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Duty to refer certain subsidies to the Competition and Markets Authority

  • Writer: Alexander Rose
    Alexander Rose
  • Apr 10, 2024
  • 3 min read

Updated: Jun 21, 2024

 

Public authorities are under a legal duty under Section 52 of the Subsidy Control Act 2022 to refer large and sensitive subsidies to the Competition and Markets Authority for assessment. Criticisms set out within recent Competition and Markets Authority reports indicate that this requirement is causing difficulty for many public authorities.


1. What is the legal duty to refer certain subsidies to the Competition and Markets Authority?

Under Section 52(1) of the Subsidy Control Act 2022 ("SCA") there is a legal duty upon public authorities to refer a subsidy to the Competition and Markets Authority's Subsidy Advice Unit ("CMA"):

(a) before giving a subsidy, or making a subsidy scheme, of particular interest, or

(b) where directed to do so by the Secretary of State under Section 55."

 

Therefore this duty arises before a subsidy is legally committed or a subsidy scheme is created.

 

2. What is a Subsidy of Particular Interest?

What constitutes a Subsidy of Particular Interest ("SoPI") is defined within the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) Regulations 2022 ("SoPI Regulations") and includes:

  • subsidy awards of above £10m;

  • subsidy awards above £5m to sensitive sectors[1];

  • subsidy awards for relocation activities above £1m; and

  • subsidy awards above £1m for rescue and restructuring activities

 

In addition, any award above £1m will be a SoPI if it means the total subsidy awarded towards a "related activity" then exceeds £10m / exceeds £5m for a sensitive sector in the current and two previous financial years. 

 

3. What is a "related activity"?

A related activity is defined in the SoPI Regulations as "a subsidy given other than under a subsidy scheme made in the form of a tax measure… which:

(a ) is given by any public authority in respect of the same (or substantially the same) project, costs or activities, and

(b) pursues the same (or substantially the same) specific policy objective…".

 

Therefore, a "related subsidy" could arise where public authorities provide separate awards to a beneficiary to deliver a project.


4. How can a public authority make a referral?

The CMA guidance requires the referral to be made via the SAU’s Public Authority Portal in a prescribed format.

This includes providing the public authority's assessment of the proposed measure, including its case for meeting each of the seven Subsidy Control Principles set out at Schedule 1 of the SCA and relevant supporting information. 


5. How long does the CMA have to review a referred subsidy / scheme?

The CMA is subject to statutory timescales, so will normally review a referred project within 30 working days of acceptance. 


6. What is the effect of a negative CMA report?

In June 2023, Warrington Borough Council received a CMA report which criticised the compliance of a proposed subsidy to LiveWire (Warrington) CIC.  The following month the BBC reported that the proposal had been shelved in its proposed form because "the report identifies significant areas of potential improvement that an interested party could form their challenge around, there is deemed to be a risk of successful challenge should one be brought".


Whilst all CMA reports have, so far, contained suggestions for improvements, should a report set out serious concerns then the public authority may choose not to proceed with the proposed subsidy / scheme.

Alternatively, the public authority could choose to take the points made by the CMA on board and rework the assessment so that these are adequately addressed.


7. What are the most common criticisms in CMA reports?

There have now been over 30 CMA reports, common criticisms within these include failures of public authorities to:

  • identify a clear viability gap to ensure the subsidy offered is the minimum necessary;

  • properly define the relevant market, identify competitors, and assess potential impacts on competition;

  • provide a clear explanation of how they arrived at the chosen counterfactual, considering alternative options and their impact.


[1] Currently awards to the following SIC codes - 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 and 35.11 Production of electricity.


All information provided in this article is valid at the point of publication, that is, April 2024.


Alexander Rose is one of the UK's leading Public Funding lawyers, with an international reputation for his expertise in Subsidy Control, EU State aid law and grant funding programmes.


If you have any questions on this topic, or would like support, please contact your Delivery Associate, or email DeliveryAssociatesNetwork@Arup.com

 


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