on structural funds with a “levelling up fund” to open up new opportunities and, innovation and regeneration.
At the same time, it is clear that it does not want to return to the selective policies of the 1970s where it hand-picked industry sectors or individual businesses to receive support, resulting in dampened incentives, inefficiencies and market distortions. That is also important in the context of the UK internal market, to avoid subsidies favouring one region over another which might result in “subsidy races” between regions competing to attract business investment and jobs.
In terms of substance, the Government’s characteristic of a subsidy closely mirrors the underlying concepts in EU and international trade law: namely a selective (now called “specific”) financial contribution from central, regional or local government in the form of a grant, loan or financial assistance that confers a benefit which would not be available on commercial terms and which distorts competition. Those concepts are very familiar even if the terminology is different. There will be an outright prohibition of unlimited state guarantees and subsidies to failing or insolvent businesses, in line with the UK’s commitments under its FTAs, even if they are not strictly prohibited under the WTO. There will also be a separate regime for Services of General Economic Interest or Social Interest.
There will be certain exemptions for low value subsidies (below 325,000 SDR) or for emergency situations such as disaster relief, global economic crisis or the Covid-19 pandemic. There will also be objective justification for subsidies in the public interest (such as pursuing environmental protection or rural development). The Government will follow the 7 main principles set out in the TCA – namely (i) public policy justification; (ii) necessity and proportionality; (iii) incentives to change beneficiary behaviour; (iv) no excessive compensation or cross subsidy; (v) appropriateness; (vi) minimised distortion of competition in the UK internal market; and (vii) positive benefits outweigh any negative effects. It also wants to add a further principle to ensure that public authorities design subsidies in such a way that they deliver strong benefits and good value for money for UK taxpayers. Certain subsidies for industry sectors or restructuring or cooperation benefits will be subject to additional conditions.
The main change from the EU regime is that subsidies in the UK will no longer be subject to a notification and standstill regime. Instead, the main control will be ex post judicial review within tightly prescribed time limits (1 month post award). The Government is consulting whether the review should be conducted by the Administrative Court or a specialist judicial forum (such as the Competition Appeal Tribunal). The Court will have power to suspend, prohibit the subsidy, review the decision of the independent body and award damages or, exceptionally, order the recovery of the subsidy. The Government wishes to apply a presumption that subsidies which pursue public policy objectives are lawful and can be relied on by public authorities and businesses until they are shown to be based on illegality, irrationality or inconsistency with public law principles. This will be based on the judicial review standard and not a full appeal on the merits.
The Government also wishes to create a regulatory framework to reduce the administrative burden, whereby public authorities can design “low risk subsidies” which are deemed to be in compliance with the principles and international commitments. Conversely, “high risk subsidies” may be subject to additional consultation or ex ante standstill provisions before they are implemented.
The Government is also seeking views on the role of the independent body with oversight of the UK subsidy control regime and its enforcement functions. This may be an existing body (such as the CMA) or a number of different bodies acting in combination. The independent body would not apply an ex ante vetting regime but a post-award review and enforcement function that complements and interacts with judicial review via the Courts, with power to direct amendments or recover illegal support. It would also have an importance guidance function to assist public authorities and reduce bureaucracy and administrative burdens. The Government is also seeking views on the interaction between the roles of the independent body and the judicial review to strike the right balance between administrative scrutiny and enforcement and judicial review.
Share this post on social media: