February 2, 2023
The new Subsidy Control Act 2022 (the ‘Act’)[i] came into force on the 4th January 2023.[ii] The Act provides a new framework for the provision of subsidies, building on the control chapters of the Trade and Co-operation Agreement.
The Act defines “subsidy” to mean:
“ financial assistance which:
(a) is given, directly or indirectly, from public resources by a public authority,
(b) confers an economic advantage on one or more enterprises,
(c) is specific, that is, is such that it benefits one or more enterprises over one or more other enterprises with respect to the production of goods or the provision of services, and
(d) has, or is capable of having, an effect on:
(i) competition or investment within the United Kingdom,
(ii) trade between the United Kingdom and a country or territory outside the United Kingdom, or
(iii) investment as between the United Kingdom and a country or territory outside the United Kingdom.”
The following is a non-exhaustive list of issues and questions which the new regime raises:
The definition of “financial assistance” includes direct transfer of funds or contingent funds, the foregoing of revenue that is otherwise due (e.g. a tax bill) or the provision and purchase of goods or services.
- There are several provisions which refer to and expand on the issue of foregoing revenue that is otherwise due.
- The Act stipulates that financial assistance may be deemed as “specific” in cases where one or more enterprises obtain a reduction in their tax liability and are thus treated more advantageously than other enterprises in a comparable position.
- Example issue: How does this affect relief mechanisms available to providers in the market, particularly where the relief mechanism may be unique to each individual operator?
Referral process and the CMA’s new Subsidy Advice Unit (SAU):
The SAU assists public authorities by providing independent non-binding reports in relation to certain subsidies or subsidy schemes which are referred to it. The SAU’s reports are meant to evaluate the public authority’s own assessment against the requirements of the ‘Act’ but not to conduct or substitute its own standalone assessment of the scheme or award.
- The referral process defined in the Subsidy Act is dependent on the ‘special interest’ category the relevant subsidy belongs to. The end-to-end referral process is rather quick with a 35 working day deadline from initial referral to the SAU publishing a report based on a more substantive analysis of the public authority’s assessment.
- Example issues: How will this work in practice for all the subsidies captured within the definition of the Act? What power and weight does the “non-binding” report have, particularly in the case of an appeal?
The appeal and in-life review process:
The Act states “an interested party who is aggrieved by the making of a subsidy decision may apply to the Competition Appeal Tribunal for a review of the decision”.
- Example issues: How does this affect in-life/post-award subsidies? What is the standard for appeal? Is it specific to a particular award of a subsidy and/or could it be applied to a scheme altogether?
Prohibitions including relocation:
Amongst the list of prohibited effects of a subsidy or subsidy scheme included within the Act is a prohibition on the “relocation of activities”.
- The relevant provision prohibits an enterprise relocating all or part of its existing economic activity in response to winning a subsidy.
- Example issues: How does this affect the ability for an operator to deploy its investment and assets in a way which seeks to efficiently utilise both commercial and subsidised opportunities, which may be substitutional to commercial build?
The transfer of subsidies across entities in an M&A process:
The Act provisions for the situation in which a particular type of subsidy is transferred in the case of a Merger or Acquisition.
- Example issues: Does this trigger a review and/or provide the basis for appeal? How does this affect the principle of promoting competition contained within the Act?
The jurisdiction, roles and powers between the devolved institutions and administrations:
The Act provisions for the different legal powers, process and role of devolved institutions e.g. the definition of appellate court, Court of Session in Scotland and the Court of Appeal.
- Example issues: What is the end-to-end process based on the relevant jurisdiction? How does the process differ between jurisdiction? How is the legal process managed in situations where there are cross-jurisdictional subsidy schemes?
With several telecoms relevant activities captured within the definition of “subsidy”, not least the Government’s £5bn Project Gigabit subsidy scheme[iii], it becomes vital for operators to understand how the new Act affects them.
For further detail and discussion please get in touch.
[iii] Gov website. (Link) as accessed 20/01/2023. To note: The BDUK Project Gigabit website quotes “the legal basis for BDUK spending is Section 13A of the Industrial Development Act 1982, and for any Local Authority contributions Section 31 of the Local Government Act 2003, or other relevant legal instruments where the source of funding from other UK Government, Devolved Administrations or public sector sources.” See: Gov website. (Link) as accessed 20/01/2023.