In the final article in a four-part series on subsidy control, David Owens and Trevor Watt examine the issue of enforcement.
In this note we summarise the Subsidy Control Bill’s proposals for how the new subsidy control regime will be enforced, consider the context of the proposals, and conclude with a summary of the scope of challenges to subsidy decisions (judicial review) and the procedures and timescales for such challenges as currently set out in the Bill.
Putting into context
The Subsidy Control Bill has been described as establishing a flexible and permissive regime (under which aid is permitted unless it is harmful or expressly prohibited) in place of the more restrictive EU state aid regime (under which aid is unlawful unless it can be justified or is expressly permitted). There has been debate over whether such a “lighter touch” regime will mean less scrutiny. It has been suggested that it could lead – at least in its early days – to more litigation as authorities, interested parties and the courts strive to understand and establish the boundaries of the new regime. It remains to be seen whether the government’s estimate of 15-30 challenges a year  is accurate.
There are interesting similarities to the government’s proposed NHS Provider Selection Regime.  Both regimes rely on the authority / commissioner applying a set of criteria or principles in reaching its own decision on whether (and if so how) to procure NHS services, or award subsidy; those decisions being challengeable only by way of judicial review. As has been noted, it will be interesting to see “the extent to which the Competition Appeals Tribunal is generally inclined to scrutinise the granting authority’s reasoning somewhat more closely than it would that of a regulator on the basis that the granting authority is ‘marking its own homework’”. 
Enforcement of the subsidy control regime will be through the Competition Appeal Tribunal (CAT) who will effectively hear judicial reviews against subsidy decisions of a public authority. The enforcement provisions are set out in Part 5 (clauses 70 to 77) of the Bill. Judicial review is normally concerned with the process by which a decision has been reached rather than with the substantive merits of the decision itself.
As noted above, it will be interesting to see how the CAT approaches this task when authorities are granted the power to decide for themselves (applying the seven Principles) whether to grant a subsidy. For example, if asked to rule on whether a subsidy is “proportionate and necessary” (Principle B) will the CAT develop its own tests of proportionality and necessity (or at least closely scrutinise the authority’s own reasoning), or will its review be limited to consideration of the process by which the authority reached its own decision?
Or, in relation to Principle E which requires authorities to consider alternative policy levers before turning to subsidies, will the CAT decline to intervene if the authority can show that it gave some consideration to alternatives, or will the CAT be prepared to intervene if it believes that insufficient consideration was given, or that alternatives were not considered which should have been? The line between a review of the decision-making process and the resulting merits starts to become a little unclear.
The Bill (clause 72) confirms that the CAT will enjoy the usual powers available in judicial review (mandatory, prohibitory and quashing orders, declarations and injunctions). To these will be added a new power (clause 74) to order an authority to recover all or part of a subsidy from the recipient. The Judicial Review and Courts Bill currently going through Parliament proposes the creation of postponed or prospective quashing orders. In deciding whether to make such an order, the Judicial Review and Courts Bill directs the courts to have regard to, among other things, the detriment to good administration and the interests and expectations of persons who (in the case of subsidies) have relied on the support, or would benefit from it being quashed. The Judicial Review and Courts Bill also requires courts to make a postponed or prospective quashing order if such an order would, in substance, offer adequate redress. One can imagine such powers being considered appropriate where, for example, a subsidy has been spent and cannot be recovered, or where the authority has used or will use other levers to minimise any negative effects on competition or investment.
Clause 77 of the Subsidy Control Bill gives authorities the power to recover directly from recipients subsidies that have been used other than for the purpose for which they were awarded. This right is enforceable as if it were created by a contract between the authority and recipient. Enforcement is presumably therefore by way of an ordinary claim in the High Court, as opposed to the CAT.
There is an interesting exclusion to the jurisdiction of the CAT. Where a subsidy is granted under a subsidy scheme a challenge may only be made to the scheme itself, not to individual subsidies made under it. This potentially creates difficulties where the scope of the scheme and potential recipients is unclear, as those who may be prejudiced by grants under such schemes may find it difficult to tell within the very tight time limits. It may also make it difficult to consider such a challenge where inevitably the challenge is not addressing specific facts. It also presumably means that other subsidies made under a scheme are also at risk if the challenge is successful. The thinking here is not covered in the Explanatory Notes.
Challenges can be brought by “interested parties.” Usually this will be the Secretary of State or a competitor of the recipient of the subsidy who feels “aggrieved” (clause 70) by it. However, it should be possible for challenges to be brought by, for example, a local authority which feels that the subsidy adversely affects the interests of persons in its area. The CAT should apply the test for “standing” in judicial reviews to determine whether an applicant has sufficient interest to bring the challenge. This will not necessarily preclude the kind of “public interest” challenges that have been allowed (in limited circumstances) to be made by individual members of the public against procurement decisions. However, such challenges are likely to be relatively rare.
Before commencing formal proceedings in the CAT, an interested party may (but does not have to) submit to the awarding authority a written request for information about the subsidy (clause 76). The purpose of this is to enable the interested party to understand the reasons why the subsidy was awarded, in order that they can decide whether to pursue a formal challenge. The authority must respond to the request (in writing) within 28 days. An authority can impose restrictions on the information it provides in order to protect confidential, privileged or commercially sensitive information, or for reasons relating to the public interest.
A challenge to a subsidy decision is commenced by filing a Notice of Appeal with the CAT. The time limit for doing so is short: one month from the date on which (1) the interested party receives the authority’s response to a request for information; (2) the CMA publishes a post-award referral report; or (3) the authority publishes information about the subsidy on the Subsidy Database. 
Not all subsidies have to be published on the Subsidy Database (e.g. minimal financial assistance subsidies  and SPEI  subsidies of less than £14.5m. In such cases (where no CMA report is published and no information request made) the one month period runs from the date on which the interested party “knew or ought to have known” about the subsidy.
The CAT can extend the one month period but only where there are exceptional circumstances.
The very short one month timescale in which to bring a challenge reflects the equivalent limitation period in the public procurement regime. The reason for this is clear: authorities will understandably delay spending subsidy or entering into public contracts while the threat of a challenge remains. Such delays undermine the benefits to the public that such financial assistance and contracts are intended to bring. Interested parties wishing to challenge subsidy decisions will need to act very quickly and should keep a close eye on the Subsidy Database and other places in which information about subsidies will be published.
For authorities, transparency and a good audit trail of their decision-making processes will be key. This should include careful explanations as to how the value of any subsidy has been calculated (in particular if it is said to fall below the applicable thresholds), and a reasonable consideration of each of the Principles.
 George Peretz QC and Ben Rayment, UK Subsidy Control Bill – a brief summary
 Where the authority responds to an information request and the CMA publishes a referral report then the one month period runs from the later of the two.
 Less than £315,000 in the elapsed part of a current financial year and the two preceding financial years.
 Services of Public Economic Importance
Read the previous articles in this series: