How will the new UK subsidy control regime be enforced?

Summary

With the publication of the first appeal being brought under the UK’s new subsidy control regime, we look at how the new regime will be enforced, and the remedies available to aggrieved parties. 

Introduction

On 10 February 2023 the Competition Appeals Tribunal (CAT) published a summary of an appeal brought under section 70 of the Subsidy Control Act 2022 (Subsidy Control Act) by Durham Company Limited (trading as Max Recycle) against an alleged decision of Durham County Council (the Council) to grant a subsidy to its own ‘trade waste business’ by allowing that business to use the Council’s employees and assets of its ‘household waste business’ (funded via Council taxes and other public funding) for less than market price. The final hearing will be held on 3 July and 4 July 2023. 

This is the first application for review under the Subsidy Control Act by the CAT that has been published, the outcome of which will be of keen interest to both legal professionals and those working in public bodies. 

Background to the new legal regime

In very simple terms, a subsidy is where a public authority provides support (such as a grant, ‘soft’ loan, or non-commercial guarantee) to a business or enterprise (which carries out economic activity) which gives them an advantage over a competitor. 

The Subsidy Control Act wholly passed into law on the 4 January earlier this year, after being previously enacted in April 2022 (but until 4 January remaining only partly in force). It marked the start of the UK’s own domestic subsidy control regime, which, with some limited exceptions, replaces both the EU state aid regime and the interim regime put in place via the UK-EU Trade and Cooperation Agreement (TCA) (which operated from 1 January 2021 to 4 January 2023).  

The fundamental notion of the UK subsidy control regime is that it is intended to be permissive, rather than restrictive. This means that the new UK system (in contrast to EU state aid law) starts from the position that subsidies are permitted if they are in line with certain subsidy control principles, with no need to obtain any formal approval from a central authority before the granting of a subsidy. Instead, there are detailed transparency obligations where subsidies above a certain threshold and subject to limited exceptions, must be published on a publicly accessible subsidy transparency register currently administered by BEIS (presumably soon to be transferred to the Department for Business and Trade) and available here. 

An important aspect of the subsidy control commitments under the Subsidy Control Act is the creation of rights allowing competing businesses and other interested parties – subject to them having the necessary standing (see below) – to challenge subsidies on the basis of judicial review principles in the relevant court or tribunal and have access to ‘effective’ remedies. The effective remedies available in this context include orders suspending, prohibiting or requiring that a specific action be taken, as well as the award of damages and the recovery of the subsidy from the beneficiary. 

Enforcement under the new regime

Under the new regime an ‘interested party’ (defined as a person whose interests may be affected by the giving of a subsidy or the making of a subsidy scheme, or, importantly, the Secretary of State) who is aggrieved by the making of a subsidy decision may apply to the CAT for a review of the decision. In the majority of cases such appeals are strictly time limited to one month from the date of publication of the subsidy notice on the transparency register.

The CAT can review a subsidy decision on general public law grounds, or it can review whether the public authority carried out its duties that are specific to the subsidy control regime (that is whether the public authority considered and applied the relevant Subsidy Control Principles (as set out at Schedule1 of the Subsidy Control Act), and was of the view that the subsidy was consistent with those principles before deciding to give the subsidy). The CAT may also determine whether the subsidy contravened any of the prohibitions.

In determining the application, the CAT must apply judicial review principles. BEIS has clarified that this means that the CAT will not review whether the public authority made the correct decision as to whether to grant the subsidy in the first instance, but rather whether the subsidy decision was within its powers, procedurally fair and rational. If the CAT finds that a subsidy decision has not been given in compliance with the requirements of the Subsidy Control Act or that the subsidy is prohibited, it may order remedies (as in the High Court) and also recovery orders.  

The CAT may also determine if a measure was subject to EU state aid rules by virtue of Article 10 of the Northern Ireland Protocol, where this was a relevant ground to a challenge of a subsidy decision.

Facts of the case:

Back to this first case, according to the Notice of Appeal, the Council is the local authority for County Durham and is also the waste collection authority for that geographical area. As such, it is under statutory duties including the free collection of household waste (subject to limited legal exemptions) and ‘if requested to do so by an occupier of premises’, to arrange for the collection of commercial waste, for which it must recover a ‘reasonable charge’. 

The Council may elect to perform the waste collection requirements itself, or to outsource one or both types of collection to a third-party provider.  

Here the Council had elected to collected both types of waste directly, and so for commercial waste collection services does so in direct competition with other private sector providers, (including the appellant, Max Recycle). To that end, the Council ‘(i) employs a sales team to seek out new customers for its Trade Waste Collection Business and (ii) advertises the services of its Trade Waste Collection Business both within and outside County Durham, including on its website, on its vehicles and by sending out direct mail and advertisements to businesses in its area’.

In summary Max Recycle argues that the Council’s decision to grant a subsidy to its own trade waste business by allowing that business to use the employees and assets of its household waste business fails to recognise or appreciate that the arrangements for the trade waste constitutes a subsidy within the meaning of the Subsidy Control Act, and that the Council should have assessed that subsidy against the subsidy control principles. 

The facts of this case will be familiar to those already acquainted with state aid law – indeed it has been subject to two previous judgements (see The Durham Company Ltd (t/a Max Recycle) -v- Durham County Council [2020] EWHC 3200 (Ch) and The Durham Company Ltd -v- Durham County Council [2022] EWCA Civ 66). In both the original judgments, and the subsequent appeal, Max Recycle was unable to convince the court that the Council had breached the State aid rules and was therefore due damages. 

It will be interesting to see in due course if the CAT comes to a different conclusion, in light of the UK’s new subsidy control regime. In the meantime the case serves as a timely reminder that public bodies, (as was well established under state aid law), can indeed subsidise themselves when acting as an ‘enterprise’ (that is an entity/group that is engaged in an economic activity by offering goods or services on the market – beyond their core public duties) and care should be taken to ensure all such activities are compliant under the new regime. 

Commentary

The relative ease with which a competitor may bring a claim against a public body under the new UK subsidy control regime (as compared to the previous EU regime where complaints generally had to be made at a national level to the EU Commission) may be cause for alarm amongst some local authorities and other public bodies alike. However, the relatively short limitation period may well bring some comfort, especially when contrasted with the previous 10-year claw back period under the EU regime.  

Key to the enforcement of the new regime is the wide-ranging transparency obligations, which, again come in stark contrast to the EU regime (where transparency obligations which did apply were often only loosely adhered to in the UK, if at all). Public bodies should be mindful of these new duties, and the detailed legal and economic analysis which must now take place before a subsidy is granted.