Subsidy control: guidance

Prohibited subsidies

The UK Subsidy Control regime prohibits specific kinds of subsidy and places conditions on the granting of other. Some examples of these include:

• unlimited guarantees
• subsidies dependent on export performance
• subsidies that are contingent on the use of domestically produced goods or services, often referred to as ‘local content’ subsidies
• relocation subsidies – where the subsidy contains a condition requiring relocation and the relocation would not occur without the subsidy
• subsidies to ailing or insolvent enterprises
• subsidies for air carriers for the operation of routes

Before giving a subsidy, a public authority must ensure that it is not prohibited and meets any specific requirements. Further information on prohibitions and other requirements in the Act can be found in Chapter 5 of the Subsidy Control Statutory Guidance.

The UK also has obligations under international agreements, such as the WTO Agreement on Subsidies and Countervailing Measures (ASCM) and several Fare Trade Agreements (FTA), as detailed below.

The WTO Agreement on Subsidies and Countervailing Measures (ASCM) contains two categories of prohibited subsidies, under which subsidies must not be given:

• subsidies dependent on export performance – for example, giving a subsidy to a widget manufacturer linked to exporting a certain tonnage of widgets to another country
• subsidies contingent on the use of domestic content – for example, stating that the beneficiary must use 50% UK manufactured widgets in their product

Several FTAs – including the UK-EU Trade and Cooperation Agreement (TCA) – expand the above prohibitions to cover services and include additional prohibitions. These include giving:

• unlimited State guarantees
• restructuring subsidy if the beneficiary does not have a valid plan in place to return the company to viability

The TCA includes some additional conditions for subsidies given to air carriers, energy/environment and large cross-border or international projects. These are not prohibitions but conditions which must be met.

Conditional subsidies

There is a further category of subsidies which are prohibited unless certain requirements are met. Subsidies awarded for the purpose of rescue and restructure are considered to be conditional subsidies.

Rescue subsidies

Subsidies for rescuing ailing or insolvent enterprises, that are not deposit takers or insurance companies, are prohibited unless the public authority is satisfied that all of the following conditions are met:

• the subsidy is granted during the preparation of a restructuring plan
• the subsidy contributes to an objective of public interest, by avoiding social hardship or preventing serious market failure
• the subsidy consists of temporary liquidity support in the form of a loan or loan guarantee

Rescue subsidies are classed as Subsidies of Interest. Further information is provided in the section titled “Subsidies and Schemes of Interest and Subsidies and Schemes of Particular Interest”.

Restructuring subsidies

Subsidies for restructuring ailing or insolvent enterprises, that are not deposit takers or insurance companies, are prohibited unless certain conditions are met. The public authority must be satisfied that all of the following criteria are met:

• the enterprise has prepared a restructuring plan
• the enterprise’s owners, creditors or new investors have contributed to the cost of the restructuring
• the subsidy contributes to an objective of public interest by avoiding social hardship or preventing severe market failure
• at least five years have passed since the last time a subsidy was given for rescuing or restructuring the enterprise

Subsidies for restructuring ailing or insolvent enterprises are Subsidies of Particular Interest. Further information is provided in the section titled “Subsidies and Schemes of Interest and Subsidies and Schemes of Particular Interest”.

There is also further information on Rescue and Restructuring Subsidies in Chapter 5 of the Subsidy Control Statutory Guidance.