Policy paper

Process for granting subsidies

Published 30 June 2021

This was published under the 2019 to 2022 Johnson Conservative government

The subsidy control regime has been designed to empower public authorities to award subsidies at pace, with minimal red tape. The framework will ensure that the UK remains compliant with its international commitments and will also manage any impacts on competition in the UK.

The government is taking a proportionate approach to risk. The process for granting subsidies is quicker and simpler for those subsidies which are most easily demonstrated as being compliant with the subsidy control principles. More extensive self-assessment and scrutiny will take place for those subsidies which have a higher likelihood of having distortive effects on UK investment and competition and international trade.

The government will produce efficient ways for public authorities to award low-risk and uncontentious subsidies, without limiting the freedom of public authorities to design their own subsidy schemes as they see fit.

Routes and categories of subsidy

The Subsidy Control Bill and associated legislation provide for specific thresholds and requirements for each category of subsidy.

Baseline route

The baseline route will be for public authorities to undertake an assessment against the main principles to consider the benefits and potential distortive impacts of the subsidy. Authorities can choose to award individual subsidies or to create schemes via this route. Once a scheme has been created, subsidies within it can be awarded without any further assessment of compliance.

Streamlined routes

The government will also create a streamlined route for subsidies at low risk of distorting competition, trade and investment; that promote the government’s strategic objectives; and which we assess to be compliant with the principles of the regime. This will be even simpler than the process of assessment against the principles as public authorities will only need to demonstrate that they meet the compliance criteria for the streamlined route.

Parameters for these routes will be published and laid before Parliament in due course.

For some subsidies that are more likely to cause negative effects, it is proportionate to give greater scrutiny of compliance with the principles. These subsidies will be categorised as ‘Subsidies of Interest’ or ‘Subsidies of Particular Interest’. Criteria for these subsidies will be set out in secondary legislation in due course. We anticipate there will be a very small number of subsidies in each of these categories.

The Secretary of State may also ‘call in’ subsidies that are at greater risk of having distortive effects. Again, we anticipate that this would apply to a very small number of subsidies.

Subsidies of Interest

Public authorities awarding Subsidies of Interest will be encouraged to undertake more extensive analysis as part of their assessment of compliance with the principles. There will also be an option for the public authority to request that the new Subsidy Advice Unit reviews their assessment of compliance and provide non-binding advice on how that assessment and the design of the subsidy might be improved. The Subsidy Advice Unit will be established within the Competition and Markets Authority.

Subsidies of Particular Interest and called-in subsidies

For Subsidies of Particular Interest and subsidies that have been ‘called in’ by the Secretary of State, as part of their assessment, public authorities will be required to undertake more extensive analysis and seek advice from the Subsidy Advice Unit on their assessment before the subsidy can be awarded. The Subsidy Advice Unit may again provide non-binding advice on how that assessment and the design of the subsidy might be improved.

The Secretary of State can also require that the Subsidy Advice Unit undertakes a similar review of the assessment of compliance for a subsidy which has already been granted.

How, specifically, will the regime work in practice?

The public authority, having identified a clear policy need to award subsidies, should determine the features of the subsidy, or the subsidy scheme.

The public authority can assess whether the proposed subsidy is within scope of a Streamlined Route. If the proposed subsidy is within scope, the subsidy can be granted without further assessment.

If the subsidy is not within scope of a Streamlined Route, the public authority must undertake assessment against the principles, prohibitions and conditions. The public authority should use the guidance we will publish to carry out a proportionate assessment.

If the public authority is not using a Streamlined Route, the public authority must also consider whether the subsidy meets the criteria to be a Subsidy/Scheme of Particular Interest, and may consider whether it meets the criteria to be a Subsidy or Scheme of Interest:

• if it is a Subsidy or Scheme of Particular Interest, it must be referred to the Subsidy Advice Unit and may only be granted five working days after the Unit has reported
• if it is a Subsidy or Scheme of Interest, the authority can choose whether to refer it to the Subsidy Advice Unit. The subsidy can be granted
• if the subsidy or scheme is not a Subsidy or Scheme of Interest or of Particular Interest, the subsidy can be granted

The Secretary of State can also “call in” a subsidy or scheme before it is granted or made, requiring it to be referred to the Subsidy Advice Unit in the same way as a Subsidy or Scheme of Particular Interest.

The Subsidy Advice Unit will evaluate the authority’s assessment of compliance of a subsidy or scheme that has been referred to it within 6 weeks, and may advise the public authority on how they can improve the assessment or the design of the subsidy.

Finally, the subsidy or scheme should be uploaded on the transparency database on GOV.UK, within 6 months.

What is the role of the Subsidy Advice Unit?

The Subsidy Advice Unit will report on the public authority assessments of a subsidy or scheme against the subsidy control requirements. The report will consider the public authority’s assessment against the requirements taking into account the effects of the proposed subsidy or scheme on UK competition and investment. The report may also, where appropriate, include advice for how the assessment or the subsidy’s design might be improved.

Who can refer subsidies to the Subsidy Advice Unit?

A public authority can choose to refer a subsidy (or scheme) to the Subsidy Advice Unit if it meets the ‘of interest’ criteria. The Subsidy Advice Unit then has five working days to determine whether it will produce a report.

If a subsidy (or scheme) is a Subsidy or Scheme of Particular Interest, the public authority must refer the subsidy to the Subsidy Advice Unit, which must produce its report within 30 working days.

Finally, the Secretary of State may “call in” a planned subsidy or scheme, if he or she determines that the subsidy or scheme is at risk of not complying with the subsidy control requirements, or poses a risk to UK competition and investment. If that happens, the public authority must refer the subsidy to the Subsidy Advice Unit which must produce a report its report within 30 working days.

Who determines whether a subsidy has been granted lawfully or not?

In all circumstances, the public authority is responsible for making the decision on whether to award the subsidy. They will do so having regard to government guidance. Where applicable, they may consider the non-binding advice of the Subsidy Advice Unit.

In the event of a challenge from an interested party, the Competition Appeal Tribunal will have jurisdiction to hear applications to review a subsidy decision. The Tribunal will apply the same principles to reviews of subsidy decisions as the courts do in judicial review proceedings. The same remedies will be available as in judicial review proceedings plus the power to make a recovery order if the subsidy is found to contravene the subsidy control requirements.

What is the cooling-off period?

After the Body has reported (or the reporting period has elapsed), the public authority must wait a period of 5 working days before awarding the subsidy (or scheme). This is to give the public authority time to consider any non-binding advice made by the Subsidy Advice Unit in its report.

This cooling off period may be extended (to a maximum of 40 working days) by the Secretary of State in cases where the Subsidy Advice Unit has identified that there are serious deficiencies in the public authority’s assessment against the subsidy control requirements.  

Glossary

Subsidy

A subsidy is a financial contribution using public resources which confers a benefit on the recipient. This could include, for example, a cash payment, a loan with interest below the market rate, or a loan guarantee. Subsidies are awarded at all levels of government in the UK – either as individual subsidies or via subsidy schemes.

Public authority

A public authority is a public body which gives subsidies to a particular recipient or recipients. Public authorities must review and assess subsidies along criteria defined in legislation to ensure that the subsidies are lawful.

Subsidy Advice Unit

The Subsidy Advice Unit will be established within the Competition and Markets Authority (CMA). As well as reporting on public authorities’ assessments as set out above, it will also have general functions for monitoring and oversight of the subsidy control regime.