On 30 June 2021, the new Subsidy Control Bill (the Bill) had its first reading in the House of Commons. This Bill, once passed into law, will introduce a new UK regime regulating the distribution of subsidies from government bodies to businesses in the UK. The new regime sets out nine additional principles that public authorities must consider when granting energy and environment subsidies.
- The Bill is expected to be the biggest change to the UK’s legislative landscape since Brexit and will be a significant change to the previous European state aid system that applied to the granting of state subsidies in the UK prior to 2021.
- Subsidies must be awarded in accordance with certain key principles including the specific principles that apply to certain energy and environment subsidies. These principles are derived from the UK’s international obligations contained in the UK-EU Trade and Co-operation Agreement (UK-EU TCA) at annex ENER-2.
- As is common in subsidy regimes, there are de minimis provisions and exemptions for matters like emergency situations.
- Certain subsidies will continue to be prohibited. These prohibitions largely mirror requirements contained in trade agreements to which the UK is party and WTO rules. The UK government has also added a ‘relocation’ prohibition as part of its agenda to ‘level up’ the UK and stop businesses moving within the UK as a result of any subsidy.
- The CMA will be responsible for reporting to public authorities on subsidies and a new Subsidy Advice Unit will be set up at the CMA. The Competition Appeal Tribunal will have jurisdiction to hear challenges to the grant of any subsidies.
Following the UK’s exit from the European Union, the EU state aid rules no longer apply directly to subsidies granted in the UK. The UK-EU TCA imposes certain restrictions on each party in the grant of subsidies, as do the UK’s free trade agreements (FTAs) with other countries and the WTO’s rules on subsidies. However, these obligations potentially presented difficulties for parts of government considering subsidies, as they are contained in a number of different agreements with differing rules. In February 2021, the government launched a consultation on a new subsidies regime, the results of which have fed into the current proposals.
The government stated in its announcement on the Bill that the new system will be “designed to be more flexible, agile, and tailored to support business growth and innovation, as well as maintain a competitive free market economy and protect the UK internal market”. The principal difference from the EU state aid regime, which required subsidies to obtain up-front clearance from the European Commission unless they fell within a block exemption, is that the Bill proposes a regime whereby governmental bodies granting subsidies self-assess their proposed subsidy against a set of broad principles, with only certain types of subsidy requiring mandatory advice from the UK Competition and Markets Authority (CMA).