State aid to subsidy control: Top ten tips for public authorities

It’s over three months since the new subsidy rules came into force (please see our article here).  During that period, we’ve provided State aid and subsidy advice for a wide range of public authorities and projects.  Although there are plenty of legal updates available which explain the technical aspects of the rules, we thought readers would be interested in more practical guidance based on our experience so far, and set out below our top ten tips.  If you have any suggestions from your own experience that you think should be added, please let us know.

1. Which rules apply?

When time is short, it is tempting to press ahead and start drafting advice. We would recommend spending some time clarifying whether the State aid rules or the subsidy rules in the UK/EU Trade and Cooperation Agreement (TCA) apply.  Although the former only apply in limited circumstances, it is best to consider the question on a case-by-case basis.  In some circumstances, the answer may be unclear, in which case you will need to take a view.  For example, if a public authority made a substantive and unconditional decision to provide a grant last December, but did not sign the grant agreement until this year.

2. Who is providing the assistance?

Assuming that the subsidy rather than the State aid rules apply (which in our experience is more likely to be the case), it is important to be clear who is providing the assistance. For example, grant funding can pass through several different bodies before being spent, with common examples being Local Growth or Getting Building Fund grant.  The application of the rules should be considered in relation to each body.

3. What is the assistance?

This is often obvious, but it is worth being very clear about the type of assistance being provided and its value. We recommend revisiting the definition of “subsidy” in the TCA, which provides examples of the most obvious types (such as grants), but also those which can be less obvious (such as foregoing revenue or providing goods and services).

4. Is there an economic advantage?

This may also be obvious, for example, in the case of a grant, but it is still sensible to consider the issue. If what appears to be a subsidy is in fact support that a private sector entity in similar circumstances might provide then there could be no advantage.

5. Is the recipient an economic actor?

This term is broadly defined and can include local authorities or charities. It is determined by what activity the entity is engaged in rather than its legal status, which may require some thought.

6. Is the support specific to certain economic actors?

This may not be the case if a competitive tender has been run to select the recipient, or if the support is available generally, such as tax relief.

7. Effect on trade or investment?

It isn’t clear how strictly this will be interpreted in the UK, and the safest approach is to assume the support will affect, or be likely to affect, trade or investment between the UK and the EU. However, there may be circumstances where the evidence suggests otherwise.  For example, if the users of the activity to be supported are all local and there is little evidence of cross-border investment.  This could potentially be the case for a small gym or swimming pool.

8. Exemptions and specific rules

If it appears that the assistance is a subsidy, consider whether any of the specific rules or categories in the TCA apply. For example, for services of public economic interest, the de minimis rules for services which fall below the threshold, or those for subsidies granted for “non-economic occurrences”.

9. Apply the general TCA principles

It is important to reiterate that assistance falling within the TCA’s definition of subsidy isn’t automatically unlawful. However, you must be able to demonstrate that it is consistent with the six general subsidy principles,[1] which requires a common sense approach to defining the objective and then considering how the subsidy will achieve it in a way which satisfies the principles.  An example of the government working through the principles can be seen here in relation to the Shared Rural Network programme.  This involves providing grant funding of £354m to a joint delivery vehicle over a 20-year period to support the purchase and deployment of radio equipment to improve mobile phone coverage.

10. Challenge

The shorter time period for challenge can provide comfort and allow a public body to take a practical and risk assessed approach where there is uncertainty over compliance with the rules. This was more difficult to do under the State aid rules, which include a ten year limitation period for a challenge by way of the European Commission, in contrast to bringing a challenge by way of judicial review under the TCA. 

[1]               Part Two, Title XI, Chapter three, Article 3.4(1) of the TCA.