Subsidy control: a challenging regime?

As we approach the first anniversary of the entry into force of the Subsidy Control Act 2022 (Act), now seems an appropriate time to assess how the regime is bedding in. Some aspects of the regime appear to be functioning well – the Subsidy Advice Unit at the Competition and Markets Authority has produced numerous reports on substantial subsidies, providing invaluable guidance to public authorities on how to undertake an analysis of a subsidy against the subsidy control principles in the Act. However, other aspects of the regime do not appear as robust. Perhaps foremost among these is the regime for challenging subsidies. To date only one challenge has been brought at the Competition Appeal Tribunal.

What went before?

Under the EU State aid regime the most "user friendly" route to challenge State aid was to make a complaint to the European Commission. In contrast to the purely advisory role of the Competition and Markets Authority under the Act, the Commission is empowered to investigate potential breaches of the EU State aid rules and to order recovery of illegally granted aid. The limitation period for ordering recovery is 10 years from the date the aid in question was granted.

In addition to potential investigation by the European Commission, there was also scope for third parties to bring court action against subsidies they objected to. Such claims were brought under judicial review proceedings. They were historically rare but had increased in the later years of the UK's EU membership. The time limit for bringing a judicial review of this type was three months.

Why so few challenges under the Act?

Whilst any answer to this question is inevitably speculative, there are a number of features of the current subsidy control regime which are likely to have a dampening effect on challenges:

• The time limit for bringing a claim is short. A complainant has one calendar month from the date the subsidy is published on the Government database of subsidies (or, if not required to be published, from when the complainant knew or ought to have known about the subsidy). This is a very short time for a complainant to decide whether it wishes to challenge, instruct lawyers, gather evidence, assess it prima facie case and prepare the relevant court documents.

• Obtaining additional information from a public authority about the granting of a subsidy is crucial to considering and bringing a challenge. Whilst a potential complainant can obtain information from a public authority, there is limited scope for suspending the one month limit. The Statutory Guidance indicates that the one month limit will run from the date the public authority notifies the complainant that it has provided it with the information the Act requires it to provide. It might be that the complainant considers that the information is incomplete, but there appears to be no scope for it to pause the time limit to address this concern.

• The database used for publication of subsidy awards has been criticised as not being particularly user friendly. It is not possible to create alerts for subsidies/schemes added to the database, for example by sector or location. It is difficult to see how the database in its current form significantly increases the likelihood of potential complainants learning of a subsidy.

• A large proportion of unlawful subsidies will never appear on the database. Where a public authority incorrectly considers that a measure is not a subsidy (for example if it incorrectly believes that its actions are consistent with those which a commercial operator would adopt – the so called Commercial Market Operator (CMO) principle) then it will not place any information regarding the measure on the database. 

• Currently subsidy schemes must be challenged within the one month time limit. Once this time limit has expired neither the scheme, nor any individual subsidy granted under it, can be challenged. It is questionable who would be motivated to make such a challenge – those sufficiently interested in the scheme are likely to be potential beneficiaries. The nuances of eligibility may not be immediately apparent and objections are not likely to materialise until the scheme has been underway for some time.
   
• The bar for successfully challenging a subsidy is high. It is not clear the extent to which the court will qualitatively assess the analysis carried out by the public authority, but it is expected that only in cases where there are very clear errors in this assessment that a subsidy could be successfully challenged.

Does it matter?

Excessive subsidies have a distortive impact on the market. They can penalise efficient businesses and support inefficient businesses. Restrictions on subsidy are an accepted part of free market economies, they are required under our World Trade Organisation membership and our Trade and Cooperation Agreement with the EU. If the Act is to be effective then there must be some consequence for breaching rules. In the absence of a regulator empowered to enforce the Act, private enforcement is essential to ensure that the rules continue to be followed.

Further, it is only through case law that the new law can be developed and better understood. In what is an uncertain and new regime this is vital. 

Room for improvement?

There are a number of straightforward changes which could be made to the current regime in order to facilitate genuine challenges:

• The role of the CMA could be broadened. Whether this is through making more substantive comment on the subsidies and analyses it reviews (eg giving a view on whether the subsidy is compliant with the Act) or by itself bringing judicial review actions (it could be given automatic standing to challenge subsidies).

• The time limits for bringing reviews could be lengthened. The standard judicial review time limit (3 months) is challenging for claimants and strikes a balance between certainty for the public authority and allowing legitimate claims to be considered and pursued. Different time limits could apply in relation to subsidy schemes, allowing longer for potential objectors to assess the functioning and impact of the scheme.

• Public authorities could be required to upload details of measures they have decided are not subsidy, in particular where this conclusion is based on the application of the CMO principle. This could also allow the time limit for challenge to start to run in relation to these measures – currently the time limit would never start to run as the subsidy would never be reported on the database.

In the absence of change we will need to wait to see whether further challenges come through, and whether they bring welcome clarity to this young regime.