UK Shared Prosperity Fund: subsidy control (7)
This page provides information on subsidy control for the UK Shared Prosperity Fund.
Subsidy control
7.1 All lead local authorities (LLAs), and applicants, must consider whether the UK Shared Prosperity Fund (UKSPF) investment will be used to provide a subsidy and if so whether that subsidy will contravene the UK’s obligations on subsidy control, or the Subsidy Act 2022.
7.2 This guidance provides information for LLAs and applicants on subsidy control in respect of the UKSPF.
The Subsidy Control Regime
7.3 UK subsidy control guidance has been issued for public authorities to help them interpret the UK’s international obligations on subsidy control; this is also applicable for non-public organisations to understand how its principles must be applied. For more detail, LLAs and applicants should refer to the guidance
The Subsidy Control Act 2022
7.4 Under section 79(6) of the Subsidy Control Act public authorities must have regard to the above guidance (so far as applicable to the authority and the circumstances of the case) when giving a subsidy or making a subsidy scheme.
What is a subsidy?
7.5 There are four key characteristics of a support measure that are likely to indicate that it would be considered a subsidy, all of which would need to be met:
- the support measure must constitute a financial (or in kind) contribution such as a grant, loan or guarantee and must be provided by a ‘public authority’, including, but not limited to, central, devolved, regional or local government;
- the support measure must confer an economic advantage on one or more economic actors;
- the support measure is specific insofar as it benefits, as a matter of law or fact, certain economic actors over others in relation to the production of certain goods or services; and
- the support measure must have the potential to cause a distortion in or harm to competition, trade, or investment.
7.6 “Economic actor” means an entity or a group of entities constituting a single economic entity, regardless of its legal status and including public bodies, that is engaged in an economic activity by offering goods or services on a market.
Where LLAs or applicants pass a UKSPF grant to a third party, non-public sector body with the intention of making further grants to economic actors, the subsidy control requirements should be followed in full. Regardless of whether the body paying the grant to the beneficiary (the economic actor) is a public sector body.
7.7 LLAs and/or applicants must consider whether any of the planned activities meet all four of these characteristics. Where the characteristics are all met, it is essential that LLAs and/or applicants explain how the subsidy may be provided compliantly.
7.8 As a guide, subsidy is most likely to be present in ‘supporting local business’ interventions. Public realm interventions, or activities that benefit individual people, are considered highly unlikely to be subsidy. Although ‘communities and place’ interventions, or ‘people and skills’ interventions are less likely to benefit economic actors, LLAs should ensure they are satisfied that interventions under these investment priorities do not constitute a subsidy or that if an investment will constitute a subsidy, that the subsidy control principles are met – see below.
Minimal financial assistance
7.9 In most cases, UKSPF subsidies will be very small. If an individual economic actor receives a benefit that amounts to less than £325,000 special drawing rights (until commencement of the Act) or £315,000 (after commencement of the Act) and has not received other minimal assistance in the current financial year, and the preceding two years, that when combined with the UKSPF support would exceed this limit, then this is permissible irrespective of whether it might constitute a subsidy.
7.10 Where subsidy will or may exceed the limits above, LLAs or applicants must consider the subsidy control principles listed below and be of the view that the subsidy is consistent with them.
The subsidy control principles
7.11 Subsidies should:
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pursue a specific public policy objective to remedy an identified market failure or to address an equity rationale such as social difficulties or distributional concerns (“the objective”)
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be proportionate and limited to what is necessary to achieve the objective
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be designed to bring about a change of economic behaviour of the beneficiary that is conducive to achieving the objective and that would not be achieved in the absence of subsidies being provided
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not normally compensate for the costs the beneficiary would have funded in the absence of any subsidy
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be an appropriate policy instrument to achieve a public policy objective and that objective cannot be achieved through other less distortive means
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be designed to achieve their specific policy objective while minimising any negative effects on competition or investment within the United Kingdom
For awards made once the Subsidy Control Act 2022 has come into effect, a further principle will apply:
- positive contributions to achieving the objective should outweigh any negative effects, in particular the negative effects on trade or investment between the Parties
7.12 If the proposed UKSPF activities:
- represent a subsidy and
- exceed the minimum financial assistance limit
they must comply with all principles to receive UKSPF support. LLAs should not proceed with any project that does not meet this requirement. This includes any retrospective UKSPF support that provides new subsidy and does not result in additional activity by the beneficiary.
Streamlined subsidy schemes
7.13 The UK government is considering the establishment of streamlined subsidy schemes, elements of which may be relevant to the UKSPF. These schemes will be pre-assessed by the government as compliant with the requirements of the subsidy control regime. They will provide all UK public authorities with a way to award subsidies that is simpler than the baseline method of principle-by-principle assessment. Public authorities will only need to demonstrate that they meet the specific parameters for that scheme; this will ensure that they are able to deliver these subsidies with minimum bureaucracy and maximum certainty. We will update this guidance with relevant streamlined subsidy schemes once available.
Application of state aid in England, Scotland and Wales
7.15 Subsidy control has replaced state aid in England, Scotland and Wales. However, there are limited circumstances governed by the UK-EU Withdrawal Agreement’s Northern Ireland Protocol that mean the state aid rules could apply to any public funding to an undertaking if it has an effect on trade of goods and wholesale electricity between Northern Ireland and the EU.
7.16 The vast majority of public funding in England, Scotland or Wales will be under the UK’s domestic subsidy control regime. However, the state aid rules may apply where there is a real and forseeable, genuine and direct link to Northern Ireland. For example, this may be where a beneficiary has a subsidiary in Northern Ireland.
7.17 Any LLA that considers any project has a potential ‘genuine and direct’ link to Northern Ireland should review section 6 of this guidance.
How should lead local authorities consider information on subsidy control?
7.18 We recommend that LLAs work with all UKSPF applicants to understand how proposed projects can be delivered in line with subsidy control/state aid via a dedicated question or questions. LLAs should also draw on the applicant’s responses across the wider application (particularly any deliverability information) in assessing for subsidy control/state aid risks.
7.19 Where an application presents an unacceptable risk of non-compliant delivery, then a LLA may choose to either reject it, or require adjustments to be made such that funding the project will not contravene subsidy control.
What will happen if subsidy control is not complied with?
7.20 LLAs may need to recover funding from project deliverers where subsidy control or state aid law has not been complied with.
7.21 LLAs should therefore ensure that any project deliverers manage subsidy control or state aid in line with their agreed approach, and take steps to monitor this. They should ensure that project agreements are designed to enable the recovery of subsidy if it has been misused.
7.22 It is also recommended that project deliverers ensure that project partners are aware of their obligations and that they can recover funding from them if it is not compliantly managed or is misused.
Recording and transparency obligations
7.23 All LLAs will be required to record and submit information on any UKSPF subsidies awarded. This includes how the terms of any award meet the appropriate subsidy control requirements, and how they are delivered. The Department for Business, Energy and Industrial Strategy has developed a new publicly accessible transparency database which public authorities should use for this purpose.
Updates to this page
Last updated 8 March 2023 + show all updates
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Updated text now that Subsidy Control Act 2022 has started. More information on LLA use of UKSPF to pay grants to third parties.
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Welsh added
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Added translation