When to refer to the CMA

With the move from state aid to subsidy control, public authorities have many changes to get used to. This includes a new set of rules, a new vocabulary, and a new regulator. The Competition and Markets Authority (CMA) has established a Subsidy Advice Unit (SAU) to carry out its functions under the Subsidy Control Act (SCA).

If you’re not lost in a sea of acronyms yet, the SAU’s primary function will be providing reports on subsidies and schemes of interest (SSoI) and subsidies and schemes of particular interest (SSoPI). SSoPI are subject to mandatory referral to the CMA for a report on the proposal before they may be given or made. With SSoI, that referral is voluntary.

This article sets out what qualifies as an SSoI or an SSoPI, the process that the SAU will follow when receiving a referral in relation to either, and what that means for the public authority proposing to give the subsidy or make the scheme.

The relevant provisions to CMA referrals only came into place on 4 January 2023 (along with the other operative provisions of the Act), and no reports have yet been published by the SAU, so we haven’t yet seen the whole process in practice. However, in its response to the public consultation on SSoI and SSoPI, the Department of Business, Energy and Industrial Strategy (BEIS)  estimate that “the total administrative costs across public authorities, the SAU and businesses per referral is estimated to be £93,000” – so this is likely to be quite an involved procedure, and certainly not just a tick-box exercise.

Subsidies or schemes of particular interest must be referred to the CMA. These are subsidies which are:

• 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;
• or schemes which allow for such a subsidy to be given.

The provisions relating to mandatory referrals are found in sections 52-55 of the Act. The process is set out below.

Public Authority Requests a Report (S52)

Reports to the SAU are made through their Public Authority Portal – more information on how to access the portal can be found here.

The CMA’s guidance on the operation of the SAU states that public authorities will be required to upload at least two documents – one detailing how the measure meets the definition of SSoPI or SSoI, and one containing an assessment of compliance against the subsidy control principles. The Act requires that the request contains any evidence which is relevant to that assessment.

CMA Gives Notice of Compliance (S53(1))

Within five working days of receipt of a request, the SAU will carry out a preliminary assessment and give notice to the public authority as to whether or not the request complies with the requirements of S52.

If the request does not meet the requirements, the CMA notice must provide reasons as to why it does not. The public authority may then submit an updated request in relation to the same subsidy or scheme which addresses the points made by the CMA, restarting the process.

CMA Publishes Report (S53(2))

If the request is compliant, the CMA has 30 working days from when the notice of compliance is given to publish (and share with the public authority and the Secretary of State) a report on the proposed subsidy or scheme.

In exceptional circumstances the CMA may apply for, and the Secretary of State may agree, an extension to the reporting period. If the CMA does not publish a report before the end of the reporting period, the public authority may give the subsidy or make the subsidy scheme after the day on which the reporting period expires.

Neither the Act nor the CMA’s guidance give much detail as to what a report will contain. The Act only requires that the CMA “publish a report on the proposed subsidy or subsidy scheme, in such manner as the CMA considers appropriate”, and the guidance gives four short paragraphs (titled “The SAU’s Report”).  This states that the report:

• will include “The SAU’s evaluation of the public authority’s assessment”;
• will not be a pass/fail report but will “identify shortcomings in the public authority’s assessment”; and
• may include advice as to how to improve the assessment or how to modify the subsidy or scheme to ensure compliance with the Act.

The lack of clarity about the nature and content of SAU reports means that it is hard to know whether public authorities will be able to give a subsidy or make a scheme with any certainty having received such a report. Receipt of a report (positive or negative) does not prevent a decision to award a subsidy from being reviewed by the Competition Appeal Tribunal. The strength of opinion the SAU will be willing to express remains to be seen, but public authorities would benefit from clarity to allow them to give subsidies with confidence.

Public Authority Observes Cooling Off Period and Gives Subsidy or Makes Scheme (S54)

After the CMA’s report is published, the public authority must observe a cooling off period of a further five working days before giving the subsidy or making the scheme. This is, presumably, to give time to properly consider the report and decide whether or not to proceed.

If a public authority makes any amendments to the terms of a subsidy or scheme following receipt of a report, even changes which have been advised by the SAU, it’s not clear whether they have to make another referral and start the process again or not. One would imagine that changes recommended by the SAU could be made and the subsidy then given – particularly as the SAU’s advice is non-binding (although it is publicly available and will be considered by the competition appeal tribunal where relevant). However, the extent of changes that may be made before a subsidy becomes a new subsidy and should be re-referred is unclear.

Subsidies or schemes of interest may be referred to the CMA at the discretion of the authority giving or making them. These are subsidies which are:

• 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;
• or schemes which allow for such a subsidy to be given.

The process for a referral for an SSoI is very similar to that for an SSoPI. The primary difference is that – being a voluntary referral – the public authority does not have to request a report. Equally, the CMA is not obliged to prepare a report, even if the subsidy or scheme does qualify as an SSoI. In its guidance, the CMA states that it will prioritise requests for reports in line with its “prioritisation principles”, set out in said guidance.

These “prioritisation principles” which the CMA will use to determine whether or not to prepare a report on an SSoI are:

• impact – which subsidies and schemes have “the greatest potential to have a negative effect on competition or investment within the UK, or on international trade and investment”;
• significance – the “strategic significance” of reviewing a subsidy or scheme, including a range of factors as to the effect a review may have; and
• resources – particularly with reference to the fact that the CMA have to balance its mandatory workload against reporting on any voluntary referrals.

If you’re considering giving or making any significant (or particularly significant!) subsidies or schemes, this is likely a big project for your public authority. We are available and happy to help at every step of the process, including carrying out a subsidy assessment, and referring to and interacting with the CMA.