How to set up a scheme

The shift from State Aid to Subsidy Control has brought a feeling of uncertainty to many public authorities – no longer able to rely on the exemptions they were used to, left having to carry out their own assessments, public bodies will be looking for stability and security when awarding subsidies.

While there is no GBER, ABER or FBER, there is still provision for the familiar “scheme”. This blog looks at some of the key questions around subsidy schemes under the new Act: when to use them, what to say in them, and how to assess them.

Subsidies given under subsidy schemes are exempt from the requirement to carry out an assessment against the subsidy control principles (per S12(2) of the Act), the energy and environment principles (per S13(2)) or any of the other provisions of Part 2, Chapter 2 (per S30(1)). This means public authorities can save time and money by complying with the terms of a scheme rather than carrying out a full assessment of each individual subsidy.

Before setting up a new scheme, public authorities should consider whether or not there is a suitable scheme already in place. This could be one made by a “primary public authority” under S10(3) of the Act, or a “streamlined subsidy scheme” under S10(4). If such a scheme already exists, it may be unnecessary duplication of effort for an authority to set up a new scheme of their own.

Schemes by primary public authorities need to be made by the UK or a devolved government, or by any other public authority in the exercise of its functions “for the giving of subsidies by other public authorities”. This allows public authorities to rely on the work of others in their preparation and assessment of the scheme.

Streamlined subsidy schemes can only be made by a UK Government Minister and must be laid before Parliament at Westminster. How common such schemes will be is unclear, but, when they are passed, they will give public authorities added certainty in granting them as they are not subject to referral to the CMA. As of 9 January, we now have three streamlined subsidy schemes in place – relating to research, development and innovation; energy usage; and local growth.

If there is no suitable scheme by a primary public authority or streamlined subsidy scheme in place, and a public authority is likely to award many subsidies which could be grouped together into a scheme, then they may wish to consider preparing a scheme of their own.

Once an authority has decided to set up a scheme, the next question is how to go about doing this. Fundamentally, a scheme should ensure that any subsidy given under it complies with the general rules of the Act and the Subsidy Control Principles.

Under S30(2), a scheme must apply the prohibitions and limitations on subsidies found in chapter 2 of part 2 of the Act. These rules relate to, among other things, subsidies contingent on export performance, rescuing and restructuring subsidies and subsidies given for services of public economic interest. Incorporating these rules into a scheme will be relatively straightforward and could look the same in any scheme.

More onerous is the requirement under S12(3) to consider the Subsidy Control Principles and come to the view that all subsidies provided for by the scheme will be consistent with those principles.

In theory, this could be achieved by including a statement to the effect that “all subsidies given under this scheme must be consistent with the Subsidy Control Principles”. However, that approach would simply delay and duplicate the work – as each individual subsidy would then have to be assessed against the principles. Including more detail in the assessment at the level of the scheme – and more clarity in the rules for awarding subsidies under the scheme – will save authorities time and effort down the line, allowing them to award subsidies quickly and with confidence.

You can read more about the Subsidy Control Principles, and how to carry out an assessment, in item 1 of this guide. However, a slightly different approach will have to be taken when an assessment is made against a scheme.

When assessing a subsidy scheme, the public authority should test it against the Subsidy Control Principles. However, it is impossible to consider the details of every possible subsidy under a scheme and apply the relevant tests. The statutory guidance therefore gives the following advice:

Identifying “edge cases” allows the authority to focus their analysis. While these subsidies are hypothetical, they give the authority (as well as the CMA or any other interested party) a frame of reference.

Creating a “highest risk” subsidy should be fairly straightforward, as it can be done by referring to the limits set by the scheme on figures such as the value of the subsidy, the subsidy intensity and the size of the relevant market.

As ever, in a subsidy assessment the golden rule is that the time and effort spent evaluating the subsidy or scheme should be proportionate. As the guidance puts it:

The other relevant question about assessment of a subsidy scheme is who should be assessing it. Subsidies or schemes of interest (SSoI) may be referred to the CMA for evaluation, and subsidies or schemes of particular interest (SSoPI) must be referred to the CMA.

A scheme is “of interest” if its parameters allow for a subsidy to be given that is:

• of a value between £5 million and £10 million;
• with other subsidies, cumulatively (same recipient, same project, same policy objective, within three financial years) within that range, where the relevant subsidy is greater than £1 million;
• a rescue subsidy; or
• a relocation subsidy with a value less than £1 million.

A scheme is “of particular interest” if its parameters allow for a subsidy to be given that is:

• of a value greater than £10 million;
• of a value greater than £5 million in a sensitive sector;
• with other subsidies, cumulatively (same recipient, same project, same policy objective, within three financial years) above one of the above thresholds, where the relevant subsidy is greater than £1 million;
• a restructuring subsidy; or
• a relocation subsidy with a value greater than £1 million.

If you are considering setting up a scheme and have any questions, or if you’re looking for guidance on how the act will apply to your organisation more generally, we would be delighted to hear from you.