In this post, George Peretz K.C. addresses two recent updates in state aid / subsidy control regulation, concerning the Subsidy Control Act and the recent case of R(Good Law Project) v Secretary of State for Health and Social Care and Abingdon Health plc.
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 last week, 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 Code | Description |
|---|---|
| 24.10 | Manufacture of basic iron and steel and of ferro-alloys |
| 24.42 | Aluminium production |
| 24.44 | Copper production |
| 29.10 | Manufacture of motor vehicles |
| 30.11 | Building of ships and floating structures |
| 30.91 | Manufacture of motorcycles |
| 30.30 | Manufacture of air and spacecraft and related machinery |
| 35.11 | Production 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.
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.