One month to go until the UK’s new subsidy regime comes in to force – the position in Northern Ireland still unclear

Following Brexit, the UK's obligations in respect of EU State Aid law ended. Instead, under the Trade and Cooperation Agreement, a temporary subsidy regime took over while the UK designed its permanent replacement.

The UK's new Subsidy Control Act 2022 (the Act) is set to come into force on 4 January 2023, replacing the EU State Aid regime. With parts of the Act already in force, the full Act will eventually consolidate a domestic UK state aid regime and introduce significant changes.

EU State Aid has occasionally been criticised for its complex, lengthy procedures and strict nature. The approach taken to the drafting of the new rules seems to be less ambiguous. Whether aspects, such as the heavier burden on self-assessment, will actually provide more flexibility or simply cause imprecision with prospective knock on anti-competitive effects will become evident over time. One thing is for sure, it cannot be denied that the EU regime provided a level of certainty we have grown accustomed to.

The Act seeks to endorse transparency with the aim that full disclosure will promote fair competition and accountability. The provision of a Subsidy Advice Unit (SAU), sitting within the Competition and Markets Authority (CMA), will monitor and report on the regime and to provide clarity on subsidies and schemes before and after they are awarded. With the uncertainty on how the Act will grow within domestic law, the SAU seems a promising feature with the potential to provide a mechanism to 'fix things before they fail'.

The provision for the Competition Appeals Tribunal to review applications on subsidy decisions (and award recovery in certain cases) appears to be another feature seeking to bring subsidy control closer to home – aiming to stamp out the lengthy appeals process that was more traditionally available through the courts or EU mechanism. 

The final changes worth noting are the significant option to recover subsidies that are misused and the Minimal Financial Assistance (MFA) provision providing for the easier awarding of up to £325,000 per recipient in the applicable period.

The Position in Northern Ireland

Whilst the Act provides a level of certainty in relation to subsidy control within Great Britain, the case in Northern Ireland looks more uncertain than ever.

In relation to State Aid, if a subsidy awarded in Northern Ireland falls under certain categories set out in Article 10 of the Northern Ireland Protocol, it will be governed by EU State Aid – and not the Subsidy Control Act. The Northern Ireland Protocol (the NI Protocol) has been the subject of much debate, with the Northern Ireland Assembly collapsing as a result of opposition to it.

The provision provided for under Article 10 of the NI Protocol, which applies to goods, wholesale electricity and/or agri-food, puts a huge constraint on NI. The problem arises in the fact that the 'actual or potential' effect cannot be hypothetical, presumed or with a genuine and direct link between NI and the EU. This can be interpreted as a beneficial aspect, as seen in the recent case of British Sugar which was welcomed. Nonetheless, with the Act designed and envisaged to create more flexibility and certainty, it cannot be said that this will transpire insofar as it relates to NI. Further, that it must be established why the matter is liable to have such effect on trade between NI and the EU based on real, foreseeable effects of the market causes further uncertainties that, could, and most likely will need solid case law to create any meaningful and long term benefits.

The NI Protocol has provided exception for services to fall under the Act; however subsidies granted for the supply of services are likely to affect trade in goods between NI and the EU, as a large margin of services will be provided closely in line with goods. Whether a subsidy for services will end up caught under Article 10 of the NI Protocol is another aspect of the new system affecting Northern Ireland that is likely to result in a judicial determination.

With the entry of the Subsidy Control Act in January and the potential for Northern Ireland to have no functioning Executive until April 2023, it is unlikely there will be any outcome of the NI Protocol any time soon, let alone any NI subsidy clarity.

Should you have any queries in relation to State Aid or Subsidy Control in respect of its application to Northern Ireland, please contact Micaela Diver, Partner, Stephen Abram, Senior Associate, or any other members of the Belfast Litigation and Dispute Resolution Team.

Date Published: 14 December 2022