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Business and Local Authorities: the Subsidy Control Act 2022 – New rules, New Problems?

Veronica Barresi, Enterprise Clinic Manager, considers the Subsidy Control Act 2022

Businesses thinking of applying for some public money in order to start a new activity, boost their current one or getting some kind of help, will very likely bump into the provisions of the Subsidy Control Act 2022.

This new legislation, entered into full force on the 4th of Jan, provides the framework for UK public authorities to provide financial support to businesses. In the Government intention, these new rules should be aimed at boosting the economy by helping growth, creating jobs and promoting business.

In reality, the Subsidy Control Act is the result of a direct obligation stemming from the commitments and obligations imposed by the Trade and Cooperation Agreement concluded between the EU and the UK, which specifically requires both parties to set an “effective domestic regime of subsidies control”. Still, the SCA is not only there as to ensure that public support measures will not be used as to distort competition and affect trade between the UK and the EU but it introduces many new rules that are bound to change and affect the way public authorities (PAs) and businesses are going to interact. In a nutshell, the SCA prohibits any financial assistance granted through public resources that confers a specific economic advantage on one or more enterprises and that has, or is capable of having, an effect on competition or investment within the United Kingdom and on international trade.

The SCA also specifies that subsidies targeted to specific enterprises can still be granted but only if seven principles are actually satisfied. These vary from the requirement that subsidies should only be granted to remedy a market failure or to remedy a local or regional disadvantage, social difficulties or distributional concerns or that subsidies should be an appropriate instrument to promote a public policy. Most importantly, subsidies should be designed to achieve their specific policy objective while minimizing any negative effects “on competition or investment within the United Kingdom”. Importantly, it is now up to each and every public body in the UK to decide whether granting a subsidy to a business would satisfy the seven principles. Such a model is placing a tough obligation on all PAs as compliance with rather complicated economic and policy-based criteria may be a daunting prospect. Furthermore, PAs would need to ensure that any of their decisions involving disbursements of public resources are in line with the SCA rules.

To give an example, one of the most relevant instruments that PAs can use to help local businesses is the Supporting Small Business (SSB) scheme that can help those ratepayers who have lost some or all of their small business rate relief (SBRR) as a result of the increase in their business property’s ratable value and have consequently had large increases in business rates bills. Such targeted relief is likely to be considered a subsidy. In this case the PA would need to verify that the relief does not go above some minimum thresholds provided for in the SCA. Moreover, it would need to evaluate whether the other general principles are respected and if the assessment were negative, the public body would have to withhold the relief. Not an easy exercise both for the public body and the business involved.

Despite these likely future possible complications, the new decentralized model may offer new opportunities as to PAs to use their resources as to promote the local economy, offering businesses rate discounts to help attract firms, investment, and jobs. In particular, small and medium businesses should be able to rely on a speedier and less bureaucratic system: first, PAs can award low-value subsidies (up to £315,000) without the need to comply with the majority of the subsidy control requirements (Minimum Financial Assistance, MFA). MFA subsidies are exempt from the substantive subsidy control requirements, subject however to the obligation to publish the measure on a dedicated website. Furthermore, the SCA allows the Government to introduce “streamlined routes” that can be used by PAs for granting subsidies without the need to assess compliance with the principles or other subsidy control requirements. The Government has published so far only some draft documents. The first three identified “streamlined” areas concern research, development and innovation, energy usage and local growth. Thus, for instance, projects and activities promoting innovation, could be supported through public resource only by complying with certain requirements such as the presentation of a feasibility study, eligible costs and so on. Likewise, the Scheme on Local Growth provides for the giving of subsidies by PAs to small and medium-sized enterprises for business development projects, support for the employment of workers with disabilities or disadvantaged workers.

In conclusion, the new provisions of the SCA are something that all parties involved, big and small businesses, advisors, and public bodies need to start being alerted to!