Subsidy Control Bill - freedom or confusion?

On 30 June 2021, six months after we left the end of the transitional period, and the EU State aid regime, the government has published its new Subsidy Control Bill.  Ignoring the spin in the announcement, the bill is not a radical departure from the regime that has been in place for the last six months under the UK/EU Trade and Co-operation Agreement (TCA), and indeed as a formal treaty signed up to by the UK government one would not expect it to be.

However, what the bill does seek to do is to amplify the TCA regime, and formally put it into UK law.  In doing so, it does provide some additional clarity, although there is also a new set of ambiguities which one hopes will at least in part be resolved by the Parliamentary process, which is intended to be completed in time for the bill to come into force in 2022.

There are some material developments of the TCA position, most obviously in the new role created for the Competition and Markets Authority (CMA) as the independent body with an appropriate role in relation to subsidy control, and in the introduction of an additional principle relating to subsidy decisions of the effect on competition in the UK.  There is also a new prohibition on subsidies which facilitate the moving of jobs between areas in the UK.

As expected, there is no formal enforcement role for the CMA, and challenges are to be taken by way of judicial review, but heard by the Competition Appeal Tribunal.

There is no provision formally for the creation of block exemptions / safe harbours, although there is an under developed concept of streamlined subsidy schemes, which it seems may have some degree of exemption, although the drafting of the bill and the explanatory notes are not consistent on this point.

There are a number of relatively small points, set out below, where the drafting of the bill seems in need of improvement, and if not improved may give rise to some unintended consequences.

1. There is a welcome attempt to make clear what an economic advantage is, but the definition in clause 3 is potentially significantly wider than the approach adopted by the EU. It starts from the same principle of “terms that are more favourable to the enterprise than the terms that might reasonably have been expected to have been available on the market to the enterprise.” However, it is unclear whether the negative construction of the clause is intended to treat assistance that would reasonably have been expected to be available on the market as the only basis, and whether it is permissible to view the matter from the other side, i.e. considering whether a non-State body acting commercially would have provided the assistance.  This is relevant in the approach of the EU and the Courts to aid to enterprises in which the grantor is already invested.  The market might not make the loan, but a parent company might.
2. There is a wider definition of enterprises in difficulty, and while there are tight rules for rescue and restructuring aid it is unclear whether it is intended that subsidies to enterprises in difficulty may only be for rescue and restructuring. If so, the width of the definition would cause problems.
3. A further issue arises over the obligations to provide information in connection with a subsidy where it is to provide information to a potential challenger. In providing the information, the public authority may impose such restrictions as it considers proportionate in order to protect commercially sensitive information, confidential information, legal privilege or (an addition to the nonexclusive grounds in the TCA) where disclosure would be contrary to the public interest.  Information may only be used for the purpose and subject to the restrictions.  This raises the issue of whether a restriction could be to exclude certain information – including legally privileged documents, or whether all relevant information must be disclosed – potentially on Counsel-only terms.
4. Finally, the bill is somewhat obscure over the scope for the development by the government of streamlined subsidy schemes, and says very little about them. The explanatory note suggests that these will have the advantage of being outside the jurisdiction of the CMA for referral purposes. However, as drafted the bill exempts all awards of subsidy under subsidy schemes, streamlined or not,  from the CMA review scheme, and indeed the bill goes on to say that a subsidy awarded under a scheme may not be challenged  by judicial review - only the overarching scheme may be challenged.  This will need some working through.

We will be publishing more detailed notes on the following as well as updates as the bill progresses:

• the operation of the principles
• the role of the CMA
• the introduction of competition and job preservation rules
• enforcement and remedies.