Levelling Up Fund Phase 2 – Subsidy Control Compliance

At last, the wait is over and the successful applicants in Round 2 of the Levelling Up Fund (LUF) have been announced. We were over the moon to learn that a number of the projects which the Bevan Brittan subsidy control team helped with have been awarded funding. We have no doubt that these projects will each be truly transformational in their localities.

Successful applicants will recall the blood, sweat and tears that went into writing the applications, including the full subsidy control assessment which was required and, in some cases, a full blown assessment against the subsidy control principles; and they will now no doubt reflect that it was effort well spent.

As the winners bring their projects into the planning and delivery phase, some further thinking around subsidy control will be required. The Government published its Levelling Up Fund Subsidy Scheme on 22 December 2022, ensuring that LUF funding will be governed by the previous subsidy control rules in the EU-UK Trade and Cooperation Agreement (TCA rules), rather than the subsidy control requirements in the Subsidy Control Act 2022 (SCA 2022).

This timing is significant for two reasons. Firstly, the changes introduced by the SCA 2022 in terms of examining the effect a subsidy has on competition and investment within the UK will strictly not apply, although the Government did require this to be addressed as part of the LUF application process. This means that it may be easier to establish that a proposed use of LUF monies is not a subsidy, or that any subsidy complies with the narrower set of subsidy control principles which apply under the TCA rules.

Secondly, it gives rise to an interesting legal point. The fact that the Levelling Up Fund Subsidy Scheme is a legacy scheme governed by the TCA rules means that authorities will not be able to take advantage of the very useful rule in section 12 of the SCA 2022 that it is not necessary to apply the subsidy control principles every time a subsidy is given under a published subsidy scheme, because the principles will already have been considered at the scheme level. There is no equivalent rule in the TCA rules, which are far less detailed and in effect only a skeleton set of rules. As a result, on a strict interpretation of the TCA rules, there is still a requirement to consider the subsidy control principles each and every time a subsidy is given under a legacy subsidy scheme. Fortunately, it is at least clear under the TCA rules that the one month limitation period for seeking a recovery order in respect of a subsidy given in accordance with the terms of a published subsidy scheme runs from when the scheme is published.

In practice, this appears to mean that an assessment against the subsidy control principles will technically be required each time a subsidy is given under the Levelling Up Fund Subsidy Scheme. However, provided the subsidy fits within the terms of the Scheme, the window of opportunity for potential challengers to seek an order for recovery of a subsidy will generally have expired by 3 February 2023 (or a month or so later if an interested party makes an information request in relation to the scheme) because the Scheme was published on the Subsidy Database on 3 January 2023.

It would be our recommendation that authorities keep a careful record of the detailed subsidy control analysis which they carried out when completing their application, including where relevant the assessment against the subsidy control principles. We would also recommend that authorities check that the subsidies they will receive, or give, in connection with their projects all fall squarely within the terms of the Levelling Up Fund Subsidy Scheme, in order to be able to take advantage of the limitation period for the scheme.

For authorities now moving into the implementation phase of their LUF project, Bevan Brittan has a strong team of talented and experienced lawyers specialising in all the key legal areas, including subsidy control, public procurement, construction and real estate development, planning law and funding models.  The team also has considerable sector specific experience in delivering major projects, including leisure projects, housing projects, transport infrastructure projects and regeneration projects.

If you’d like to know how Bevan Brittan could help with the delivery of your LUF project, please do get in touch with Bethan Lloyd, Partner or Edward Reynolds, Senior Associate. We’d be delighted to hear from you.