Subsidy Control – New Regime, New Challenges
The UK’s new regime requires taxpayers to self-assess their compliance and protect against potential challenges from competitors.
Taxpayers required to self-assess compliance
In January 2023, the Subsidy Control Act 2022 (SCA) came into force. It introduced a new subsidy control regime for the UK; described by the Government as a radical departure from EU State Aid. The new regime permits subsidies provided they comply with the seven subsidy control principles (and subject to various prohibitions), rather than prohibits subsidies save where permissible (as was the case with EU State Aid). The new regime also introduces several novel features, including a system of self-assessment and increased transparency. Critically, it decentralises and widens the enforcement of subsidy control by allowing any ‘interested party’ to challenge the giving of a subsidy by a public authority. As such, both public bodies and taxpayers can challenge decisions to give or refuse a subsidy, including by way of an appeal on judicial review grounds to the Competition Appeals Tribunal (CAT) or an ordinary claim for judicial review.
The types of subsidy covered by the regime are extremely wide. They include tax reliefs and exemptions, as well as preferential licensing agreements, under-market valuations and making taxpayer-funded resources available only to selected entities. The regime also applies to subsidies given by any “person who exercises functions of a public nature”. This will certainly include the Government, local authorities and devolved administrations; but it is also likely to include non-executive bodies, regulators and public bodies such as the NHS.
A key change from the EU State Aid regime is the introduction of self-assessment. Under the new regime, public authorities granting subsidies are required to self-assess compliance with seven subjective principles (and additional energy and environmental principles where applicable). At least for the moment, there are no prescriptive but authorising conditions similar to the General Block Exemption Regulations for the purposes of EU State Aid. As a result, public authorities and those seeking or in receipt of subsidies face far greater uncertainty.
Under the SCA, an ‘interested party’ – including a disgruntled competitor – has the power to challenge subsidies awarded by public bodies, whether in the form of tax breaks or other state assistance. This is a fundamental shift from the State Aid regime, where all challenges were made via a complaint to the European Commission. Under the new regime, a formal challenge can be made on appeal to the CAT on domestic judicial review (public law) grounds. Whilst a challenge to the CAT is technically made against the public body which gave the subsidy, a recipient of a subsidy may find themselves in front of the CAT as an interested party.
The 2022 case of British Sugar may be an indicator of things to come. In this case, British Sugar challenged an autonomous tariff quota (ATQ) on raw cane sugar under the interim regime that preceded the SCA after Brexit. While the ATQ applied to all, evidence was adduced to show that that the ATQ was introduced to primarily benefit Tate & Lyle Sugars, one of British Sugar’s competitors. The High Court did not uphold British Sugar’s clam; but despite the affirmative decision for Tate & Lyle, the case potentially represents an important example of how the regime will ‘shake down’. More recently, the CAT has published its first (interlocutory) decision on a challenge under the SCA. That case is the first appeal to the CAT under the SCA and it involves a challenge by a competitor to alleged subsidies given by Durham County Council to its trade waste collection business through assets paid for by public money. It is telling that both test cases essentially amount to challenges by market competitors against subsidies which have been alleged to be given to their market rivals.
In this new age, taxpayers who seek or receive state assistance (by way of tax breaks or otherwise) will need to be alive to whether such assistance is vulnerable to challenge by interested parties. They should be proactive in seeking professional advice as part of the self-assessment process, to pre-empt and deter potential challenges.
KPMG’s multi-disciplinary subsidy control offering can support clients in the business and public sectors at all stages. We can advise public bodies whether a course of action would amount to a subsidy and if so, whether it would be lawful; and we can likewise advise potential recipients of a subsidy of their own potential risks and challenges. In addition, we can support clients to bring or defend an appeal to the CAT. Our team includes specialist economic and regulatory professionals together with lawyers in our market-leading KPMG Law Disputes team.
