{"id":83965,"date":"2025-11-18T11:28:08","date_gmt":"2025-11-18T10:28:08","guid":{"rendered":"https:\/\/www.lexxion.eu\/?post_type=uksci&p=83965"},"modified":"2025-11-18T11:28:08","modified_gmt":"2025-11-18T10:28:08","slug":"the-european-union-publicly-expresses-concern-about-the-effectiveness-of-the-uks-subsidy-control-regime","status":"publish","type":"uksci","link":"https:\/\/www.lexxion.eu\/en\/uksci\/the-european-union-publicly-expresses-concern-about-the-effectiveness-of-the-uks-subsidy-control-regime\/","title":{"rendered":"The European Union publicly expresses concern about the effectiveness of the UK’s Subsidy Control regime"},"content":{"rendered":"

The <\/span>European Union has <\/span>published<\/span> concerns about the effectiveness of the UK’s Subsidy Control regime \u2013 a strong <\/span>indication<\/span> that the enforcement provisions of the UK’s regime will be one of the issues raised at the <\/span>five year<\/span> review of the EU-UK Trade and Cooperation Agreement in 2026.<\/span> In this article<\/span> <\/span>Alexander Rose<\/span><\/span><\/a> and <\/span><\/span>Schellion Horn<\/span><\/span><\/a> consider the implications of the European Union’s criticism and <\/span>assess <\/span>whether these claims are fair.<\/span><\/span><\/p>\n

Introduction<\/span><\/b>\u00a0<\/span><\/h3>\n

In late October 2025, the UK participated in its inaugural World Trade Organisation (WTO) Trade Policy Review. This forum offers an opportunity for international trading partners to provide feedback upon the trade policies and practices of the chosen country or trading bloc<\/span><\/p>\n

What has the European Union said about the UK’s Subsidy Control regime?<\/span><\/b>\u00a0<\/span><\/h3>\n

On 28<\/span>th<\/span> October 2025, the EU mission to the WTO <\/span>published its statement<\/span><\/a> as part of the Trade Policy Review process. This recognised that the EU and UK have a “<\/span>close relationship<\/span><\/i>” which has been impacted by Brexit, but that the relationship continues to be one of “<\/span>close cooperation<\/span><\/i>” and “<\/span>investment flows between the EU and the United Kingdom remain among the highest in the world<\/span><\/i>” with the EU being the UK\u2019s largest trading partner.<\/span>\u00a0<\/span><\/p>\n

The EU statement flagged the UK’s Sponsorship Scheme and recognition of professional qualifications in the context of wanting to remove barriers to trade in services. The UK’s Subsidy Control regime was highlighted by the EU as one of three areas of concern, with the EU stating that “<\/span>the EU considers that it is vital to enhance the effectiveness of the United Kingdom\u2019s subsidy control system to ensure a level playing field in particular with the EU, given our close and important trading relationship<\/span><\/i>“.<\/span>\u00a0<\/span><\/p>\n

What is the implication of the EU’s criticism?<\/span><\/b>\u00a0<\/span><\/h3>\n

This appears to be the first public criticism of the UK’s Subsidy Control regime by the EU.<\/span>\u00a0<\/span><\/p>\n

The EU statement expressly refers to the concept of the <\/span>‘level playing field’. <\/span><\/i>This is the term used within <\/span>the EU-UK Trade and Cooperation Agreement<\/span><\/a> (“TCA”).<\/span>\u00a0<\/span><\/p>\n

The importance of this criticism in the context of the TCA is that under Article 776 of the TCA it was agreed that the UK and EU “<\/span>shall jointly review the implementation of this Agreement and supplementing agreements and any matters related thereto five years after the entry into force of this Agreement and every five years thereafter<\/span><\/i>“.<\/span><\/p>\n

The most likely outcome of the Article 776 review is that it will lead to modifications to the TCA, although it is not inconceivable that if either party was sufficiently dissatisfied that steps could be taken to terminate the agreement in line with the process set out at Article 779. The Article 776 talks are expected to begin in May 2026.<\/span><\/p>\n

What are the EU’s criticisms of the UK Subsidy Control regime?<\/span><\/b>\u00a0<\/span><\/h3>\n

EU officials have, so far, been circumspect in their public statements about the operation of the TCA, but it is understood that within Brussels there are serious concerns about two aspects of the UK’s Subsidy Control regime.<\/span><\/p>\n

The role of the Subsidy Advice Unit<\/span>\u00a0<\/span><\/p>\n

The first concern relates to how the Subsidy Control regime aligns with the commitment at Article 371 of the TCA to create an independent authority overseeing the regime.<\/span>\u00a0<\/span><\/p>\n

The UK signed up to establish “<\/span>an operationally independent authority or body with an appropriate role in its subsidy control regime. That independent authority or body shall have the necessary guarantees of independence in exercising its operational functions and shall act impartially<\/span><\/i>“.<\/span><\/p>\n

This independent authority was expected to separate and distinct from the Court system (and for this reason enforcement is subject to its own commitments at Article 372 of the TCA).<\/span><\/p>\n

Under the UK’s Subsidy Control regime there is no equivalent authority to the European Commission (EC). In EU State aid law the EC is empowered to investigate potential breaches on its own volition and, where necessary, take steps to order the recovery of subsidies that have been awarded in contravention of the law<\/span><\/p>\n

The regulator within the UK Subsidy Control regime is the <\/span>Subsidy Advice Unit<\/span><\/a>,a division of the <\/span>Competition and Markets Authority<\/span><\/a> (CMA)<\/span>, but at this time its powers are limited to publishing reports.<\/span><\/p>\n

Under Section 65 of the Subsidy Control Act 2022 (the “SCA”) the Subsidy Advice Unit (SAU) shall every three years produce a report<\/span>1<\/span> upon the effectiveness of the operation of the SCA and the impact this has had on competition and investment in the UK. Parliament receives a copy of this report and could use this to refine the regime, taking account of the points raised. The first report is expected to be published in early 2026.<\/span><\/p>\n

Under Section 59 of the SCA, the SAU is also tasked with drafting reports providing feedback upon the draft documentation produced by public authorities planning to<\/span><\/p>\n

award subsidies of high value or to a sensitive sector (or to create a subsidy scheme that will be used to provide such subsidies in due course).\u00a0<\/span><\/p>\n

These reports are expressly stated to be non-binding. Indeed, there is standard wording included within the introduction to these reports stating that the review of the measure has not sought to “<\/span>assess whether it complies with the subsidy control requirements<\/span><\/i>“.<\/span>\u00a0<\/span><\/p>\n

What this means in practice is that a report will not expressly state that the assessment documentation submitted by a public authority is deficient for the purposes of the SCA. The role of the Subsidy Advice Unit is not to judge. Instead the purpose of the reports is to guide public authorities towards improving their documentation ahead of entering into a binding commitment to award a subsidy with a high value or to a sensitive sector. There is a value in this, it improves the decision making of the public authority by identifying areas where greater analysis is required or steps can be taken to design the intervention to reduce the distortions produced.<\/span>\u00a0<\/span><\/p>\n

Importantly, though the SAU cannot choose which subsidies it wishes to report upon. Instead it is only entitled to review subsidies that are categorised as <\/span>‘Subsidies of Particular Interest<\/span><\/i>2<\/span><\/i>‘ under secondary legislation and referred to it. The frequency of referrals made has reduced since August 2025, following a decision to increase the threshold for a subsidy to be reviewed from \u00a310m to <\/span>\u00a325m<\/span><\/a>.<\/span><\/p>\n

Unless the Secretary of State steps in (which has not happened since the regime came into force over 1,000 days ago) a public authority has a degree of discretion to determine whether a referral is required. By way of example, <\/span>Cambridge County Council<\/span><\/a> did not refer plans to restructure a \u00a3119m loan with a struggling development company to include a \u00a359.85m grant (with terms enabling it to be repaid in due course depending on future performance, during which time the sum would not be <\/span>” subject to interest<\/span><\/i>“).<\/span> <\/i>Only if an award is categorised as a subsidy within the relevant thresholds will it be referred.<\/span><\/p>\n

Likewise, Section 64 of the SCA lists many measures which fall outside the scope of review by the Subsidy Advice Unit. This includes legacy awards (those created prior to 4 January 2023) and Streamlined Subsidy Schemes.<\/span><\/p>\n

Therefore, the SAU is only involved in producing reports in a very limited set of circumstances \u2013 indeed, just over one hundred measures have been reported upon by the Subsidy Advice Unit since the regime came into force. Even if a potential breach is communicated to the SAU, it cannot choose to take action on its own initiative.<\/span><\/p>\n

Therefore, it is difficult to reconcile the limited powers of the Subsidy Advice Unit with the UK’s commitment to create “<\/span>an operationally independent authority”. <\/span><\/i>This is because the Subsidy Advice Unit does not have the ability to review all financial assistance awarded by public authorities and even when potential breaches are identified it is unable to act to address the situation.<\/span><\/p>\n

The e<\/span>nforcement process<\/span><\/span><\/span><\/h3>\n

The second area of concern is enforcement. In the absence of an equivalent to the European Commission, the UK’s Subsidy Control regime relies upon challenges being brought by interested parties in the Competition Appeal Tribunal.<\/span><\/p>\n

Yet only two cases have been heard so far. The Competition Appeal Tribunal has received appeal documents for another three measures.\u00a0 Based on the forecast c. 65 judicial reviews would have been expected to be submitted, whereas only 5 have been received.<\/span>\u00a0<\/span><\/p>\n

This is a problem because the regime is based upon the premise that public authorities will be kept in check by the jeopardy of challenge, but the challenges have not materialised.<\/span><\/p>\n

What has come to pass was predicted by Lord <\/span>Thomas of Cwmgiedd when the Subsidy Control Bill was debated in the House of Lords. He said “<\/span>what I simply do not understand at all is how it is thought that so many cases, or any cases, will be brought. \u2026 it is perfectly obvious, no one is going to take the risk of an adverse costs order, or spend money on his own lawyers, unless there is a real chance of the recovery exceeding what he is going to get and a bit more to take care of the risk. Otherwise, self-enforcement just does not work<\/span><\/i>\u201d.<\/span>\u00a0<\/span><\/p>\n

In part this is due to problems relating to the <\/span>National Transparency Database<\/span><\/a> \u2013 so far it appears that not a single challenge has been brought because a competitor has spotted a subsidy about which it has concerns upon this website. This is in part due to problems around <\/span>functionality<\/span><\/a>, but also scope (large awards of public investment that are not considered to be subsidies, for example because the investment is regarded to fall within the Commercial Market Operator principle, do not need to be uploaded). The government is aware of the concerns and expected to improve the functionality of the system in the future.<\/span><\/p>\n

In terms of the issue about the shortfall in expected cases and the impact this has on the effectiveness of the regime, one solution is to empower the CMA to take action where it has reasonable grounds to believe a breach may have occurred (this would be consistent with other areas of operation of the CMA, for example Merger Control).<\/span><\/p>\n

Other options are to extend the challenge window (which can be as short as one month from an award being made), reduce the cost of bringing a case, offer competition damages where a breach has occurred or to adjust the standard of review. In terms of this latter point, the current standard of review is judicial review principles, but the option is available to update the legislation \/ statutory guidance particularly to refine the process that must be followed when the Subsidy Control Principles are applied. For example, it might be decided that for each principle the public authority must undertake a review, in line with the <\/span>Attorney General’s guidance on lawfulness<\/span><\/a> reaching a view that the supporting arguments that each principle is met are stronger than the counterarguments.<\/span>\u00a0<\/span><\/p>\n

Are the European Union’s concerns fair?<\/span><\/b>\u00a0<\/span><\/h3>\n

The EU’s areas of concern mirror those raised by many prominent UK practitioners.<\/span><\/p>\n

George Peretz KC<\/span><\/a> warned of “<\/span>a substantial enforcement gap<\/span><\/i>” arising as a result of the “<\/span>the absence of an independent body with powers to initiate investigations” <\/span><\/i>and the<\/span> “restrictive rules on standing” <\/span><\/i>at the time the regime was being developed.<\/span><\/p>\n

Dr Totis Kotsonis<\/span><\/a> recently argued that the <\/span>“<\/span>UK committed under the UK-EU TCA to have in place and maintain an effective system of subsidy control<\/span><\/i>” and called for changes “<\/span>to render UK subsidy control effective<\/span><\/i>“.<\/span><\/p>\n

However the focus of the EU’s concerns are upon the impact of these issues upon its trading bloc.<\/span><\/p>\n

In this regard it is noticeable that the challenges under the SCA, so far, have not been against Central Government funding decisions, even though these are most likely the largest awards of financial assistance, but instead have been brought against decisions made by local government (Durham County Council and Greater Manchester Combined Authority), Devolved Government (Welsh Government) and non-departmental public bodies (the Gambling Commission).<\/span><\/p>\n

It is also pertinent that the regime isn’t solely designed to satisfy the UK’s international commitments around subsidies, it also aims to support the functioning of the UK’s internal market. For that reason what constitutes a subsidy is wider than what constitutes a State aid, capturing awards that only have an impact on UK trade.<\/span><\/p>\n

The EU’s concerns appear fair to the extent that it wants a regime that aligns with the commitments made in the TCA.<\/span><\/p>\n

Does the UK have a counter-argument about the EU system?<\/span><\/b>\u00a0<\/span><\/h3>\n

Yes, just as the EU has legitimate concerns about enforcement and oversight within theUK system, the UK has valid concerns the way subsidy regulation in the EU operates.<\/span><\/p>\n

The UK naturally wants to find a route to enable a single system of subsidy regulation to be applied across the UK (EU State aid law continues to apply to measures caught by the Windsor Framework).<\/span>\u00a0<\/span><\/p>\n

Since the TCA was agreed, the EU has introduced the <\/span>Foreign Subsidies Regulation<\/span><\/a> (“FSR”) providing the European Commission with wide ranging powers to investigate and take action in situations where subsidies have been awarded outside the EU and this affects the EU Single Market.<\/span><\/p>\n

The UK is caught by the FSR despite entering into the TCA. What makes this particularly problematic is that what constitutes a potentially distortive subsidy is set at just \u20ac4m in a three year period. This includes grants from state resources, but also payments made by public authorities for services.<\/span><\/p>\n

It therefore seems legitimate for the UK to request that the FSR recognises the commitments made within the TCA by the UK, rather than treating it on the same basis as a country which has not agreed to a common regime to manage the award of subsidies.<\/span><\/p>\n

Furthermore, with so much State aid in the EU system proceeding on the basis of block exemptions it seems fair to question how many spot checks the European Commission carries out to ensure that the conditions are satisfied, but also how the aid intensity figures \/ thresholds have been calculated.<\/span><\/p>\n

Conclusion<\/span><\/b><\/h3>\n

The aim of a WTO Trade Policy Review is to enable trading partners to provide candid feedback. Therefore this was an appropriate for the the EU to comment upon the subject of Subsidy Control.<\/span><\/p>\n

For some the fact that the European Union has made this point will stiffen resolve not to react by making changes to the UK system. However that would be to misunderstand the benefits that also accrue to the UK of having an effective Subsidy Control regime. The UK’s Subsidy Control regime not only aims to satisfy the international commitments it has made in respect of subsidies, but also to protect the functioning of the UK Internal Market. It is a form of competition law, but like public procurement it also helps protect the public purse from excessive and unnecessary payments. Therefore the appropriate response to this criticism is to consider the benefits to the UK of strengthening the regime and how this might be undertaken quickly and effectively.<\/span><\/p>\n

This article <\/span>represents<\/span> the <\/span>personal opinions<\/span> of the authors<\/span> and does not reflect the position of any organisation that the author is associated with<\/span>.<\/span><\/em>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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Yet, the <\/span>system has not worked as expected<\/span>. When the Subsidy Control Bill was debated in Parliament the Department for Business and Trade’s <\/span>forecast<\/span><\/a> stated that “<\/span>the volume of judicial reviews anticipated under the new domestic subsidy control regime is 23 per annum, with a range of 15-30 per year<\/span><\/i>“.\u00a0<\/span><\/p>\n