A Beginner’s Guide to Subsidy Control.
A brief overview of the EU State aid Rules and UK Subsidy Control Act.
Introduction
This guide is designed to give a very brief overview of the UK Subsidy Control Act 2022, and the EU State aid rules, which still apply when the beneficiary enterprises are within the scope of the Windsor Framework. A downloadable PDF version of 'A Beginners Guide to Subsidy Control' is also available.
What is a Subsidy?
The European Union and the UK have a slightly different definition of a subsidy but, in general terms, a subsidy is ‘financial assistance’ awarded, directly or indirectly, to certain selected or specific ‘enterprises / undertakings’ that is capable of having an effect on trade, competition or investment. The difference is that a UK subsidy is capable of having an effect on local trade, competition or investment, whereas the EU State aid test is international (i.e. is capable of having an effect between NI and the EU).
What is an Enterprise/Undertaking?
An Enterprise (UK Subsidy Control Act) or Undertaking (EU State aid Rules) is a person (or group of persons) engaged in economic activity that entails offering goods or services on a market, to the extent that the person is engaged in economic activities.
Why is it necessary to control Subsidies?
Subsidies are necessary to achieve public policy objectives but, if not controlled, they can cause harmful distortions in domestic and international competition and trade and result in public resources not being used effectively and efficiently.
Windsor Framework
The UK’s withdrawal from the European Union has added extra complexity to subsidy control. As Article 10(1) of the Windsor Framework details, the EU State aid rules still apply to measures which affect that trade between Northern Ireland and the European Union. When the Windsor Framework does not apply, subsidies must comply with the UK Subsidy Control Act 2022. Therefore, public authorities must assess whether the subsidies they are proposing to provide comply with the UK Subsidy Control Act 2022 and / or the EU State aid rules.
UK Subsidy Control Act 2022
In Northern Ireland, the UK Subsidy Control Act only applies to subsidies that are awarded to ‘enterprises’ which operate within the Services Sector.
If public authorities conclude that a subsidy is present, they must comply with one of the following four options.
Public authorities may award subsidies or make subsidy schemes, when these comply with the 7 Subsidy Control Principles in Schedule 1 of the Act. The UK regime does not require public authorities to seek the approval of any UK authority. But, when the public authority is proposing to award very large subsidies (i.e. more than £25 million generally or more than £5 million in some sensitive sectors), then it must also seek advice on its compliance assessment from the Subsidy Advice Unit in the Competition and Markets Authority.
Streamlined routes are similar to subsidy schemes. UK Government has pre-assessed each route and concluded that these comply with the Subsidy Control Principles. Any public authority can award a subsidy using one of the Streamlined Routes, providing they adhere to the eligibility criteria, terms and conditions for the streamlined route. The main advantage is the public authority does not need to assess the subsidy against the Principles (as this has already been done by the UK government). Public authorities must ensure that the subsidy satisfies the specific streamlined route eligibility criteria, terms and conditions.
The MFA exemption in Section 36 of the Act allows public authorities to award up to £315,000 MFA to an ‘enterprise’ within an ‘applicable period’. This is the elapsed part of the current financial year (that is, from 1 April) and the two financial years immediately preceding the current financial year. The £315,000 ceiling applies to any subsidies that fall within the category of ‘minimal financial assistance or Services of Public Economic Interest (SPEI)’ that are awarded to the enterprise within the relevant period. Once the £315,000 MFA ceiling has been reached, no further MFA can be awarded until the older MFA awards drop out of the relevant period. The big advantage with MFA awards is that they don’t have to comply with the 7 principles.
Services of Public Economic Interest (SPEIs) are essential services provided by a public authority to the public, which would not be provided under normal market conditions. Notable examples of SPEI’s include the UK’s postal service, social housing and certain transport networks, particularly those in rural or less populated areas. Larger SPEI’s must comply with the 7 principles, but smaller SPEI’s can avail of the SPEIA exemption. This is similar to the MFA exemption but has a higher ceiling of £725,000 over the same applicable period awarded to ‘Enterprises’ without having to comply with most of the Subsidy Control requirements.
EU State aid Rules
In Northern Ireland, subsidies awarded to ‘Undertakings’ which manufacture or trade in goods or that relate to the production of electricity, for the island of Ireland’s Single Electricity Market, must comply with the EU’s State aid rules.
When EU State aid is present, public authorities must comply with one of the following options.
The GBER ‘exempts’ certain categories of State aid from the European Commission's (EC’s) formal notification process and is the recommended starting point for State aid cover.
The GBER Articles detail the terms and conditions that apply to each category of State aid. Public authorities wishing to use the GBER for State aid cover must ensure their subsidy or their schemes comply fully with the GBER’s terms and conditions and register a GBER scheme on the EU’s State aid register.
The main advantage with the GBER is that public authorities do not have to seek the EC’s approval. Under the GBER, State aid approval is automatic. However, the EC does monitor compliance with the GBER’s terms and conditions and if public authorities are found to be non-compliant, the EC can deny the public authority the right to use the GBER.
If State aid cover cannot be provided using the GBER, it can often be provided using the EU’s de minimis Regulations. The general de minimis Regulation allows a maximum of €300,000 de minimis aid to be awarded to an undertaking over a rolling 3-year period. As with MFA, de minimis aid only cumulates with other de minimis aid. Once the €300,000 ceiling has been reached, no further de minimis aid can be awarded until the oldest de minimis awards drop out of the rolling three year period.
These are services that the State wants to provide for the General Public which are not adequately supplied by market forces alone. Examples of SGEIs include transport networks, postal services, and social services. Under the State aid rules there is a SGEI Decision that details the terms and conditions for SGEI State aid that is exempt from the full notification process, a SGEI de minimis Regulation, that allows up to €750,000 SGEI de minimis aid, and a SGEI Framework for larger amounts of SGEI aid that must be fully notified and approved by the EC before it can be awarded.
Larger amounts of State aid that fall outside of the scope of the GBER and the de minimis Regulations must be fully notified and approved by the EC before it can be legally awarded.
As the notification process involves significant time and can be challenging, public authorities are encouraged to consider using the GBER and to only fully notify, when there is no other option.
Subsidy Control Advice Unit (SCAU)
DfE’s SCAU is responsible for raising levels of awareness of the requirements of the UK Subsidy Control Act and the EU’s State aid rules. SCAU provides advice on individual cases and would be happy to deliver general awareness training.
When UK Subsidies or EU State aid are present, SCAU also provides practical advice and assistance to help the public authority identify which regime applies and how best to comply.
If public authorities need to know whether their financial assistance is caught by the UK Act or the State aid rules, they should contact SCAU by e-mailing subsidycontrol@economy-ni.gov.uk.
The Flow Chart below provides an overview of the key questions to determine which regime a subsidy falls under.
Alternative Text
No UK Subsidy or EU State aid Present
- Start - Question 1 - Is the beneficiary an Enterprise? - Answer - NO
- Conclusion - No Subsidy
- Start - Question 1 - Is the beneficiary an Enterprise? - Answer - YES
- Question 2 - Is funding to enhance economic activities? - Answer - NO
- Conclusion - No Subsidy Present
- Start - Question 1 - Is the beneficiary an Enterprise? - Answer - YES
- Question 2 - Is funding to enhance economic activities? - Answer - YES
- Question 3 - Enterprise making or trading goods or electricity? - Answer - YES
- Question 4 - Purely local impact? / No effect on EU trade? - Answer -YES
- Conclusion - No Subsidy Present
UK Subsidy Present
- Start - Question 1 - Is the beneficiary an Enterprise? - Answer - YES
- Question 2 - Is funding to enhance economic activities? - Answer - YES
- Question 3 - Enterprise making or trading goods or electricity? - Answer - NO
- Conclusion - UK Subsidy Present
Options under UK Subsidy Control Act:
- Minimal Financial Assistance (MFA)
- Services of Public Economic Interest - (SPEI)
- Streamlined Routes
- Principles Route
EU State aid Rules Present
- Start - Question 1 - Is the beneficiary an Enterprise? - Answer - YES
- Question 2 - Is funding to enhance economic activities? - Answer -YES
- Question 3 - Enterprise making or trading goods or electricity? - Answer - YES
- Question 4 - Purely local impact? / No effect on EU trade? - Answer - NO
- Conclusion - EU State aid Present.
Options under EU State aid Rules:
- de minimis aid
- Services of General Economic Interest - (SGEI)
- General Block Exemption Regulation - (GBER)
- Full Notification