Subsidy control regime “operating effectively” but too early to say if arrangements for challenging decisions are working, says watchdog

In a report under section 65 of the 2022 Act, the CMA said, however, that it was "too soon" to conclude whether the arrangements for challenging subsidy decisions are operating effectively.

The watchdog said: “The regime has allowed the UK government to respond quickly to circumstances arising in the regime’s early years, for example amending the monetary threshold for mandatory referral to the Subsidy Advice Unit (SAU) and creating additional streamlined routes.”

There are three aspects of the regime which its review indicated should be considered further by the Department for Business and Trade (DBT), it said.

In relation to guidance and support, “while generally effective in helping public authorities understand the regime and assess compliance of proposed subsidies and schemes, support for public authorities could be improved by clarifying elements of the Statutory Guidance and providing a wider range of practical support tools.”

The CMA also found “a clear desire for streamlined routes across a range of sectors”. It revealed, however, that while streamlined routes offered greater legal certainty and are less burdensome, they may not have been used by public authorities to the extent intended.

In relation to the third aspect, transparency, the CMA said: “Although the regime provides for transparency in relation to the giving of subsidies, some aspects of this do not work well. In particular, the subsidy database is not as effective as it could be in enabling a wider awareness and understanding of the subsidies that are given.”

The CMA review meanwhile found that evidence for the impact of the regime on competition and investment within the UK was limited. “Determining the relationship between the design of the regime and such impacts presents ongoing challenges. We expect that it will take time for the economic impact of the regime on subsidies and schemes to materialise.”

It added: “There is some indication that subsidies granted under the regime are generating investments that would not otherwise have been made, with no evidence we have seen of negative effects on investment. We have not seen evidence of an impact on competition, whether positive or negative.”

The CMA said many public authorities reported confidence in undertaking assessments of compliance with subsidy control principles, while others are "still getting to grips with the regime”.

Key difficulties were said to be undertaking economic analysis, uncertainty about the definition of a subsidy “with a consequent effect on public authorities’ perceptions of the risk of challenge”, undertaking assessments when the subsidy is designed by one organisation and delivered by another, and understanding the appropriate level of detail for an assessment.

The report suggested that the Subsidy Advice Unit referral process is working effectively.

However, the CMA noted: “Some public authorities and legal practitioners felt that the SAU reports could more clearly identify next steps for public authorities following the SAU process, that the SAU should make greater use of its powers to advise on subsidy design, and should identify where a subsidy or scheme may be at risk of non-compliance.”

On enforcement, the report said there were a range of views from stakeholders as to the effectiveness of the enforcement of the regime.

The Competition Appeal Tribunal has so far received six requests to review and has issued judgments in respect of three of them during the review period.

“There have been comments from some stakeholders that the small number of reviews in the CAT so far demonstrates that the regime’s enforcement mechanism is not sufficiently robust. We have heard comments about potential barriers in applications to the CAT arising from the concerns about the subsidy database…., the one-month time frame to bring a challenge, and the costs involved. We consider that the number of reviews is not of itself an indicator of regime effectiveness.”