Two years of the Subsidy Control Act

Overview

Since 4 January 2023, public bodies across the UK, at a national, devolved, regional and local level, have awarded a significant number of subsidies. By 15 January 2025, details of nearly 12,700 subsidies (comprising individual subsidies and those given in the context of wider scheme) had been recorded on the Transparency Database.

The Department for the Environment, Food and Rural Affairs (DEFRA) leads the way and alone is responsible for more than 3,300 entries. His Majesty’s Revenue and Customs, UKRI Innovate and the Department for Energy Security and Net Zero (when its figures are combined with that of its predecessor department, the Department for Business Energy and Industrial Strategy) are also close behind, ranging from 1,900 to 2,300 entries.

75 subsidies have been referred to the Competition and Market’s Authority Subsidy Advice Unit (SAU) for a review as at the same date. The nature of the role is considered in more detail below.

However, just two legal challenges have been commenced for an alleged failure to comply with the SCA before the specialist Competition Appeal Tribunal (CAT).³ Only one of these has concluded. Further details are set out below.

Role of the SAU

As a brief recap, most forms of subsidy can be assessed by the public authority making the subsidy award, without further administrative referrals or suspensory effect. This might involve the public authority designing its subsidy to fall within the scope of a Streamlined Route.⁴  However, Subsidies and Schemes of Interest and of Particular Interest (SSOPIs) cannot be awarded or established without a referral to the SAU. SSoPIs include subsidy awards of £10m or more, as well as awards of £5m in relation to certain sensitive sectors. Awards between £5m and £10m which do not relate to a sensitive sector may be referred to the SAU although public authorities have been reluctant to make such referrals.

From the day on which a public authority submits its request for referral of the subsidy to the SAU, the SAU has five working days to determine whether the referral notification is complete. From the day on which it accepts the notification as complete, the SAU then has 30 working days to publish its report on the subsidy referral.

The SAU has no power to prohibit the grant of a subsidy; its role is limited to the provision of non-binding advice to the public authority. Such advice does not directly assess whether the scheme complies with the subsidy control requirements. The SAU may give advice about how the proposed scheme may be modified to ensure compliance with the subsidy control requirements. There is no specific requirement for the public authority to respond to the SAU’s report nor to explain how it has taken account of its advice in relation to its eventual grant of the subsidy or establishment of the scheme.

The SAU’s reports have generally included comments on the following areas which have challenged public authorities with their assessments:

• Policy objectives – difficulties identifying a clear policy objective that is specific to the referred subsidy and addresses a market failure and/or equity concern.
• Market failures – not identifying the relevant market failure in the assessment.
• Competition and Investment – not properly assessing the impact on these factors.
• Balancing Exercise – not fully undertaking the balancing exercise
• Evidence – not identifying evidence relevant to the assessment.

These areas were identified by the SAU following the end of its first year of operation,⁵ although some of the most recent reports show public authorities continuing to be challenged by the same areas.

Role of the CAT

Challenges to the grant of a subsidy can be made to the specialist CAT. The nature of the CAT’s review is akin to judicial review, which involves reviewing the lawfulness rather than the merits of the decision to grant a subsidy. There are differences, compared to judicial review, in relation to the timescales for bringing such a challenge and in the orders available at the conclusion of the proceedings.

The timescales are linked to the transparency date which will commonly be the date on which the award is included in the Transparency Database: challenges must be brought within one month (rather than three months for “standard” judicial review) although the precise calculation can differ depending on whether, for example, a pre-action request for information is made. We turn to pre-action requests later in this article.

An additional power compared to judicial review is the CAT’s power to make a recovery order. Where made, this confers a right on a public authority that has given a subsidy to recover the amount of that subsidy from the beneficiary, and requires the public authority to exercise that right in accordance with the order. This is separate from and in addition to any contractual right of recovery.

As highlighted above, only two cases have so far been commenced in the CAT. Only one of them has concluded to date, a challenge to an alleged subsidy given by Durham County Council in relation to household and commercial waste collection operations. The issue in this case was whether the decision in question could be classed as a “subsidy decision” for the purposes of the SCA. The CAT concluded there was no “subsidy” given within the meaning of the SCA. The ongoing case relates to decisions by Greater Manchester Combined Authority to provide loans to two property development and investment companies.

Appeals to the CAT have so far offered little guidance on how the regime might develop over time, save for it indicating that the decisional practice under the European State Aid regime may be expected to have no more than persuasive effect on the new and distinct regime adopted in the UK.

The number of challenges is substantially below the then government’s estimate as set out in the Impact Assessment accompanying the introduction of what was then the Subsidy Control Bill. It said:

“…the best estimate for the volume of judicial reviews anticipated under the new domestic subsidy control regime is 23 per annum, with a range of 15-30 per year.”⁶

We wondered how this could be explained. One possible explanation we wanted to test was the possibility that cases were being threatened but not actually commenced.  

Pre-action requests

While pre-action letters are well-known and a common feature of litigation in most courts, they have a specific statutory basis in the SCA.⁷  A particular feature is that they effectively stop time running towards the expiry of the limitation period until the relevant public authority has responded. This is different from pre-action letters in a “standard” judicial review which do not stop time running. They are therefore a particularly useful tool to enable potential claimants to obtain more information and time to decide on an informed basis whether to bring a challenge. We would expect extensive use to be made of them.

Using the Freedom of Information Act 2000, we approached a cross-section of public authorities to ask for information on the number of pre-action requests received by them by 1 December 2024. We also asked them to identify the relevant subsidy to which the request related. In total we made requests of 24 public authorities, including central government departments, local authorities and selected other public authorities.

We received substantive responses from the majority of public authorities approached. The consistent response was that no pre-action requests had been received. Outside of the cases which had actually been commenced before the CAT, the responses suggested that only two other pre-action letters had been received: one by the Department for Housing, Communities and Local Government in relation to the English Freeports Subsidy Scheme and one by Durham County Council, relating to a different matter from the waste collection case in the CAT. Given the volume and value of subsidies awarded, we found this to be particularly surprising.

Concluding comments

When the Subsidy Control Bill was introduced the then government said this: “…oversight and enforcement mechanisms that incentivise public authorities to comply with the rules and hold them to account where they do not, are critical to achieving the Government’s overarching objectives for the regime. As the independent body has no direct enforcement role, disincentives for non-compliance must be introduced by way of judicial routes supported by the ecosystem of transparency nurtured by the proposed regime (which includes the subsidy database and the independent body’s published reports).”⁸

As the regime moves into its third year of operation, we think it is an open question as to whether this incentive structure is in fact operating as intended: the number of actual or threatened claims are only a fraction of what was expected. The Government’s consultation⁹  on refinements to subsidy control regime must be seen in this context.

A key aspect of that consultation considers changing the thresholds for referral to the SAU, which would lead to a reduction in the number of cases reviewed by it. The consultation states that “a greater number of subsidies or subsidy schemes have been referred to the [SAU] under the mandatory referral threshold (SSoPI) than was anticipated, however no subsidies of interest have yet been voluntarily referred. High inflation in recent years has led to increased project costs, which may have contributed to the mandatory referral threshold capturing more subsidies and schemes than originally intended.”¹⁰

This may be considered to represent too narrow a focus on the type of referrals to the SAU. While the number of SSOPI cases exceeds the government’s initial estimates, other areas of the regime – particularly the courts – are not as active as expected. This means the SAU’s role is of greater importance to the effectiveness of the overall regime. The changes under contemplation would further reduce the level of scrutiny from an already relatively low level overall.¹¹

The SAU’s first monitoring report into the effectiveness of the operation of the SCA and its impact on competition and investment within the UK is due in 2026.¹²  This will involve a holistic assessment which would provide an informed basis for substantive changes to the operation of the regime.