UK Subsidy Control: an introduction and some reflections one year on

14 November 2023

The UK’s “Post-Brexit” subsidy control regime has now been in place for almost one year. We reflect below on how the regime is taking shape in light of its objectives, and consider how cases have been dealt with by the Subsidy Advice Unit and Competition Appeal Tribunal.

In particular, the recent judgment of the Tribunal in Max Recycle suggests that State aid concepts and precedents may be of limited weight going forward, given the differences between the two regimes. The case also provides insight into key aspects of the Tribunal’s likely approach to future subsidy control appeals.

The UK Subsidy Control regime

The Subsidy Control Act 2022 (the Act) entered into force on 4 January 2023 and introduced a new subsidy control regime that UK public authorities must follow when making subsidy decisions. The Act was introduced in accordance with the UK’s obligations under the EU-UK Trade and Cooperation Agreement and is intended to maintain ‘a level playing field’ not just on the international stage as between the UK and the EU, but also, insofar as is possible, within markets in the United Kingdom. One of the most important differences between the EU’s State aid regime and the new UK regime is that the Act empowers UK public authorities to self-assess subsidies against seven key principles before granting a subsidy, with only certain large subsidies needing to be referred to the Subsidy Advice Unit (the SAU), whereas subsidies must be notified and authorised by the Commission under the EU subsidies regime before being implemented unless they fall with the scope of a relevant block exemption.

Role of the Subsidy Advice Unit

The SAU is the specialist body set up within the UK Competition and Markets Authority under the Act. However, its role is limited to the provision of non-binding advice. It has already published more than twelve SAU reports, ranging from central government schemes related to energy and the environment, to local bus services, with some reports criticising the public authority’s application of certain elements of the self-assessment framework, including in particular the lack of adequate consideration of the counterfactual by the granting body.

Significantly, the SAU has no power to prohibit the grant of a subsidy or investigate complaints about subsidies. The Act instead provides that any grant of subsidies must be challenged before the Competition Appeal Tribunal (the “Tribunal”). However, it remains to be seen how the regime will deal with subsidy decisions that may be controversial on the international stage (e.g. a subsidy decision benefitting a UK firm made in relation to a politically sensitive industry such as steel).

Challenges to subsidy decisions in the Competition Appeal Tribunal

The first decision of the Tribunal on the new UK subsidy control regime is The Durham Company Limited (trading as Max Recycle) v Durham County Council [2023] CAT 50. This case provides some useful insights into the Tribunal’s approach to procedural and substantive issues, including as to the type of measures by public authorities that will be considered to be subsidy decisions under the new regime, or “legacy decisions” in place before the Act came into force that are not subject to challenge before the Tribunal.

When is a subsidy not a subsidy?

This case related to the way in which a local authority set the fee for the collection of household waste and apportioned costs between that activity (which it had a statutory duty to undertake) and the collection of commercial waste (which was a service provided upon request for a fee). Max Recycle, which also provided commercial waste collection services in County Durham, argued that the local authority’s use of common resources (e.g. vehicles and employees) from their household waste collection resulted in a subsidy to their commercial waste collection operation. However, the Tribunal ruled that no subsidy arose for broadly two reasons.

  • Financial assistance given by a UK public authority could only be considered a ‘subsidy’ if it conferred an economic advantage on one or more enterprises. Since there had not been no movement of financial assistance from a public authority (the Council) to another entity, the Tribunal held there had been no award to an ‘enterprise’, and therefore no subsidy had been made since it followed from a “natural reading of the definitions of “public authority” and “enterprise” (….)that when a person has been designated a “public authority” that person cannot also be an enterprise in relation to the advantage under consideration.” This statement, on one reading at least, would appear to diverge from the approach under the EU state aid regime and is difficult to reconcile with UK statutory guidance according to which some entities could be both ‘public authorities’ and ‘enterprises’ with respect to different functions. It is not clear whether the decision would have been different had the commercial waste activities been structured in such a way that they were operated through a separate subsidiary (thus forming a separate legal person).
  • The Tribunal found that there was in any event no subsidy because (among other reasons) no financial assistance had been granted: the 2023 decision was simply an attempt by the Council to apportion common costs across two different but related services (household and commercial waste collection).

Subsidy decisions vs subsidy schemes

The Tribunal also considered and disagreed with arguments advanced by the Council that if insofar as there was subsidy, it would be a “legacy subsidy scheme” (i.e. that arose as a result of a decision before the Act came into force) and therefore not subject to challenge. The Tribunal held that this was not a multi-year scheme with charges being reviewed annually. Instead, the local authority had made a series of distinct and independent decisions since it was not bound to renew the initial decision to charge but could reassess its continued appropriateness each year.

This aspect of the judgment may have a wider application than the ruling on cross-subsidisation, as it provides that a fresh assessment of a local authority “decision” constitutes a distinct subsidy control decision. That gives rise to a fresh 30 day period for challenge, and requires a fresh assessment against the Act’s subsidy control principles (albeit building on past assessments).

Approach to case management and costs

Max Recycle also provides some insight into the Tribunal’s likely approach to future subsidy challenges.

  • First, the Tribunal dealt with Max Recycle’s application relatively quickly. The application was filed on 3 February, the main hearing took place on 3 and 4 July and judgment was handed down on 27 July. Future cases may plausibly be dealt with even more quickly.
  • Second, the Tribunal made clear that it will seek to impose careful cost control measures on the basis that the “issues are likely to be narrow in scope”, “extensive disclosure, witness and expert evidence is unlikely to be required” and “the jurisdiction needs to be fast, cheap and simple.” Although an initial cost capping order imposed by the Tribunal was overturned by the Court of Appeal (on the basis that the Tribunal did not have jurisdiction to impose cost caps) the principle that costs should be kept to a minimum, was accepted which suggests there is still some scope for the Tribunal to scrutinise costs in future subsidy control cases even if a cap cannot be imposed.
  • Third, the Tribunal rejected an application by a third party to join the proceedings as an intervener, primarily for cost control reasons and to avoid complexity in the proceedings, noting that the proposed intervener would not provide any “added value” to the case.

Concluding thoughts

Although we are still at an early stage of the regime, it is already clear that EU State aid precedents and principles may be of limited weight when applying the new rules given the differences in terminology between EU and UK state aid provisions and the specific context in which each regime operates.

One similarity, which some regard as unfortunate, is that third party interveners will face a high bar to establish standing and gain the right to be heard in UK cases just as in EU State aid challenges. The Tribunal held that demonstrating that a third party has “sufficient interest” to justify intervention is not satisfied simply by showing a “general interest in the subject matter”. Instead, parties must establish they can “add value” for example by assisting the Tribunal in resolving the issues in question.

It is also clear that the Tribunal intends to reach swift decisions when challenges are brought before it. In addition to a short and compressed timescale, parties can also expect that their approach to costs will be carefully scrutinised. Whether these measures will be sufficient to offset concerns about the potential costs of pursuing state aid litigation remains to be seen, particularly in circumstances where a successful challenge merely prevents a competitor from being given a subsidy and does not result in an award of damages or other compensatory measures.